<PAGE> 1
As filed with the Securities and Exchange Commission on November 7, 1996.
REGISTRATION NO. 333-14991
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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<TABLE>
<S> <C> <C>
CONSECO, INC. INDIANA 35-1468632
CONSECO FINANCING TRUST I DELAWARE APPLIED FOR
CONSECO FINANCING TRUST II DELAWARE APPLIED FOR
CONSECO FINANCING TRUST III DELAWARE APPLIED FOR
(Exact name of the (State or other (I.R.S. Employer
Registrants jurisdiction Identification No.)
as specified in their of incorporation or
respective charters) organization)
</TABLE>
11825 N. Pennsylvania St.
Carmel, Indiana 46032
(317) 817-6100
(Address, including zip code, and telephone number, including
area code, of each Registrant's principal executive offices)
---------------------
Lawrence W. Inlow, Esq.
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 for each Registrant)
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the Registration Statement becomes effective, as determined by
market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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 SECTION 8(A), MAY
DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED WITHOUT THE DELIVERY OF A FINAL PROSPECTUS
SUPPLEMENT AND PROSPECTUS. THIS PROSPECTUS SUPPLEMENT AND PROSPECTUS SHALL
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 7, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER , 1996)
8,000,000 PREFERRED SECURITIES
CONSECO FINANCING TRUST I
% TRUST ORIGINATED PREFERRED SECURITIESSM ("TOPRSSM")
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED BY
CONSECO LOGO
------------------------
The % Trust Originated Preferred Securities (the "Preferred Securities")
offered hereby represent preferred undivided beneficial interests in the assets
of Conseco Financing Trust I, a statutory business trust formed under the laws
of the State of Delaware (the "Trust"). Conseco, Inc., an Indiana corporation
("Conseco" or the "Company"), will directly or indirectly own all the common
securities (the "Common Securities" and, together with the Preferred Securities,
the "Trust Securities") representing common undivided beneficial interests in
the assets of the Trust. The Trust exists for the sole purpose of issuing the
Preferred Securities and Common
(continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE S-4 FOR CERTAIN INFORMATION RELEVANT TO
AN INVESTMENT IN THE PREFERRED SECURITIES, INCLUDING THE PERIOD AND
CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS OF DISTRIBUTIONS ON THE PREFERRED
SECURITIES MAY BE DEFERRED AND THE RELATED UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF SUCH DEFERRAL.
------------------------
The Preferred Securities have been approved for listing, subject to official
notice of issuance, on the New York Stock Exchange, Inc. (the "New York Stock
Exchange"). Trading of the Preferred Securities on the New York Stock Exchange
is expected to commence within a 30-day period after the initial delivery of the
Preferred Securities. See "Underwriting."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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INITIAL PUBLIC UNDERWRITING PROCEEDS TO THE
OFFERING PRICE(1) COMMISSION(2) TRUST(3)(4)
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<S> <C> <C> <C>
Per Preferred Security............... $25.00 (3) $25.00
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Total................................ $200,000,000 (3) $200,000,000
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</TABLE>
(1) Plus accrued distributions, if any, from , 1996.
(2) The Trust and the Company have each agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(3) In view of the fact that the proceeds of the sale of the Preferred
Securities will be invested in Subordinated Debentures, the Company has
agreed to pay to the Underwriters as compensation ("Underwriters'
Compensation") for their arranging the investment therein of such proceeds
$ per Preferred Security (or $ in the aggregate); provided that
such compensation for sales of 10,000 or more Preferred Securities to a
single purchaser will be $ per Preferred Security. Therefore, to the
extent of such sales, the actual amount of Underwriters Compensation will be
less than the aggregate amount specified in the preceding sentence. See
"Underwriting."
(4) Expenses of the offering, which are payable by the Company, are estimated to
be $800,000.
------------------------
The Preferred Securities offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that delivery of the Preferred Securities will be made only in book-entry form
through the facilities of The Depository Trust Company, on or about November ,
1996.
------------------------
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SANDS BROTHERS & CO., LTD.
------------------------
The date of this Prospectus Supplement is November , 1996.
(SM) "Trust Originated Preferred Securities" and "TOPrS" are service marks of
Merrill Lynch & Co., Inc.
<PAGE> 3
(continued from previous page)
Securities and investing the proceeds thereof in an equivalent amount of %
Subordinated Deferrable Interest Debentures due , 2026 (the
"Subordinated Debentures") of the Company. Upon a Declaration Event of Default
(as defined herein), the holders of the Preferred Securities will have a
preference over the holders of the Common Securities with respect to payments in
respect of distributions and payments upon redemption, liquidation and
otherwise.
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of % of the liquidation amount of $25 per
Preferred Security, accruing from the date of original issuance and payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year, commencing December 31, 1996 ("distributions"). The distribution rate and
the distribution and other payment dates for the Preferred Securities will
correspond to the interest rate and interest and other payment dates on the
Subordinated Debentures, which will be the sole assets of the Trust. As a
result, if principal or interest is not paid on the Subordinated Debentures, no
amounts will be paid on the Preferred Securities. The payment of distributions
out of moneys held by the Trust and payments on liquidation of the Trust or the
redemption of Preferred Securities, as set forth below, are guaranteed by the
Company (the "Trust Guarantee") if and to the extent the Trust has funds
available therefor. The Company's obligations under the Trust Guarantee, taken
together with its back-up undertakings, consisting of obligations of the Company
as set forth in the Declaration of Trust of the Trust (including the obligation
to pay expenses of the Trust), the Indenture (as defined in "Description of the
Subordinated Debentures" herein) and any applicable supplemental indentures
thereto, and the Subordinated Debentures issued to the Trust, provide a full and
unconditional guarantee by the Company of payments due on the Preferred
Securities. See "Effect of Obligations Under the Subordinated Debentures and the
Trust Guarantee" herein and "Description of Trust Guarantee" in the accompanying
prospectus (the "Prospectus"). If the Company does not make principal or
interest payments on the Subordinated Debentures, including as a result of the
Company's election to extend the interest payment period on the Subordinated
Debentures as described below, the Trust will not have sufficient funds to make
distributions on the Preferred Securities, in which event, the Trust Guarantee
will not apply to such distributions until the Company has made such principal
or interest payments. The obligations of the Company under the Subordinated
Debentures are unsecured and will be subordinate and junior in right of payment,
to the extent set forth herein, to all existing and future Senior Indebtedness
(as defined herein) of the Company and will be effectively subordinated to all
existing and future liabilities and obligations of the Company's subsidiaries.
At June 30, 1996, the aggregate amount of Senior Indebtedness and liabilities
and obligations of the Company's subsidiaries that would have effectively ranked
senior to the Subordinated Debentures was approximately $16 billion. As of June
30, 1996, after giving effect to the Offering and the application of the
proceeds thereof, the ATC Merger, the BLH Transaction, the CAF Merger, the LPG
Merger and the THI Merger (each of which transactions is defined herein) the
aggregate amount of Senior Indebtedness and liabilities and obligations of the
Company's subsidiaries that would have effectively ranked senior to the
Subordinated Debentures would have been approximately $22 billion.
The Company has the right to defer payments of interest on the Subordinated
Debentures by extending the interest payment period on the Subordinated
Debentures at any time for up to 20 consecutive quarters (each, an "Extension
Period") provided that no Extension Period may extend beyond the Maturity Date
(as defined herein). If interest payments are so deferred, distributions on the
Preferred Securities will also be deferred. During such Extension Period,
distributions will continue to accrue with interest thereon (to the extent
permitted by applicable law) at an annual rate of % per annum compounded
quarterly, and during any Extension Period, holders of Preferred Securities will
be required to include deferred interest income in their gross income for United
States federal income tax purposes in advance of receipt of the cash
distributions with respect to such deferred interest payments. There could be
multiple Extension Periods of varying lengths throughout the term of the
Subordinated Debentures. See "Risk Factors -- Option to Extend Interest Payment
Period or Change Maturity Date," "Risk Factors -- Tax Consequences of Extension
of Interest Payment Period," "Description of the Subordinated Debentures --
Option to Extend Interest Payment Period," and "United States Federal Income
Taxation -- Original Issue Discount."
The Subordinated Debentures are redeemable prior to maturity at the option
of the Company, subject to the receipt of any consent required by the terms of
any indebtedness of the Company which may be
S-2
<PAGE> 4
outstanding from time to time, including under the Credit Agreement or the
Bridge Facility (as those terms are defined herein), (i) in whole or in part,
from time to time, on or after , 2001, or (ii) at any time in whole
(but not in part) upon the occurrence and continuation of a Special Event (as
defined herein). If the Company redeems Subordinated Debentures, the Trust must
redeem Trust Securities having an aggregate liquidation amount equal to the
aggregate principal amount of the Subordinated Debentures so redeemed at $25 per
Trust Security plus accrued and unpaid distributions thereon to the date fixed
for redemption (the "Redemption Price"). See "Description of the Preferred
Securities -- Mandatory Redemption." The outstanding Preferred Securities will
be redeemed upon maturity of the Subordinated Debentures. The Subordinated
Debentures mature on , 2026, which date may be extended at any time at
the election of the Company for one or more periods, but in no event to a date
later than the earlier of (i) , 2045 or (ii) the Interest Deduction
Date (as defined herein), provided certain financial conditions are met, and may
be shortened to a date not earlier than , 2001 if the Company
exercises its right to liquidate the Trust and distribute the Subordinated
Debentures, subject to the receipt of any consent required by the terms of any
indebtedness of the Company which may be outstanding from time to time,
including under the Credit Agreement or the Bridge Facility. See "Description of
the Subordinated Debentures -- Option to Change Scheduled Maturity Date" and
"The Company -- Senior Credit Facilities."
At any time, the Company will have the right, subject to the receipt of any
consent required by the terms of any indebtedness of the Company which may be
outstanding from time to time, including under the Credit Agreement or the
Bridge Facility, to liquidate the Trust and cause the Subordinated Debentures to
be distributed to the holders of the Trust Securities in liquidation of the
Trust. If the Company elects to liquidate the Trust and thereby causes the
Subordinated Debentures to be distributed to holders of the Trust Securities in
liquidation of the Trust, the Company shall have the right, subject to the
receipt of any consent required by the terms of any indebtedness of the Company
which may be outstanding from time to time, including under the Credit Agreement
or the Bridge Facility, to shorten the maturity of such Subordinated Debentures,
to a date not earlier than , 2001, or extend the maturity of such
Subordinated Debentures to a date not later than the earlier of (i) ,
2045 or (ii) the Interest Deduction Date, provided that it can extend the
maturity only if certain conditions are met. If the Subordinated Debentures are
distributed to the holders of the Preferred Securities, the Company will use its
best efforts to have the Subordinated Debentures listed on the New York Stock
Exchange or on such other exchange as the Preferred Securities are then listed.
See "Description of the Preferred Securities -- Distribution of the Subordinated
Debentures" and "The Company -- Senior Credit Facilities."
In the event of the involuntary or voluntary liquidation, dissolution,
winding up or termination of the Trust, the holders of the Preferred Securities
will be entitled to receive for each Preferred Security a liquidation amount of
$25 plus accrued and unpaid distributions thereon (including interest thereon)
to the date of payment, unless, in connection with such dissolution, the
Subordinated Debentures are distributed to the holders of the Preferred
Securities. See "Description of the Preferred Securities -- Liquidation
Distribution Upon Dissolution."
------------------------
FOR NORTH CAROLINA RESIDENTS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA
(THE "NORTH CAROLINA INSURANCE COMMISSIONER") NOR HAS THE NORTH CAROLINA
INSURANCE COMMISSIONER RULED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING TRANSACTIONS, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-3
<PAGE> 5
The following information concerning the Company, the Trust, the Preferred
Securities, the Trust Guarantee and the Subordinated Debentures supplements, and
should be read in conjunction with, the information contained in the
accompanying Prospectus. Capitalized terms used in this Prospectus Supplement
have the same meaning as in the accompanying Prospectus.
RISK FACTORS
Prospective purchasers of Preferred Securities should carefully review the
information contained in other sections of this Prospectus Supplement and in the
accompanying Prospectus and should in particular consider the following matters.
RANKING OF SUBORDINATE OBLIGATIONS UNDER THE TRUST GUARANTEE AND SUBORDINATED
DEBENTURES
The Company's obligations under the Trust Guarantee are unsecured and will
rank (i) subordinate and junior in right of payment to all other liabilities of
the Company except those made pari passu or subordinate by their terms, (ii)
pari passu with the most senior preferred or preference stock now or hereafter
issued by the Company, and with any guarantee now or hereafter issued by the
Company in respect of any preferred stock or preference stock of any affiliate
of the Company, and (iii) senior to the common stock of the Company, no par
value (the "Company Common Stock"). The obligations of the Company under the
Subordinated Debentures are unsecured and will rank subordinate and junior in
right of payment, to the extent set forth herein, to all present and future
Senior Indebtedness of the Company and will be effectively subordinated to all
existing and future liabilities and obligations of the Company's subsidiaries.
At June 30, 1996, the aggregate amount of Senior Indebtedness and liabilities
and obligations of the Company's subsidiaries that would have effectively ranked
senior to the Subordinated Debentures was approximately $16 billion. As of June
30, 1996, after giving effect to the Offering and the application of the
proceeds thereof, the ATC Merger, the BLH Transaction, the CAF Merger, the LPG
Merger and the THI Merger the aggregate amount of Senior Indebtedness and
liabilities and obligations of the Company's subsidiaries that would have
effectively ranked senior to the Subordinated Debentures would have been
approximately $22 billion. There are no terms in the Preferred Securities, the
Subordinated Debentures or the Trust Guarantee that limit the ability of the
Company or any of its subsidiaries to incur additional indebtedness, liabilities
or obligations, including indebtedness, liabilities or obligations that rank
senior to the Subordinated Debentures and the Trust Guarantee. See "Description
of Trust Guarantee -- Status of the Trust Guarantee" in the accompanying
Prospectus, and "Description of the Subordinated Debentures -- Subordination"
herein.
RIGHTS UNDER THE TRUST GUARANTEE
The Trust Guarantee will be qualified as an indenture under the Trust
Indenture Act. The Property Trustee (as defined herein) will act as indenture
trustee under the Trust Guarantee for the purposes of compliance with the
provisions of the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The Preferred Securities Guarantee Trustee (as defined herein) will hold
the Trust Guarantee on behalf of the Trust for the benefit of the holders of the
Preferred Securities.
The Trust Guarantee guarantees to the holders of the Preferred Securities
the payment of (i) any accrued and unpaid distributions that are required to be
paid on the Preferred Securities, to the extent the Trust has funds available
therefor, (ii) the Redemption Price, including all accrued and unpaid
distributions with respect to Preferred Securities called for redemption by the
Trust, to the extent the Trust has funds available therefor, and (iii) upon a
voluntary or involuntary dissolution, winding-up or termination of the Trust
(other than in connection with the distribution of Subordinated Debentures to
the holders of Preferred Securities or a redemption of all the Preferred
Securities), the lesser of (a) the aggregate of the liquidation amount and all
accrued and unpaid distributions on the Preferred Securities to the date of the
payment to the extent the Trust has funds available therefor, or (b) the amount
of assets of the Trust remaining available for distribution to holders of the
Preferred Securities in liquidation of the Trust. The holders of a majority in
liquidation amount of the Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Preferred Securities Guarantee Trustee or to direct the exercise of any
trust or power conferred upon the Preferred Securities Guarantee Trustee under
the Trust
S-4
<PAGE> 6
Guarantee. If the Preferred Securities Guarantee Trustee fails to enforce the
Trust Guarantee, any record holder of Preferred Securities may institute a legal
proceeding directly against the Company to enforce the Preferred Securities
Guarantee Trustee's rights under the Trust Guarantee without first instituting a
legal proceeding against the Trust, the Preferred Securities Guarantee Trustee
or any other person or entity. Notwithstanding the foregoing, if the Company has
failed to make a payment under the Trust Guarantee, a record holder of Preferred
Securities may directly institute a proceeding against the Company for
enforcement of the Trust Guarantee with respect to payment to the record holder
of the Preferred Securities of the principal of or interest on the Subordinated
Debentures held by the Trust on or after the respective due dates specified in
the Subordinated Debentures, and the amount of the payment will be based on the
holder's pro rata share of the amount due and owing on all of the Preferred
Securities. The Company has waived any right or remedy to require that any such
action be brought first against the Trust or any other person or entity before
proceeding directly against the Company. The record holder in the case of the
issuance of one or more global Preferred Securities certificates will be The
Depository Trust Company acting at the direction of the beneficial owners of the
Preferred Securities. If the Company were to default on its obligation to pay
amounts payable on the Subordinated Debentures, the Trust would lack available
funds for the payment of distributions or amounts payable on redemption of the
Preferred Securities or otherwise, and, in such event, holders of the Preferred
Securities would not be able to rely upon the Trust Guarantee for payment of
such amounts. Instead, holders of the Preferred Securities would rely on the
enforcement (i) by the Property Trustee of its rights as registered holder of
the Subordinated Debentures against the Company pursuant to the terms of the
Subordinated Debentures or (ii) by such holder of the holder's rights against
the Company to enforce payments on the Subordinated Debentures. See "Description
of the Subordinated Debentures -- Indenture Events of Default" and "Effect of
Obligations Under the Subordinated Debentures and the Trust Guarantee" in this
Prospectus Supplement and "Description of Trust Guarantees" in the accompanying
Prospectus. The Declaration (as defined herein) provides that each holder of
Preferred Securities, by acceptance thereof, agrees to the provisions of the
Trust Guarantee and the Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF THE PREFERRED SECURITIES
If a Declaration Event of Default (as defined herein) occurs and is
continuing, then the holders of Preferred Securities would rely on the
enforcement by the Property Trustee of its rights as a holder of the
Subordinated Debentures against the Company. In addition, the holders of a
majority in liquidation amount of the Preferred Securities will have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Property Trustee or to direct the exercise of any trust or
power conferred upon the Property Trustee under the Declaration, including the
right to direct the Property Trustee to exercise the remedies available to it as
a holder of the Subordinated Debentures. If the Property Trustee fails to
enforce its rights with respect to the Subordinated Debentures held by the
Trust, any record holder of Preferred Securities may institute legal proceedings
directly against the Company to enforce the Property Trustee's rights under such
Subordinated Debentures without first instituting any legal proceedings against
such Property Trustee or any other person or entity. Notwithstanding the
foregoing, if an Event of Default under the Declaration has occurred and is
continuing and such event is attributable to the failure of the Company to pay
interest or principal on the Subordinated Debentures issued to the Trust on the
date such interest or principal is otherwise payable, then a record holder of
Preferred Securities may institute a proceeding directly against the Company for
enforcement of payment to the record holder of the Preferred Securities of the
principal of or interest on the Subordinated Debentures on or after the
respective due dates specified in the Subordinated Debentures, and the amount of
the payment will be based on the holder's pro rata share of the amount due and
owing on all of the Preferred Securities. The record holder in the case of the
issuance of one or more global Preferred Securities certificates will be The
Depository Trust Company acting at the direction of the beneficial owners of the
Preferred Securities. The holders of Preferred Securities will not be able to
exercise directly any other remedy available to the holders of the Subordinated
Debentures unless the Property Trustee fails to do so. See "Description of the
Preferred Securities -- Declaration Events of Default" and "Description of the
Subordinated Debentures -- Indenture Events of Default."
S-5
<PAGE> 7
THE TRUST DISTRIBUTIONS DEPENDENT ON THE COMPANY'S PAYMENTS ON SUBORDINATED
DEBENTURES
The Trust's ability to make distributions and other payments on the
Preferred Securities is solely dependent upon the Company making interest and
other payments on the Subordinated Debentures. If the Company were not to make
payments on the Subordinated Debentures for any reason, including as a result of
the Company's election to defer the payment of interest on the Subordinated
Debentures by extending the interest payment period on the Subordinated
Debentures or as a result of the Company's election to extend the maturity of
the Subordinated Debentures, the Trust will not make payments on the Trust
Securities. In such an event, holders of the Preferred Securities would not be
able to rely on the Trust Guarantee since distributions and other payments on
the Preferred Securities are subject to such Trust Guarantee only if and to the
extent that the Trust has funds available therefor. Holders of the Preferred
Securities have the right to proceed first and directly against the Company to
enforce the Company's obligations to make payments under the Trust Guarantee.
However, if the Trust's failure to make distributions on the Preferred
Securities is a consequence of the Company's exercise of its right to extend the
interest payment period for the Subordinated Debentures, the Trust Guarantee
does not provide that any payment shall be made on the Preferred Securities. See
"Description of Trust Guarantees -- General" in the accompanying Prospectus.
OPTION TO EXTEND INTEREST PAYMENT PERIOD OR CHANGE MATURITY DATE
The Company has the right under the Indenture to (a) defer payments of
interest on the Subordinated Debentures by extending the interest payment period
at any time, and from time to time, on the Subordinated Debentures or (b) to
extend the maturity date of the Subordinated Debentures. See "Description of the
Subordinated Debentures -- Option to Change Scheduled Maturity Date" and
"Description of the Subordinated Debentures -- Option to Extend Interest Payment
Period." As a consequence of an extension of the interest payment period,
quarterly distributions on the Preferred Securities would be deferred (but
despite such deferral, to the extent permitted by law, would continue to accrue
with interest thereon compounded quarterly) by the Trust during any such
Extension Period. Such right to extend the interest payment period for the
Subordinated Debentures is limited at any time to a period not exceeding 20
consecutive quarters, provided that no Extension Period may extend beyond the
Maturity Date (as defined herein) of the Subordinated Debentures. In the event
that the Company exercises this right to defer interest payments, then, prior to
the payment of all accrued interest on outstanding Subordinated Debentures, (a)
the Company shall not declare or pay dividends on, or make a distribution with
respect to, or redeem, purchase or acquire, or make a liquidation payment with
respect to, any of its capital stock, (b) the Company shall not make any payment
of interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by the Company that rank pari passu with or junior to the
Subordinated Debentures and (c) the Company shall not make guarantee payments
with respect to the foregoing (other than pursuant to the Trust Guarantee);
provided, however, that the restriction in clause (a) above does not apply to
(i) any stock dividends paid by the Company where the dividend stock is the same
stock as that on which the dividend is being paid or (ii) purchases or
acquisitions of shares of Company Common Stock in connection with the
satisfaction by the Company of its obligations under any employee benefit plans.
Prior to the termination of any such Extension Period, the Company may further
extend the interest payment period; provided that such Extension Period,
together with all such previous and further extensions thereof, may not exceed
20 consecutive quarters or extend beyond the Maturity Date of the Subordinated
Debentures. Upon the termination of any Extension Period and the payment of all
amounts then due, the Company may commence a new Extension Period, subject to
the above requirements. Consequently, there could be multiple Extension Periods
of varying lengths prior to the Maturity Date of the Subordinated Debentures.
See "Description of the Preferred Securities -- Distributions" and "Description
of the Subordinated Debentures -- Option to Extend Interest Payment Period."
TAX CONSEQUENCES OF EXTENSION OF INTEREST PAYMENT PERIOD
Should the Company exercise its right to defer payments of interest by
extending the interest payment period, each holder of Preferred Securities will
accrue income (as original issue discount ("OID")) in respect of the deferred
interest allocable to its Preferred Securities for United States federal income
tax purposes. Such income will be allocated but not distributed to holders of
the Preferred Securities. As a result, each such
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<PAGE> 8
holder of the Preferred Securities will recognize income for United States
federal income tax purposes in advance of the receipt of cash and will not
receive the cash from the Trust related to such income if such holder disposes
of its Preferred Securities prior to the record date for the date on which
distributions of such amounts are made. The Company has no current intention of
exercising its right to defer payments of interest by extending the interest
payment period on the Subordinated Debentures. However, should the Company
determine to exercise such right in the future, the market price of the
Preferred Securities is likely to be adversely affected. A holder that disposes
of its Preferred Securities during an Extension Period, therefore, might not
receive the same return on its investment as a holder that continues to hold its
Preferred Securities. In addition, as a result of the existence of the Company's
right to defer interest payments, the market price of the Preferred Securities
(which represent an undivided beneficial interest in the Subordinated
Debentures) may be more volatile than other securities on which OID accrues that
do not have such rights. See "United States Federal Income Taxation -- Original
Issue Discount."
SPECIAL EVENT REDEMPTION
Upon the occurrence of a Special Event (as defined herein), the Company
shall have the right, subject to the receipt of any consent required by the
terms of any indebtedness of the Company which may be outstanding from time to
time, including under the Credit Agreement or the Bridge Facility, to redeem the
Subordinated Debentures, in whole (but not in part), in which event the Trust
will redeem the Trust Securities on a pro rata basis to the same extent as the
Subordinated Debentures are redeemed by the Company. See "Description of the
Preferred Securities -- Special Event Redemption" and "The Company -- Senior
Credit Facilities."
DISTRIBUTION OF THE SUBORDINATED DEBENTURES
At any time, subject to the receipt of any consent required by the terms of
any indebtedness of the Company which may be outstanding from time to time,
including under the Credit Agreement or the Bridge Facility, the Company will
have the right to terminate the Trust and, after satisfaction of the liabilities
of creditors of the Trust as provided by applicable law, cause the Subordinated
Debentures to be distributed to the holders of the Preferred Securities in
liquidation of the Trust. Under current United States federal income tax law and
interpretation and assuming, as expected, the Trust is treated as a grantor
trust, a distribution of the Subordinated Debentures should not be a taxable
event to holders of the Preferred Securities. Should there be a change in law, a
change in legal interpretation, a Special Event or other circumstances, however,
the distribution could be a taxable event to the holders of the Preferred
Securities. In addition, a dissolution of the Trust in which holders of the
Preferred Securities receive cash would be a taxable event to such holders. See
"United States Federal Income Taxation -- Receipt of Subordinated Debentures or
Cash Upon Liquidation of the Trust."
If the Company elects to liquidate the Trust and thereby causes the
Subordinated Debentures to be distributed to holders of the Preferred Securities
in liquidation of the Trust, the Company shall have the right to shorten the
maturity of such Subordinated Debentures to a date not earlier than ,
2001, subject to the receipt of any consent required by the terms of any
indebtedness of the Company which may be outstanding from time to time,
including under the Credit Agreement or the Bridge Facility, or extend the
maturity of such Subordinated Debentures to a date which is not later than the
earlier of (i) , 2045 or (ii) the Interest Deduction Date, provided
that it can extend the maturity only if certain conditions are met. See
"Description of the Subordinated Debentures -- Option to Change Scheduled
Maturity Date" and "The Company -- Senior Credit Facilities."
There can be no assurance as to the market prices for the Preferred
Securities or the Subordinated Debentures that may be distributed in exchange
for Preferred Securities if a dissolution or liquidation of the Trust were to
occur. Accordingly, the Preferred Securities that an investor may purchase,
whether pursuant to the offer made hereby or in the secondary market, or the
Subordinated Debentures that a holder of Preferred Securities may receive on
dissolution and liquidation of the Trust, may trade at a discount to the price
that the investor paid to purchase the Preferred Securities offered hereby. In
addition, because the Company has the right to shorten or extend the maturity of
the Subordinated Debentures upon the termination of the Trust and the
distribution of the Subordinated Debentures to the holders of the Preferred
Securities, there can be no
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<PAGE> 9
assurance that the Company will not exercise its option to change the maturity
of the Subordinated Debentures upon such an event, subject to the receipt of any
consent required by the terms of any indebtedness of the Company which may be
outstanding from time to time, including under the Credit Agreement or the
Bridge Facility. Because holders of Preferred Securities may receive
Subordinated Debentures upon any election by the Company to liquidate the Trust
and cause the Subordinated Debentures to be distributed to the holders of the
Preferred Securities, prospective purchasers of Preferred Securities are also
making an investment decision with regard to the Subordinated Debentures and
should review carefully all the information regarding the Subordinated
Debentures and the Company contained herein and in the accompanying Prospectus.
See "Description of the Preferred Securities -- Distribution of the Subordinated
Debentures" and "Description of the Subordinated Debentures" and "The Company --
Senior Credit Facilities."
PROPOSED TAX LAW CHANGES
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the "Bill"),
the revenue portion of President Clinton's budget proposal, was released. The
Bill would, among other things, generally deny interest deductions for interest
on an instrument, issued by a corporation, that has a maximum weighted average
maturity of more than 40 years. The Bill would also generally deny interest
deductions for interest on an instrument, issued by a corporation, that has a
maximum term of more than 20 years and that is not shown as indebtedness on the
separate balance sheet of the issuer or, where the instrument is issued to a
related party (other than a corporation), where the holder or some other related
party issues a related instrument that is not shown as indebtedness on the
issuer's consolidated balance sheet. For purposes of determining the weighted
average maturity or the term of an instrument, any right to extend would be
treated as exercised. The above-described provisions of the Bill were proposed
to be effective generally for instruments issued on or after December 7, 1995.
However, on March 29, 1996, the Chairmen of the Senate Finance and House Ways
and Means Committees issued a joint statement to the effect that it was their
intention that the effective date of the President's legislative proposals, if
adopted, will be no earlier than the date of appropriate Congressional action.
In addition, subsequent to the publication of the joint statement, Senator
Daniel Patrick Moynihan and Representatives Sam M. Gibbons and Charles B. Rangel
wrote letters to Treasury Department officials concurring with the views
expressed in the joint statement. Under current law, the Company will be able to
deduct interest on the Subordinated Debentures. The terms of the Subordinated
Debentures limit the right to extend the maturity of the Subordinated Debentures
to a date which is six months shorter than any legislative limit on the length
of debt securities for which interest is deductible. The Company believes this
will allow it an interest deduction if the 40-year weighted average maturity
component of the Bill is enacted. However, if the provision of the Bill
regarding a 20-year term is enacted with retroactive effect with regard to the
Subordinated Debentures, the Company will not be entitled to an interest
deduction with respect to the Subordinated Debentures. There can be no assurance
that current or future legislative proposals or final legislation will not
affect the ability of the Company to deduct interest on the Subordinated
Debentures, giving rise to a Tax Event (as defined below) which would permit the
Company to cause, subject to the receipt of any consent required by the terms of
any indebtedness of the Company which may be outstanding from time to time,
including under the Credit Agreement or the Bridge Facility, the redemption of
the Preferred Securities prior to , 2001 (the first date on which the
Company would otherwise be able to cause a redemption of the Preferred
Securities). See "Description of the Preferred Securities -- Special Event
Redemption," "United States Federal Income Taxation" and "The Company -- Senior
Credit Facilities."
PREPAYMENT CONSIDERATIONS; OPTION TO CHANGE SCHEDULED MATURITY DATE
At the option of the Company, subject to the receipt of any consent
required by the terms of any indebtedness of the Company which may be
outstanding from time to time, including under the Credit Agreement or the
Bridge Facility, the Subordinated Debentures may be redeemed, in whole or in
part, at any time on or after , 2001, at a redemption price equal to
100% of the principal amount to be redeemed plus any accrued and unpaid interest
to the redemption date. See "Description of the Subordinated Debentures --
Optional Redemption." Investors in the Preferred Securities should assume that
the Company will exercise its redemption option if the Company is able to
refinance at a lower interest rate or it is otherwise in the interest of the
Company to redeem the Subordinated Debentures. If Subordinated Debentures are
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<PAGE> 10
redeemed, the Trust must redeem Trust Securities having an aggregate liquidation
amount equal to the aggregate principal amount of Subordinated Debentures so
redeemed. See "Description of the Preferred Securities -- Mandatory Redemption"
and "The Company -- Senior Credit Facilities."
The Company also has the option to extend the maturity date of the
Subordinated Debentures for one or more periods, but in no event to a date later
than the earlier of (i) , 2045 or (ii) the Interest Deduction Date,
provided certain financial conditions are met. See "Description of the
Subordinated Debentures -- Option to Change Scheduled Maturity Date." Investors
in the Preferred Securities should assume that the Company will exercise its
option to extend the term if the Company is unable to refinance at a lower
interest rate or it is otherwise in the interest of the Company to defer the
maturity of the Subordinated Debentures. The Preferred Securities will not be
redeemed until the Subordinated Debentures have been repaid or redeemed. See
"Description of the Preferred Securities -- Mandatory Redemption."
LIMITED VOTING RIGHTS
Holders of Preferred Securities will have only limited voting rights
primarily in connection with directing the activities of the Property Trustee as
the holder of the Subordinated Debentures. Such holders will not be entitled to
vote to appoint, remove or replace, or to increase or decrease the number of,
Conseco Trustees (as defined herein), which voting rights are vested exclusively
in the holder of the Common Securities. See "Description of Preferred Securities
- -- Voting Rights."
TRADING PRICE
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying
Subordinated Debentures. If the Company exercises its option to defer payments
of interest, the Subordinated Debentures will become and remain OID instruments.
In that event, a holder who disposes of Preferred Securities between record
dates for payments of distributions thereon will be required to include in such
holders' gross income, as ordinary interest income, such holder's pro rata share
of OID on the Subordinated Debentures accrued through the date of disposition,
and to add such amount to the holder's adjusted tax basis in its pro rata share
of the underlying Subordinated Debentures deemed disposed of. To the extent the
selling price is less than the holder's adjusted tax basis (which will include,
in the form of OID, all accrued but unpaid interest), a holder will recognize a
capital loss. Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal income tax purposes.
See "United States Federal Income Taxation -- Original Issue Discount" and
"United States Federal Income Taxation -- Sales of Preferred Securities."
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<PAGE> 11
CONSECO FINANCING TRUST I
GENERAL
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) a declaration of trust, executed by the Company, as sponsor (the
"Sponsor"), and the trustees of the Trust (the "Conseco Trustees"), and (ii) the
filing of a certificate of trust with the Secretary of State of the State of
Delaware on October 28, 1996. Such declaration will be amended and restated in
its entirety (as so amended and restated, the "Declaration") substantially in
the form filed as an exhibit to the Registration Statement of which this
Prospectus Supplement and the accompanying Prospectus form a part. The
Declaration will be qualified as an indenture under the Trust Indenture Act.
Upon issuance of the Preferred Securities, the purchasers thereof will own all
of the Preferred Securities. See "Description of the Preferred Securities --
Book-Entry Only Issuance -- The Depository Trust Company." The Company will
directly or indirectly acquire Common Securities in an aggregate liquidation
amount equal to at least 3% of the total capital of the Trust and will own all
of the issued and outstanding Common Securities. The Trust exists for the
exclusive purposes of (i) issuing the Trust Securities representing undivided
beneficial interests in the assets of the Trust, (ii) investing the gross
proceeds of the Trust Securities in the Subordinated Debentures and (iii)
engaging in only those other activities necessary, appropriate, convenient or
incidental thereto. The Trust has a term of approximately 55 years, but may be
terminated earlier as provided in the Declaration.
Pursuant to the Declaration, the number of Conseco Trustees will initially
be five. Three of the Conseco Trustees (the "Regular Trustees") will be persons
who are employees or officers of or who are affiliated with the Company. The
fourth trustee will be a financial institution unaffiliated with the Company
that will serve as property trustee under the Declaration and as indenture
trustee for the purposes of the Trust Indenture Act (the "Property Trustee").
The fifth trustee will be a natural person who is a resident of the State of
Delaware or a legal entity which maintains its principal place of business in
the State of Delaware and meets the requirements of applicable law (the
"Delaware Trustee"). Fleet National Bank will act as the Property Trustee and
First Union Bank of Delaware will act as the Delaware Trustee, in each case
until removed or replaced by the holder of the Common Securities. For purposes
of compliance with the provisions of the Trust Indenture Act, Fleet National
Bank will also act as indenture trustee under the Trust Guarantee (the
"Preferred Securities Guarantee Trustee"). See "Description of Trust Guarantees"
in the accompanying Prospectus.
The Property Trustee will hold title to the Subordinated Debentures for the
benefit of the Trust and the holders of the Trust Securities and, so long as the
Subordinated Debentures are held by the Trust, the Property Trustee will have
the power to exercise all rights, powers, and privileges of a holder of
Subordinated Debentures under the Indenture. In addition, the Property Trustee
will maintain exclusive control of a segregated non-interest bearing bank
account (the "Property Account") to hold all payments made in respect of the
Subordinated Debentures for the benefit of the holders of the Trust Securities.
The Property Trustee will make payments of distributions and payments on
liquidation, redemption and otherwise to the holders of the Trust Securities out
of funds from the Property Account. The Preferred Securities Guarantee Trustee
will hold the Trust Guarantee for the benefit of the holders of the Preferred
Securities. The Company, as the direct or indirect holder of all the Common
Securities, will have the right to appoint, remove or replace any Conseco
Trustee (subject to the limitations set forth in the Declaration) and to
increase or decrease the number of Conseco Trustees. The Company will pay all
fees, expenses, debts and obligations (other than with respect to the Trust
Securities) related to the Trust and the offering of the Trust Securities. See
"Description of the Preferred Securities."
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are set forth in the
Declaration, the Delaware Business Trust Act, as amended (the "Trust Act"), the
Indenture and the Trust Indenture Act. See "Description of the Preferred
Securities."
ACCOUNTING TREATMENT
The financial statements of the Trust will be reflected in the Company's
consolidated financial statements, with the Preferred Securities shown as
Company-obligated mandatorily redeemable preferred securities of a subsidiary
trust under minority interest in consolidated subsidiaries. In a footnote to the
Company's audited financial statements there will be included a statement that
the Trust is wholly-owned by the Company and that the sole asset of the Trust is
the Subordinated Debentures (indicating the principal amount, interest rate and
maturity date thereof). See "Capitalization" and "Unaudited Pro Forma
Consolidated Financial Statements of the Company."
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<PAGE> 12
CAPITALIZATION
The following table sets forth the June 30, 1996 unaudited capitalization
of the Company as reported, pro forma before the offering of the Preferred
Securities and the application of the net proceeds therefrom (the "Offering"),
pro forma for the Offering and pro forma for the Offering and other planned
transactions. See "Use of Proceeds." The unaudited capitalization of the Company
at June 30, 1996 in the column headed "Pro forma before the Offering" reflects
the application of certain pro forma adjustments for the following transactions,
all of which have already occurred: (1) the merger (the "LPG Merger") of a
subsidiary of the Company with and into Life Partners Group, Inc. ("LPG")
completed on August 2, 1996; (2) the call for redemption of the Series D
Convertible Preferred Stock of the Company (the "Series D Call") completed on
September 26, 1996; and (3) the acquisition of all of the outstanding common
stock of American Life Holdings, Inc. ("ALH"), not previously owned by the
Company or its affiliates, and related transactions (the "ALH Transaction")
completed on September 30, 1996. The unaudited capitalization of the Company at
June 30, 1996 in the column headed "Pro forma for the Offering" reflects further
adjustments as if the Offering had occurred on June 30, 1996. The unaudited
capitalization of the Company at June 30, 1996 in the column headed "Pro forma
for the Offering and other planned transactions" reflects further adjustments as
if the following additional planned transactions had occurred on June 30, 1996:
(1) the issuance of an additional $150.0 million aggregate liquidation amount of
Preferred Securities (the "Additional Offering"); (2) the merger (the "ATC
Merger") of American Travellers Corporation ("ATC") with and into the Company;
(3) the acquisition of all of the outstanding common stock of Bankers Life
Holding Corporation ("BLH") not previously owned by the Company and related
transactions (the "BLH Transaction"); (4) the merger (the "CAF Merger") of a
subsidiary of the Company with and into Capitol American Financial Corporation
("CAF"); and (5) the merger (the "THI Merger") of Transport Holdings Inc.
("THI") with and into the Company. This table should be read in conjunction with
(i) the Company's consolidated financial statements and the notes thereto
incorporated by reference herein and (ii) the unaudited pro forma consolidated
balance sheet of the Company for the six months ended June 30, 1996 included
herein. See "Incorporation of Certain Documents by Reference" herein and in the
accompanying Prospectus and "Unaudited Pro Forma Consolidated Financial
Statements of the Company."
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------------------------
PRO FORMA
PRO FORMA FOR THE
BEFORE PRO FORMA OFFERING AND
AS THE FOR THE OTHER PLANNED
REPORTED OFFERING OFFERING TRANSACTIONS
-------- --------- --------- -------------
<S> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
LONG-TERM DEBT:
Notes payable of Conseco............................... $ 670.0 $1,198.5 $1,009.2 $ 2,183.6
Notes payable of Partnership II entities, not direct
obligations of Conseco............................... 281.6 -- -- --
Notes payable of Bankers Life Holding Corporation, not
direct obligations of Conseco........................ 297.9 437.9 437.9 --
-------- -------- -------- ---------
Total long-term debt................................. 1,249.5 1,636.4 1,447.1 2,183.6
Minority interest in consolidated subsidiaries:
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts (1)................ -- -- 200.0 350.0
Preferred stock...................................... 111.4 93.2 93.2 93.2
Common stock......................................... 180.9 57.5 57.5 --
-------- -------- -------- ---------
SHAREHOLDERS' EQUITY:
7% PRIDES, convertible preferred stock, no par value;
4,370,000 shares authorized; 4,369,700 shares
outstanding.......................................... 267.1 267.1 267.1 267.1
Series D Cumulative Convertible Preferred Stock, no par
value; 20,000,000 shares authorized, shares
outstanding: 5,387,795 as reported................... 269.4 -- -- --
Common stock and additional paid-in capital, no par
value, 500,000,000 shares authorized, shares
outstanding: 41,866,624 as reported; 66,934,458 pro
forma before the Offering and for the Offering;
89,744,875 pro forma for the Offering and other
planned transactions................................. 183.4 1,040.9 1,030.2 2,117.0
Unrealized depreciation of securities, net of deferred
income taxes......................................... (55.7) (56.1) (56.1 ) (56.1)
Retained earnings...................................... 612.7 640.0 640.0 640.0
-------- -------- -------- ---------
Total shareholders' equity........................... 1,276.9 1,891.9 1,881.2 2,968.0
-------- -------- -------- ---------
Total capitalization............................... $2,818.7 $3,679.0 $3,679.0 $ 5,594.8
======== ======== ======== =========
</TABLE>
- ---------------
(1) Subsequent to the completion of the Offering, the assets of the Trust will
consist solely of approximately $ million in principal amount of the
Subordinated Debentures of the Company with an interest rate of % and a
maturity date of , 2026.
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<PAGE> 13
RATIO OF EARNINGS TO FIXED CHARGES AND EARNINGS TO FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the Company's ratios of earnings to fixed
charges and earnings to fixed charges and preferred stock dividends for each of
the five years ended December 31, 1995, and for the six-month periods ended June
30, 1995 and 1996:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges
(1)............................. 1.32X 1.54X 2.19X 2.26X 1.57X 1.57X 1.62X
Ratio of earnings to fixed
charges, excluding interest on
annuities and financial products
(1) (2)......................... 3.41X 6.24X 8.85X 4.55X 3.80X 3.90X 4.31X
Ratio of earnings to fixed charges
and preferred stock dividends... 1.30X 1.50X 2.04X 1.95X 1.50X 1.51X 1.47X
Ratio of earnings to fixed charges
and preferred stock dividends,
excluding interest on annuities
and financial products (2)...... 2.99X 5.09X 6.00X 3.14X 3.06X 3.20X 2.80X
</TABLE>
- ---------------
(1) Excludes preferred stock dividends.
(2) Excludes interest credited to annuity and financial products of $576.7
million, $506.8 million, $408.5 million, $134.7 million and $585.4 million
for the years ended December 31, 1991, 1992, 1993, 1994 and 1995,
respectively, and $282.5 million and $289.7 million for the six months
ended June 30, 1995 and 1996, respectively.
USE OF PROCEEDS
The proceeds from the sale of the Preferred Securities will be invested by
the Trust in Subordinated Debentures of the Company issued pursuant to the
Indenture described herein. The Company intends to use substantially all of the
net proceeds from the Subordinated Debentures to reduce its indebtedness under
Tranche B of the Company's $500 million credit facility (the "Credit
Agreement"). Tranche B permits maximum principal borrowings of $250 million, all
of which is outstanding. As of the date of this Prospectus Supplement, the
weighted average interest rate of borrowings under Tranche B was 6.17 percent.
The principal amount outstanding under Tranche B is due in 2001. Any net
proceeds not used by the Company to reduce bank indebtedness will be used for
general corporate purposes. For additional information concerning the Company's
credit facilities, see "The Company -- Senior Credit Facilities."
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<PAGE> 14
THE COMPANY
BACKGROUND
The Company is a financial services holding company engaged primarily in
the development, marketing and administration of annuity, individual health
insurance and individual life insurance products. The Company's earnings result
primarily from operating life insurance companies and providing investment
management, administrative and other fee-based services to affiliated businesses
as well as non-affiliates. The Company's operating strategy is to consolidate
and streamline management and administrative functions, to realize superior
investment returns through active asset management and to focus resources on the
development and expansion of profitable products and strong distribution
channels.
On August 2, 1996, the Company completed the LPG Merger and LPG became a
wholly-owned subsidiary of Conseco. A total of 16.3 million shares of Company
Common Stock were issued in connection with the LPG Merger, and the Company
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, the Company completed the acquisition of the common
shares of ALH not already owned by the Company or its affiliates for
approximately $165 million in cash. ALH is a provider of retirement savings
annuities. ALH has been included in the Company's consolidated financial
statements since September 1994, when it was acquired by Conseco Capital
Partners II, L.P. The Company now holds 59.2 percent of the outstanding common
shares of ALH and BLH holds the remaining 40.8 percent of such shares.
The Company currently holds ownership interests in the following life
insurance businesses: (1) BLH, a New York Stock Exchange 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); (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 the Company has had an ownership interest since their
acquisition by Conseco Capital Partners, L.P. ("Partnership I") in 1990 and
1991, respectively, and which became wholly-owned subsidiaries of the Company in
August 1995; (4) the subsidiaries of LPG, which are now wholly-owned
subsidiaries of the Company, 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 the
Company 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.
The Company has entered into (1) an Agreement and Plan of Merger with ATC
(the "ATC Merger Agreement") pursuant to which ATC will be merged with and into
the Company, with each share of ATC Common Stock converted into the right to
receive a fraction of a share of Company Common Stock having a value between
$32.00 and $35.03 per share, (2) an Agreement and Plan of Merger with CAF (the
"CAF Merger Agreement") pursuant to which CAF will become a wholly-owned
subsidiary of the Company, with each share of CAF Common Stock converted into
the right to receive $30.00 in cash and a fraction of a share of Company Common
Stock having a value of $6.50 and (3) an Agreement and Plan of Merger with THI
(the "THI Merger Agreement") pursuant to which THI will be merged with and into
the Company, with each share of THI Common Stock converted into the right to
receive between 1.40 and 1.83 shares of Company Common Stock. The Company has
also announced that it intends to acquire the shares of common stock ("BLH
Common Stock") of BLH which the Company 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 Company Common Stock having a value of $25.00 per share.
Although no assurances can be given, the Company expects that these transactions
will be consummated in the fourth quarter of 1996. None of the pending
acquisitions is conditioned upon consummation by the Company of any of the other
pending acquisitions. See "-- Pending Acquisitions by the Company" and "Pending
Acquisitions by the Company."
The Company's executive offices are located at 11825 North Pennsylvania
Street, Carmel, Indiana 46032 and the telephone number is (317) 817-6100. For
additional information concerning the Company, see the
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<PAGE> 15
Company's Annual Report on Form 10-K for the year ended December 31, 1995 (the
"Company's Annual Report") and other documents filed with the Commission and
listed under "Incorporation of Certain Documents by Reference" in the
accompanying Prospectus and "-- Selected Historical Financial Information of the
Company."
INSURANCE OPERATIONS
The Company's insurance operations are conducted through three segments:
(1) senior market operations, consisting of the activities of BLH; (2) annuity
operations, consisting of the activities of Great American Reserve, Beneficial
Standard and ALH; and (3) life insurance operations, consisting of the
activities of Philadelphia Life, Massachusetts General Life and Lamar Life, as
well as National Fidelity, Bankers National and Lincoln American.
Senior Market Operations. BLH, with total assets of approximately $4.9
billion at June 30, 1996, markets health and life insurance and annuity products
primarily to senior citizens through approximately 200 branch offices and
approximately 3,200 career agents. Most of BLH's agents sell only BLH policies.
Approximately 56 percent of the $1,513.8 million of total premiums and annuity
deposits collected by BLH in 1995 (and approximately 59 percent of the $757.9
million of total premiums and annuity deposits collected in the first six months
of 1996) was from the sale of individual health insurance products, principally
Medicare supplement and long-term care policies. BLH believes that its success
in the individual health insurance market is attributable in large part to its
career agency force, which permits one-on-one contacts with potential
policyholders and builds loyalty to BLH among existing policyholders. Its
efficient and highly automated claims processing system is designed to
complement its personalized marketing strategy by stressing prompt payment of
claims and rapid response to policyholder inquiries. For additional information
concerning BLH, see the Company's Annual Report and other documents filed with
the Commission and listed under "Incorporation of Certain Documents by
Reference" in the accompanying Prospectus and "-- Selected Historical Financial
Information of the Company."
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) 9,000 professional
independent producers, who sell various annuity and life insurance products
aimed primarily at the retirement market. Approximately 87 percent of the $709.8
million of total premiums and annuity deposits collected by the annuity
companies in 1995 (and approximately 88 percent of the $347.5 million of total
premiums and annuity deposits collected in the first six months of 1996) was
from the sale of annuity products. This segment will include ALH beginning with
its acquisition in the third quarter of 1996. ALH, with total assets of
approximately $6.1 billion at June 30, 1996, is engaged primarily in the
development, marketing, underwriting, issuance and administration of annuity and
life insurance products. ALH markets these 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. For
additional information concerning ALH, see the Company's Annual Report and other
documents filed with the Commission and listed under "Incorporation of Certain
Documents by Reference" in the accompanying Prospectus and "-- Selected
Historical Financial Information of the Company."
Life Insurance Operations. Life insurance operations include the activities
of Philadelphia Life, Massachusetts General Life and Lamar Life, wholly-owned
subsidiaries of LPG, beginning with the acquisition of LPG in the third quarter
of 1996. These companies distribute universal life insurance products using two
primary marketing systems, the client company system and the regional director
system, comprising a total of approximately 25,000 professional independent
producers. Approximately 74 percent of the $497.3 million of total insurance
premiums and annuity deposits collected by LPG in 1995 (and approximately 72
percent of the $280.1 million of total insurance premiums and annuity deposits
collected in the first six months of 1996) was from the sale of life insurance
products, primarily universal life insurance. Segment activities also include
the Company's other wholly owned life insurance subsidiaries--Bankers National
Life,
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<PAGE> 16
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. For additional information concerning LPG, see LPG's Annual
Report on Form 10-K for the year ended December 31, 1995 ("LPG's Annual Report")
and other documents filed with the Commission and listed herein under
"Incorporation of Certain Documents by Reference" and "-- Selected Historical
Financial Information of LPG."
FEE-BASED OPERATIONS
The Company's subsidiaries provide various services to affiliated and
unaffiliated clients. Conseco Capital Management, Inc. managed approximately $28
billion of invested assets at June 30, 1996 including $17.2 billion of assets of
affiliated companies. Marketing Distribution Systems Consulting Group, Inc.
provides marketing services to financial institutions related to the
distribution of insurance and investment products. Conseco Risk Management, Inc.
distributes property and casualty insurance products as an independent agency.
Conseco Mortgage Capital, Inc. originates and services mortgages. Total fees
from affiliates and nonaffiliated clients were $69.2 million and $54.3 million
for 1995 and the first six months of 1996, respectively. To the extent that
these services are provided to entities that are included in the financial
statements on a consolidated basis, the intercompany fees are eliminated in
consolidation. Earnings in this segment increase when the Company adds new
clients (either affiliated or unaffiliated) and when the Company increases the
fee-producing activities conducted for clients. Effective January 1, 1996, the
Company's subsidiaries entered into new service agreements with the Company's
service subsidiaries. Such new agreements had the effect of increasing revenues
from fee-based operations by $21.9 million in the first six months of 1996, but
had no effect on consolidated net income.
In addition to the Company'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.
PENDING ACQUISITIONS BY THE COMPANY
American Travellers Corporation. On August 25, 1996, the Company and ATC
entered into the ATC Merger Agreement providing for the ATC Merger. Under the
ATC Merger Agreement, each of the approximately 18.0 million issued and
outstanding shares of ATC Common Stock would be converted into the right to
receive a fraction of a share of Company Common Stock having a value between
$32.00 and $35.03, calculated as follows: (1) if the Company Share Price (as
defined herein) 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 Company Common Stock, (2) if the
Company Share Price is less than $42.25 per share, the fraction (rounded to the
nearest ten-thousandth) of a share of Company Common Stock determined by
dividing $32.00 by the Company Share Price or (3) if the Company Share Price is
greater than $46.25 per share, the fraction (rounded to the nearest
ten-thousandth) of a share of Company Common Stock determined by dividing $35.03
by the Company Share Price. The "Company Share Price" shall be equal to the
average of the closing prices of the Company Common Stock on the New York Stock
Exchange Composite Transactions Reporting System for the ten trading days
immediately preceding the second trading day prior to the date of the ATC
Merger. Consummation of the ATC Merger is conditioned upon, among other things,
approval by the shareholders of ATC and the Company, insurance regulatory
approvals and the expiration (or earlier termination) of the required waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"). Consummation of the ATC Merger is not conditioned upon
consummation by the Company of the CAF Merger, the THI Merger or the BLH
Transaction. For additional information concerning ATC, see ATC's Annual Report
on Form 10-K for the year ended December 31, 1995 ("ATC's Annual Report") and
other documents filed with the Securities and Exchange Commission (the
"Commission") and listed herein under "Incorporation of Certain Documents by
Reference" and "Pending Acquisitions by the Company -- American Travellers
Corporation."
Capitol American Financial Corporation. On August 25, 1996, the Company and
CAF entered into the CAF Merger Agreement providing for the CAF Merger. 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 herein), if any, and
(2) the fraction (rounded to the nearest ten-thousandth) of a share of Company
Common Stock determined by dividing $6.50
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<PAGE> 17
by the Trading Value (as defined herein). The "Trading Value" shall be equal to
the average of the closing prices of the Company Common Stock on the New York
Stock Exchange 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. Consummation of the CAF Merger is conditioned upon, among other
things, approval by the shareholders of CAF, insurance regulatory approvals and
the expiration (or earlier termination) of the required waiting period under the
HSR Act. Consummation of the CAF Merger is not conditioned upon consummation by
the Company of the ATC Merger, the THI Merger or the BLH Transaction. For
additional information concerning CAF, see CAF's Annual Report on Form 10-K for
the year ended December 31, 1995 ("CAF's Annual Report") and other documents
filed with the Commission and listed herein under "Incorporation of Certain
Documents by Reference" and "Pending Acquisitions by the Company -- Capitol
American Financial Corporation."
Transport Holdings Inc. On September 25, 1996, the Company and THI entered
into the THI Merger Agreement providing for the THI Merger. 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 Company Common Stock determined by
dividing $70.00 by the Company/THI Share Price (as defined herein). The
"Company/THI Share Price" shall be equal to the Trading Average (as defined
herein); provided, however, that if the Trading Average is less than $38.25,
then the Company/THI Share Price shall be $38.25, and if the Trading Average is
greater than $50.00, then the Company/THI Share price shall be $50.00. The
"Trading Average" shall be equal to the average of the closing prices of the
Company Common Stock on the New York Stock Exchange Composite Transactions
Reporting System for the ten consecutive trading days immediately preceding the
second trading day prior to the date of the THI Merger. Consummation of the THI
Merger is conditioned upon, among other things, approval by the shareholders of
THI, insurance regulatory approvals and the expiration (or earlier termination)
of the required waiting period under the HSR Act. Consummation of the THI Merger
is not conditioned upon consummation by the Company of the ATC Merger, the CAF
Merger or the BLH Transaction. For additional information concerning THI, see
THI's Annual Report on Form 10-K for the year ended December 31, 1995 ("THI's
Annual Report") and other documents filed with the Commission and listed herein
under "Incorporation of Certain Documents by Reference" and "Pending
Acquisitions by the Company -- Transport Holdings Inc."
BLH. The Company 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 Company Common Stock.
INVESTMENTS
Conseco Capital Management, Inc. ("CCM"), a registered investment adviser
wholly owned by the Company, manages the investment portfolios of the Company's
subsidiaries and other, nonaffiliated clients. CCM had approximately $28 billion
of assets (at fair value) under management at June 30, 1996, of which $17.2
billion were assets of affiliated companies. The Company's investment philosophy
is to maintain a largely investment grade fixed-income portfolio, provide
adequate liquidity for expected liability durations and other requirements and
maximize total return through active investment management.
Investment activities are an integral part of the Company's business;
investment income is a significant component of the Company's total revenues.
Profitability is significantly affected by spreads between interest yields on
investments and rates credited on insurance liabilities. Although substantially
all credited rates on single premium deferred annuities and flexible premium
deferred annuities may be changed annually, changes in crediting rates may not
be sufficient to maintain targeted investment spreads in all economic and market
environments. In addition, competition and other factors, including the impact
of the level of surrenders and withdrawals, may limit the Company's ability to
adjust or to maintain crediting rates at levels necessary to avoid narrowing of
spreads under certain market conditions. As of June 30, 1996, the average yield,
computed on the cost basis of the Company's investment portfolio, was 7.93
percent and the average interest rate credited on the Company's liability
portfolio was 5.5 percent.
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<PAGE> 18
The Company seeks to balance the duration of its invested assets with the
expected duration of benefit payments arising from insurance liabilities. At
June 30, 1996, the adjusted modified duration of fixed maturities, trading
securities and short-term investments was 6.1 years. At June 30, 1996, the
duration of the Company's insurance liabilities was 6.4 years.
The carrying values of the Company's investments at June 30, 1996 were as
follows:
<TABLE>
<CAPTION>
PERCENT OF
CARRYING TOTAL INVESTED
VALUE(1) ASSETS
------------- --------------
(IN MILLIONS)
<S> <C> <C>
Fixed maturities at fair value:
U.S. government securities........................................ $ 199.9 1%
Obligations of states and political subdivisions and
foreign government obligations................................. 137.9 1
Public utility securities......................................... 1,919.7 14
Other corporate securities........................................ 6,391.3 46
Mortgage-backed securities........................................ 3,852.0 27
------------- ---
Total fixed maturities....................................... 12,500.8 89
Equity securities................................................... 82.3 1
Mortgage loans...................................................... 311.0 2
Credit-tenant loans................................................. 309.7 2
Policy loans........................................................ 301.2 2
Short-term investments.............................................. 146.7 1
Other invested assets............................................... 113.5 1
Assets held in separate accounts.................................... 271.6 2
------------- ---
Total investments............................................ $14,036.8 100%
========= =========
</TABLE>
- ---------------
(1) Carrying value represents the value for each investment category that is
reflected in the Company's consolidated financial statements (see note 1 to
the Notes to the Consolidated Financial Statements included in the
Company's Annual Report, which is incorporated by reference herein).
The following table sets forth fixed maturity investments at June 30, 1996,
classified by rating categories. The category assigned is the highest rating by
a nationally recognized statistical rating organization, or as to $190.5 million
carrying value of fixed maturities not rated by such firms, the rating assigned
by the National Association of Insurance Commissioners ("NAIC"). For purposes of
the table, NAIC Class 1 is included in the "A" rating; Class 2, "BBB"; Class 3,
"BB" and Classes 4 to 6, "B and below."
<TABLE>
<CAPTION>
PERCENT OF
--------------------------
FIXED TOTAL
INVESTMENT RATING MATURITIES INVESTMENTS
----------------------------------------------- ---------- -----------
<S> <C> <C>
AAA............................................ 36% 32%
AA............................................. 10 9
A.............................................. 23 20
BBB............................................ 26 23
-- --
Investment grade............................. 95 84
-- --
BB............................................. 4 4
B and below.................................... 1 1
-- --
Below investment grade....................... 5 5
-- --
Total fixed maturities....................... 100% 89%
===== =====
</TABLE>
Fixed maturities which were below investment grade had an amortized cost of
$690.2 million and an estimated fair value of $667.6 million at June 30, 1996.
At such date, less than .1 percent of the aggregate carrying value of all fixed
maturities held by the Company had defaulted as to principal or interest.
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<PAGE> 19
At June 30, 1996, fixed maturity investments included $3.9 billion of
mortgage-backed securities (31 percent of the carrying value of the fixed
maturity investment portfolio), of which $2.0 billion were collateralized
mortgage obligations ("CMOs") and $1.9 billion were pass-through securities.
CMOs are securities backed by pools of pass-through securities and/or mortgages
that are segregated into sections or "tranches." These securities provide for
sequential retirement of principal, rather than the retirement of principal on a
pro rata basis, such as occurs on pass-through securities through regular
monthly principal payments.
The yield characteristics of mortgage-backed securities differ from those
of traditional fixed income securities. Interest and principal payments occur
more frequently, often monthly, and mortgage-backed securities are subject to
risks associated with variable prepayments. Prepayment rates are influenced by a
number of factors which cannot be predicted with certainty, including the
relative sensitivity of the mortgages backing the assets to changes in interest
rates, a variety of economic, geographic and other factors and the repayment
priority of the securities in the overall securitization structures.
In general, prepayments on the underlying mortgage loans, and on the
securities backed by these loans, increase when prevailing interest rates
decline significantly below the interest rates on such loans. Mortgage-backed
securities purchased at a discount to par will experience an increase in yield
when the underlying mortgages prepay faster than expected. Mortgage-backed
securities purchased at a premium to par that prepay faster than expected will
incur a reduction in yield. When interest rates decline, the proceeds from
prepayments are likely to be reinvested at lower rates than the Company was
earning on the prepaid securities. As interest rates rise, prepayments decrease
(because fewer underlying mortgages are refinanced). When this occurs, the
average maturity and duration of the mortgage-backed securities increase. This
lowers the yield on mortgage-backed securities purchased at a discount, since
the discount is realized as income at a slower rate, and increases the yield on
those purchased at a premium, as a result of a decrease in annual amortization
of the premium.
At June 30, 1996, the Company held mortgage loan investments with a
carrying value of $311.0 million (or 2.2 percent of total invested assets).
Approximately 97 percent of the carrying value of mortgage loan investments was
attributable to commercial loans. Non-current mortgage loans were not
significant at June 30, 1996. The Company had a loan loss reserve of $4.3
million at June 30, 1996.
Credit-tenant loans are loans on commercial properties where the lease of
the principal tenant is assigned to the lender and the principal tenant, or any
guarantor of such tenant's obligations, has a credit rating at the time of
origination of the loan of at least BBB-or its equivalent. The Company's
underwriting guidelines consider such factors as: (i) the lease term of the
property; (ii) the mortgagor's management ability, including business
experience, property management capabilities and financial soundness; and (iii)
such economic, demographic or other factors that may affect the income generated
by the property, or its value. The underwriting guidelines also generally
require a loan-to-value ratio of 75 percent or less. Credit-tenant loans are
carried at amortized cost and had a carrying value of $309.7 million at June 30,
1996, or 2.2 percent of total invested assets. There were no significant
non-current credit-tenant loans at June 30, 1996.
Short-term investments totaled $146.7 million, or 1.0 percent of invested
assets at June 30, 1996, and consisted primarily of commercial paper and
repurchase agreements relating to government securities.
SENIOR CREDIT FACILITIES
Current Senior Credit Facilities
Currently, the Company has in place the Credit Agreement which is divided
between two tranches. Tranche A permits maximum principal borrowings of $250
million and Tranche B permits maximum principal borrowings of $250 million. The
principal amounts outstanding under Tranche A and Tranche B as of the date of
this Prospectus Supplement were $210 million and $250 million, respectively. The
weighted average interest rate on Tranche A and Tranche B borrowings as of such
date was 6.01 percent and 6.17 percent, respectively. Subject to certain
prepayment obligations, the principal amount outstanding under each of Tranche A
and Tranche B is due in 2001. In addition, the Company also has in place a $100
million bridge facility (the "Bridge Facility") all of which is outstanding. The
interest rate on the Bridge Facility is 5.865 percent. The principal amount
outstanding under the Bridge Facility is due on December 31, 1996.
The Credit Agreement and the Bridge Facility restrict the ability of the
Company to acquire the Common Securities and issue the Subordinated Debentures
and the Trust Guarantees. Accordingly, the
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<PAGE> 20
Company has requested a waiver (the "Waiver") from the lenders under the Credit
Agreement and the Bridge Facility for any default resulting from (i) subject to
certain conditions, the issuance of the Subordinated Debentures to the Conseco
Trusts (as defined in the accompanying Prospectus), (ii) subject to certain
conditions, the Company's provision of the Preferred Securities Guarantee and
the Common Securities Guarantee, (iii) subject to certain conditions, the
failure of any of the Conseco Trusts to make a mandatory prepayment of the loans
(the "Loans") under the Credit Agreement and the Bridge Facility from the net
proceeds received by any of the Conseco Trusts in connection with the issuance
of the Preferred Securities, (iv) subject to certain conditions, the Company's
failure to make a mandatory prepayment of the Loans from the net proceeds
received by the Company in connection with the issuance of the Subordinated
Debentures, (v) the Company's failure to meet the .35:1 Debt to Total
Capitalization ratio (as such terms are defined in the Credit Agreement) in
connection with the acquisition of the Common Securities of the Conseco Trusts,
(vi) the Company's failure to pledge the Common Securities to the Administrative
Agent under the Credit Agreement, for the benefit of the lenders under the
Credit Agreement and the Bridge Facility, in connection with the acquisition of
the Conseco Trusts, and (vii) the Company's investment in the Common Securities.
In addition, the Company has also requested that the Waiver provide that
for purposes of determining the Company's compliance with certain financial
covenants of the Credit Agreement and the Bridge Facility, the indebtedness
evidenced by the Subordinated Debentures will be deemed to constitute equity of
the Company so long as such indebtedness is held by the Conseco Trusts for the
benefit of the holders of the Trust Securities, the Trust Securities remain
outstanding and the Conseco Trusts remain in effect in accordance with the terms
of the Declaration.
The Waiver further provides that, in consideration of the waivers and
agreements of the lenders under the Credit Agreement and the Bridge Facility,
the Company will not, and will not permit any of its Subsidiaries (as defined in
the Credit Agreement) to: (i) make any payment (whether of principal, interest
or otherwise) on any Subordinated Debentures on any day other than the stated
scheduled date for such payment set forth in any indenture supplemental to the
Indenture; (ii) prepay, redeem, purchase, defease or transfer its obligations
under any Subordinated Debentures, or make any deposit for any of the foregoing;
or (iii) amend or modify the Declaration, any indenture supplemental to the
Indenture, the terms of the Trust Securities, the Preferred Securities Guarantee
or the Common Securities Guarantee if such amendment or modification could have
an adverse effect on the lenders or violate any material provision of the Credit
Agreement, the Bridge Facility or other documents entered into in connection
therewith. In addition, the Waiver prevents the Company from liquidating,
dissolving or otherwise terminating any of the Conseco Trusts without the prior
consent of the lenders, which consent may not be unreasonably withheld.
The foregoing summary of the terms of the Waiver is qualified in its
entirety by reference to the Waiver which is filed as an exhibit to the
Registration Statement to which this Prospectus Supplement relates. While the
Company expects that the Waiver will be granted by the lenders under the Credit
Agreement and the Bridge Facility, no assurances can be given that the Waiver
will be granted. In addition, although no assurances can be given, the Company
expects that the Company's Senior Credit Facilities (as defined below) will
contain provisions similar to those contained in the Waiver.
Proposed New Senior Credit Facilities
The Company has entered into a commitment letter for a new senior credit
facility (the "Senior Credit Facilities"), the terms of which are described
below. It is the Company's intention that substantially all of the proceeds from
the Offering will be used to pay principal and accrued interest on amounts
outstanding under the Credit Agreement. Borrowings under the Senior Credit
Facilities will be used to repay in full the remaining principal amount of the
Company's outstanding indebtedness under the Credit Agreement and the Bridge
Facility.
General. The Company, NationsBank, N.A. ("NationsBank"), as agent on behalf
of a syndicate of banks to be formed and NationsBanc Capital Markets, Inc.
("NCMI"), as Arranger, Administrative Agent, and Syndication Agent, have entered
into a commitment letter dated September 13, 1996 (the "Commitment Letter")
pursuant to which NationsBank has committed to lend $200.0 million, upon the
terms and subject to the conditions set forth in the Commitment Letter, and to
arrange an additional $1.6 billion on a "best-efforts" basis. NCMI has
committed, under its role as Syndication Agent, to form a syndicate of financial
institutions
S-19
<PAGE> 21
(the "Lenders") reasonably acceptable to the Company, to lend an additional $1.6
billion, upon the terms and subject to the conditions set forth in the
Commitment Letter.
Each of Bank of America National Trust and Savings Association and First
Union National Bank of North Carolina have committed to lend $150.0 million and
will act as syndication agent and documentation agent, respectively. In
addition, 14 other banks have committed to lend an aggregate of $1.425 billion.
The Commitment Letter provides for senior unsecured credit facilities by members
of the syndicate in an aggregate principal amount of $1.8 billion allocated
between two tranches. Tranche A will be a $1.4 billion Five Year Revolving
Credit Facility ("Tranche A") due on the fifth anniversary of the closing (the
"Closing") of the Senior Credit Facilities and Tranche B will be a $400 million
364-day Revolving Credit Facility ("Tranche B") due on the 364th day following
the Closing. In addition, the Company will have the ability to borrow, on a
direct basis from NationsBank, up to $50.0 million under a Swing Line Facility
(the "Swing Line Facility") for a period of up to seven days provided that the
outstanding borrowings under Tranche A and the Swing Line Facility do not exceed
$1.4 billion. Under certain circumstances, each Lender may be required to
purchase a pro rata participation in the Swing Line Facility.
The proceeds of the Senior Credit Facilities will be used for the ATC
Merger, the CAF Merger, the THI Merger, the BLH Transaction (collectively, the
"Acquisitions"), general corporate purposes, commercial paper support, stock
repurchases and repayment of existing indebtedness.
Interest on loans under the Senior Credit Facilities will accrue, at the
Company's option (in the absence of any Event of Default), at a rate equal to
either (i) the average London Interbank Offered Rate for one, two, three or six
month dollar deposits as quoted by NationsBank, N.A. (South), rounded upwards to
the nearest 0.01% and adjusted for maximum cost of reserves ("LIBOR"), plus
0.225% to 0.75% (based on the Company's senior unsecured debt rating) or (ii)
the higher of (A) the rate of interest publicly announced from time to time by
NationsBank, N.A. (South) as its reference rate, or (B) the effective federal
funds rate plus 0.50% (the "Base Rate"). Interest will be payable at the earlier
of the end of each interest period or quarterly. The Company may also request
the Agent to solicit competitive bids from the Lenders through an auction for
short term borrowings priced either (i) at a margin above or below LIBOR or (ii)
at an absolute interest rate ("Absolute Rate"). LIBOR bids may be requested for
one, two or three month periods and Absolute Rate bids may be requested for
periods not less than 14 days up to and including 90 days. Interest on LIBOR and
Absolute Rate bids will be paid at the end of each interest period or quarterly,
whichever is earlier.
The Company will pay a commitment fee of 0.08% to 0.25% (based on the
Company's senior unsecured debt rating) for Tranche A and 0.06% to 0.225% (based
on the Company's senior unsecured debt rating) for Tranche B, in each case,
based on the average unused amount of the Senior Credit Facilities, quarterly in
arrears. The Company will also pay certain up-front, closing, arrangement and
agent's fees. The Commitment Letter will terminate on December 31, 1996, unless
the closing of the Senior Credit Facilities occurs by such date.
The commitments of NationsBank and NCMI under the Commitment Letter are
conditioned on, among other things, (i) the absence of the occurrence and
continuation of a material adverse change in the market for syndicated bank
credit facilities or a material disruption of, or material adverse change in,
financial, banking, or capital market conditions, and (ii) the absence of any
material adverse change in the business, assets, liabilities (actual or
contingent), operations, condition (financial or otherwise) or prospects of the
Company and its subsidiaries taken as a whole, including conditions, events or
additional developments which NationsBank and NCMI believe could have such
effect.
Unsecured Interest. The Company's obligations under the Senior Credit
Facilities will be unsecured. The Lenders will receive a negative pledge on all
present and future assets, excluding a certain amount of the Company's assets
which may be pledged to secure other indebtedness of the Company.
Mandatory Prepayments. Mandatory prepayments under the Senior Credit
Facilities will be required upon (i) a sale or disposition of substantial assets
of any significant subsidiary of the Company, other than in the ordinary course
of business, subject to certain negotiated exceptions and (ii) other events as
agreed by the Company and the Agent.
Conditions to Funding. The initial funding of the Senior Credit Facilities
will be conditioned on, among other things, (i) satisfactory completion of all
due diligence with respect to the Company and ATC, CAF and
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<PAGE> 22
THI (the "Acquired Companies") and their respective subsidiaries, (ii)
satisfactory review of the ATC Merger Agreement, the CAF Merger Agreement and
the THI Merger Agreement (including all schedules and exhibits thereto and
related documentation) which shall provide for an aggregate cash purchase price
not in excess of $1.8 billion, including retirement of preferred stock,
repayment of indebtedness and payment of transaction expenses, (iii)
satisfactory review of the corporate capital and ownership structure,
shareholders agreements and management of the Company and its subsidiaries
(after giving effect to the Acquisitions), (iv) receipt and approval of the
consolidated financial statements of the Acquired Companies for the fiscal years
ended 1994 and 1995 and a pro forma balance sheet of the Company and its
subsidiaries as of the most recent quarter-end reporting period, as filed with
the Commission, giving effect to the Acquisitions, (v) the absence of any
material adverse change since September 30, 1996 in the business, assets,
liabilities (actual or contingent), operations, condition (financial or
otherwise) or prospects of the Company and its subsidiaries or the Acquired
Companies or in the facts and information regarding such entities as
represented, (vi) satisfactory completion of all due diligence relating to
litigation, tax, accounting, labor, insurance, contingent liabilities and other
legal and business matters of the Acquired Companies and the Company, (vii) the
absence of any actions, suit, investigation or proceeding in any court or before
any arbitrator or governmental authority that purports to affect any transaction
contemplated by the Commitment Letter, or that could have a material adverse
effect on the Company or the Acquired Companies, and (viii) the receipt of
documentation with respect to the Senior Credit Facilities satisfactory to NCMI,
NationsBank and the Lenders.
In addition, the funding of any acquisition of an Acquired Company or BLH
is further subject to (i) satisfactory receipt of all governmental, shareholder
and third party consents and approvals necessary in connection with the purchase
of any Acquired Company or BLH, and (ii) the absence of action being taken by
any authority that could restrain, prevent or impose any material adverse
conditions on the Company or such Acquired Company, or BLH, or that could seek
to threaten any of the foregoing, and no law or regulation shall be applicable
which in the judgment of the Agent could have such effect.
Covenants. The Senior Credit Facilities will contain covenants that, among
other things, will restrict the ability of the Company and its subsidiaries to:
(i) incur or permit to exist additional debt, (ii) create or assume any lien on
its property, (iii) make loans and investments, (iv) enter into transactions
with affiliates, (v) engage in mergers or other business combination
transactions, (vi) engage in sales of its assets, and (vii) change its business.
The Senior Credit Facilities will not contain any limitations on acquisitions
provided that the Company remains in compliance with the existing covenants of
the Facilities immediately following the acquisition on a proforma basis.
The Senior Credit Facilities also will contain certain financial covenants,
which, among other things, will require the Company to maintain the following:
(i) a ratio of Maximum Debt to Total Capitalization of 45%, (ii) an interest
coverage ratio substantially as defined in the Credit Agreement, and (iii) a
minimum of Total Shareholders' Equity (excluding the effect of FASB 115) of
$1.75 billion through December 31, 1996, $2.4 billion through December 31, 1998
and $3.5 billion after December 31, 1998.
Events of Default. The Senior Credit Facilities will provide that upon
certain "Events of Default," all amounts outstanding thereunder will become
immediately due and payable. The following events, among others, will constitute
Events of Default: (i) a failure to make any payments when due under the Senior
Credit Facilities, (ii) a failure to comply with any covenant or agreement under
the Senior Credit Facilities, or other material agreements or indebtedness of
the Company, (iii) a representation or warranty contained in the Senior Credit
Facilities is breached, (iv) the Company becomes bankrupt or insolvent, and (v)
the Company is the subject of a change of control or, a judgment or attachment
or incurs a liability under the Employee Retirement Income Security Act of 1974,
as amended in excess of specified amounts. The Event of Default provisions of
the Senior Credit Facilities will include customary notice, cure and grace
provisions, as appropriate. Immediately following and during any continuation of
the occurrence of an Event of Default in respect of the nonpayment of principal,
interest or fees, or upon notice by the Lenders in respect of the occurrence of
any other Event of Default, interest will accrue on the outstanding Facility
amounts at the Base Rate plus 2.00%.
The foregoing summary of the terms of the Commitment Letter is qualified in
its entirety by reference to the Commitment Letter which is filed as an exhibit
to the Registration Statement to which this Prospectus Supplement relates. While
the Company believes that it will enter into the Senior Credit Facilities on
S-21
<PAGE> 23
substantially the same terms and conditions as those contemplated by the
Commitment Letter, no assurances can be given that the Senior Credit Facilities
will be consummated or, if consummated, the terms of the Senior Credit
Facilities will be substantially similar to those contemplated by the Commitment
Letter. In the event that the Company does not enter into the Senior Credit
Facilities, the Company anticipates that it will be required to arrange
alternative sources of financing for the Acquisitions, repayment of existing
indebtedness and other corporate purposes. Such alternative sources of financing
may include issuance of equity and debt securities, the borrowing of funds from
banking or other financial institutions or the sale of certain of the Company's
assets. There can be no assurances that such alternative sources of financing
can be arranged on terms as favorable to the Company as those contemplated by
the Commitment Letter. Accordingly, the failure to enter into the Senior Credit
Facilities on terms and conditions substantially similar to those contemplated
by the Commitment Letter could adversely affect the Company's results of
operations and financial condition.
RECENT REGULATORY DEVELOPMENTS
On August 21, 1996, President Clinton signed into law the Health Insurance
Portability and Accountability Act. This federal legislation makes various
changes in the laws affecting the health insurance and related products of the
Company and the Acquired Companies, including the pricing and underwriting
practices with respect to such products. However, in light of the fact that the
legislation has only recently been enacted, and that many of the provisions are
subject to further interpretation through regulations that have not yet been
issued by the Department of Health and Human Services, the Company cannot
predict at this time what effect, if any, the new law will have on its business
activities.
RECENT DEVELOPMENT
On November 5, 1996, the Company reported net income for the quarter ended
September 30, 1996 of $78.1 million, up 80 percent compared with net income of
$43.5 million for the same period in the prior year. For the nine months ended
September 30, 1996, the Company reported net income of $174.5 million, up 4.0
percent compared with net income of $167.8 million for the same period in the
prior year. Total revenues for the nine month period ended September 30, 1996
were $2,198.6 million (including realized gains of $16.3 million), up 6.4
percent compared with revenues of $2,066.1 million (including realized gains of
$77.8 million) for the same period in the prior year.
SELECTED HISTORICAL FINANCIAL INFORMATION OF THE COMPANY
The selected historical financial information set forth below was derived
from the consolidated financial statements of the Company. The Company'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 the Company's
Annual Report which is incorporated by reference herein. The selected historical
financial information is qualified in its entirety by, and should be read in
conjunction with, the Company's Annual Report. The selected historical financial
information set forth below for the six months ended June 30, 1995 and 1996, is
unaudited; however, in the opinion of the Company's management, such 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.
The comparison of consolidated financial information set forth below is
significantly affected by the acquisitions consummated by Partnership I and
Conseco Capital Partners II, L.P. ("Partnership II"), the sale of Western
National Corporation ("WNC") and the transactions affecting the Company's
ownership interest in BLH and CCP Insurance, Inc. ("CCP"), which prior to its
merger with and into the Company owned Great American Reserve and Beneficial
Standard. For periods beginning with the date of their acquisitions by
Partnership I and ending June 30, 1992, Partnership I and its subsidiaries were
consolidated with the financial statements of the Company. 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 the Company. As a result of the purchase by the Company 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 the
S-22
<PAGE> 24
Company, effective January 1, 1995. The Company 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
the Company. Following the completion of the initial public offering of WNC (and
subsequent disposition of the Company's remaining equity interest in WNC), the
financial statements of WNC were no longer consolidated with the financial
statements of the Company. As of September 29, 1994, the Company began to
include in its financial statements the newly acquired Partnership II
subsidiary, ALH. A description of such business combination is contained in the
notes to the consolidated financial statements included in the Company's Annual
Report, incorporated by reference herein.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Insurance policy income.......... $ 280.8 $ 378.7 $1,293.8 $1,285.6 $1,465.0 $ 730.2 $ 741.4
Investment activity:
Net investment income.......... 921.4 888.6 896.2 385.7 1,142.6 556.9 561.9
Net trading income (losses).... 50.7 35.9 93.1 (4.9) 2.5 6.0 (7.3)
Net realized gains (losses).... 123.3 124.3 149.5 (25.6) 186.4 74.5 10.2
Total revenues................... 1,391.8 1,523.9 2,636.0 1,862.0 2,855.3 1,389.4 1,364.3
Interest expense on notes
payable........................ 69.9 46.2 58.0 59.3 119.4 52.4 54.2
Total benefits and expenses...... 1,168.6 1,193.9 2,025.8 1,537.6 2,436.8 1,187.1 1,142.8
Income before income taxes,
minority interest and
extraordinary charge........... 223.2 330.0 610.2 324.4 418.5 202.3 221.5
Extraordinary charge on
extinguishment of debt, net of
tax............................ 5.0 5.3 11.9 4.0 2.1 -- 17.4
Net income....................... 116.0 169.5 297.0 150.4 220.4 124.3 96.4
Preferred dividends.............. 6.8 5.5 20.6 18.6 18.4 9.2 17.2
Net income applicable to common
stock.......................... 109.2 164.0 276.4 131.8 202.0 115.1 79.2
PER SHARE DATA (A)
Net income, primary.............. $ 2.05 $ 2.71 $ 4.73 $ 2.50 $ 4.69 $ 2.67 $ 1.71
Net income, fully diluted........ 2.01 2.70 4.39 2.44 4.22 2.39 1.59
Dividends declared per common
share.......................... .035 .043 .150 .250 .093 .073 .040
Book value per common share
outstanding at period end...... 7.73 10.93 16.89 10.45 20.44 16.33 17.68
Shares outstanding at period
end............................ 49.4 49.8 50.6 44.4 40.5 40.4 41.9
Average fully diluted shares
outstanding.................... 50.8 59.2 67.0 61.7 52.2 52.1 60.6
BALANCE SHEET DATA -- PERIOD END
Total assets..................... $11,832.4 $11,772.7 $13,749.3 $10,811.9 $17,297.5 $17,078.6 $17,426.3
Notes payable for which Conseco
is directly liable............. 177.6 163.2 413.0 191.8 871.4 613.5 670.0
Notes payable of BLH, not direct
obligations of Conseco......... -- 392.0 290.3 280.0 301.5 272.2 297.9
Notes payable of Partnership
entities, not direct
obligations of Conseco......... 319.3 -- -- 331.1 283.2 308.0 281.6
Total liabilities................ 11,321.3 11,154.4 12,382.9 9,743.2 15,782.5 15,528.3 15,857.1
Minority interest................ 79.5 24.0 223.8 321.7 403.3 606.9 292.3
Shareholders' equity............. 431.6 594.3 1,142.6 747.0 1,111.7 943.4 1,276.9
</TABLE>
S-23
<PAGE> 25
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA (B)
Premiums collected (c).......... $1,648.7 $1,464.9 $2,140.1 $1,879.1 $3,106.4 $1,725.6 $1,501.6
Operating earnings (d).......... 61.5 114.8 162.0 151.7 131.3 52.2 102.2
Operating earnings per fully
diluted common share (a),
(d)........................... 1.05 1.80 2.39 2.46 2.52 1.00 1.69
Shareholders' equity excluding
unrealized appreciation
(depreciation) of fixed
maturity securities (e)....... 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 (a),
(e)........................... 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 (f):
As reported................... .29X .22X .27X .20X .44X .34X .34X
Excluding unrealized
appreciation (depreciation)
(e)......................... .29X .23X .28X .18X .47X .34X .33X
Adjusted statutory capital (at
period end) (g)............... $ 617.1 $ 603.1 $1,135.5 $ 509.0 $1,021.0 $ 901.2 $1,009.3
Adjusted statutory earnings
(h)........................... 90.0 153.4 273.8 248.6 321.7 138.9 166.4
Ratio of adjusted statutory
earnings to cash interest
(i)........................... 2.62X 5.75X 4.94X 5.06X 3.79X 3.97X 4.11X
</TABLE>
- ------------------
(a) All share and per share amounts have been restated to reflect the April 1,
1996 two-for-one stock split.
(b) Amounts under this heading are included to assist the reader in analyzing
the Company'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 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).
(e) 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 the Company
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 the Company's Annual
Report.
(f) 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.
(g) 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 the Company.
Such statutory data reflect the combined data derived from the annual
statements of the Company's and BLH's wholly owned life insurance companies
as filed with insurance regulatory agencies and prepared in accordance with
statutory accounting practices.
S-24
<PAGE> 26
(h) Represents gains from operations before interest expense (except interest on
annuities and financial products) and income taxes of the Company'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.
(i) Represents the ratio of adjusted statutory earnings to cash interest. Cash
interest includes interest, except interest on annuities and financial
products, of the Company and BLH and their wholly owned subsidiaries that
is required to be paid in cash which aggregated $34.3 million, $26.7
million, $55.4 million, $49.2 million and $85.0 million for the years ended
December 31, 1991, 1992, 1993, 1994 and 1995, respectively, and $35.0
million and $40.5 million for the six months ended June 30, 1995 and 1996,
respectively.
S-25
<PAGE> 27
SELECTED HISTORICAL FINANCIAL INFORMATION OF LPG
On August 2, 1996, the Company completed the LPG Merger and LPG became a
wholly owned subsidiary of the Company. 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 on Form 10-K for the year ended December 31,
1995 ("LPG's Annual Report"), which is incorporated by reference herein. The
selected historical financial information is qualified in its entirety by, and
should be read in conjunction with, LPG's Annual Report. The consolidated
financial information set forth below for the six months ended June 30, 1995 and
1996, is unaudited; however, in the opinion of LPG's management, such 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.
The comparison of consolidated financial information set forth below is
significantly affected by the acquisition of Lamar Life by LPG on April 28,
1995. Such acquisition was accounted for using the purchase method, and the
results of operations of Lamar Life are included in the consolidated financial
data from the date of acquisition. A description of the acquisition of Lamar
Life is contained in the notes to the consolidated financial statements included
in LPG's Annual Report incorporated by reference herein.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
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
</TABLE>
S-26
<PAGE> 28
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
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 (A)
Premiums collected (b)........ $ 508.2 $ 465.5 $ 470.2 $ 411.8 $ 497.3 $ 248.2 $ 280.1
Operating earnings (loss)
(c)......................... 15.5 31.9 44.1 50.0 (28.9) 9.4 20.5
Operating earnings (loss) per
primary and fully diluted
common share (c)............ 1.72 2.63 1.88 1.91 (1.06) .35 .72
Shareholders' equity excluding
unrealized appreciation
(depreciation) of fixed
maturity securities (d)..... 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 (d)..... 13.92 15.98 11.48 12.73 12.34 13.54 12.83
Adjusted statutory capital (at
period end) (e)............. 149.4 191.3 169.8 174.3 209.8 174.7 219.3
Adjusted statutory earnings
(f)......................... 75.7 76.4 83.4 75.8 78.1 28.9 46.4
</TABLE>
- ---------------
(a) 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.
(b) Includes premiums received from annuities and universal life policies, which
are not reported as revenues under GAAP.
(c) 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)).
(d) 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.
(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 LPG'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 (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.
S-27
<PAGE> 29
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 the Company included elsewhere in this Prospectus Supplement and
the historical consolidated financial statements and related notes thereto of
the Company, LPG, ATC, CAF and THI incorporated by reference in this Prospectus
Supplement or the accompanying Prospectus. The summary unaudited pro forma
consolidated financial information set forth below is qualified in its entirety
by, and should be read in conjunction with, such materials and the unaudited pro
forma consolidated financial statements appearing elsewhere in this Prospectus
Supplement. See "Unaudited Pro Forma Consolidated Financial Statements of the
Company" and "Incorporation of Certain Documents by Reference" herein and in the
accompanying 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 Offering" reflects
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 completed effective June 30, 1996; (4) the
acquisition of all of the outstanding common stock of CCP not previously owned
by the Company and related transactions (including the repayment of borrowings
under the Company's existing $250.0 million revolving credit agreement); (5) the
increase of the Company's ownership in BLH to 90.5 percent, as a result of
purchases of common shares of BLH by the Company 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 Offering" reflects further adjustments to the consolidated operating
results of the Company as if the Offering 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 Offering and other planned transactions"
reflects further adjustments to the consolidated operating results of the
Company as if the following additional planned transactions had occurred on
January 1, 1995: (1) the Additional Offering; (2) the ATC Merger; (3) the BLH
Transaction; (4) the CAF Merger; and (5) 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 Offering"
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 Offering" reflects further
adjustments to the financial position of the Company as if the Offering 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
Offering and other planned transactions" reflects further adjustments to the
financial position of the Company as if the following additional planned
transactions had occurred on June 30, 1996: (1) the Additional Offering; (2) the
ATC Merger; (3) the BLH Transaction; (4) the CAF Merger; and (5) the THI Merger.
S-28
<PAGE> 30
The summary unaudited pro forma consolidated 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 may not be 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 the Company. The
Company 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 information. The
ATC Merger, the CAF Merger and the THI Merger will be accounted for under the
purchase method of accounting. The BLH Transaction will be accounted for using
the step acquisition method of accounting.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 SIX MONTHS ENDED JUNE 30, 1996
----------------------------------- -----------------------------------
PRO FORMA PRO FORMA FOR PRO FORMA PRO FORMA FOR
CONSECO THE OFFERING CONSECO THE OFFERING
BEFORE PRO FORMA AND OTHER BEFORE PRO FORMA AND OTHER
THE FOR THE PLANNED THE FOR THE PLANNED
OFFERING OFFERING TRANSACTIONS OFFERING OFFERING TRANSACTIONS
--------- --------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA
Insurance policy income............. $1,752.8 $1,752.8 $ 2,498.7 $ 897.2 $ 897.2 $ 1,286.3
Investment activity:
Net investment income............. 1,461.1 1,461.1 1,574.0 719.4 719.4 783.7
Net trading income (losses)....... 2.5 2.5 2.5 (7.3) (7.3) (7.3)
Net realized gains................ 220.3 220.3 222.0 15.4 15.4 19.0
Total revenues...................... 3,498.4 3,498.4 4,358.9 1,685.4 1,685.4 2,143.0
Interest expense on notes payable... 143.5 131.2 161.9 67.6 61.4 78.5
Total benefits and expenses......... 3,001.7 2,989.4 3,771.9 1,423.9 1,417.7 1,822.7
Income before income taxes, minority
interest and extraordinary
charge............................ 496.7 509.0 587.0 261.5 267.7 320.3
Income before extraordinary
charge............................ 283.1 279.0 327.5 148.9 146.8 181.3
PER SHARE DATA
Income before extraordinary charge,
primary........................... $ 3.74 $ 3.69 $ 3.33 $ 1.93 $ 1.91 $ 1.82
Income before extraordinary charge,
fully diluted..................... 3.72 3.67 3.17 1.91 1.89 1.74
Book value per common share
outstanding at period end......... 24.29 24.13 30.11
Shares outstanding at period end.... 65.7 65.7 88.5 66.9 66.9 89.7
Average fully diluted shares
outstanding....................... 76.0 76.0 103.8 77.8 77.8 105.6
BALANCE SHEET DATA --
PERIOD END
Total assets........................ $23,058.3 $23,058.3 $26,644.5
Notes payable for which Conseco is
directly liable................... 1,198.5 1,009.2 2,183.6
Notes payable of BLH, not direct
obligations of Conseco............ 437.9 437.9 --
Total liabilities................... 21,015.7 20,826.4 23,233.3
</TABLE>
S-29
<PAGE> 31
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 SIX MONTHS ENDED JUNE 30, 1996
----------------------------------- -----------------------------------
PRO FORMA PRO FORMA FOR PRO FORMA PRO FORMA FOR
CONSECO THE OFFERING CONSECO THE OFFERING
BEFORE PRO FORMA AND OTHER BEFORE PRO FORMA AND OTHER
THE FOR THE PLANNED THE FOR THE PLANNED
OFFERING OFFERING TRANSACTIONS OFFERING OFFERING TRANSACTIONS
--------- --------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Minority interest in consolidated
subsidiaries:
Company-obligated mandatorily
redeemable preferred
securities of subsidiary
trusts....................... -- 200.0 350.0
Preferred stock................ 93.2 93.2 93.2
Common stock................... 57.5 57.5 --
Shareholders' equity................ 1,891.9 1,881.2 2,968.0
OTHER FINANCIAL DATA (A)
Premiums collected (b).............. $3,671.8 $3,671.8 $4,418.1 $ 1,781.7 $ 1,781.7 $2,170.8
Operating earnings (c).............. 231.0 226.9 274.1 136.0 133.9 165.3
Operating earnings per fully diluted
common share (c).................. 3.04 2.99 2.65 1.75 1.72 1.59
Shareholders' equity excluding
unrealized appreciation
(depreciation) of fixed maturity
securities (d).................... 1,948.3 1,937.6 3,024.4
Book value per common share
outstanding, excluding unrealized
appreciation (depreciation) of
fixed maturity securities (d)..... 25.13 24.97 30.74
Ratio of debt for which Conseco is
directly liable to total capital
of Conseco only (e):
As reported.................... .38X .32X .39X
Excluding unrealized
appreciation (depreciation)
(d).......................... .37X .31X .39X
Excluding unrealized
appreciation (depreciation)
and assuming conversion of
ATC's Convertible
Subordinated Debentures into
Conseco Common Stock (d),
(k).......................... .34X
Ratio of debt for which Conseco is
directly liable and Preferred
Securities to total capital of
Conseco only (f):
As reported.................... .38X .45X
Excluding unrealized
appreciation (depreciation)
(d).......................... .37X .45X
Excluding unrealized
appreciation (depreciation)
and assuming conversion of
ATC's Convertible
Subordinated Debentures into
Conseco Common Stock (d),
(k).......................... .41X
Adjusted statutory capital
(at period end) (g)............... $1,508.6 $1,508.6 $1,834.9 $ 1,515.6 $ 1,515.6 $1,849.5
Adjusted statutory earnings (h)..... 480.7 480.7 533.8 253.4 253.4 301.2
Ratio of adjusted statutory earnings
to cash interest (i).............. 3.36X 3.68X 3.26X 3.74X 4.11X 3.78X
Ratio of adjusted statutory earnings
to cash interest and dividends on
the Preferred Securities(j)....... 3.36X 3.22X 2.72X 3.74X 3.58X 3.14X
</TABLE>
S-30
<PAGE> 32
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 SIX MONTHS ENDED JUNE 30, 1996
----------------------------------- -----------------------------------
PRO FORMA PRO FORMA FOR PRO FORMA PRO FORMA FOR
CONSECO THE OFFERING CONSECO THE OFFERING
BEFORE PRO FORMA AND OTHER BEFORE PRO FORMA AND OTHER
THE FOR THE PLANNED THE FOR THE PLANNED
OFFERING OFFERING TRANSACTIONS OFFERING OFFERING TRANSACTIONS
--------- --------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Fixed charge ratios:
Ratio of earnings to fixed
charges........................ 1.53X 1.55X 1.61X 1.57X 1.59X 1.68X
Ratio of earnings to fixed
charges, excluding interest on
annuities and financial
products(l).................... 3.74X 4.01X 3.94X 4.17X 4.51X 4.43X
Ratio of earnings to fixed charges
and preferred stock
dividends...................... 1.46X 1.43X 1.46X 1.50X 1.47X 1.52X
Ratio of earnings to fixed charges
and preferred stock dividends,
excluding interest on annuities
and financial products(l)...... 3.00X 2.78X 2.64X 3.29X 3.03X 2.91X
</TABLE>
- ---------------
(a) Amounts under this heading are included to assist the reader in analyzing
the Company'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 the Company
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
the Company'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, minority interest
related to preferred stock issued by a subsidiary of ALH and (in the case
of the columns headed "Pro forma for the Offering" and "Pro forma for the
Offering and other planned transactions") the Preferred Securities.
(f) Represents the ratio of pro forma notes payable for which the Company is
directly liable and the Preferred Securities to the sum of pro forma
shareholders' equity, pro forma notes payable for which the Company is
directly liable, minority interest related to preferred stock issued by a
subsidiary of ALH and the Preferred Securities.
(g) Includes: (1) statutory capital and surplus; (2) AVR and IMR; and (3) the
portion of surplus debentures carried by the life companies as a liability
to the Company. Such statutory data reflect the combined data derived from
the annual statements of the Company'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 the Company's pro
forma life insurance subsidiaries as reported for statutory accounting
purposes plus income before interest expense and income taxes of the
Company'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 the Company and its pro forma subsidiaries that is
required to be paid in cash.
(j) Represents the pro forma ratio of adjusted statutory earnings to the sum of
cash interest and dividends on the Preferred Securities. Cash interest
includes interest, except interest on annuities and financial products, of
the Company and its pro forma subsidiaries that is required to be paid in
cash.
S-31
<PAGE> 33
(k) Assumes ATC's Convertible Subordinated Debentures, which will be convertible
into an assumed 5.0 million shares of Company Common Stock with a value of
$240 million, are converted. ATC's Convertible Subordinated Debentures are
callable on October 1, 1998.
(l) Excludes interest credited to annuity and financial products as follows
(dollars in millions):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------
<S> <C> <C>
Pro forma Conseco before the Offering.................... $ 758.5 $378.3
Pro forma for the Offering............................... 758.5 378.3
Pro forma for the Offering and other planned
transactions........................................... 758.5 378.3
</TABLE>
S-32
<PAGE> 34
PENDING ACQUISITIONS BY THE COMPANY
The Company has agreed to acquire ATC, CAF and THI. Certain information
relating to the business and operations of these companies is summarized below.
Additional information concerning ATC, CAF and THI, is included in certain
documents filed by these companies with the Commission, which documents are
incorporated by reference herein. See "Incorporation of Certain Documents by
Reference."
AMERICAN TRAVELLERS CORPORATION
Background
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. ATC had total assets of $867.4
million at June 30, 1996.
ATC is licensed to market its products in 46 states, the District of
Columbia, and the U.S. and British Virgin Islands. Products are sold primarily
through a network of over 20,000 independent agents. Operations are conducted
through ATC's insurance subsidiaries, American Travellers Life Insurance
Company, United General Life Insurance Company and American Travellers Insurance
Company of New York, and through its insurance agency subsidiary, American
Travellers Insurance Services Company, Inc. ("ATIS").
ATC acquired the long term care business of J.C. Penney Insurance Companies
and THI effective October 1, 1994 and 1995, respectively. At June 30, 1996,
annualized long term care premiums in force relating to such business were
$112.7 million.
Distribution and Marketing
Policies are marketed primarily through a network of over 20,000
independent agents. Products are also marketed, but 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. In most cases, independent agents do not produce
business exclusively for ATC and are free to contract with other carriers,
including competing carriers. These agents are responsible for generating their
own leads. By contrast, sponsored agents produce business only for ATC, are
provided with leads and receive lower commissions than do independent agents.
Products
ATC's primary focus has been, and continues to be, the sale of long term
care insurance. As of December 31, 1995, 89.3 percent of ATC's $371.8 million of
annualized premium in force was attributable to long term care insurance,
including nursing home care and home health care policies. ATC's other lines of
insurance include (i) Medicare supplement, (ii) hospital indemnity, (iii)
cancer, (iv) disability income, (v) various accident and health riders, and (vi)
life insurance. Coverage is generally provided on an individual rather than on a
group basis.
Most policies provide for guaranteed renewals, whereby ATC may not refuse
to renew a policy or any group of policies (except for non-payment of premiums).
ATC does, however, have the right to increase premium rates based on claim
experience. Rate increases must apply to all policies underwritten on the same
policy form in a given state, and are subject to the approval of the applicable
insurance regulatory authority.
ATC's long term care products generally fall into one of three categories;
(i) nursing home care coverage, (ii) home health care coverage, or (iii) 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. ATC's products are offered with various benefit configurations and
are designed to be affordable and useful to a wide spectrum of policyholders.
Some products also provide benefits for such expenses as prescription drugs that
are 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.
S-33
<PAGE> 35
Recent Development
On November 6, 1996, ATC reported net income for the quarter ended
September 30, 1996 of $9.2 million, up 61 percent compared with net income of
$5.7 million for the same period in the prior year. For the nine months ended
September 30, 1996, ATC reported net income of $26.0 million, up 58 percent
compared with net income of $16.5 million for the same period in the prior year.
Total revenues for the nine month period ending September 30, 1996 were $317.8
million, up 60 percent compared with total revenues of $199.1 million for the
same period in the prior year.
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 selected historical financial
information is qualified in its entirety by, and should be read in conjunction
with, ATC's Annual Report. The consolidated financial information set forth
below for the six months ended June 30, 1995 and 1996, is unaudited; however, in
the opinion of ATC's management, such 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.
The comparison of consolidated financial information set forth below is
significantly affected by the acquisition of the long term care business of the
J.C. Penney Insurance Companies in 1994 and THI in 1995. A description of the
acquisition of these blocks of business is contained in the notes to the
consolidated financial statements included in ATC's Annual Report incorporated
by reference herein.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ ------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Insurance policy income......... $117.0 $138.3 $166.4 $201.9 $274.0 $122.7 $186.9
Investment activity:
Net investment income......... 8.1 8.7 9.4 11.0 23.2 8.1 21.3
Net realized gains (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
</TABLE>
S-34
<PAGE> 36
<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>
BALANCE SHEET DATA -- PERIOD END
Total assets.................... $219.7 $240.9 $299.0 $400.8 $836.1 $435.5 $867.4
Notes payable (including
convertible subordinated
debentures)................... 8.4 -- 12.0 20.0 103.5 20.0 103.5
Total liabilities............... 129.3 139.7 182.8 264.5 665.3 287.8 696.4
Shareholders' equity............ 90.4 101.2 116.2 136.3 170.8 147.7 171.0
OTHER FINANCIAL DATA (b)
Operating earnings (c).......... $ 11.1 $ 10.4 $ 14.5 $ 18.4 $ 23.6 $ 10.7 $ 15.9
Operating earnings per fully
diluted common share (a),
(c)........................... .71 .67 .91 1.14 1.35 .66 .77
Shareholders' equity excluding
unrealized appreciation
(depreciation) of fixed
maturity securities (d)....... 90.4 101.2 116.2 136.3 160.6 147.7 181.9
Book value per common share
outstanding excluding
unrealized appreciation of
fixed maturity securities (a),
(d)........................... 5.95 6.66 7.51 8.65 10.13 9.32 11.17
Adjusted statutory capital (at
period end) (e)............... 29.9 30.5 47.0 58.0 74.3 59.0 87.7
Adjusted statutory earnings
(loss) (f).................... (3.3) (1.1) 4.3 11.3 (29.6) 8.2 7.4
</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.
(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) 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.
(f) 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.
S-35
<PAGE> 37
CAPITOL AMERICAN FINANCIAL CORPORATION
Background
CAF, through its insurance subsidiaries, underwrites, markets and
distributes individual and group supplemental health and accident insurance.
CAF's principal insurance subsidiary is Capitol American Life Insurance Company
("CALI"), an Arizona domiciled insurance company, which accounted for more than
97% of CAF's earned premiums over the last five years. CALI is licensed to sell
its products in 47 states, the District of Columbia, Puerto Rico and the U.S.
Virgin Islands, and markets its products through a sales force consisting of
independent agents, agent organizations and brokers. CAF had total assets of
$980 million at June 30, 1996.
For the past 20 years, CAF's primary product has been cancer insurance.
CAF's other products are accident insurance, intensive care insurance, heart
care insurance and hospital indemnity insurance. Approximately 66 percent of the
$282.1 million of total premiums collected by CAF in 1995 (and approximately 65
percent of the $146.6 million of total premiums collected in the first six
months of 1996) was from the sale of cancer insurance. Premiums from intensive
care insurance, other supplemental health policies (including heart care
insurance and hospital indemnity insurance) and accident policies accounted for
approximately 11 percent, 8 percent and 15 percent, respectively, of total
premiums collected in 1995 (and 11 percent, 12 percent and 12 percent,
respectively, of total premiums collected in the first six months of 1996).
Distribution and Marketing
CAF markets its products through a sales force consisting of independent
agents, agent organizations and brokers. This sales force is organized into the
consumer marketing division and the business marketing division. Agents in the
consumer marketing division market CAF's products directly to individuals on a
door-to-door basis, and agents in the business marketing division market CAF's
products through businesses and other organizations that permit CAF's products
to be marketed to their employees and members, with premiums generally paid on a
payroll deduction or other automated basis. Approximately 63 percent of the
total premiums collected by CAF in 1995 (and approximately 62 percent of the
total premiums collected in the first six months of 1996) were collected by the
consumer marketing division.
The two largest independent agent organizations in the consumer marketing
division, Inter-State Service, Inc. ("ISS") and Capitol Marketing, Inc. ("CMI"),
each account for 10 percent or more of CAF's sales. For 1995, ISS accounted for
31.7 percent and CMI accounted for 11.9 percent, respectively, of CAF's sales.
Sales generated by ISS during 1995 and for the six month period ending June 30,
1996 declined by approximately 20 percent and 33 percent, respectively, and were
adversely affected by the settlement agreement described below. The decline in
ISS sales is primarily due to a 38 percent decrease in the number of producing
agents in connection with the settlement agreement described below.
On March 7, 1995, CALI and the insurance regulatory authorities of five
states (North Dakota, South Dakota, Missouri, Wisconsin, and Iowa) entered into
a settlement agreement resolving all issues involving the marketing and sales
practices of CALI's independent agents in those states, which had been the
subject of market conduct examinations. The settlement does not affect the
insurance subsidiaries' authority to sell in the participating states, but it
includes certain provisions CALI must fulfill.
As part of the settlement, CAF has agreed to: establish a compliance
program to ensure compliance by CAF and its independent sales agency of
insurance regulations in the participating states; refile its current insurance
policies with each of the participating states for approval; issue a rider to
existing policyholders in those states which provides benefits for conditions
which are caused or result from the specified disease or the treatment of the
specified disease, and treatment of other diseases or conditions caused,
complicated or aggravated by, or resulting from the treatment of the specified
disease; offer current policyholders in those states the option to eliminate the
Return of Premium ("ROP") rider without affecting the benefits available under
the base policy; and to pay a fine of $300,000 plus costs to each of the
participating states for a total of $1.6 million. The settlement also provides
that CALI's certificate of authority in a participating state (or, in certain
cases, all five states) may be suspended for a minimum of one year if CALI is
deemed to have
S-36
<PAGE> 38
committed a material violation of the settlement by a court or in an
administrative proceeding and that CALI is to refrain from engaging in certain
specified sales practices.
Products
CAF's policies are designed to provide lifestyle protection through
payments made directly to the policyholder following diagnosis of or treatment
for a covered illness or injury. These payments are designed to be used at the
policyholder's discretion for any purpose. Set forth below is a brief
description of CAF's principal insurance products.
Cancer Policies. CAF's cancer policies generally pay according to a fixed,
predetermined schedule of indemnities after the insured has been diagnosed by a
physician as having internal cancer. The cancer policies generally have a first
occurrence benefit, which pays a specified sum to the policyholder or a
beneficiary under the policy immediately upon the initial diagnosis of internal
cancer. While an insured is confined to a hospital for subsequent covered cancer
treatment, the benefits provided under CAF's cancer policies generally include
the following: (i) a specified payment for each day of hospital confinement;
(ii) reimbursement for actual charges for inpatient drugs and diagnostic
testing; (iii) a specified payment for each day an insured is visited by an
attending physician or receives special private nurse care; (iv) reimbursement
for actual charges incurred for ambulance service in connection with hospital
confinement; (v) reimbursement for actual charges for insured and family member
transportation to and from a hospital in which an insured is confined; and (vi)
reimbursement for actual charges for family member lodging while accompanying an
insured confined to a hospital.
Intensive Care Policies. CAF's intensive care coverage, which is primarily
sold as a rider to CAF's cancer insurance policies, generally pays a fixed,
predetermined amount for each day an insured is confined to a hospital intensive
care unit (regardless of the reason for confinement), subject to certain
specified time limits.
Accident Policies. CAF markets two types of accident policies. The
"business marketing" accident policies provide short-term disability benefits
based upon age, employment status, job classification and length of disability
in addition to accidental death and medical benefits. The "consumer marketing"
accident policies provide accidental death and medical benefits only and do not
provide short-term disability benefits. Both types pay medical benefits after an
insured has suffered a covered injury, either on or off the job, according to a
fixed, predetermined schedule of indemnities, based upon the nature of the
injury sustained.
Heart/Stroke Policies. The heart/stroke policies generally pay according
to a fixed, predetermined schedule of indemnities after an insured has been
diagnosed by a physician as having certain heart diseases or as having had a
heart attack or a stroke. They also generally have a first occurrence benefit,
which pays a specified sum to the policyholder or a beneficiary under the policy
immediately upon an insured being diagnosed as having had a heart attack or a
stroke. Similar to CAF's cancer policies, the heart/stroke policies provide
certain benefits while an insured is confined to a hospital and also provide a
range of medical, medical-related and non-medical benefits, regardless of
whether an insured is hospitalized.
Hospital Indemnity Policies. CAF introduced a hospital indemnity product
in 1992 through the business marketing group. The hospital indemnity policies
pay a daily benefit for each day an insured is confined to a hospital and an
additional benefit for each day that an insured is confined to a hospital
intensive care unit.
Group Policies. CAF's cancer, intensive care, accident, hospital indemnity
and heart care products are made available to members of three associations
under group policies issued to the associations or trusts on behalf of the
associations. Members of the three associations pay a nominal membership fee to
join an association and, as members, are entitled to purchase coverage under
these policies. A member who purchases this coverage receives a certificate of
coverage from CAF. Currently, coverage by CAF under group trust policies is
available in eight states. The amount of premiums earned by CAF from sales to
association members under group policies has historically accounted for
approximately one-third of CAF's annual earned premiums.
S-37
<PAGE> 39
Recent Development
On October 24, 1996, CAF reported net income for the quarter ended
September 30, 1996 of $11.7 million, up 4.6 percent compared with net income of
$11.2 million for the same period in the prior year. For the nine months ended
September 30, 1996, CAF reported net income of $38.8 million, up 14 percent
compared to $34.2 million for the same period in the prior year. Total revenues
for the nine month period ended September 30, 1996, were $261.9 million, up 6.7
percent compared to $245.4 million for the same period in the prior year.
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 selected historical financial information
is qualified in its entirety by, and should be read in conjunction with, CAF's
Annual Report. The consolidated financial information set forth below for the
six months ended June 30, 1995 and 1996, is unaudited; however, in the opinion
of CAF's management, such 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
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
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
Adjusted statutory capital (at period end) (d)... 48.3 108.7 108.0 93.9 88.5 96.4 99.5
Adjusted statutory earnings (e).................. 20.1 25.6 33.5 29.4 30.9 15.3 21.7
</TABLE>
- ---------------
Footnotes on Following Page
S-38
<PAGE> 40
(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) 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.
(e) 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.
TRANSPORT HOLDINGS INC.
Background
THI, through its life insurance subsidiaries, TLIC Life Insurance Company,
Transport Life Insurance Company and Continental Life Insurance Company (all of
which are domiciled in Texas), is principally engaged in the underwriting and
distribution of supplemental health insurance. On September 29, 1995, Travelers
Group, Inc. ("Travelers"), the former parent of THI, distributed all of THI's
outstanding common stock to the stockholders of Travelers. THI is licensed to
conduct insurance business in the District of Columbia and all states except New
York. THI had total assets of $925 million at June 30, 1996.
THI's supplemental health insurance products include cancer insurance and
heart/stroke insurance, and generally provide fixed or limited benefits to the
insureds. These supplemental health products are primarily sold by two
independent general agencies and accounted for approximately 84 percent of
premiums collected in the first six months of 1996. THI has several lines of
business with policies in force that it no longer actively offers, including
life insurance, major/catastrophic hospital insurance and credit insurance. In
addition, THI provides premium processing, claims adjudication and payment, and
actuarial services related to certain businesses of Travelers for which it
receives monthly fee payments pursuant to contracts which expire in September
1998. In late 1995, THI sold its long term care insurance business to ATC. Such
long term care business accounted for approximately $103 million of premiums
collected by THI in 1995 prior to the sale.
Distribution and Marketing
THI primarily offers its products through two independent agencies: TLC
National Marketing Company, Inc. ("TLC") and National Teachers Associates, Inc.
("NTA").
TLC sells cancer, heart/stroke and accident insurance for THI through
approximately 350 full time agents. THI believes TLC's agents sell exclusively
THI products. Policies sold by TLC accounted for approximately 48 percent of
THI's premium income and approximately 75 percent of THI's new annualized
premium for the first six months of 1996. Policies are usually sold door-to-door
primarily in Arkansas, Louisiana, New Mexico, Oklahoma, and Texas.
NTA sells cancer and heart/stroke insurance to school employees. Policies
sold by NTA and its affiliates accounted for approximately 36 percent of THI's
premium income and approximately 12 percent of THI's new annualized premiums for
the first six months of 1996. NTA sells policies for THI, an unaffiliated
insurance company and its own life insurance subsidiary. NTA markets THI's
products by seeking endorsements from state teachers associations and school
districts and, where possible, meeting with school employees during regular
hours at the schools. Agents also solicit school employees directly after school
hours.
S-39
<PAGE> 41
Products
THI's cancer insurance products are individual guaranteed renewable
accident and health insurance policies and accounted for approximately 62
percent of premium income in the first six months of 1996. Under THI's cancer
insurance policies, payments are generally made directly to, or at the direction
of, the policyholder following diagnosis of, or treatment for, a covered type of
cancer. The amount of benefits provided under THI's cancer insurance policies is
not necessarily reflective of the actual cost incurred by the insured as a
result of the illness and is not reduced by any other medical insurance payments
made to or on behalf of the insured.
THI's heart/stroke insurance products generally provide for payments
directly to the policyholder for treatment of a covered heart disease, heart
attack or stroke. The products are guaranteed renewable individual accident and
health policies and accounted for approximately 19 percent of premium income in
the first six months of 1996.
Approximately 16 percent of THI's premiums in the first six months of 1996
were from major/catastrophic hospital insurance and life and accident and health
insurance products no longer actively marketed by THI, and other accident and
health insurance products. This business includes: (1) major/catastrophic
hospital insurance provided to individuals and small employers through master
group policies; (2) substandard life insurance, which is substantially
reinsured; and (3) holiday travel products that provide travel interruption and
accidental death benefits to travelers for short time periods.
Recent Development
On October 15, 1996, THI reported net income for the quarter ended
September 30, 1996 of $5.4 million, up 32 percent compared with net income of
$4.1 million for the same period in the prior year. For the nine months ended
September 30, 1996, THI reported net income of $14.4 million, down 21 percent
compared with net income of $18.2 million for the same period in the prior year.
Total revenues for the nine month period ended September 30, 1996, were $113.7
million, down 43 percent compared to $199.7 million in the same period of the
prior year.
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) were combined with THI and the outstanding common stock of THI was
distributed to the shareholders of Travelers. 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 syndicate 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. For a
description of these transactions, see THI's Annual Report. See "Incorporation
of Certain Documents by Reference."
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 is qualified in its entirely by, and should be read in
conjunction with, THI's Annual Report. The selected historical financial
information set forth below 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, such 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
S-40
<PAGE> 42
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......................... $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
Adjusted statutory capital (at period end)
(f)........................................... 96.9 122.2 132.0 130.7 163.5 129.2 146.7
Adjusted statutory earnings (g)................. 28.0 39.3 8.1 24.5 51.8 10.9 19.3
</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. Operating earnings per fully diluted share
data for the year ended December 31, 1995, also include the dilutive effect
of the issuance of the subordinated convertible notes from the date of
issuance, September 29, 1995. Such equivalent shares were anti-dilutive for
purposes of computing net loss per fully diluted share for the year ended
December 31, 1995.
(b) Book value per common share reflects the dilution which would occur if the
subordinated convertible notes were converted to common stock and
outstanding options were exercised.
(c) Amounts under this heading are included to assist the reader in analyzing
THI's financial position and result of operations. Such amounts are not
intended to, and do not, represent net income, net income per share,
shareholders' equity or book value per share prepared in accordance with
GAAP.
S-41
<PAGE> 43
(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) 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.
(g) Represents gains from operations before interest expense and income taxes
of THI's consolidated insurance subsidiaries as reported for statutory
accounting purpose plus income before interest expense, expenses related to
THI's September 29, 1995 spin-off, and income taxes of all non-life
companies.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY
The unaudited pro forma consolidated statements of operations of the
Company for the year ended December 31, 1995, and for the six months ended June
30, 1996, present the consolidated operating results of the Company as if the
following planned transactions had occurred on January 1, 1995: (1) the
Offering; (2) the Additional Offering; (3) the ATC Merger; (4) the BLH
Transaction; (5) the CAF Merger; and (6) the THI Merger.
The pro forma consolidated statement of operations data for the Company 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 Offering" 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 the Company and related transactions
(including the repayment of the borrowings under the Company's existing $250.0
million revolving credit agreement); (5) the increase of the Company's ownership
in BLH to 90.5 percent, as a result of purchases of common shares of BLH by the
Company 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 the
Company's Current Report on Form 8-K dated September 25, 1996; (2) the Company's
Current Report on Form 8-K dated August 2, 1996; and (3) Exhibit 99.1 included
in the Company's Current Report on Form 8-K dated April 10, 1996, each of which
is incorporated herein by reference. See "Incorporation of Certain Documents by
Reference" in the accompanying Prospectus.
The pro forma consolidated statement of operations data for the Company 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 Offering" 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 the Company's Current
Report on Form 8-K dated September 25, 1996; (2) the Company's Current Report on
Form 8-K dated August 2, 1996; and (3) Exhibit 99.1 included in the Company's
Form 10-Q for the quarterly period ended June 30, 1996.
The unaudited pro forma consolidated balance sheet of the Company as of
June 30, 1996, gives effect to the following planned transactions as if each had
occurred on June 30, 1996: (1) the Offering; (2) the Additional Offering; (3)
the ATC Merger; (4) the BLH Transaction; (5) the CAF Merger; and (6) the THI
Merger.
S-42
<PAGE> 44
The unaudited pro forma consolidated balance sheet data as of June 30,
1996, set forth in the unaudited pro forma consolidated balance sheet under the
column "Pro forma Conseco before the Offering" 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 the Company's Current
Report on Form 8-K dated September 25, 1996; and (2) the Company's Current
Report on Form 8-K dated August 2, 1996, each of which is incorporated herein by
reference. See "Incorporation of Certain Documents by Reference" in the
accompanying Prospectus.
The pro forma consolidated financial statements are based on the historical
financial statements of the Company, LPG, ATC, CAF and THI and are qualified in
their entirety by and should be read in conjunction with, these financial
statements and the notes thereto. The pro forma data are not necessarily
indicative of the results of operations or financial condition of the Company
had these transactions occurred on January 1, 1995, nor the results of future
operations. The Company anticipates cost savings and additional benefits as a
result of certain of the transactions contemplated in the pro forma financial
statements. Such benefits and any other changes that might have resulted from
management of the combined companies have not been included as adjustments to
the pro forma consolidated financial statements. Certain amounts from the prior
periods have been reclassified to conform to the current presentation.
The unaudited pro forma consolidated financial statements reflect cost
allocations for the LPG Merger, the ALH Transaction, the ATC 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 ATC Merger, the BLH Transaction, the
CAF Merger and the THI Merger had occurred on the assumed merger dates.
S-43
<PAGE> 45
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 PRO FORMA ADJUSTMENTS
CONSECO ADJUSTMENTS PRO FORMA RELATING TO PRO FORMA
BEFORE THE RELATING TO THE FOR THE ADDITIONAL CONSECO ATC
OFFERING OFFERING OFFERING OFFERING SUBTOTAL HISTORICAL
---------- ---------------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income..................... $ 897.2 $ -- $ 897.2 $ -- $ 897.2 $186.9
Investment activity:
Net investment income..................... 719.4 719.4 719.4 21.3
Net trading losses........................ (7.3) (7.3) (7.3)
Net realized gains........................ 15.4 15.4 15.4 1.3
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 -- 1,685.4 -- 1,685.4 209.5
------- ----- ------- ----- ------- ------
Benefits and expenses:
Insurance policy benefits and change in
future policy benefits.................... 626.0 626.0 626.0 127.3
Interest expense on annuities and financial
products.................................. 378.3 378.3 378.3
Interest expense on notes payable........... 67.6 (6.2)(1) 61.4 (4.6)(6) 56.8 4.0
Interest expense on investment borrowings... 10.7 10.7 10.7
Amortization related to operations.......... 168.3 168.3 168.3 10.9
Amortization related to realized gains...... 15.1 15.1 15.1
Other operating costs and expenses.......... 157.9 157.9 157.9 42.4
------- ----- ------- ----- ------- ------
Total benefits and expenses........... 1,423.9 (6.2) 1,417.7 (4.6) 1,413.1 184.6
------- ----- ------- ----- ------- ------
Income (loss) before income taxes,
minority interest and extraordinary
charge............................... 261.5 6.2 267.7 4.6 272.3 24.9
Income tax expense (benefit)................. 100.3 2.2 (2) 102.5 1.6 (7) 104.1 8.1
------- ----- ------- ----- ------- ------
Income (loss) before minority interest
and extraordinary charge............. 161.2 4.0 165.2 3.0 168.2 16.8
Minority interest in consolidated
subsidiaries:
Dividends on Company - obligated mandatorily
redeemable preferred securities of
subsidiary trusts......................... -- 6.1 (3) 6.1 4.5 (8) 10.6
Dividends on preferred stock................ 4.4 4.4 4.4
Equity in earnings.......................... 7.9 7.9 7.9
------- ----- ------- ----- ------- ------
Income (loss) before extraordinary
charge............................... $ 148.9 $ (2.1) $ 146.8 $(1.5) $ 145.3 $ 16.8
======= ===== ======= ===== ======= ======
Earnings per common share and common
equivalent share:
Primary:
Weighted average shares outstanding..... 77.0 77.0 77.0
======= ======= =======
Income before extraordinary charge...... $ 1.93 $ 1.91 $ 1.89
======= ======= =======
Fully diluted:
Weighted average shares outstanding..... 77.8 77.8 77.8
======= ======= =======
Income before extraordinary charge...... $ 1.91 $ 1.89 $ 1.87
======= ======= =======
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
RELATING TO THE CONSECO
ATC MERGER SUBTOTAL
---------------- ----------
<S> <C> <C>
Revenues:
Insurance policy income..................... $ -- $1,084.1
Investment activity:
Net investment income..................... 0.7 (11) 741.4
Net trading losses........................ (7.3)
Net realized gains........................ 2.3 (11) 19.0
Fee revenue................................. 20.1
Restructuring income........................ 30.4
Other income................................ 10.2
------ -------
Total revenues........................ 3.0 1,897.9
------ -------
Benefits and expenses:
Insurance policy benefits and change in
future policy benefits.................... 753.3
Interest expense on annuities and financial
products.................................. 378.3
Interest expense on notes payable........... 1.0 (12) 59.3
(2.5)(13)
Interest expense on investment borrowings... 10.7
Amortization related to operations.......... (10.9)(14) 188.7
13.2 (14)
7.2 (15)
Amortization related to realized gains...... 15.1
Other operating costs and expenses.......... 200.3
------ -------
Total benefits and expenses........... 8.0 1,605.7
------ -------
Income (loss) before income taxes,
minority interest and extraordinary
charge............................... (5.0) 292.2
Income tax expense (benefit)................. 0.8(16) 113.0
------ -------
Income (loss) before minority interest
and extraordinary charge............. (5.8) 179.2
Minority interest in consolidated
subsidiaries:
Dividends on Company - obligated mandatorily
redeemable preferred securities of
subsidiary trusts......................... 10.6
Dividends on preferred stock................ 4.4
Equity in earnings.......................... 7.9
------ -------
Income (loss) before extraordinary
charge............................... $ (5.8) $ 156.3
====== =======
Earnings per common share and common
equivalent share:
Primary:
Weighted average shares outstanding..... 13.1(17) 90.1
====== =======
Income before extraordinary charge...... $ 1.73
=======
Fully diluted:
Weighted average shares outstanding..... 18.1(17) 95.9
====== =======
Income before extraordinary charge...... $ 1.66
=======
</TABLE>
(continued on the page which follows)
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
S-44
<PAGE> 46
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 PRO FORMA ADJUSTMENTS PRO FORMA
RELATING TO THE CONSECO CAF RELATING TO THE CONSECO THI
BLH TRANSACTION SUBTOTAL HISTORICAL CAF MERGER SUBTOTAL HISTORICAL
--------------- --------- ---------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income................. $ -- $1,084.1 $146.6 $ -- $1,230.7 $ 55.6
Investment activity:
Net investment income................. 0.1(26) 741.5 27.3 (1.7)(32) 767.1 19.9
Net trading losses.................... (7.3) (7.3)
Net realized gains.................... 19.0 0.1 (0.1)(32) 19.0 0.3
Fee revenue............................. 20.1 20.1
Restructuring income.................... 30.4 30.4
Other income............................ 10.2 10.2 0.6
----- ------- ------ ------ ------- -----
Total revenues.................... 0.1 1,898.0 174.0 (1.8) 2,070.2 76.4
----- ------- ------ ------ ------- -----
Benefits and expenses:
Insurance policy benefits and change in
future policy benefits................ (1.0)(26) 752.3 80.9 (1.5)(33) 831.7 37.1
Interest expense on annuities and
financial products.................... 378.3 378.3
Interest expense on notes payable....... 59.3 1.0 (1.0)(34) 77.9 4.5
18.6 (35)
Interest expense on investment
borrowings............................ 10.7 10.7
Amortization related to operations...... 0.1(26) 188.8 12.3 (12.3)(36) 207.9 4.2
16.2 (36)
2.9 (37)
Amortization related to realized
gains................................. 0.1(26) 15.2 15.2
Other operating costs and expenses...... 1.1(26) 201.4 38.2 239.6 16.7
----- ------- ------ ------ ------- -----
Total benefits and expenses....... 0.3 1,606.0 132.4 22.9 1,761.3 62.5
----- ------- ------ ------ ------- -----
Income (loss) before income taxes,
minority interest and
extraordinary charge............. (0.2) 292.0 41.6 (24.7) 308.9 13.9
Income tax expense (benefit)............. 0.1(27) 113.1 14.5 (7.6)(38) 120.0 4.9
----- ------- ------ ------ ------- -----
Income (loss) before minority
interest and extraordinary
charge........................... (0.3) 178.9 27.1 (17.1) 188.9 9.0
Minority interest in consolidated
subsidiaries:
Dividends on Company - obligated
mandatorily redeemable preferred
securities of subsidiary trusts....... 10.6 10.6
Dividends on preferred stock............ 4.4 4.4
Equity in earnings...................... (7.9)(28) -- --
----- ------- ------ ------ ------- -----
Income (loss) before extraordinary
charge........................... $ 7.6 $ 163.9 $ 27.1 $ (17.1) $ 173.9 $ 9.0
===== ======= ====== ====== ======= =====
Earnings per common share and common
equivalent share:
Primary:
Weighted average shares
outstanding....................... 2.6(29) 92.7 2.4 (39) 95.1
===== ======= ====== =======
Income before extraordinary
charge............................ $ 1.77 $ 1.83
======= =======
Fully diluted:
Weighted average shares
outstanding....................... 2.6(29) 98.5 2.4 (39) 100.9
===== ======= ====== =======
Income before extraordinary
charge............................ $ 1.69 $ 1.75
======= =======
<CAPTION>
PRO FORMA
PRO FORMA FOR THE
ADJUSTMENTS OFFERING AND
RELATING TO OTHER
THE THI PLANNED
MERGER TRANSACTIONS
----------- ------------
<S> <C> <C>
Revenues:
Insurance policy income................. $ -- $1,286.3
Investment activity:
Net investment income................. (3.3)(51) 783.7
Net trading losses.................... (7.3)
Net realized gains.................... (0.3)(51) 19.0
Fee revenue............................. 20.1
Restructuring income.................... 30.4
Other income............................ 10.8
----- -------
Total revenues.................... (3.6) 2,143.0
----- -------
Benefits and expenses:
Insurance policy benefits and change in
future policy benefits................ 868.8
Interest expense on annuities and
financial products.................... 378.3
Interest expense on notes payable....... (4.5)(52) 78.5
0.6(52)
Interest expense on investment
borrowings............................ 10.7
Amortization related to operations...... (4.2)(53) 214.9
7.0(53)
Amortization related to realized
gains................................. 15.2
Other operating costs and expenses...... 256.3
----- -------
Total benefits and expenses....... (1.1) 1,822.7
----- -------
Income (loss) before income taxes,
minority interest and
extraordinary charge............. (2.5) 320.3
Income tax expense (benefit)............. (0.9)(54) 124.0
----- -------
Income (loss) before minority
interest and extraordinary
charge........................... (1.6) 196.3
Minority interest in consolidated
subsidiaries:
Dividends on Company - obligated
mandatorily redeemable preferred
securities of subsidiary trusts....... 10.6
Dividends on preferred stock............ 4.4
Equity in earnings...................... --
----- -------
Income (loss) before extraordinary
charge........................... $(1.6) $ 181.3
===== =======
Earnings per common share and common
equivalent share:
Primary:
Weighted average shares
outstanding....................... 4.7(55) 99.8
===== =======
Income before extraordinary
charge............................ $ 1.82
=======
Fully diluted:
Weighted average shares
outstanding....................... 4.7(55) 105.6
===== =======
Income before extraordinary
charge............................ $ 1.74
=======
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
S-45
<PAGE> 47
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 PRO FORMA ADJUSTMENTS
CONSECO ADJUSTMENTS PRO FORMA RELATING TO PRO FORMA
BEFORE THE RELATING TO THE FOR THE ADDITIONAL CONSECO ATC
OFFERING OFFERING OFFERING OFFERING SUBTOTAL HISTORICAL
---------- ---------------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income..................... $1,752.8 $ -- $1,752.8 $ -- $1,752.8 $273.9
Investment activity:
Net investment income..................... 1,461.1 1,461.1 1,461.1 23.2
Net trading income........................ 2.5 2.5 2.5
Net realized gains........................ 220.3 220.3 220.3 0.2
Fee revenue................................. 33.9 33.9 33.9
Restructuring income........................ 15.2 15.2 15.2
Other income................................ 12.6 12.6 12.6
------- ------ ------- ------ ------- ------
Total revenues.......................... 3,498.4 -- 3,498.4 -- 3,498.4 297.3
------- ------ ------- ------ ------- ------
Benefits and expenses:
Insurance policy benefits and change in
future policy benefits.................... 1,261.4 1,261.4 1,261.4 172.9
Interest expense on annuities and financial
products.................................. 758.5 758.5 758.5
Interest expense on notes payable........... 143.5 (12.3)(1) 131.2 (9.2)(6) 122.0 3.3
Interest expense on investment borrowings... 30.2 30.2 30.2
Amortization related to operations.......... 307.3 307.3 307.3 22.7
Amortization related to realized gains...... 144.4 144.4 144.4
Loss on sale of long-term care business..... -- -- --
Expenses of spin-off and related
transactions.............................. -- -- --
Other operating costs and expenses.......... 356.4 356.4 356.4 63.7
------- ------ ------- ------ ------- ------
Total benefits and expenses............. 3,001.7 (12.3) 2,989.4 (9.2) 2,980.2 262.6
------- ------ ------- ------ ------- ------
Income (loss) before income taxes,
minority interest and extraordinary
charge................................ 496.7 12.3 509.0 9.2 518.2 34.7
Income tax expense (benefit)................. 192.3 4.3(2) 196.6 3.2(7) 199.8 11.0
------- ------ ------- ------ ------- ------
Income (loss) before minority interest
and extraordinary charge.............. 304.4 8.0 312.4 6.0 318.4 23.7
Minority interest in consolidated
subsidiaries:
Dividends on Company - obligated mandatorily
redeemable preferred securities of
subsidiary trusts......................... -- 12.1(3) 12.1 9.0(8) 21.1
Dividends on preferred stock................ 8.7 8.7 8.7
Equity in earnings.......................... 12.6 12.6 12.6
------- ------ ------- ------ ------- ------
Income (loss) before extraordinary
charge................................ $ 283.1 $ (4.1) $ 279.0 $(3.0) $ 276.0 $ 23.7
======= ====== ======= ====== ======= ======
Earnings per common share and common
equivalent share:
Primary:
Weighted average shares outstanding..... 75.7 75.7 75.7
======= ======= =======
Income before extraordinary charge...... $ 3.74 $ 3.69 $ 3.65
======= ======= =======
Fully diluted:
Weighted average shares outstanding..... 76.0 76.0 76.0
======= ======= =======
Income before extraordinary charge...... $ 3.72 $ 3.67 $ 3.63
======= ======= =======
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
RELATING TO THE CONSECO
ATC MERGER SUBTOTAL
---------------- ----------
<S> <C> <C>
Revenues:
Insurance policy income..................... $ -- $2,026.7
Investment activity:
Net investment income..................... 1.8 (11) 1,486.1
Net trading income........................ 2.5
Net realized gains........................ 2.0 (11) 222.5
Fee revenue................................. 33.9
Restructuring income........................ 15.2
Other income................................ 12.6
------
Total revenues.......................... 3.8 3,799.5
------
Benefits and expenses:
Insurance policy benefits and change in
future policy benefits.................... 1,434.3
Interest expense on annuities and financial
products.................................. 758.5
Interest expense on notes payable........... 1.9 (12) 124.0
(3.2)(13)
Interest expense on investment borrowings... 30.2
Amortization related to operations.......... (22.7)(14) 345.2
23.5 (14)
14.4 (15)
Amortization related to realized gains...... 144.4
Loss on sale of long-term care business..... --
Expenses of spin-off and related
transactions.............................. --
Other operating costs and expenses.......... 420.1
------
Total benefits and expenses............. 13.9 3,256.7
------
Income (loss) before income taxes,
minority interest and extraordinary
charge................................ (10.1) 542.8
Income tax expense (benefit)................. 1.5 (16) 212.3
------
Income (loss) before minority interest
and extraordinary charge.............. (11.6) 330.5
Minority interest in consolidated
subsidiaries:
Dividends on Company - obligated mandatorily
redeemable preferred securities of
subsidiary trusts......................... 21.1
Dividends on preferred stock................ 8.7
Equity in earnings.......................... 12.6
------
Income (loss) before extraordinary
charge................................ $(11.6) $ 288.1
======
Earnings per common share and common
equivalent share:
Primary:
Weighted average shares outstanding..... 13.1 (17) 88.8
======
Income before extraordinary charge...... $ 3.24
Fully diluted:
Weighted average shares outstanding..... 18.1 (17) 94.1
======
Income before extraordinary charge...... $ 3.08
</TABLE>
(continued on the page which follows)
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
S-46
<PAGE> 48
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
ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
RELATING TO THE CONSECO CAF RELATING TO THE CONSECO THI
BLH TRANSACTION SUBTOTAL HISTORICAL CAF MERGER SUBTOTAL HISTORICAL
--------------- --------- ---------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income.................. $ (0.3)(26) $2,026.4 $282.1 $ -- $2,308.5 $190.2
Investment activity:
Net investment income.................. (0.1)(26) 1,486.0 48.6 (3.4)(32) 1,531.2 49.7
Net trading income..................... 2.5 2.5
Net realized gains..................... (0.4)(26) 222.1 (0.1)(32) 222.0 6.7
Fee revenue.............................. 33.9 33.9
Restructuring income..................... 15.2 15.2
Other income............................. (0.1)(26) 12.5 0.1 12.6
------ ------- ------ ------ ------- ------
Total revenues....................... (0.9) 3,798.6 330.8 (3.5) 4,125.9 246.6
------ ------- ------ ------ ------- ------
Benefits and expenses:
Insurance policy benefits and change in
future policy benefits................. (1.7)(26) 1,432.6 155.3 (3.0)(33) 1,584.9 131.9
Interest expense on annuities and
financial products..................... 0.3 (26) 758.8 758.8
Interest expense on notes payable........ (0.4)(26) 123.6 2.4 (2.4)(34) 160.7 2.3
37.1 (35)
Interest expense on investment
borrowings............................. 30.2 30.2
Amortization related to operations....... (2.8)(26) 342.4 21.5 (21.5)(36) 380.2 24.5
32.0 (36)
5.8 (37)
Amortization related to realized gains... (0.6)(26) 143.8 143.8
Loss on sale of long-term care
business............................... -- -- 68.5
Expenses of spin-off and related
transactions........................... -- -- 2.2
Other operating costs and expenses....... 5.9 (26) 426.0 80.0 506.0 58.3
------ ------- ------ ------ ------- ------
Total benefits and expenses.......... 0.7 3,257.4 259.2 48.0 3,564.6 287.7
------ ------- ------ ------ ------- ------
Income (loss) before income taxes,
minority interest and extraordinary
charge............................. (1.6) 541.2 71.6 (51.5) 561.3 (41.1)
Income tax expense (benefit).............. (0.6)(27) 211.7 25.6 (16.0)(38) 221.3 (14.3)
------ ------- ------ ------ ------- ------
Income (loss) before minority
interest and extraordinary
charge............................. (1.0) 329.5 46.0 (35.5) 340.0 (26.8)
Minority interest in consolidated
subsidiaries:
Dividends on Company - obligated
mandatorily redeemable preferred
securities of subsidiary trusts........ 21.1 21.1
Dividends on preferred stock............. 8.7 8.7
Equity in earnings....................... (12.6)(28) -- --
------ ------- ------ ------ ------- ------
Income (loss) before extraordinary
charge............................. $ 11.6 $ 299.7 $ 46.0 $ (35.5) $ 310.2 $(26.8)
====== ======= ====== ====== ======= ======
Earnings per common share and common
equivalent share:
Primary:
Weighted average shares
outstanding........................ 2.6 (29) 91.4 2.4 (39) 93.8
====== ======= ====== =======
Income before extraordinary charge... $ 3.28 $ 3.31
======= =======
Fully diluted:
Weighted average shares
outstanding........................ 2.6 (29) 96.7 2.4 (39) 99.1
====== ======= ====== =======
Income before extraordinary charge... $ 3.11 $ 3.14
======= =======
<CAPTION>
PRO FORMA
PRO FORMA FOR THE
ADJUSTMENTS OFFERING
RELATING TO AND OTHER
THE THI PLANNED
MERGER TRANSACTIONS
----------- ------------
<S> <<C> <C>
Revenues:
Insurance policy income.................. $ $2,498.7
Investment activity:
Net investment income.................. (6.9)(51) 1,574.0
Net trading income..................... 2.5
Net realized gains..................... (6.7)(51) 222.0
Fee revenue.............................. 33.9
Restructuring income..................... 15.2
Other income............................. 12.6
------ -------
Total revenues....................... (13.6) 4,358.9
------ -------
Benefits and expenses:
Insurance policy benefits and change in
future policy benefits................. 1,716.8
Interest expense on annuities and
financial products..................... 758.8
Interest expense on notes payable........ (2.3)(52) 161.9
1.2 (52)
Interest expense on investment
borrowings............................. 30.2
Amortization related to operations....... (24.5)(53) 396.1
15.9 (53)
Amortization related to realized gains... 143.8
Loss on sale of long-term care
business............................... (68.5)(56) --
Expenses of spin-off and related
transactions........................... (2.2)(56) --
Other operating costs and expenses....... 564.3
------ -------
Total benefits and expenses.......... (80.4) 3,771.9
------ -------
Income (loss) before income taxes,
minority interest and extraordinary
charge............................. 66.8 587.0
Income tax expense (benefit).............. 22.7 (54) 229.7
------ -------
Income (loss) before minority
interest and extraordinary
charge............................. 44.1 357.3
Minority interest in consolidated
subsidiaries:
Dividends on Company - obligated
mandatorily redeemable preferred
securities of subsidiary trusts........ 21.1
Dividends on preferred stock............. 8.7
Equity in earnings....................... --
------ -------
Income (loss) before extraordinary
charge............................. $ 44.1 $ 327.5
====== =======
Earnings per common share and common
equivalent share:
Primary:
Weighted average shares
outstanding........................ 4.7 (55) 98.5
====== =======
Income before extraordinary charge... $ 3.33
=======
Fully diluted:
Weighted average shares
outstanding........................ 4.7 (55) 103.8
====== =======
Income before extraordinary charge... $ 3.17
=======
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
S-47
<PAGE> 49
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA ADJUSTMENTS
CONSECO ADJUSTMENTS PRO FORMA RELATING TO PRO FORMA
BEFORE THE RELATING TO THE FOR THE ADDITIONAL CONSECO ATC
OFFERING OFFERING OFFERING OFFERING SUBTOTAL HISTORICAL
---------- --------------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investments:
Actively managed fixed maturity
securities at fair value...... $15,872.3 $ -- $15,872.3 $ -- $15,872.3 $ 651.8
Held-to-maturity fixed maturity
securities.................... -- -- --
Equity securities at fair
value......................... 99.6 99.6 99.6
Mortgage loans.................. 404.2 404.2 404.2 0.4
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.......... 204.6 189.3 (4) 204.6 141.9 (9) 204.6 17.5
(189.3)(4) (141.9)(9)
Assets held in separate
accounts...................... 271.6 271.6 271.6
--------- --------- --------- --------- --------- ---------
Total investments............. 17,882.4 -- 17,882.4 -- 17,882.4 669.7
Accrued investment income......... 284.1 284.1 284.1 7.4
Cost of policies purchased........ 1,893.6 1,893.6 1,893.6 11.2
Cost of policies produced......... 483.2 483.2 483.2 160.8
Reinsurance receivables........... 374.6 374.6 374.6
Income taxes...................... 209.7 209.7 209.7
Goodwill.......................... 1,566.8 1,566.8 1,566.8
Property and equipment............ 89.0 89.0 89.0 4.0
Securities segregated for future
redemption of redeemable
preferred stock of a Partnership
II entity....................... 40.7 40.7 40.7
Other assets...................... 234.2 234.2 234.2 14.3
--------- --------- --------- --------- --------- ---------
Total assets.................. $23,058.3 $ -- $23,058.3 $ -- $23,058.3 $ 867.4
========= ========= ========= ========= ========= =========
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
RELATING TO THE CONSECO
ATC MERGER SUBTOTAL
--------------- ---------
<S> <<C> <C>
Assets
Investments:
Actively managed fixed maturity
securities at fair value...... $ -- $16,524.1
Held-to-maturity fixed maturity
securities.................... --
Equity securities at fair
value......................... 99.6
Mortgage loans.................. 404.6
Credit-tenant loans............. 309.7
Policy loans.................... 528.7
Other invested assets........... 191.0
Trading account securities...... 0.7
Short-term investments.......... (30.4)(18) 222.1
30.4 (19)
Assets held in separate
accounts...................... 271.6
--------- ---------
Total investments............. -- 18,552.1
Accrued investment income......... 291.5
Cost of policies purchased........ 256.2 (20) 2,149.8
(11.2)(20)
Cost of policies produced......... (160.8)(21) 483.2
Reinsurance receivables........... 374.6
Income taxes...................... (25.6)(22) 163.1
(21.0)(22)
Goodwill.......................... 577.3 (23) 2,144.1
Property and equipment............ 93.0
Securities segregated for future
redemption of redeemable
preferred stock of a Partnership
II entity....................... 40.7
Other assets...................... 248.5
--------- ---------
Total assets.................. $ 614.9 $24,540.6
========= =========
</TABLE>
(continued on the page which follows)
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
S-48
<PAGE> 50
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
JUNE 30, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
RELATING TO THE CONSECO CAF RELATING TO THE CONSECO THI
BLH TRANSACTION SUBTOTAL HISTORICAL CAF MERGER SUBTOTAL HISTORICAL
--------------- --------- ---------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investments:
Actively managed fixed
maturity securities at
fair value................ $ -- $16,524.1 $ 318.1 $ 351.8 (40) $17,291.1 $ 480.5
97.1 (41)
Held-to-maturity fixed
maturity securities....... -- 351.8 (351.8)(40) --
Equity securities at fair
value..................... 99.6 99.6 0.9
Mortgage loans.............. 404.6 404.6 8.6
Credit-tenant loans......... 309.7 309.7
Policy loans................ 528.7 528.7 17.8
Other invested assets....... 191.0 191.0 5.1
Trading account
securities................ 0.7 0.7
Short-term investments...... 222.1 2.2 (534.0)(42) 224.3 21.0
(26.0)(42)
(29.5)(42)
589.5 (43)
Assets held in separate
accounts.................. 271.6 271.6
--------- --------- --------- --------- --------- ---------
Total investments......... -- 18,552.1 672.1 97.1 19,321.3 533.9
Accrued investment income..... 291.5 8.3 299.8 6.4
Cost of policies purchased.... 65.0 (26) 2,214.8 483.3 (44) 2,698.1 11.3
Cost of policies produced..... (50.0)(26) 433.2 266.4 (266.4)(45) 433.2 28.8
Reinsurance receivables....... 374.6 374.6 319.7
Income taxes.................. (5.3)(27) 157.8 (80.1)(46) 25.9
(51.8)(46)
Goodwill...................... 55.3 (26) 2,199.4 232.5(47) 2,431.9
Property and equipment........ 93.0 4.8 97.8
Securities segregated for
future redemption of
redeemable preferred stock
of a Partnership II
entity...................... 40.7 40.7
Other assets.................. 248.5 28.8 277.3 24.4
--------- --------- --------- --------- --------- ---------
Total assets.............. $ 65.0 $24,605.6 $ 980.4 $ 414.6 $26,000.6 $ 924.5
========= ========= ========= ========= ========= =========
<CAPTION>
PRO FORMA
FOR THE
PRO FORMA OFFERING
ADJUSTMENTS AND OTHER
RELATING TO THE PLANNED
THI MERGER TRANSACTIONS
--------------- ------------
<S> <C<C> <C>
Assets
Investments:
Actively managed fixed
maturity securities at
fair value................ $ (83.1)(57) $17,688.5
Held-to-maturity fixed
maturity securities....... --
Equity securities at fair
value..................... 100.5
Mortgage loans.............. 413.2
Credit-tenant loans......... 309.7
Policy loans................ 546.5
Other invested assets....... 196.1
Trading account
securities................ 0.7
Short-term investments...... 83.1 (57) 245.3
18.5 (58)
(18.5)(58)
(58.3)(58)
(24.8)(58)
Assets held in separate
accounts.................. 271.6
--------- ---------
Total investments......... (83.1) 19,772.1
Accrued investment income..... 306.2
Cost of policies purchased.... 121.9 (59) 2,820.0
(11.3)(59)
Cost of policies produced..... (28.8)(60) 433.2
Reinsurance receivables....... (253.4)(62) 440.9
Income taxes.................. (25.9)(61) --
Goodwill...................... 2,431.9
Property and equipment........ 97.8
Securities segregated for
future redemption of
redeemable preferred stock
of a Partnership II
entity...................... 40.7
Other assets.................. 301.7
--------- ---------
Total assets.............. $ (280.6) $26,644.5
========= =========
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
S-49
<PAGE> 51
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 RELATING TO THE FOR THE ADDITIONAL CONSECO ATC
OFFERING OFFERING OFFERING OFFERING SUBTOTAL HISTORICAL
--------- --------------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Liabilities:
Insurance liabilities.......... $18,133.2 $ -- $18,133.2 $ -- $18,133.2 $563.9
Income tax liabilities......... -- -- -- 21.0
Investment borrowings.......... 516.6 516.6 516.6
Other liabilities.............. 457.9 457.9 457.9 8.0
Liabilities related to separate
accounts..................... 271.6 271.6 271.6
Notes payable of Conseco....... 1,198.5 (189.3)(4) 1,009.2 (141.9)(9) 867.3 103.5
Notes payable of Bankers Life
Holding Corporation, not
direct obligations of
Conseco...................... 437.9 437.9 437.9
-------- ------- -------- ------- -------- ------
Total liabilities.......... 21,015.7 (189.3) 20,826.4 (141.9) 20,684.5 696.4
-------- ------- -------- ------- -------- ------
Minority interest in
consolidated subsidiaries:
Company-obligated mandatorily
redeemable preferred
securities of subsidiary
trusts..................... -- 200.0 (5) 200.0 150.0 (10) 350.0
Preferred stock.............. 93.2 93.2 93.2
Common stock................. 57.5 57.5 57.5
-------- ------- -------- ------- -------- ------
Shareholders' equity:
Preferred stock................ 267.1 267.1 267.1
Common stock and additional
paid-in capital.............. 1,040.9 (10.7)(5) 1,030.2 (8.1)(10) 1,022.1 63.8
Unrealized appreciation
(depreciation) of
securities................... (56.1) (56.1) (56.1) (10.8)
Retained earnings.............. 640.0 640.0 640.0 118.0
-------- ------- -------- ------- -------- ------
Total shareholders'
equity................... 1,891.9 (10.7) 1,881.2 (8.1) 1,873.1 171.0
-------- ------- -------- ------- -------- ------
Total liabilities and
shareholders' equity..... $23,058.3 $ -- $23,058.3 $ -- $23,058.3 $867.4
======== ======= ======== ======= ======== ======
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
RELATING TO THE CONSECO
ATC MERGER SUBTOTAL
--------------- ---------
<S> <C<C> <C>
Liabilities:
Insurance liabilities.......... $ -- $18,697.1
Income tax liabilities......... (21.0)(22) --
Investment borrowings.......... 516.6
Other liabilities.............. 11.2 (24) 477.1
Liabilities related to separate
accounts..................... 271.6
Notes payable of Conseco....... 30.4(19) 1,137.7
136.5(24)
Notes payable of Bankers Life
Holding Corporation, not
direct obligations of
Conseco...................... 437.9
------- --------
Total liabilities.......... 157.1 21,538.0
------- --------
Minority interest in
consolidated subsidiaries:
Company-obligated mandatorily
redeemable preferred
securities of subsidiary
trusts..................... 350.0
Preferred stock.............. 93.2
Common stock................. 57.5
------- --------
Shareholders' equity:
Preferred stock................ 267.1
Common stock and additional
paid-in capital.............. (63.8)(25) 1,650.9
628.8(25)
Unrealized appreciation
(depreciation) of
securities................... 10.8(25) (56.1)
Retained earnings.............. (118.0)(25) 640.0
------- --------
Total shareholders'
equity................... 457.8 2,501.9
------- --------
Total liabilities and
shareholders' equity..... $ 614.9 $24,540.6
======= ========
</TABLE>
(continued on the page which follows)
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
S-50
<PAGE> 52
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
JUNE 30, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
RELATING TO THE CONSECO CAF RELATING TO THE CONSECO THI
BLH TRANSACTION SUBTOTAL HISTORICAL CAF MERGER SUBTOTAL HISTORICAL
--------------- --------- ---------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Liabilities:
Insurance liabilities............... $ -- $18,697.1 $587.9 $ 85.0 (48) $19,370.0 $612.7
Income tax liabilities.............. -- 51.8 (51.8)(46) -- 18.4
Investment borrowings............... 516.6 516.6
Other liabilities................... 477.1 16.9 494.0 17.0
Liabilities related to separate
accounts.......................... 271.6 271.6
Notes payable of Conseco............ 437.9(30) 1,575.6 29.5 (29.5)(49) 2,165.1 108.3
589.5 (43)
Notes payable of Bankers Life
Holding Corporation, not direct
obligations of Conseco............ (437.9)(30) -- --
------- -------- ------ ------- -------- ------
Total liabilities............... -- 21,538.0 686.1 593.2 22,817.3 756.4
------- -------- ------ ------- -------- ------
Minority interest in consolidated
subsidiaries:
Company-obligated mandatorily
redeemable preferred securities
of subsidiary trusts............ 350.0 350.0
Preferred stock................... 93.2 93.2
Common stock...................... (57.5)(28) -- --
------- -------- ------ ------- -------- ------
Shareholders' equity:
Preferred stock..................... 267.1 267.1 22.8
Common stock and additional paid-in
capital........................... 122.5(31) 1,773.4 35.5 (35.5)(50) 1,889.1 169.7
115.7 (50)
Unrealized appreciation
(depreciation) of securities...... (56.1) (2.1) 2.1 (50) (56.1) 4.0
Retained earnings................... 640.0 260.9 (260.9)(50) 640.0 (28.4)
------- -------- ------ ------- -------- ------
Total shareholders' equity...... 122.5 2,624.4 294.3 (178.6) 2,740.1 168.1
------- -------- ------ ------- -------- ------
Total liabilities and
shareholders' equity.......... $ 65.0 $24,605.6 $980.4 $ 414.6 $26,000.6 $924.5
======= ========= ====== ======= ======== ======
<CAPTION>
PRO FORMA
FOR THE
PRO FORMA OFFERING AND
ADJUSTMENTS OTHER
RELATING TO THE PLANNED
THI MERGER TRANSACTIONS
--------------- ------------
<S> <<C> <C>
Liabilities:
Insurance liabilities............... $(253.4)(62) $19,729.3
Income tax liabilities.............. 2.8 (61) 21.2
Investment borrowings............... 516.6
Other liabilities................... 511.0
Liabilities related to separate
accounts.......................... 271.6
Notes payable of Conseco............ (58.3)(63) 2,183.6
(50.0)(63)
18.5 (63)
Notes payable of Bankers Life
Holding Corporation, not direct
obligations of Conseco............ --
------- --------
Total liabilities............... (340.4) 23,233.3
------- --------
Minority interest in consolidated
subsidiaries:
Company-obligated mandatorily
redeemable preferred securities
of subsidiary trusts............ 350.0
Preferred stock................... 93.2
Common stock...................... --
------- --------
Shareholders' equity:
Preferred stock..................... (22.8)(64) 267.1
Common stock and additional paid-in
capital........................... (169.7)(64) 2,117.0
121.7 (64)
106.2 (64)
Unrealized appreciation
(depreciation) of securities...... (4.0)(64) (56.1)
Retained earnings................... 28.4 (64) 640.0
------- --------
Total shareholders' equity...... 59.8 2,968.0
------- --------
Total liabilities and
shareholders' equity.......... $(280.6) $26,644.5
======= =========
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
S-51
<PAGE> 53
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
PRO FORMA ADJUSTMENTS
TRANSACTIONS RELATING TO THE OFFERING
Conseco Financing Trust I intends to issue Preferred Securities having an
aggregate liquidation amount of $200 million and an assumed distribution rate of
9.25 percent. The Trust will use the proceeds from the sale of such securities
to purchase the Subordinated Debentures in an aggregate principal amount
equivalent to the aggregate liquidation amount of the Preferred Securities that
are issued. The Subordinated Debentures are assumed to bear interest at a rate
of 9.25 percent.The Company will use the proceeds from the sale of the
Subordinated Debentures to reduce borrowings under Tranche B of the Credit
Agreement.
(1) Interest expense is reduced to reflect the repayment of $189.3 million
aggregate principal amount of borrowings under the Credit Agreement.
A change in interest rates of .5 percent on the borrowings
under the Credit Agreement to be repaid from the Offering would
result in: (1) a decrease (or increase) in pro forma interest expense
of $1.0 million and $.5 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 $.6 million and $.3
million for the same respective periods.
(2) The pro forma adjustment is tax affected, based on the Company's
effective tax rate of 35 percent.
(3) Minority interest is adjusted to reflect the dividends (net of the
related tax benefit) on the Preferred Securities.
(4) Notes payable are reduced to reflect the repayment of $189.3 million
aggregate principal amount of borrowings under Tranche B of the Credit
Agreement using the net proceeds from the Preferred Securities.
(5) The Company's minority interest in consolidated subsidiaries is
increased by the aggregate liquidation amount of the Preferred
Securities. Issuance and other transaction costs related to the
Preferred Securities are charged to paid-in capital.
OTHER PLANNED TRANSACTIONS
Transactions relating to the Additional Offering
In addition to the Preferred Securities offered hereunder, a subsidiary
trust of the Company intends to issue an additional $150 million trust
originated preferred securities having an assumed distribution rate of 9.25
percent. The subsidiary will use the proceeds from the sale of such securities
to purchase subordinated debentures of the Company in an aggregate principal
amount equivalent to the aggregate liquidation amount of the trust originated
preferred securities that are issued. The subordinated debentures are assumed to
bear interest at a rate of 9.25 percent. The Company will use the proceeds to
reduce borrowings under the Company's bank credit facilities.
(6) Interest expense is reduced to reflect the repayment of $141.9 million
aggregate principal amount of borrowings under the Company's bank
credit facilities.
A change in interest rates of .5 percent on the borrowings
under the Company's bank credit facilities to be repaid from the
Additional Offering would result in: (1) a decrease (or increase) in
pro forma interest expense of $.7 million and $.4 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 $.5 million and $.2 million for the same respective
periods.
(7) The pro forma adjustment is tax affected, based on the Company's
effective tax rate of 35 percent.
S-52
<PAGE> 54
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(8) Minority interest is adjusted to reflect the distributions (net of the
related tax benefit) on the trust originated preferred securities.
(9) Notes payable are reduced to reflect the repayment of $141.9 million
aggregate principal amount of borrowings under the Company's bank credit
facilities using the net proceeds from the trust originated preferred
securities.
(10) The Company's minority interest in consolidated subsidiaries is
increased by the aggregate liquidation amount of the trust originated
preferred securities. Issuance and other transaction costs related to
the trust originated preferred securities are charged to paid-in
capital.
Transactions relating to the ATC Merger
The ATC Merger will be accounted for under the purchase method of
accounting. Under this method, the total cost to acquire ATC will be allocated
to the assets and liabilities acquired based on their fair values as of the date
of the ATC Merger, with any excess of the total purchase cost over the fair
value of the assets acquired less the fair value of the liabilities assumed
recorded as goodwill. The Company believes the ATC Merger will not qualify to be
accounted for under the pooling of interests method in accordance with APB No.
16 because an affiliate of ATC intends to sell a portion of the Company Common
Stock it receives in the ATC Merger shortly after the ATC Merger is consummated.
In the ATC Merger, each outstanding share of ATC Common Stock is assumed to be
exchanged for a fraction of a share of the Company Common Stock to be determined
based on an average price of Company Common Stock prior to its closing (it is
assumed the Company Share Price will be $48.00, resulting in an exchange ratio
of .7298 shares valued at $35.03). The Company will issue an assumed 13.1
million shares of Company Common Stock with a value of approximately $628.8
million to acquire the ATC Common Stock. In addition, the Company will assume
the ATC convertible subordinated debentures, which will be convertible into an
assumed 5.0 million shares of Company Common Stock with a value of approximately
$240 million. In addition, the Company estimates that it will incur costs
related to the ATC Merger (including contract termination, relocation, legal,
accounting and other costs) of approximately $30.4 million.
The cost to acquire ATC is allocated as follows (dollars in millions):
<TABLE>
<S> <C>
Book value of assets acquired based on the assumed date of the ATC Merger (June 30,
1996)............................................................................ $ 171.0
Convertible subordinated debentures assumed by the Company at the assumed date of
the ATC Merger................................................................... 103.5
Increase (decrease) in ATC's net asset value to reflect estimated fair value and
asset reclassifications at the assumed date of the ATC Merger:
Cost of policies purchased (related to the ATC Merger)........................ 256.2
Cost of policies produced and cost of policies purchased (historical)......... (172.0)
Goodwill (related to the ATC Merger).......................................... 577.3
Income taxes.................................................................. (25.6)
Other liabilities............................................................. (11.2)
-------
Total estimated fair value adjustments................................... 624.7
-------
Total cost to acquire ATC........................................................ $ 899.2
=======
</TABLE>
Adjustments to the pro forma consolidated statement of operations to give
effect to the ATC Merger as of January 1, 1995, are summarized below.
(11) 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.
S-53
<PAGE> 55
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(12) Interest expense is increased to reflect the increase in borrowings
under the Company's bank credit facilities used to complete the ATC
Merger.
A change in interest rates of .5 percent on the additional borrowings
under the Company's bank credit facilities used to complete the ATC
Merger would result in: (1) an increase (or decrease) in pro forma
interest expense of $.2 million and $.1 million for the year ended
December 31, 1995, and the six months ended June 30, 1996,
respectively; and (2) a decrease (or increase) in pro forma net
income of $.1 million and $.1 million for the same respective
periods.
(13) Interest expense is reduced to reflect the amortization of the
liability established at the assumed date of the ATC Merger
representing the present value of the interest payable on ATC's
convertible subordinated debentures to October 1, 1998 (the earliest
call date), less the present value of the dividends that would be
paid on the Company Common Stock that such debentures would be
convertible into during the same period.
(14) Amortization of the cost of policies produced and the cost of policies
purchased prior to the ATC Merger is replaced with the amortization
of the cost of policies purchased (amortized in relation to estimated
premiums on the policies purchased with interest equal to the
liability rate which averages 5.5 percent).
(15) Amortization of goodwill acquired in the ATC Merger is recognized over
a 40-year period on a straight-line basis.
(16) Reflects the tax adjustment for the pro forma adjustments at the
appropriate rate for the specific item.
(17) Common shares outstanding are increased to reflect the Company shares
issued in the ATC Merger. Fully diluted shares also include Company
shares which will be issued when ATC's convertible subordinated
debentures are converted.
Adjustments to the pro forma consolidated balance sheet to give effect to
the ATC Merger as of June 30, 1996, are summarized below.
(18) Cash is reduced for payments made to complete the ATC Merger.
(19) Short-term investments and notes payable of Conseco are increased for
additional borrowings by the Company to complete the ATC Merger.
(20) ATC's historical cost of policies purchased is eliminated and replaced
with the cost of policies purchased recognized in the ATC Merger.
Cost of policies purchased reflects the estimated fair value of ATC's
business in force and represents the portion of the cost to acquire
ATC that is allocated to the value of the right to receive future
cash flows from the acquired policies.
The 18 percent discount rate used to determine such value is the rate
of return required by the Company 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.
S-54
<PAGE> 56
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The value allocated to the cost of policies purchased is based on a
preliminary valuation; accordingly, this allocation may be adjusted upon
final determination of such value. Expected gross amortization of such
value using current assumptions and accretion of interest based on an
interest rate equal to the liability rate (such rate averages 5.5
percent) for each of the years in the five-year period ending June 30,
2001, are as follows (dollars in millions):
<TABLE>
<CAPTION>
BEGINNING GROSS ACCRETION NET ENDING
YEAR ENDING JUNE 30, BALANCE AMORTIZATION OF INTEREST AMORTIZATION BALANCE
---------------------------- --------- ------------ ----------- ------------ -------
<S> <C> <C> <C> <C> <C>
1997........................ $ 256.2 $ 33.7 $13.5 $ 20.2 $ 236.0
1998........................ 236.0 30.8 12.3 18.5 217.5
1999........................ 217.5 28.2 11.4 16.8 200.7
2000........................ 200.7 26.0 10.4 15.6 185.1
2001........................ 185.1 24.0 9.6 14.4 170.7
</TABLE>
(21) ATC's cost of policies produced is eliminated since such amounts are
reflected in the determination of the cost of policies purchased.
(22) 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 the Company.
(23) Goodwill acquired in the ATC Merger is recognized.
(24) Notes payable are increased to reflect the fair value of ATC's
convertible subordinated debentures at the date of the ATC Merger. Such
fair value represents the value of the Company Common Stock which ATC's
convertible subordinated debentures will be convertible into after the
ATC Merger. It is assumed that the holders of such debentures do not
convert into Company Common Stock at the time of the ATC Merger.
In addition, a liability is established representing the present value
of the interest payable on such debentures to October 1, 1998 (the
earliest call date), less the present value of the dividends that would
be paid on the Company Common Stock that such debentures would be
convertible into during the same period.
(25) The prior shareholders' equity of ATC is eliminated in conjunction
with the ATC Merger. Common stock and additional paid-in capital is
increased by the value of Company Common Stock issued in the ATC
Merger.
Transactions relating to the BLH Transaction
The Company has proposed to acquire all of the common stock of BLH, not
currently 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
Company Common Stock to be determined based on the average price of Company
Common Stock prior to closing (it is assumed that such price per share of
Company Common Stock will be $48.00, resulting in an exchange ratio of .5208
shares valued at $25.00). The Company will issue an assumed 2.6 million shares
of Company Common Stock with a value of approximately $122.5 million.
The pro forma adjustments are applied to the historical consolidated
financial statements of the Company using the step acquisition method of
accounting. Under this method, the total purchase cost of the common stock of
BLH, not already owned by the Company, 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 the
Company's pro forma consolidated financial statements represent the combination
of the following values: (1) the portion of BLH's net assets acquired by the
Company in the
S-55
<PAGE> 57
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 the Company 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:
(26) 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.
(27) All pro forma adjustments are tax affected based on the appropriate
rate for the specific item.
(28) Minority interest is reduced to eliminate the ownership interest of
the former shareholders of BLH.
(29) Common shares outstanding are increased to reflect the shares of
Company Common Stock issued in the acquisition of additional shares of
BLH common stock.
(30) Notes payable of BLH are reclassified as notes payable of Conseco,
since BLH is now wholly owned by the Company.
(31) Common stock and additional paid-in capital is increased by the value
of Company 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 Company Common Stock to be determined based on the
average price of Company Common Stock prior to its closing (it is assumed that
such average price per share of Company Common Stock will be $48.00, resulting
in an exchange ratio of .1354). The Company will pay approximately $534 million
in cash and issue an assumed 2.4 million shares of Company Common Stock with a
value of approximately $115.7 million to acquire the CAF common stock. In
addition, the Company is expected to assume a note payable of CAF of $29.5
million and estimates that it will incur costs related to the CAF Merger
(including contract termination, relocation, legal, accounting and other costs)
of approximately $26 million.
S-56
<PAGE> 58
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The cost to acquire CAF is allocated as follows (dollars in millions):
<TABLE>
<S> <C>
Book value of assets acquired based on the assumed date of the CAF Merger (June
30, 1996)....................................................................... $294.3
Notes payable of CAF assumed by the Company 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.
(32) 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.
(33) 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.
(34) Interest expense is reduced to reflect the repayment of notes payable
of CAF by the Company at the assumed date of the CAF Merger.
(35) Interest expense is increased to reflect the increase in borrowings
under the Company's bank credit facilities used to complete the CAF
Merger.
A change in interest rates of .5 percent on the additional borrowings
under the Company's bank credit facilities 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.
(36) 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.
(37) Amortization of goodwill acquired in the CAF Merger is recognized over
a 40-year period on a straight-line basis.
(38) Reflects the tax adjustment for the pro forma adjustments at the
appropriate rate for the specific item.
(39) Common shares outstanding are increased to reflect the shares issued
in the CAF Merger.
S-57
<PAGE> 59
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Adjustments to the pro forma consolidated balance sheet to give effect to
the CAF Merger as of June 30, 1996, are summarized below.
(40) 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.
(41) CAF's fixed maturity securities are restated to estimated fair value.
(42) Cash is reduced for payments made to complete the CAF Merger.
(43) Short-term investments and notes payable of Conseco are increased for
additional borrowings by the Company to complete the CAF Merger.
(44) 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 the Company 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>
BEGINNING GROSS ACCRETION OF NET ENDING
YEAR ENDING JUNE 30, BALANCE AMORTIZATION 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>
(45) CAF's cost of policies produced is eliminated since such amounts are
reflected in the determination of the cost of policies purchased.
(46) 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 the Company.
(47) Goodwill acquired in the CAF Merger is recognized.
S-58
<PAGE> 60
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(48) 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.
(49) Notes payable are reduced to reflect the repayment of notes payable of
CAF by the Company at the assumed date of the CAF Merger.
(50) 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 Company Common Stock issued in the CAF Merger.
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. The Company 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 Company Common Stock to be determined based on the price of Company
Common Stock prior to its closing (it is assumed such average price per share of
Company Common Stock will be $48.00, resulting in an exchange ratio of 1.4583
shares valued at $70.00). The Company will issue an assumed 2.5 million shares
of Company Common Stock with a value of approximately $121.7 million to acquire
the THI Common Stock (or equivalents). Pursuant to an offer by the Company (the
"Exchange Offer"), it is assumed all of THI's Convertible Subordinated Notes
(the "THI Convertible Notes") will be exchanged for shares of Company Common
Stock based on the price of Company Common Stock prior to the THI Merger (such
fully converted value being the same as the THI Convertible Notes) plus a cash
premium. 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 THI Convertible Notes will be convertible into 2.2 million shares of Company
Common Stock with a value of approximately $106.2 million. In addition, the
Company will pay a premium of approximately $10.0 million in conjunction with
the Exchange Offer. The Company estimates that it will incur costs related to
the THI Merger (including contract termination, relocation, legal, accounting
and other costs) of approximately $8.5 million.
The cost to acquire THI is allocated as follows (dollars in millions):
<TABLE>
<CAPTION>
<S> <C>
Book value of assets acquired based on assumed date of the THI Merger (June 30,
1996)........................................................................... $168.1
THI Convertible Notes converted to Company Common Stock pursuant to the Exchange
Offer........................................................................... 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 paid in conjunction with the Exchange Offer.......................... (10.0)
Premium incurred to retire THI preferred stock............................... (2.0)
-----
Total estimated fair value adjustments..................................... 41.1
-----
Total cost to acquire THI....................................................... $236.4
=====
</TABLE>
S-59
<PAGE> 61
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Adjustments to the pro forma consolidated statement of operations to give
effect to the THI Merger as of January 1, 1995, are summarized below.
(51) 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.
(52) Interest expense is reduced to reflect the repayment of bank debt of
$58.3 million and the conversion of the THI Convertible Notes into
Company Common Stock pursuant to the Exchange Offer. Interest expense is
increased to reflect borrowings by the Company to: (i) pay the estimated
cost of the THI Merger; and (ii) pay the $10.0 million premium in
conjunction with the Exchange Offer.
(53) 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).
(54) Reflects the tax adjustment for the pro forma adjustments at the
appropriate rate for the specific item.
(55) Common shares outstanding are increased to reflect the Company shares
issued in the THI Merger and the conversion of the THI Convertible Notes
in conjunction with the Exchange Offer.
(56) 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 Company's consolidated group after the
ATC Merger (and previous pro forma adjustments for the ATC Merger did
not include adjustments related to THI's long term care business prior
to its purchase by ATC). In addition, expenses related to THI's spin-off
from its parent are eliminated. Such costs include certain legal,
accounting, actuarial and advisory fees.
Adjustments to the pro forma consolidated balance sheet to give effect to
the THI Merger as of June 30, 1996, are summarized below.
(57) 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.
(58) 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 $10.0 million premium in
conjunction with the Exchange Offer. Short-term investments are
increased by additional borrowings by the Company of $18.5 million to
complete the THI Merger and related transactions.
(59) 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.
S-60
<PAGE> 62
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The 18 percent discount rate used to determine such value is the rate of
return required by the Company 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>
BEGINNING GROSS ACCRETION OF NET ENDING
YEAR ENDING JUNE 30, BALANCE AMORTIZATION 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>
(60) THI's cost of policies produced is eliminated since such amounts are
reflected in the determination of the cost of policies purchased.
(61) 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.
(62) Reinsurance receivables and insurance liabilities related to business
of THI ceded to ATC are eliminated in consolidation.
(63) Notes payable are decreased to reflect: (i) the repayment of bank debt
of $58.3 million; and (ii) the conversion of the THI Convertible Notes
into Company Common Stock in conjunction with the Exchange Offer. In
addition, notes payable are increased to reflect additional borrowings
by the Company used to complete the THI Merger and related transactions.
(64) 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 Company common stock issued in the THI Merger.
The value of the THI Convertible Notes represents the value of the
Company Common Stock which will be issued in conjunction with the
Exchange Offer. Preferred stock of THI is eliminated to reflect its
redemption.
S-61
<PAGE> 63
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the
Declaration. The Declaration will be qualified as an indenture under the Trust
Indenture Act. The Property Trustee will act as the indenture trustee for
purposes of compliance with the provisions of the Trust Indenture Act. The terms
of the Preferred Securities will include those stated in the Declaration,
including those required to be made part of the Declaration by the Trust
Indenture Act. The following summary of the principal terms and provisions of
the Preferred Securities does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the Declaration, a copy of which is
filed as an exhibit to the Registration Statement of which this Prospectus
Supplement is a part, the Trust Act and the Trust Indenture Act.
GENERAL
The Declaration authorizes the Regular Trustees to issue, on behalf of the
Trust, the Trust Securities, which represent undivided beneficial interests in
the assets of the Trust. All of the Common Securities will be owned by the
Company. The Common Securities will have equivalent terms to and will rank pari
passu, and payments will be made thereon on a pro rata basis, with the Preferred
Securities, except that upon the occurrence and during the continuance of a
Declaration Event of Default (as defined herein), the rights of the holders of
the Common Securities to receive payment of periodic distributions and payments
upon liquidation, redemption and otherwise will be subordinated to the rights of
the holders of the Preferred Securities. In addition, holders of the Common
Securities have the exclusive right (subject to the terms of the Declaration) to
appoint, replace or remove the Conseco Trustees and to increase or decrease the
number of Conseco Trustees. The Declaration does not permit the issuance by the
Trust of any securities other than the Trust Securities or the incurrence of any
indebtedness by the Trust. Pursuant to the Declaration, the Property Trustee
will hold the Subordinated Debentures purchased by the Trust for the benefit of
the holders of the Trust Securities. The payment of distributions out of money
held by the Trust, and payments upon redemption of the Preferred Securities or
liquidation of the Trust, are guaranteed by the Company to the extent described
under "Description of Trust Guarantee" in the accompanying Prospectus. The Trust
Guarantee, when taken together with the back-up undertakings, consisting of
obligations of the Company as set forth in the Declaration (including the
obligation to pay expenses of the Trust), the Indenture and any applicable
supplemental indentures thereto, and the Subordinated Debentures issued to the
Trust, provide a full and unconditional guarantee by the Company of the
Preferred Securities. The Trust Guarantee will be held by Fleet National Bank,
the Preferred Securities Guarantee Trustee, for the benefit of the holders of
the Preferred Securities. The Trust Guarantee only covers payment of
distributions when the Company has made the corresponding payment of interest or
principal on the Subordinated Debentures held by the Trust. In the absence of
such payment of interest or principal, the remedy of a holder of Preferred
Securities is to direct the Property Trustee to enforce the Property Trustee's
rights as the holder of the Subordinated Debentures except in the limited
circumstances where the holder may take direct action against the Company. See
"-- Voting Rights."
DISTRIBUTIONS
Distributions on the Preferred Securities will be fixed at a rate per annum
of % of the stated liquidation amount of $25 per Preferred Security.
Distributions in arrears for more than one quarter will (to the extent permitted
by applicable law) bear interest thereon from and including the last day of such
quarter at the rate per annum of % thereof compounded quarterly. The term
"distributions" as used herein includes any such interest payable unless
otherwise stated. The amount of distributions payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months, and for any
period shorter than a full quarter, on the basis of the actual number of days
elapsed in such 90-day quarter.
Distributions on the Preferred Securities will be cumulative, will accrue
from , 1996 and will be payable quarterly in arrears on March 31, June
30, September 30 and December 31 of each year, commencing December 31, 1996,
when, as and if available for payment by the Property Trustee, except as
otherwise described below.
S-62
<PAGE> 64
The Company has the right under the Indenture to defer payments of interest
on the Subordinated Debentures by extending the interest payment period from
time to time on the Subordinated Debentures, which, if exercised, would defer
quarterly distributions on the Preferred Securities (although to the extent
permitted by law, such distributions would continue to accrue with interest
since interest would continue to accrue on the Subordinated Debentures) during
any such Extension Period. Such right to extend the interest payment period for
the Subordinated Debentures is limited to a period not exceeding 20 consecutive
quarters or extending beyond the Maturity Date of the Subordinated Debentures.
In the event that the Company exercises this right, then during any Extension
Period (a) the Company shall not declare or pay dividends on, make distributions
with respect to, or redeem, purchase or acquire, or make a liquidation payment
with respect to, any of its capital stock, (b) the Company shall not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by the Company that rank pari passu with or
junior to the Subordinated Debentures and (c) the Company shall not make
guarantee payments with respect to the foregoing (other than pursuant to the
Trust Guarantee); provided, however, that the restriction in clause (a) above
does not apply to (i) any stock dividends paid by the Company where the dividend
stock is the same stock as that on which the dividend is being paid or (ii)
purchases or acquisitions of shares of Company Common Stock in connection with
the satisfaction by the Company of its obligations under any employee benefit
plans. Prior to the termination of any such Extension Period, the Company may
further extend the interest payment period; provided that such Extension Period,
together with all such previous and further extensions thereof, may not exceed
20 consecutive quarters and may not extend beyond the Maturity Date of the
Subordinated Debentures. Upon the termination of any Extension Period and the
payment of all amounts then due, the Company may commence a new Extension
Period, subject to the above requirements. See "Description of the Subordinated
Debentures -- Interest" and "Description of the Subordinated Debentures --
Option to Extend Interest Payment Period." If distributions are deferred, the
deferred distributions and accrued interest thereon shall be paid to holders of
record of the Preferred Securities as they appear on the books and records of
the Trust on the record date for distributions due at the end of such deferral
period.
Distributions on the Preferred Securities must be paid on the dates payable
to the extent that the Trust has funds available for the payment of such
distributions in the Property Account. The Trust's funds available for
distribution to the holders of the Preferred Securities will be limited to
payments received from the Company under the Subordinated Debentures. See
"Description of the Subordinated Debentures." The payment of distributions out
of moneys held by the Trust is guaranteed by the Company to the extent set forth
under "Description of Trust Guarantee" in the accompanying Prospectus. The Trust
Guarantee, when taken together with the back-up undertakings, consisting of
obligations of the Company as set forth in the Declaration (including the
obligation to pay expenses of the Trust), the Indenture and any applicable
supplemental indentures thereto, and the Subordinated Debentures issued to the
Trust, provide a full and unconditional guarantee by the Company of the
Preferred Securities.
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the books and records of the Trust on the relevant
record dates, which, as long as the Preferred Securities remain in global form,
will be one Business Day (as defined below) prior to the relevant payment dates.
Such distributions will be paid through the Property Trustee, who will hold
amounts received in respect of the Subordinated Debentures in the Property
Account for the benefit of the holders of the Trust Securities. Subject to any
applicable laws and regulations and the provisions of the Declaration, each such
payment will be made as described under "-- Book-Entry Issuance -- The
Depository Trust Company" below. In the event that the Preferred Securities do
not continue to remain in global form, the relevant record dates for the
Preferred Securities shall conform to the rules of any securities exchange on
which the Preferred Securities are listed and, if none, shall be selected by the
Regular Trustees, which dates shall be at least one Business Day but less than
60 Business Days prior to the relevant payment dates. Distributions payable on
any Preferred Securities that are not punctually paid on any distribution
payment date will cease to be payable to the person in whose name such Preferred
Securities are registered on the relevant record date, and such defaulted
distribution will instead be payable to the person in whose name such Preferred
Securities are registered on the special record date or other specified date
determined in accordance with the Indenture. In the event that any date on which
distributions are to be made on the Preferred Securities is not a Business Day,
then payment of the distributions payable on such date will be made on the next
succeeding day which is
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<PAGE> 65
a Business Day (and without any interest or other payment in respect of any such
delay), except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such record date. A
"Business Day" shall mean any day other than a day on which banking institutions
in New York, New York are authorized or required by law to close.
MANDATORY REDEMPTION
Upon the repayment of the Subordinated Debentures, whether at maturity or
upon redemption, the proceeds from such repayment or redemption shall
simultaneously be applied to redeem Trust Securities having an aggregate
liquidation amount equal to the aggregate principal amount of the Subordinated
Debentures so repaid or redeemed, subject to the receipt of any consent required
by the terms of any indebtedness of the Company which may be outstanding from
time to time, including under the Credit Agreement or the Bridge Facility, at
the Redemption Price; provided that, holders of Trust Securities shall be given
not less than 30 nor more than 60 days notice of such redemption. The
Subordinated Debentures will mature on , 2026 unless the maturity date
is changed at the option of the Company (provided in the case of an extension of
the maturity date that certain financial conditions are met), and may be
redeemed, in whole or in part, at any time on or after , 2001 or at
any time, in whole (but not in part) upon the occurrence of a Special Event. See
"The Company -- Senior Credit Facilities" and "Description of the Subordinated
Debentures -- Optional Redemption." In the event that fewer than all of the
outstanding Trust Securities are to be redeemed, the Trust Securities will be
redeemed pro rata to each holder according to the aggregate liquidation amount
of Trust Securities held by the relevant holder in relation to the aggregate
liquidation amount of all Trust Securities outstanding. See "-- Book-Entry
Issuance -- The Depository Trust Company" below for a description of DTC's (as
hereinafter defined) procedures in the event of redemption.
SPECIAL EVENT REDEMPTION
"Tax Event" means that the Regular Trustees shall have received an opinion
of an independent tax counsel experienced in such matters to the effect that, as
a result of (a) any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein or (b) any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or such
pronouncement or decision is announced on or after the date of original issuance
of the Preferred Securities, there is more than an insubstantial risk that (i)
the Trust is, or will be within 90 days after the date thereof, subject to
United States federal income tax with respect to interest accrued or received on
the Subordinated Debentures, (ii) the Trust is, or will be within 90 days after
the date thereof, subject to more than a de minimis amount of taxes, duties or
other governmental charges, or (iii) interest payable to the Trust on the
Subordinated Debentures is not, or within 90 days of the date thereof will not
be, deductible, in whole or in part, by the Company for United States federal
income tax purposes.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of an independent counsel experienced in practice under the
Investment Company Act of 1940, as amended (the "1940 Act"), to the effect that,
as a result of the occurrence of a change in law or regulation or a change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act Law"),
there is more than insubstantial risk that the Trust is or will be considered an
"investment company" which is required to be registered under the 1940 Act,
which Change in 1940 Act Law becomes effective on or after the date of original
issuance of the Preferred Securities.
If, at any time, a Tax Event or an Investment Company Event (each, as
defined above, a "Special Event") shall occur and be continuing, the Company
shall have the right, subject to the receipt of any consent required by the
terms of any indebtedness of the Company which may be outstanding from time to
time, including under the Credit Agreement or the Bridge Facility, upon not less
than 30 nor more than 60 days notice, to redeem the Subordinated Debentures, in
whole (but not in part), for cash within 90 days following the occurrence of
such Special Event, and, following such redemption, Trust Securities with an
aggregate liquidation amount equal to the aggregate principal amount of the
Subordinated Debentures so redeemed shall be redeemed by the Trust at the
Redemption Price on a pro rata basis.
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<PAGE> 66
DISTRIBUTION OF THE SUBORDINATED DEBENTURES
At any time, subject to the receipt of any consent required by the terms of
any indebtedness of the Company which may be outstanding from time to time,
including under the Credit Agreement or the Bridge Facility, the Company will
have the right to terminate the Trust and, after satisfaction of the liabilities
of creditors of the Trust as provided by applicable law, cause the Subordinated
Debentures to be distributed to the holders of the Trust Securities in
liquidation of the Trust. Under current United States federal income tax law and
interpretation and assuming, as expected, the Trust is treated as a grantor
trust, a distribution of the Subordinated Debentures should not be a taxable
event to holders of the Preferred Securities. Should there be a change in law, a
change in legal interpretation, a Special Event or other circumstances, however,
the distribution could be a taxable event to the holders of the Preferred
Securities. In addition, a dissolution of the Trust in which holders of the
Preferred Securities receive cash would be a taxable event to such holders. See
"United States Federal Income Taxation -- Receipt of Subordinated Debentures or
Cash Upon Liquidation of the Trust."
If the Subordinated Debentures are distributed to the holders of the
Preferred Securities, the Company will use its best efforts to cause the
Subordinated Debentures to be listed on the New York Stock Exchange or on such
other exchange as the Preferred Securities are then listed.
After the date for any distribution of Subordinated Debentures upon
dissolution of the Trust, (i) the Preferred Securities will no longer be deemed
to be outstanding and (ii) the record holders of the Preferred Securities will
receive a registered global certificate or certificates representing the
Subordinated Debentures to be delivered upon such distribution in exchange for
the Preferred Securities held by such holders.
If the Company elects to liquidate the Trust and thereby causes the
Subordinated Debentures to be distributed to holders of the Preferred Securities
in liquidation of the Trust, the Company shall have the right, subject to the
receipt of any consent required by the terms of any indebtedness of the Company
which may be outstanding from time to time, including under the Credit Agreement
or the Bridge Facility, to shorten the maturity of such Subordinated Debentures
to a date not earlier than , 2001 or extend the maturity of such
Subordinated Debentures to a date not later than the earlier of (a) ,
2045 or (b) the Interest Deduction Date (as defined herein), provided that it
can extend the maturity only if certain conditions are met. See "Description of
the Subordinated Debentures -- Option to Change Scheduled Maturity Date" and
"The Company -- Senior Credit Facilities."
There can be no assurance as to the market prices for either the Preferred
Securities or the Subordinated Debentures that may be distributed in exchange
for the Preferred Securities if a dissolution and liquidation of the Trust were
to occur. Accordingly, the Preferred Securities that an investor may purchase,
whether pursuant to the offer made hereby or in the secondary market, or the
Subordinated Debentures that an investor may receive if a dissolution and
liquidation of the Trust were to occur, may trade at a discount to the price
that the investor paid to purchase the Preferred Securities offered hereby.
On March 19, 1996, the Revenue Reconciliation Bill of 1996, the revenue
portion of President Clinton's budget proposal was released. The Bill would,
among other things, generally deny interest deductions for interest on an
instrument, issued by a corporation, that has a maximum weighted average
maturity of more than 40 years. The Bill would also generally deny interest
deductions for interest on an instrument, issued by a corporation, that has a
maximum term of more than 20 years and that is not shown as indebtedness on the
separate balance sheet of the issuer or, where the instrument is issued to a
related party (other than a corporation), where the holder or some other related
party issues a related instrument that is not shown as indebtedness on the
issuer's consolidated balance sheet. For purposes of determining the weighted
average maturity or the term of an instrument, any right to extend would be
treated as exercised. The above-described provisions of the Bill were proposed
to be effective generally for instruments issued on or after December 7, 1995.
However, on March 29, 1996, the Chairmen of the Senate Finance and House Ways
and Means Committees issued a joint statement to the effect that it was their
intention that the effective date of President's legislative proposals, if
adopted, will be no earlier than the date of appropriate Congressional action.
In addition, subsequent to the publication of the joint statement, Senator
Daniel Patrick Moynihan and Representatives Sam M. Gibbons and Charles B. Rangel
wrote letters to Treasury Department officials concurring with the views
expressed in the joint statement. Under current law, the Company will be able to
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<PAGE> 67
deduct interest on the Subordinated Debentures. The terms of the Subordinated
Debentures limit the right to extend the maturity of the Subordinated Debentures
to a date which is six months shorter than any legislative limit on the length
of debt securities for which interest is deductible. The Company believes this
will allow it an interest deduction if the 40-year weighted average maturity
component of the Bill is enacted. However, if the provision of the Bill
regarding a 20-year term is enacted with retroactive effect with regard to the
Subordinated Debentures, the Company will not be entitled to an interest
deduction with respect to the Subordinated Debentures. There can be no assurance
that current or future legislative proposals or final legislation will not
affect the ability of the Company to deduct interest on the Subordinated
Debentures, giving rise to a Tax Event which would permit the Company, subject
to the receipt of any consent required by the terms of any indebtedness of the
Company which may be outstanding from time to time, including under the Credit
Agreement or the Bridge Facility, to cause the redemption of the Preferred
Securities prior to , 2001 (the first date on which the Company would
otherwise be able to cause a redemption of the Preferred Securities). See
"United States Federal Income Taxation" and "The Company -- Senior Credit
Facilities."
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all of the outstanding Preferred
Securities unless all accrued and unpaid distributions have been paid on all
Preferred Securities for all quarterly distribution periods terminating on or
prior to the date of redemption.
If the Trust gives a notice of redemption in respect of Preferred
Securities (which notice will be irrevocable), then, by 12:00 noon, New York
City time, on the redemption date, provided that the Company has paid to the
Property Trustee a sufficient amount of cash in connection with the related
redemption or maturity of the Subordinated Debentures, the Trust will
irrevocably deposit with the securities depository funds sufficient to pay the
applicable Redemption Price and will give the securities depository irrevocable
instructions to pay the Redemption Price to the holders of the Preferred
Securities. If notice of redemption shall have been given and funds deposited as
required, then immediately prior to the close of business on the date of such
deposit, distributions will cease to accrue and all rights of holders of such
Preferred Securities so called for redemption will cease, except the right of
the holders of such Preferred Securities to receive the Redemption Price, but
without interest on such Redemption Price. In the event that any date fixed for
redemption of Preferred Securities is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the next succeeding day
that is a Business Day (without any interest or other payment in respect of any
such delay), except that, if such Business Day falls in the next calendar year,
such payment will be made on the immediately preceding Business Day. In the
event that the Company fails to repay the Subordinated Debentures on maturity or
payment of the Redemption Price in respect of Preferred Securities is improperly
withheld or refused and not paid either by the Trust or by the Company pursuant
to the Trust Guarantee, distributions on such Preferred Securities will continue
to accrue at the then applicable rate from the original redemption date to the
actual date of payment, in which case the actual payment date will be considered
the date fixed for redemption for purposes of calculating the Redemption Price.
In the event that fewer than all of the outstanding Preferred Securities
are to be redeemed, the Preferred Securities will be redeemed as described below
under "-- Book-Entry Issuance -- The Depository Trust Company."
If a partial redemption of the Preferred Securities would result in the
delisting of the Preferred Securities by a national securities exchange or other
organization on which the Preferred Securities are then listed, the Company
pursuant to the Indenture will only redeem the Subordinated Debentures in whole
and, as a result, the Trust may only redeem the Preferred Securities in whole.
Subject to the foregoing, the receipt of any consent required by the terms
of any indebtedness of the Company which may be outstanding from time to time,
including under the Credit Agreement or the Bridge Facility, and applicable law
(including, without limitation, United States federal securities laws), the
Company or its subsidiaries may at any time, and from time to time, purchase
outstanding Preferred Securities by tender, in the open market or by private
agreement.
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LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each a "Liquidation"), the then holders
of the Preferred Securities will be entitled to receive on a pro rata basis
solely out of the assets of the Trust, after satisfaction of liabilities to
creditors, distributions in an amount equal to the aggregate of the stated
liquidation amount of $25 per Preferred Security plus accrued and unpaid
distributions thereon to the date of payment (the "Liquidation Distribution"),
unless, in connection with such Liquidation, Subordinated Debentures in an
aggregate stated principal amount equal to the aggregate stated liquidation
amount of, with an interest rate identical to the distribution rate of, and
accrued and unpaid interest equal to accrued and unpaid distributions on, the
Preferred Securities have been distributed on a pro rata basis to the holders of
the Preferred Securities.
If, upon any such Liquidation, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Preferred Securities shall be paid on a pro rata basis. The holders
of the Common Securities will be entitled to receive distributions upon any such
dissolution pro rata with the holders of the Preferred Securities, except that
if a Declaration Event of Default has occurred and is continuing, the Preferred
Securities shall have a preference over the Common Securities with regard to
such distributions.
TERMINATION
Pursuant to the Declaration, the Trust shall terminate upon the earliest of
(i) , 2051, (ii) the bankruptcy of the Company, (iii) the filing of a
certificate of dissolution or its equivalent with respect to the Company, the
filing of a certificate of cancellation with respect to the Trust, or the
revocation of the charter of the Company and the expiration of 90 days after the
date of revocation without a reinstatement thereof, (iv) the distribution of the
Subordinated Debentures from the Trust, (v) the entry of a decree of a judicial
dissolution of the Company or the Trust, or (vi) the redemption of all the Trust
Securities.
DECLARATION EVENTS OF DEFAULT
An Event of Default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Declaration with respect to the Trust
Securities (a "Declaration Event of Default"), provided that pursuant to the
Declaration, the holder of the Common Securities will be deemed to have waived
any Declaration Event of Default with respect to the Common Securities until all
Declaration Events of Default with respect to the Preferred Securities have been
cured, waived or otherwise eliminated. Until such Declaration Event of Default
with respect to the Preferred Securities has been so cured, waived, or otherwise
eliminated, the Property Trustee will be deemed to be acting solely on behalf of
the holders of the Preferred Securities and only the holders of the Preferred
Securities will have the right to direct the Property Trustee with respect to
certain matters under the Declaration, and therefore the Indenture.
Upon the occurrence of a Declaration Event of Default, the Indenture
Trustee (as defined herein) or the Property Trustee as the holder of the
Subordinated Debentures will have the right under the Indenture to declare the
principal of and interest on the Subordinated Debentures to be immediately due
and payable. The Company and the Trust are each required to file annually with
the Property Trustee an officer's certificate as to its compliance with all
conditions and covenants under the Declaration.
VOTING RIGHTS
Except as described herein, under the Trust Act, the Trust Indenture Act
and under "Description of the Trust Guarantee -- Modification of the Trust
Guarantee; Assignment" in the accompanying Prospectus, and as otherwise required
by law and the Declaration, the holders of the Preferred Securities will have no
voting rights.
Subject to the requirement of the Property Trustee obtaining a tax opinion
in certain circumstances set forth in the last sentence of this paragraph, the
holders of a majority in aggregate liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee, or direct the
exercise of any trust or power conferred upon the Property Trustee under the
Declaration, including the right to direct the Property Trustee, as holder of
the Subordinated Debentures, to (i) exercise the remedies available under the
Indenture with respect to the
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Subordinated Debentures, (ii) waive any past Indenture Event of Default that is
waivable under the Indenture, or (iii) exercise any right to rescind or annul a
declaration that the principal of all the Subordinated Debentures shall be due
and payable, or consent to any amendment, modification or termination of the
Indenture or the Subordinated Debentures, where such consent should be required;
provided, however, that, where a consent or action under the Indenture would
require the consent or act of the holders of greater than a majority in
principal amount of Subordinated Debentures affected thereby (a
"Super-Majority"), the Property Trustee may only give such consent or take such
action at the written direction of the holders of at least the proportion in
liquidation amount of the Preferred Securities which the relevant Super-Majority
represents of the aggregate principal amount of the Subordinated Debentures
outstanding. The Property Trustee shall notify all holders of the Preferred
Securities of any notice of default received from the Indenture Trustee with
respect to the Subordinated Debentures. Except with respect to directing the
time, method and place of conducting a proceeding for a remedy, the Property
Trustee shall not take any of the actions described in clauses (i), (ii) or
(iii) above unless the Property Trustee has obtained an opinion of tax counsel
to the effect that, as a result of such action, the Trust will not be classified
as other than a grantor trust for United States federal income tax purposes.
In the event the consent of the Property Trustee, as the holder of the
Subordinated Debentures, is required under the Indenture with respect to any
amendment, modification or termination of the Indenture or the Subordinated
Debentures, the Property Trustee shall request the direction of the holders of
the Trust Securities with respect to such amendment, modification or termination
and shall vote with respect to such amendment, modification or termination as
directed by a majority in liquidation amount of the Trust Securities voting
together as a single class; provided, however, that where a consent under the
Indenture would require the consent of a Super-Majority, the Property Trustee
may only give such consent at the direction of the holders of at least the
proportion in liquidation amount of the Trust Securities which the relevant
Super-Majority represents of the aggregate principal amount of the Subordinated
Debentures outstanding. The Property Trustee shall not take any such action in
accordance with the directions of the holders of the Trust Securities unless the
Property Trustee has obtained an opinion of tax counsel to the effect that the
Trust will not be classified as other than a grantor trust for United States
federal income tax purposes on account of such action.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Preferred Securities may
be given at a separate meeting of holders of Preferred Securities convened for
such purpose, at a meeting of all of the holders of Trust Securities or pursuant
to written consent. The Regular Trustees will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be
mailed to each holder of record of Preferred Securities. Each such notice will
include a statement setting forth the following information: (i) the date of
such meeting or the date by which such action is to be taken; (ii) a description
of any resolution proposed for adoption at such meeting on which such holders
are entitled to vote or of such matter upon which written consent is sought; and
(iii) instructions for the delivery of proxies or consents. No vote or consent
of the holders of Preferred Securities will be required for the Trust to redeem
and cancel Preferred Securities or distribute Subordinated Debentures in
accordance with the Declaration.
Notwithstanding that holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
Securities that are owned at such time by the Company or any entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, the Company, shall not be entitled to vote or consent and shall,
for purposes of such vote or consent, be treated as if such Preferred Securities
were not outstanding.
The procedures by which holders of Preferred Securities may exercise their
voting rights are described below. See "--Book-Entry Issuance -- The Depository
Trust Company" below.
Holders of the Preferred Securities will have no rights to appoint or
remove the Conseco Trustees, who may be appointed, removed or replaced solely by
the Company as the indirect or direct holder of all of the Common Securities.
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MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by a majority of
the Regular Trustees (and in certain circumstances the Property Trustee),
provided that, if any proposed amendment provides for, or the Regular Trustees
otherwise propose to effect, (i) any action that would adversely affect the
powers, preferences or special rights of the Trust Securities, whether by way of
amendment to the Declaration or otherwise or (ii) the dissolution, winding-up or
termination of the Trust other than pursuant to the terms of the Declaration,
then the holders of the Trust Securities voting together as a single class will
be entitled to vote on such amendment or proposal and such amendment or proposal
shall not be effective except with the approval of at least a majority in
liquidation amount of the Trust Securities affected thereby; provided that, if
any amendment or proposal referred to in clause (i) above would adversely affect
only the Preferred Securities or the Common Securities, then only the affected
class will be entitled to vote on such amendment or proposal and such amendment
or proposal shall not be effective except with the approval of a majority in
liquidation amount of such class of Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified as other than a grantor trust for United States federal income tax
purposes, (ii) reduce or otherwise adversely affect the powers of the Property
Trustee or (iii) cause the Trust to be deemed an "investment company" which is
required to be registered under the 1940 Act.
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust may not consolidate, amalgamate, merge with or into or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any corporation or other body, except as
described below. The Trust may, with the consent of a majority of the Regular
Trustees and without the consent of the holders of the Trust Securities, the
Property Trustee or the Delaware Trustee, consolidate, amalgamate, merge with or
into, or be replaced by a trust organized as such under the laws of any State;
provided that, (i) such successor entity either (x) expressly assumes all of the
obligations of the Trust under the Trust Securities or (y) substitutes for the
Trust Securities other securities having substantially the same terms as the
Trust Securities (the "Successor Securities"), so long as the Successor
Securities rank the same as the Trust Securities rank with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii) the
Company expressly acknowledges a trustee of such successor entity possessing the
same powers and duties as the Property Trustee as the holder of the Subordinated
Debentures, (iii) the Preferred Securities or any Successor Securities with
respect to the Preferred Securities are listed, or any such Successor Securities
will be listed upon notification of issuance, on any national securities
exchange or with another organization on which the Preferred Securities are then
listed or quoted, (iv) such merger, consolidation, amalgamation or replacement
does not cause the Preferred Securities (including any Successor Securities with
respect to the Preferred Securities) to be downgraded by any nationally
recognized statistical rating organization, (v) such merger, consolidation,
amalgamation or replacement does not adversely affect the rights, preferences
and privileges of the holders of the Trust Securities (including any Successor
Securities) in any material respect (other than with respect to any dilution of
the holders' interest in the new entity), (vi) such successor entity has a
purpose identical to that of the Trust, (vii) prior to such merger,
consolidation, amalgamation or replacement, the Company has received an opinion
of an independent counsel to the Trust experienced in such matters to the effect
that, (A) such merger, consolidation, amalgamation or replacement does not
adversely affect the rights, preferences and privileges of the holders of the
Trust Securities (including any Successor Securities) in any material respect
(other than with respect to any dilution of the holders' interest in the new
entity), (B) following such merger, consolidation, amalgamation or replacement,
neither the Trust nor such successor entity will be required to register as an
investment company under the 1940 Act and (C) the Trust will continue to be
classified as a grantor trust for federal income tax purposes, and (viii) the
Company guarantees the obligations of such successor entity under the Successor
Securities at least to the extent provided by the Trust Guarantee.
Notwithstanding the foregoing, the Trust shall not, except with the consent of
holders of 100% in liquidation amount of the Trust Securities, consolidate,
amalgamate, merge with or into, or be replaced by any other entity or permit any
other entity to consolidate, amalgamate, merge with or into, or replace it, if
such consolidation, amalgamation, merger or replacement would cause the Trust or
the Successor
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Entity to be classified as other than a grantor trust for United States federal
income tax purposes and each holder of the Trust Securities not to be treated as
owning an undivided interest in the Subordinated Debentures.
BOOK-ENTRY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depository
("depository") for the Preferred Securities. The Preferred Securities initially
will be issued only as fully-registered securities registered in the name of
Cede & Co. (DTC's nominee). One or more fully-registered global Preferred
Securities certificates, representing the total aggregate number of Preferred
Securities, will be issued and will be delivered to DTC.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the global Preferred
Securities as represented by a global certificate.
DTC has advised the Company and the Trust that DTC is a limited-purpose
trust company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). DTC holds securities that its participants ("Participants") deposit with
DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations ("Direct Participants").
DTC is owned by a number of its Direct Participants and by the New York Stock
Exchange, the American Stock Exchange, Inc., and the National Association of
Securities Dealers, Inc. Access to the DTC system is also available to others,
such as securities brokers and dealers, banks and trust companies that clear
transactions through or maintain a direct or indirect custodial relationship
with a Direct Participant ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the Commission.
Purchases of Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser of
each Preferred Security ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the transactions,
as well as periodic statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased Preferred Securities.
Transfers of ownership interests in the Preferred Securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in the Preferred Securities, except in the event that
use of the book-entry system for the Preferred Securities is discontinued.
To facilitate subsequent transfers, all the Preferred Securities deposited
by Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of Preferred Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Preferred Securities. DTC's records reflect
only the identity of the Direct Participants to whose accounts such Preferred
Securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements
that may be in effect from time to time.
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Redemption notices shall be sent to Cede & Co. If less than all of the
Preferred Securities are being redeemed, DTC will reduce pro rata the amount of
the interest of each Direct Participant in such Preferred Securities to be
redeemed in accordance with its procedures.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to the Trust as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Direct Participants to whose accounts the Preferred
Securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy). The Company and the Trust believe that the arrangements
among DTC, Direct and Indirect Participants, and Beneficial Owners will enable
the Beneficial Owners to exercise rights equivalent in substance to the rights
that can be directly exercised by a holder of a beneficial interest in the
Trust.
Distribution payments on the Preferred Securities will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on the relevant
payment date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payments on such
payment date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with securities
held for the account of customers in bearer form or registered in "street name,"
and such payments will be the responsibility of such Participant and not of DTC,
the Trust or the Company, subject to any statutory or regulatory requirements
that may be in effect from time to time. Payment of distributions to DTC is the
responsibility of the Trust, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Preferred
Security certificate will not be entitled to receive physical delivery of
Preferred Securities. Accordingly, each Beneficial Owner must rely on the
procedures of DTC to exercise any rights under the Preferred Securities.
DTC may discontinue providing its services as depository with respect to
the Preferred Securities at any time by giving reasonable notice to the Trust.
Under such circumstances, in the event that a successor securities depository is
not obtained, Preferred Securities certificates are required to be printed and
delivered. Additionally, the Regular Trustees (with the consent of the Company)
may decide to discontinue use of the system of book-entry transfers through DTC
(or any successor depository) with respect to the Preferred Securities. In that
event, certificates for the Preferred Securities will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company and the Trust believe to be
reliable, but neither the Company nor the Trust takes responsibility for the
accuracy thereof.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a default with respect to
the Trust Securities, undertakes to perform only such duties as are specifically
set forth in the Declaration, in the terms of the Trust Securities or in the
Trust Indenture Act and, after default, shall exercise the same degree of care
as a prudent individual would exercise in the conduct of his or her own affairs.
Subject to such provisions, the Property Trustee is under no obligation to
exercise any of the powers vested in it by the Declaration at the request of any
holder of Preferred Securities, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities which might be incurred
thereby. The holders of Preferred Securities will not be required to offer such
indemnity in the event such holders, by exercising their voting rights, direct
the Property Trustee to take any action following a Declaration Event of
Default. The Property Trustee also serves as Preferred Securities Guarantee
Trustee.
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PAYING AGENT
In the event that the Preferred Securities do not remain in book-entry
form, the following provisions would apply:
The Property Trustee will act as paying agent, and may designate an
additional or substitute paying agent at any time.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of the Trust, but upon payment (with the giving of such
indemnity as the Trust or the Company may require) in respect of any tax or
other government charges that may be imposed in relation to it.
The Trust will not be required to register or cause to be registered the
transfer of Preferred Securities after such Preferred Securities have been
called for redemption.
GOVERNING LAW
The Declaration and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate the Trust in
such a way so that the Trust will not be required to register as an "investment
company" under the 1940 Act or be characterized as other than a grantor trust
for United States federal income tax purposes. The Company is authorized and
directed to conduct its affairs so that the Subordinated Debentures will be
treated as indebtedness of the Company for United States federal income tax
purposes. In this connection, the Company and the Regular Trustees are
authorized to take any action, not inconsistent with applicable law, the
certificate of trust of the Trust or the articles of incorporation of the
Company, that each of the Company and the Regular Trustees determines in their
discretion to be necessary or desirable to achieve such end, as long as such
action does not adversely affect the interests of the holders of the Preferred
Securities or vary the terms thereof.
Holders of the Preferred Securities have no preemptive rights.
DESCRIPTION OF THE SUBORDINATED DEBENTURES
Set forth below is a description of the specific terms of the Subordinated
Debentures in which the Trust will invest the proceeds from the issuance and
sale of the Trust Securities. This description supplements the description of
the general terms and provisions of the Subordinated Debentures set forth in the
accompanying Prospectus under the caption "Description of Debt Securities." The
following description does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the description in the accompanying
Prospectus and the Indenture, dated as of , 1996 (the "Base
Indenture"), between the Company and Fleet National Bank, as Trustee (the
"Indenture Trustee"), as supplemented by a First Supplemental Indenture, to be
dated as of , 1996 (the Base Indenture, as so supplemented, is
hereinafter referred to as the "Indenture"), the forms of which are filed as
Exhibits to the Registration Statement of which this Prospectus Supplement and
the accompanying Prospectus form a part, and the Trust Indenture Act. Certain
capitalized terms used herein are defined in the Indenture.
At any time, the Company will have the right to liquidate the Trust and
cause Subordinated Debentures to be distributed to the holders of the Trust
Securities in liquidation of the Trust, subject to the receipt of any consent
required by the terms of any indebtedness of the Company which may be
outstanding from time to time, including under the Credit Agreement or the
Bridge Facility. See "Description of the Preferred Securities -- Distribution of
the Subordinated Debentures."
If the Subordinated Debentures are distributed to the holders of the
Preferred Securities, the Company will use its best efforts to have the
Subordinated Debentures listed on the New York Stock Exchange or on such other
exchange on which the Preferred Securities are then listed.
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GENERAL
The Subordinated Debentures will be issued as unsecured subordinated debt
securities under the Indenture. The Subordinated Debentures will be limited in
aggregate principal amount to approximately $206.18 million, such amount being
the sum of the aggregate stated liquidation amount of the Preferred Securities
and the capital contributed by the Company in exchange for the Common Securities
(the "Company Payment").
The Subordinated Debentures are not subject to a sinking fund provision.
The entire principal of the Subordinated Debentures will mature and become due
and payable, together with any accrued and unpaid interest thereon including
Compounded Interest (as hereinafter defined), if any, on , 2026,
subject to the election of the Company to shorten or extend the scheduled
maturity date of the Subordinated Debentures, which election in the case of an
extension of the scheduled maturity date is subject to the Company's satisfying
certain financial conditions and in the case of shortening the maturity date,
the receipt of any consent required by the terms of any indebtedness of the
Company which may be outstanding from time to time, including under the Credit
Agreement or the Bridge Facility. See "-- Option to Change Scheduled Maturity
Date."
If Subordinated Debentures are distributed to holders of Preferred
Securities in liquidation of such holders' interests in the Trust, it is
presently anticipated that such Subordinated Debentures will initially be issued
in the form of one or more Global Securities (as defined below). As described
herein, under certain limited circumstances, Subordinated Debentures may be
issued in definitive certificated form in exchange for a Global Security. See
"-- Book-Entry and Settlement" below. In the event that Subordinated Debentures
are issued in definitive certificated form, such Subordinated Debentures will be
in denominations of $25 and integral multiples thereof and may be transferred or
exchanged at the offices described below. Payments on Subordinated Debentures
issued as a Global Security will be made to DTC or its nominee, a successor
depository or its nominee. In the event Subordinated Debentures are issued in
definitive certificated form, principal and interest will be payable, the
transfer of the Subordinated Debentures will be registrable and Subordinated
Debentures will be exchangeable for Subordinated Debentures of other
denominations of a like aggregate principal amount at the corporate trust
offices of the Indenture Trustee in and New York, New York;
provided that payment of interest may be made at the option of the Company by
check mailed to the address of the persons entitled thereto.
The Indenture does not contain provisions that afford the holders of the
Subordinated Debentures protection in the event of a highly leveraged
transaction involving the Company or other similar transaction that may
adversely affect such holders.
SUBORDINATION
The Indenture provides that the Subordinated Debentures are subordinated
and junior in right of payment to the prior payment in full of all Senior
Indebtedness of the Company whether now existing or hereafter incurred. In the
event and during the continuation of any default by the Company in the payment
of principal, premium, interest or any other payment due on any Senior
Indebtedness of the Company, or in the event that the maturity of any Senior
Indebtedness of the Company has been accelerated because of a default, then in
either case, no payment will be made by the Company with respect to the
principal (including redemption payments) of or interest on the Subordinated
Debentures. Upon any distribution of assets of the Company to creditors upon any
dissolution, winding-up, liquidation or reorganization, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or other proceedings,
all principal, premium, if any, and interest due or to become due on all Senior
Indebtedness of the Company must be paid in full before the holders of
Subordinated Debentures are entitled to receive or retain any payment. In the
event that the Subordinated Debentures are declared due and payable before the
Maturity Date, then all amounts due or to become due on all Senior Indebtedness
shall have been paid in full before holders of the Subordinated Debentures are
entitled to receive or retain any payment. Upon satisfaction of all claims of
all Senior Indebtedness then outstanding, the rights of the holders of the
Subordinated Debentures will be subrogated to the rights of the holders of
Senior Indebtedness of the Company to receive payments or distributions
applicable to Senior Indebtedness until all amounts owing on the Subordinated
Debentures are paid in full.
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The term "Senior Indebtedness" means all indebtedness of the Company,
whether now existing or hereafter created, but excluding trade accounts payable
arising in the ordinary course of business. Without limiting the generality of
the foregoing, "Senior Indebtedness" shall include the principal, premium, if
any, and interest on: (i) all indebtedness of the Company created, incurred or
assumed, which is for money borrowed, or evidenced by a note or similar
instrument given in connection with the acquisition of any business, properties
or assets, including securities; (ii) any indebtedness of others of the kinds
described in the preceding clause (i) for the payment of which the Company is
responsible or liable as guarantor or otherwise; and (iii) amendments, renewals,
extensions and refundings of any such indebtedness, unless in any instrument or
instruments evidencing or securing such indebtedness or pursuant to which the
same is outstanding, or in any such amendment, renewal, extension or refunding,
it is expressly provided that such indebtedness is not superior in right of
payment to Subordinated Debt Securities. "Senior Indebtedness" does not include
any indebtedness of the Company to any of its Subsidiaries. The Senior
Indebtedness shall continue to be Senior Indebtedness and entitled to the
benefits of the subordination provisions irrespective of any amendment,
modification or waiver of any term of the Senior Indebtedness or extension or
renewal of the Senior Indebtedness.
The Indenture does not limit the aggregate amount of Senior Indebtedness
that may be issued by the Company. As of June 30, 1996 the aggregate amount of
Senior Indebtedness and liabilities and obligations of the Company's
subsidiaries that would have effectively ranked senior to the Subordinated
Debentures was approximately $16 billion. As of June 30, 1996, after giving
effect to the Offering and the application of the proceeds thereof, the ATC
Merger, the BLH Transaction, the CAF Merger, the LPG Merger and the THI Merger
the aggregate amount of Senior Indebtedness and liabilities and obligations of
the Company's subsidiaries that would have effectively ranked senior to the
Subordinated Debentures would have been approximately $22 billion.
OPTIONAL REDEMPTION
The Company shall have the right to redeem the Subordinated Debentures,
subject to the receipt of any consent required by the terms of any indebtedness
of the Company which may be outstanding from time to time, including under the
Credit Agreement or the Bridge Facility, (i) at any time, in whole or in part,
from time to time, on or after , 2001 or (ii) at any time in whole
(but not in part) upon the occurrence of a Special Event as described under
"Description of the Preferred Securities -- Special Event Redemption", upon not
less than 30 nor more than 60 days notice, at a redemption price equal to 100%
of the principal amount to be redeemed plus any accrued and unpaid interest to
the redemption date. If a partial redemption of the Preferred Securities
resulting from a partial redemption of the Subordinated Debentures would result
in the delisting of the Preferred Securities, the Company may only redeem the
Subordinated Debentures in whole. The Company may not redeem fewer than all
outstanding Subordinated Debentures unless there was no accrued and unpaid
interest on the Subordinated Debentures as of the Interest Payment Date (as
defined below) next preceding the redemption date. See "The Company -- Senior
Credit Facilities."
INTEREST
Each Subordinated Debenture shall bear interest at the rate of % per
annum from the original date of issuance, or from the most recent interest
payment date to which interest has been paid or provided for, payable quarterly
in arrears on March 31, June 30, September 30 and December 31 of each year (each
an "Interest Payment Date"), commencing , 1996, to the person in
whose name such Subordinated Debenture is registered, subject to certain
exceptions, at the close of business on the Business Day next preceding such
Interest Payment Date. In the event the Subordinated Debentures shall not
continue to remain in book-entry form, the Company shall have the right to
select record dates, which shall be more than one Business Day but less than 60
Business Days prior to the Interest Payment Date. Any installment of interest
not punctually paid will cease to be payable to the holders of the Subordinated
Debentures on the regular record date and may be paid to the person in whose
name the Subordinated Debentures are registered at the close of business on a
special record date to be fixed by the Indenture Trustee for the payment of such
defaulted interest, notice of which shall be given to the holders of the
Subordinated Debentures not less than 10 days prior to such special record date,
or may be paid at any time in any other lawful manner not
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inconsistent with the requirements of any securities exchange, interdealer
quotation system or other organization on which the Subordinated Debentures may
be listed, and upon such notice as may be required by such exchange, system or
organization.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. The amount of interest payable for
any period shorter than a full quarterly period for which interest is computed,
will be computed on the basis of the actual number of days elapsed in such 90
day quarter. In the event that any date on which interest is payable on the
Subordinated Debentures is not a Business Day, then payment of the interest
payable on such date will be made on the next succeeding day that is a Business
Day (and without any interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year, then
such payment shall be made on the immediately preceding Business Day, in each
case with the same force and effect as if made on such date.
OPTION TO CHANGE SCHEDULED MATURITY DATE
The "Scheduled Maturity Date" of the Subordinated Debentures is
, 2026. The Company, however, may, extend such maturity date
( , 2026 or the maturity date then in effect, as the case may be,
is hereinafter referred to as the "Maturity Date") for one or more periods, but
in no event later than the earlier of (i) , 2045 or (ii) the
Interest Deduction Date. The "Interest Deduction Date" shall mean the date which
is six months earlier than the ending date of the maximum term (beginning on the
date of issue of the Subordinated Debentures and including any extensions
thereof), as determined under any federal statute applicable by its terms to the
Subordinated Debentures which is enacted at any time after the issuance of the
Subordinated Debentures (including, but not limited to, at any time after an
extension of the Maturity Date), of a debt instrument for which interest is
deductible for federal income tax purposes. In no event shall the extended
Maturity Date be later than the Interest Deduction Date even if the Maturity
Date has previously been extended to a date beyond the Interest Deduction Date.
The Company must exercise its right to extend the term at least 90 days prior to
the Maturity Date then in effect and must satisfy the following conditions on
the date the Company exercises such right and on the Maturity Date then in
effect prior to such proposed extension: (a) the Company is not in bankruptcy or
otherwise insolvent, (b) the Company is not in default on any Subordinated
Debenture issued to the Trust or to any trustee of the Trust in connection with
an issuance of Trust Securities by the Trust, (c) the Company has made timely
payments on the Subordinated Debentures for the immediately preceding six
quarters without deferrals, (d) the Trust is not in arrears on payments of
distributions on the Trust Securities, (e) the Subordinated Debentures or
Preferred Securities are rated investment grade by any one of Standard & Poor's
Corporation, Moody's Investors Service, Inc., Fitch Investor Services, Duff &
Phelps Credit Rating Company or any other nationally recognized statistical
rating organization, and (f) the final maturity of such Subordinated Debentures
is not later than the 49th anniversary of the issuance of the Preferred
Securities. Pursuant to the Declaration, the Regular Trustees are required to
give notice of the Company's election to change the Maturity Date to the holders
of the Preferred Securities.
In addition, if the Company exercises its right to liquidate the Trust and
distribute the Subordinated Debentures as discussed above under "Description of
the Preferred Securities -- Distribution of the Subordinated Debentures,"
effective upon such exercise the Maturity Date of the Subordinated Debentures
may be changed to (i) any date elected by the Company that is no earlier than
, 2001, subject to the receipt of any consent required by the
terms of any indebtedness of the Company which may be outstanding from time to
time, including under the Credit Agreement or the Bridge Facility, and (ii) any
date elected by the Company which is not later than the earlier of (a)
, 2045 or (b) the Interest Deduction Date; provided that on the
date the Company exercises such right and on the Maturity Date in effect prior
to such proposed extension the conditions specified in the previous paragraph
are satisfied.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company has the right at any time, and from time to time, during the
term of the Subordinated Debentures to defer payments of interest by extending
the interest payment period for a period not exceeding 20 consecutive quarters,
at the end of which Extension Period, the Company shall pay all interest then
accrued and unpaid, together with interest thereon compounded quarterly at the
rate specified for the Subordinated
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Debentures to the extent permitted by applicable law ("Compounded Interest");
provided that no Extension Period shall extend beyond the Maturity Date; and
provided further that, during any such Extension Period, (a) the Company shall
not declare or pay any dividends on, make any distribution with respect to, or
redeem, purchase, acquire or make a liquidation payment with respect to any of
its capital stock, (b) the Company shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities issued by the Company that rank pari passu with or junior to the
Subordinated Debentures and (c) the Company shall not make guarantee payments
with respect to the foregoing (other than pursuant to the Trust Guarantee);
provided, however, that, the restriction in clause (a) above does not apply to
(i) any stock dividends paid by the Company where the dividend stock is the same
as that on which the dividend is paid or (ii) purchases or acquisitions of
shares of Company Common Stock in connection with the satisfaction by the
Company of its obligations under any employee benefit plans. Prior to the
termination of any such Extension Period, the Company may further defer payments
of interest by extending the interest payment period; provided, however, that
such Extension Period, including all such previous and further extensions, may
not exceed 20 consecutive quarters or extend beyond the Maturity Date. Upon the
termination of any Extension Period and the payment of all amounts then due, the
Company may commence a new Extension Period, subject to the terms set forth in
this section. No interest during an Extension Period, except at the end thereof,
shall be due and payable. The Company has no present intention of exercising its
right to defer payments of interest by extending the interest payment period on
the Subordinated Debentures. If the Property Trustee shall be the sole holder of
the Subordinated Debentures, the Company shall give the Regular Trustees and the
Property Trustee notice of its selection of such Extension Period one Business
Day prior to the earlier of (i) the date distributions on the Preferred
Securities are payable or (ii) the date the Regular Trustees are required to
give notice to the New York Stock Exchange (or other applicable self-regulatory
organization) or to holders of the Preferred Securities of the record date or
the date such distribution is payable. The Regular Trustees shall give notice of
the Company's selection of such Extension Period to the holders of the Preferred
Securities. If the Property Trustee shall not be the sole holder of the
Subordinated Debentures, the Company shall give the holders of the Subordinated
Debentures notice of its selection of such Extension Period ten Business Days
prior to the earlier of (i) the applicable Interest Payment Date or (ii) the
date upon which the Company is required to give notice to the New York Stock
Exchange (or other applicable self-regulatory organization) or to holders of the
Subordinated Debentures of the record or payment date of such related interest
payment.
INDENTURE EVENTS OF DEFAULT
If any Indenture Event of Default shall occur and be continuing, the
Property Trustee, as the holder of the Subordinated Debentures, will have the
right to declare the principal of and the interest on the Subordinated
Debentures (including any Compounded Interest and any other amounts payable
under the Indenture) to be forthwith due and payable and to enforce its other
rights as a creditor with respect to the Subordinated Debentures subject to the
subordination provisions in the Indenture. See "Description of the Debt
Securities -- Events of Default" in the accompanying Prospectus for a
description of the Indenture Events of Default. An Indenture Event of Default
also constitutes a Declaration Event of Default. If the Property Trustee fails
to enforce its rights with respect to the Subordinated Debentures held by the
Trust, any record holder of Preferred Securities may institute legal proceedings
directly against the Company to enforce the Property Trustee's rights under such
Subordinated Debentures without first instituting any legal proceedings against
such Property Trustee or any other person or entity. Notwithstanding the
foregoing, if an Event of Default under the Declaration has occurred and is
continuing and such event is attributable to the failure of the Company to pay
interest or principal on the Subordinated Debentures issued to the Trust on the
date such interest or principal is otherwise payable, then a record holder of
Preferred Securities may institute a proceeding directly against the Company for
enforcement of payment to the record holder of the Preferred Securities of the
principal of or interest on the Subordinated Debentures on or after the
respective due dates specified in the Subordinated Debentures, and the amount of
the payment will be based on the holder's pro rata share of the amount due and
owing on all of the Preferred Securities. The record holder in the case of the
issuance of one or more global Preferred Securities certificates will be DTC
acting at the direction of the beneficial owners of the Preferred Securities.
The holders of Preferred Securities in certain circumstances have the right to
direct the Property Trustee to exercise its rights, with respect to other than
principal and
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interest payments on the Subordinated Debentures, as the holder of the
Subordinated Debentures. See "Description of the Preferred Securities --
Declaration Events of Default" and "Description of the Preferred Securities --
Voting Rights."
ADDITIONAL COVENANTS
In addition to the covenants contained in the Base Indenture, but subject
to the exceptions described below in this paragraph, the Company has also
covenanted, with respect to the Subordinated Debentures, that for so long as the
Preferred Securities and the Common Securities remain outstanding the Company
will (i) maintain 100% direct or indirect ownership of the Common Securities,
provided, however, that any permitted successor of the Company under the
Indenture may succeed to the Company's ownership of the Common Securities, (ii)
not voluntarily dissolve, wind-up or terminate the Trust, except in connection
with the distribution of Subordinated Debentures or certain mergers,
consolidations or amalgamations, each as permitted by the Declaration, (iii)
timely perform its duties as sponsor of the Trust, (iv) use its reasonable
efforts to cause the Trust (a) to remain a business trust, except in connection
with a distribution of the Subordinated Debentures, the redemption of all of the
Preferred Securities and Common Securities of the Trust or certain mergers,
consolidations or amalgamations, each as permitted by the Declaration, and (b)
otherwise continue not to be treated as an association taxable as a corporation
or partnership for United States federal income tax purposes, and (v) to use its
reasonable efforts to cause each holder of Preferred Securities and Common
Securities to be treated as owning an individual beneficial interest in the
Subordinated Debentures. See "Description of Debt Securities -- Covenants" in
the accompanying Prospectus. Further, the defeasance provisions of the Base
Indenture do not apply to the Subordinated Debentures. See "Description of Debt
Securities -- Defeasance and Discharge" in the accompanying Prospectus.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Preferred Securities in connection with the
involuntary or voluntary dissolution, winding-up or liquidation of the Trust, it
is presently anticipated that the Subordinated Debentures will be issued in the
form of one or more global certificates (each a "Global Security") registered in
the name of a securities depository or its nominee. Except under the limited
circumstances described below, Subordinated Debentures represented by the Global
Security will not be exchangeable for, and will not otherwise be issuable as,
Subordinated Debentures in definitive form. The Global Securities described
above may not be transferred except by the depository to a nominee of the
depository or by a nominee of the depository to the depository or another
nominee of the depository or to a successor depository or its nominee.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in such a Global
Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Subordinated
Debentures in definitive form and will not be considered the Holders (as defined
in the Indenture) thereof for any purpose under the Indenture, and no Global
Security representing Subordinated Debentures shall be exchangeable, except for
another Global Security of like denomination and tenor to be registered in the
name of the depository or its nominee or to a successor depository or its
nominee. Accordingly, each beneficial owner must rely on the procedures of the
depository or if such person is not a Participant, on the procedures of the
Participant through which such person owns its interest to exercise any rights
of a Holder under the Indenture.
THE DEPOSITORY
If Subordinated Debentures are distributed to holders of Preferred
Securities in liquidation of such holders' interests in the Trust, DTC will act
as securities depository for the Subordinated Debentures. For a description of
DTC and the specific terms of the depository arrangements, see "Description of
the Preferred Securities -- Book-Entry Issuance -- The Depository Trust
Company." As of the date of this Prospectus Supplement, the description therein
of DTC's book-entry system and DTC's practices as they relate to purchases,
transfers, notices and payments with respect to the Preferred Securities apply
in all material
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respects to any debt obligations represented by one or more Global Securities
held by DTC. The Company may appoint a successor to DTC or any successor
depository in the event DTC or such successor depository is unable or unwilling
to continue as the depository for the Global Securities.
None of the Company, the Trust, the Indenture Trustee, any paying agent and
any other agent of the Company or the Indenture Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Security
for such Subordinated Debentures or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
DISCONTINUANCE OF THE DEPOSITORY'S SERVICES
A Global Security shall be exchangeable for Subordinated Debentures in
definitive certificated form registered in the names of persons other than the
depository or its nominee only if (i) the depository notifies the Company that
it is unwilling or unable to continue as a depository for such Global Security
and no successor depository shall have been appointed, (ii) the depository, at
any time, ceases to be a clearing agency registered under the Exchange Act at
which time the depository is required to be so registered to act as such
depository and no successor depository shall have been appointed, or (iii) the
Company, in its sole discretion, determines that such Global Security shall be
so exchangeable. Any Global Security that is exchangeable pursuant to the
preceding sentence shall be exchangeable for Subordinated Debentures registered
in such names as the depository shall direct. It is expected that such
instructions will be based upon directions received by the depository from its
Participants with respect to ownership of beneficial interests in such Global
Security.
MISCELLANEOUS
The Company will pay all fees and expenses related to (i) the offering of
the Trust Securities and the Subordinated Debentures, (ii) the organization,
maintenance and dissolution of the Trust, (iii) the retention of the Conseco
Trustees and (iv) the enforcement by the Property Trustee of the rights of the
holders of the Preferred Securities.
DESCRIPTION OF THE TRUST GUARANTEE
Pursuant to the Trust Guarantee, the Company will irrevocably and
unconditionally agree, to the extent set forth therein, to pay in full, to the
holders of the Preferred Securities issued by the Trust, the Guarantee Payments
(as defined in the accompanying Prospectus) (except to the extent paid by the
Trust), as and when due, regardless of any defense, right of set-off or
counterclaim which the Trust may have or assert. The Company's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Company to the holders of Preferred Securities or by causing the
Trust to pay such amounts to such holders. The Trust Guarantee will be qualified
as an indenture under the Trust Indenture Act. Fleet National Bank will act as
indenture trustee under the Trust Guarantee. The terms of the Trust Guarantee
will be those set forth in such Trust Guarantee and those made part of such
Trust Guarantee by the Trust Indenture Act. The Trust Guarantee will be held by
the Preferred Securities Guarantee Trustee for the benefit of the holders of the
Preferred Securities. Notwithstanding the foregoing, if the Company has failed
to make a payment under the Trust Guarantee, any holder of Preferred Securities
may institute a legal proceeding directly against the Company for enforcement of
the Trust Guarantee with respect to payment to the record holder of the
Preferred Securities of the principal or interest on the Subordinated Debentures
held by the Trust on or after the respective due dates specified in the
Subordinated Debentures, without first instituting a legal proceeding directly
against the Trust, the Preferred Securities Guarantee Trustee or any other
person or entity. A summary description of the Trust Guarantee appears in the
accompanying Prospectus under the caption "Description of the Preferred
Securities Guarantees."
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EFFECT OF OBLIGATIONS UNDER THE SUBORDINATED
DEBENTURES AND THE TRUST GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to (i)
issue the Trust Securities evidencing undivided beneficial interests in the
assets of the Trust, (ii) invest the proceeds from such issuance and sale in the
Subordinated Debentures and (iii) engage in only those other activities
necessary or incidental thereto.
As long as payments of interest and other payments are made when due on the
Subordinated Debentures, such payments will be sufficient to cover distributions
and payments due on the Trust Securities because: (i) the aggregate principal
amount of Subordinated Debentures will be equal to the sum of the aggregate
stated liquidation amount of the Trust Securities; (ii) the interest rate and
the interest and other payment dates on the Subordinated Debentures will match
the distribution rate and distribution and other payment dates for the Preferred
Securities; (iii) the Company shall pay all, and the Trust shall not be
obligated to pay, directly or indirectly, any, costs, expenses, debts and
obligations (other than with respect to the Trust Securities) related to the
Trust; and (iv) the Declaration provides that the Conseco Trustees shall not
cause or permit the Trust to, among other things, engage in any activity that is
not consistent with the purposes of the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Preferred Securities (to the extent funds therefor are
available) are guaranteed by the Company as and to the extent set forth under
"Description of Trust Guarantees" in the accompanying Prospectus. If the Company
does not make interest and/or principal payments on the Subordinated Debentures
purchased by the Trust, the Trust will not have sufficient funds to pay
distributions on the Preferred Securities. The Trust Guarantee will not apply to
the payment of distributions and other payments on the Preferred Securities when
the Trust does not have sufficient funds to make such distributions or other
payments.
The Trust Guarantee will constitute an unsecured obligation of the Company
and will rank (i) subordinate and junior in right of payment to all other
liabilities of the Company except those made pari passu or subordinate by their
terms, (ii) pari passu with the most senior preferred or preference stock now or
hereafter issued by the Company and with any guarantee now or hereafter entered
into by the Company in respect of any preferred or preference stock of any
affiliate of the Company, and (iii) senior to the Company Common Stock.
The Trust Guarantee, when taken together with the back-up undertakings,
consisting of obligations of the Company as set forth in the Declaration
(including the obligation to pay expenses of the Trust), the Indenture and any
applicable supplemental indentures thereto, and the Subordinated Debentures
issued to the Trust, provide a full and unconditional guarantee by the Company
of the amounts due on the Preferred Securities. If the Company fails to make
interest or other payments on the Subordinated Debentures when due (taking
account of any Extension Period), the Declaration provides a mechanism whereby
the holders of the Preferred Securities, using the procedures described in
"Description of the Preferred Securities -- Book-Entry Only Issuance -- The
Depository Trust Company" and "-- Voting Rights," may direct the Property
Trustee to enforce its rights under the Subordinated Debentures. If the Property
Trustee fails to enforce its right under the Subordinated Debentures, a holder
of Preferred Securities may institute a legal proceeding against the Company to
enforce the Property Trustee's rights under the Subordinated Debentures without
first instituting any legal proceeding against the Property Trustee or any other
person or entity. Notwithstanding the foregoing, if a Declaration Event of
Default has occurred and is continuing and such event is attributable to the
failure of the Company to pay interest or principal on the Subordinated
Debentures on the date such interest or principal is otherwise payable, then a
holder of Preferred Securities may directly institute a proceeding against the
Company for payment. The Company, under the Trust Guarantee, acknowledges that
the Preferred Securities Guarantee Trustee shall enforce the Trust Guarantee on
behalf of the holders of the Preferred Securities. If the Company fails to make
payments under the Trust Guarantee, the Trust Guarantee provides a mechanism
whereby the holders of the Preferred Securities may direct the Preferred
Securities Guarantee Trustee to enforce its rights thereunder. Notwithstanding
the foregoing, if the Company has failed to make a payment under the Trust
Guarantee, any holder of Preferred Securities may institute a legal proceeding
directly against the Company for enforcement of the Trust Guarantee with respect
to payment to
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the record holder of the Preferred Securities of the principal or interest on
the Subordinated Debentures held by the Trust on or after the respective due
dates specified in the Subordinated Debentures, without first instituting a
legal proceeding against the Trust, the Preferred Securities Guarantee Trustee,
or any other person or entity.
UNITED STATES FEDERAL INCOME TAXATION
GENERAL
The following is a summary of certain of the material United States federal
income tax consequences of the purchase, ownership and disposition of Preferred
Securities. Unless otherwise stated, this summary deals only with Preferred
Securities held as capital assets by holders who purchase the Preferred
Securities upon original issuance ("Initial Holders"). It does not deal with
special classes of holders such as banks, thrifts, real estate investment
trusts, regulated investment companies, insurance companies, dealers in
securities or currencies, tax-exempt investors, or persons that will hold the
Preferred Securities as a position in a "straddle," as part of a "synthetic
security" or "hedge," as part of a "conversion transaction" or other integrated
investment, or as other than a capital asset. This summary also does not address
the tax consequences to persons that have a functional currency other than the
U.S. dollar or the tax consequences to shareholders, partners or beneficiaries
of a holder of Preferred Securities. Further, it does not include any
description of any alternative minimum tax consequences or the tax laws of any
state or local government or of any foreign government that may be applicable to
the Preferred Securities. This summary is based on the Internal Revenue Code of
1986, as amended (the "Code"), U.S. Treasury regulations thereunder and
administrative and judicial interpretations thereof, as of the date hereof, all
of which are subject to change, possibly on a retroactive basis. Any such
changes may be applied retroactively in a manner that could cause the tax
consequences to vary substantially from the consequences described below,
possibly adversely affecting a beneficial owner of the Preferred Securities. In
particular, legislation has been proposed that could adversely affect the
Company's ability to deduct interest on the Subordinated Debentures, which may
in turn permit the Company to cause a redemption of the Preferred Securities
prior to 2001. See "-- Proposed Tax Law Changes."
CLASSIFICATION OF THE SUBORDINATED DEBENTURES AND THE TRUST
In connection with the issuance of the Subordinated Debentures, Locke
Reynolds Boyd & Weisell, legal counsel for the Company and the Trust, will
render its opinion generally to the effect that, under then current law and
assuming full compliance with the terms of the Indenture (and certain other
documents), the Subordinated Debentures will be classified for United States
federal income tax purposes as indebtedness of the Company.
In connection with the issuance of the Preferred Securities, Locke Reynolds
Boyd & Weisell will render its opinion generally to the effect that, under then
current law and assuming full compliance with the terms of the Declaration, the
Trust will be classified for United States federal income tax purposes as a
grantor trust and not as an association taxable as a corporation. Accordingly,
for United States federal income tax purposes, each holder of Preferred
Securities generally will be considered the owner of an undivided interest in
the Subordinated Debentures. Each holder will be required to include in its
gross income its allocable share of income accrued on the Subordinated
Debentures.
Investors should be aware that these tax opinions do not address any other
issue and are not binding on the Internal Revenue Service or the courts.
ORIGINAL ISSUE DISCOUNT
Under recently issued income tax regulations applicable to all debt
instruments that, like the Subordinated Debentures, are issued on or after
August 13, 1996, remote contingencies that stated interest will not be timely
paid are ignored in determining whether a debt instrument is issued with OID,
which determination depends in part on whether interest is "unconditionally
payable" on the debt instrument. OID must be included in income by all holders
as it accrues economically on a daily basis, without regard to when it is paid
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in cash or whether a particular holder generally uses the cash method of
accounting. The Company has concluded that the likelihood of its exercising its
option to defer payments of interest is remote. This conclusion is based on the
Company's analysis, as of the date of issue of the Subordinated Debentures, of
various facts and circumstances deemed relevant to exercising such deferral
option, including, among other things, the inability of the Company to declare
dividends on its stock while interest on the Subordinated Debentures is being
deferred, and the likely impact of the non-payment of dividends upon the ratings
of the Company's securities if the deferral option is exercised. Based upon this
conclusion by the Company, and in the absence of any specific definition of
"remote" in the applicable income tax regulations, in the opinion of Locke
Reynolds Boyd & Weisell, although the matter is not entirely free from doubt,
the Subordinated Debentures will not include OID. As a consequence, holders of
the Preferred Securities should report interest under their own methods of
accounting (e.g., cash or accrual) instead of under the daily economic accrual
rules for OID instruments.
Under the new regulations, however, if the Company exercises its right to
defer payments of interest, the Subordinated Debentures will become OID
instruments, and all holders of the Preferred Securities will be required to
accrue interest on a daily basis and to report that OID as taxable interest
income during any Extension Period even though the Company will not pay the
interest in cash until the end of the Extension Period, and even though a holder
may use the cash method of accounting. A holder who disposes of the Preferred
Securities during such an Extension Period may suffer a loss because the market
value of the Trust Securities will likely fall if the Company exercises its
option to defer payments of interest on the Subordinated Debentures.
Furthermore, the market value of the Preferred Securities may not reflect the
accumulated distribution that will be paid at the end of the Extension Period,
and a holder who sells the Preferred Securities during the Extension Period will
not receive from the Company any cash related to the interest (OID) income the
holder accrued and included in its taxable income under the OID rules (because
that cash will be paid to the holder of record at the end of the Extension
Period).
If the Subordinated Debentures become OID instruments (i.e., if the Company
exercises its rights to defer payment of interest), the Subordinated Debentures
will be taxed as OID instruments for as long as they remain outstanding. Thus,
even after the end of the Extension Period, all holders will be required to
continue accruing interest (OID) on the Subordinated Debentures on a daily
basis, regardless of their method of accounting.
The new regulations have not been addressed in any rulings or other
interpretations by the Internal Revenue Service other than the preamble to the
Treasury Decision that issued the new regulations, which added the concept of
"remote contingencies" to existing definitions used to determine whether
interest payable under a debt instrument is "unconditionally payable." The new
regulations could be viewed as a favorable reversal of the Internal Revenue
Service's previous position, as expressed in a 1995 Revenue Ruling that has not
been withdrawn. It is possible that the IRS could take a position contrary to
the interpretation herein.
MARKET DISCOUNT AND BOND PREMIUM
Holders of Preferred Securities other than Initial Holders may be
considered to have acquired their undivided interests in the Subordinated
Debentures with "market discount" or "acquisition premium" as such phrases are
defined for United States federal income tax purposes. Such holders are advised
to consult their tax advisors as to the income tax consequences of the
acquisition, ownership and disposition of the Preferred Securities.
RECEIPT OF SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
As described under the caption "Description of the Preferred Securities --
Distribution of the Subordinated Debentures," Subordinated Debentures may be
distributed to holders in exchange for the Preferred Securities and in
liquidation of the Trust. Under current law, such a distribution, for United
States federal income tax purposes, would be treated as a non-taxable event to
each holder, and each holder would receive an aggregate tax basis in the
Subordinated Debentures equal to such holder's aggregate tax basis in its
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<PAGE> 83
Preferred Securities. A holder's holding period in the Subordinated Debentures
so received in liquidation of the Trust would include the period during which
the Preferred Securities were held by such holder.
Under certain circumstances described herein (see "Description of the
Preferred Securities -- Special Event Redemption"), the Subordinated Debentures
may be redeemed for cash and the proceeds of such redemption distributed to
holders in redemption of their Preferred Securities. Under current law, such a
redemption would, for United States federal income tax purposes, constitute a
taxable disposition of the redeemed Preferred Securities, and a holder could
recognize gain or loss as if it sold such redeemed Preferred Securities for
cash. See "--Sales of Preferred Securities."
SALES OF PREFERRED SECURITIES
A holder that sells Preferred Securities will recognize gain or loss equal
to the difference between its adjusted tax basis in the Preferred Securities and
the amount realized on the sale of such Preferred Securities. Assuming the
Company does not defer interest on the Subordinated Debentures by extending the
interest payment period, a holder's adjusted tax basis in the Preferred
Securities generally will equal its initial purchase price. Subject to the
market discount rules described above and the discussion below regarding accrued
and unpaid interest, such gain or loss generally will be a capital gain or loss
and generally will be a long-term capital gain or loss if the Preferred
Securities have been held for more than one year.
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying
Subordinated Debentures. If the Company exercises its right to defer payments of
interest, the Substituted Debentures will become OID instruments and a holder
who disposes of Preferred Securities between record dates for payments of
distributions thereon will be required to include in income as ordinary income,
accrued and unpaid interest on the Subordinated Debentures through the date of
disposition, and to add such amount to such holder's adjusted tax basis in its
pro rata share of the underlying Subordinated Debentures deemed disposed of. To
the extent the selling price is less than the holder's adjusted tax basis (which
will include all accrued but unpaid interest) a holder will recognize a capital
loss. Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes. Accrual
basis taxpayers would be subjected to similar treatment without regard to the
Company's election to defer.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, as to the United
States, a foreign corporation, a non-resident alien individual, a foreign
partnership, or a non-resident fiduciary of a foreign estate or trust.
Under present United States federal income tax law: (i) payments by the
Trust or any of its paying agents to any holder of a Preferred Security who or
which is a United States Alien Holder will not be subject to United States
federal withholding tax; provided that, (a) the beneficial owner of the
Preferred Security does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled to
vote, (b) the beneficial owner of the Preferred Security is not a controlled
foreign corporation that is related to the Company through stock ownership, and
(c) either (A) the beneficial owner of the Preferred Security certifies to the
Trust or its agent, under penalties of perjury, that it is not a United States
holder and provides its name and address or (B) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "Financial
Institution"), and holds the Preferred Security in such capacity, certifies to
the Trust or its agent, under penalties of perjury, that such statement has been
received from the beneficial owner by it or by a Financial Institution between
it and the beneficial owner and furnishes the Trust or its agent with a copy
thereof; and (ii) a United States Alien Holder of a Preferred Security will not
be subject to United States federal withholding tax on any gain realized upon
the sale or other disposition of a Preferred Security.
INFORMATION REPORTING TO HOLDERS
Income on the Preferred Securities will be reported to holders on Forms
1099, which forms should be mailed to holders of Preferred Securities by January
31 following each calendar year.
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BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Preferred Securities
may be subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification requirements. Any withheld amounts will be allowed
as a credit against the holder's federal income tax, provided the required
information is provided to the Internal Revenue Service.
PROPOSED TAX LAW CHANGES
On March 19, 1996, the Revenue Reconciliation Bill of 1996, the revenue
portion of President Clinton's budget proposal was released. The Bill would,
among other things, generally deny interest deductions for interest on an
instrument, issued by a corporation, that has a maximum weighted average
maturity of more than 40 years. The Bill would also generally deny interest
deductions for interest on an instrument, issued by a corporation, that has a
maximum term of more than 20 years and that is not shown as indebtedness on the
separate balance sheet of the issuer or, where the instrument is issued to a
related party (other than a corporation), where the holder or some other related
party issues a related instrument that is not shown as indebtedness on the
issuer's consolidated balance sheet. For purposes of determining the weighted
average maturity or the term of an instrument, any right to extend would be
treated as exercised. The above-described provisions of the Bill were proposed
to be effective generally for instruments issued on or after December 7, 1995.
However, on March 29, 1996, the Chairmen of the Senate Finance and House Ways
and Means Committees issued a joint statement to the effect that it was their
intention that the effective date of the President's legislative proposals, if
adopted, will be no earlier than the date of appropriate Congressional action.
In addition, subsequent to the publication of the joint statement, Senator
Daniel Patrick Moynihan and Representatives Sam M. Gibbons and Charles B. Rangel
wrote letters to Treasury Department officials concurring with the views
expressed in the joint statement. Under current law, the Company will be able to
deduct interest on the Subordinated Debentures. The terms of the Subordinated
Debentures limit the right to extend the maturity of the Subordinated Debentures
to a date which is six months shorter than any legislative limit on the length
of debt securities for which interest is deductible. The Company believes this
will allow it an interest deduction if the 40-year weighted average maturity
component of the Bill is enacted. However, if the provision of the Bill
regarding a 20-year term is enacted with retroactive effect with regard to the
Subordinated Debentures, the Company will not be entitled to an interest
deduction with respect to the Subordinated Debentures. There can be no assurance
that current or future legislative proposals or final legislation will not
affect the ability of the Company to deduct interest on the Subordinated
Debentures, giving rise to a Tax Event which would permit the Company, subject
to the receipt of any consent required by the terms of any indebtedness of the
Company which may be outstanding from time to time, including under the Credit
Agreement or the Bridge Facility, to cause the redemption of the Preferred
Securities prior to , 2001 (the first date on which the Company would
otherwise be able to cause a redemption of Preferred Securities) as described
more fully under "Description of Preferred Securities -- Special Event
Redemption."
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL
OR OTHER TAX LAWS.
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<PAGE> 85
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Trust has agreed to sell to each of the
Underwriters named herein, and each of the Underwriters, for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Dean Witter Reynolds Inc., Donaldson,
Lufkin & Jenrette Securities Corporation, PaineWebber Incorporated, Prudential
Securities Incorporated and Sands Brothers & Co., Ltd. are acting as
representatives (the "Representatives"), has severally agreed to purchase the
number of Preferred Securities set forth opposite its name below. In the
Underwriting Agreement, the several Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all the Preferred Securities
offered hereby if any of the Preferred Securities are purchased. In the event of
default by an Underwriter, the Underwriting Agreement provides that, in certain
circumstances, the purchase commitments of the nondefaulting Underwriters may be
increased or the Underwriting Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER
OF
PREFERRED
UNDERWRITER SECURITIES
--------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................................
Dean Witter Reynolds Inc.........................................
Donaldson, Lufkin & Jenrette Securities Corporation..............
PaineWebber Incorporated.........................................
Prudential Securities Incorporated...............................
Sands Brothers & Co., Ltd........................................
---------
Total............................................... 8,000,000
=========
</TABLE>
The Underwriters propose to offer the Preferred Securities in part directly
to the public at the initial public offering price, as set forth on the cover
page of this Prospectus Supplement, and in part to certain securities dealers at
such price less a concession not in excess of $ per Preferred Security,
provided that such concession for sales of 10,000 or more Preferred Securities
to any single purchaser will be not in excess of $ per Preferred Security.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per Preferred Security to certain brokers and dealers. After the
Preferred Securities are released for sale to the public, the offering price and
other selling terms may from time to time be varied by the Representatives.
In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Subordinated Debentures of the Company,
the Underwriting Agreement provides that the Company will agree to pay as
compensation ("Underwriters' Compensation") for the Underwriters' arranging the
investment therein of such proceeds, an amount in same day funds of $ per
Preferred Security (or $ in the aggregate) for the accounts of the several
Underwriters, provided that such compensation for sales of 10,000 or more
Preferred Securities to any single purchaser will be $ per Preferred
Security. Therefore, to the extent of such sales, the actual amount of
Underwriter's Compensation will be less than the aggregate amount specified in
the preceding sentence.
During a period of 90 days from the date of this Prospectus Supplement,
neither the Trust nor the Company will, without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated on behalf of the
Underwriters, directly or indirectly, sell, offer to sell, grant any option for
the sale of, or otherwise dispose of, any Preferred Securities, any security
convertible into or exchangeable into or exercisable for Preferred Securities or
the Subordinated Debentures or any debt securities substantially similar to the
Subordinated Debentures or any equity securities substantially similar to the
Preferred Securities (except for the Subordinated Debentures and the Preferred
Securities offered hereby).
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The Preferred Securities have been approved for listing, subject to
official notice of issuance, on the New York Stock Exchange. Trading of the
Preferred Securities on the New York Stock Exchange is expected to commence
within a 30-day period after the initial delivery of the Preferred Securities.
The Representatives have advised the Trust that they intend to make a market in
the Preferred Securities prior to the commencement of trading on the New York
Stock Exchange. The Representatives have no obligation to make a market in the
Preferred Securities, however, and may cease market making activities, if
commenced, at any time.
Prior to this offering, there has been no public market for the Preferred
Securities. In order to meet one of the requirements for listing the Preferred
Securities on the New York Stock Exchange, the Underwriters will undertake to
sell lots of 100 or more Preferred Securities to a minimum of 400 beneficial
holders.
The Company and the Trust have agreed to indemnify the Underwriters
against, or contribute to payments that the Underwriters may be required to make
in respect of, certain liabilities, including liabilities under the Securities
Act.
Certain of the Underwriters engage in transactions with, and, from time to
time, have performed services for, the Company, its subsidiaries, ATC, CAF and
THI in the ordinary course of business.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Preferred
Securities will be passed upon on behalf of the Trust by Richards, Layton &
Finger, P.A., Wilmington, Delaware, special Delaware counsel to the Trust. The
validity of the Subordinated Debentures, the Trust Guarantee and certain matters
relating thereto, will be passed upon on behalf of the Company and the Trust by
Lawrence W. Inlow, Executive Vice President and General Counsel of the Company.
Mr. Inlow is a full-time employee and an officer of the Company and owns 808,374
shares of Company Common Stock and holds options to purchase 1,406,900 shares of
Company Common Stock. Locke Reynolds Boyd & Weisell, Indianapolis, Indiana, will
pass upon certain United States federal income tax matters on behalf of the
Company and the Trust. Certain legal matters will be passed upon for the
Underwriters by LeBoeuf, Lamb, Greene & MacRae, L.L.P., a limited liability
partnership including professional corporations, New York, New York.
EXPERTS
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 Prospectus Supplement, 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 Prospectus Supplement, have been audited by
Arthur Andersen LLP, independent public accountants, as set forth in their
report with respect thereto and are incorporated by reference in reliance upon
the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of CAF at December 31, 1995 and 1994,
and for each of the three years in the period ended December 31, 1995,
incorporated by reference in this Prospectus Supplement, have been audited by
KPMG Peat Marwick LLP, independent auditors, as set forth in their report
thereon incorporated by reference herein, and are incorporated by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of 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 Prospectus Supplement, have been audited by
KPMG Peat Marwick LLP, independent auditors, as set forth in their report
thereon incorporated by reference herein, and are incorporated by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
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<PAGE> 87
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission pursuant to
the Exchange Act are incorporated herein by this reference:
1. Annual Report on Form 10-K of LPG for the fiscal year ended
December 31, 1995; LPG's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996; and LPG's Current Reports on Form 8-K dated March 11,
1996 and April 10, 1996.
2. Annual Report on Form 10-K of ATC for the fiscal year ended
December 31, 1995 (including those portions of ATC's proxy statement for
its 1996 annual meeting of shareholders incorporated by reference therein);
ATC's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996;
and ATC's Current Report on Form 8-K dated August 25, 1996.
3. Annual Report on Form 10-K of CAF for the fiscal year ended
December 31, 1995 (including those portions of CAF's 1995 Annual Report to
Shareholders, including financial statement and accompanying information,
and CAF's proxy statement for its 1996 annual meeting of shareholders which
are incorporated by reference therein); CAF's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996; and CAF's Current Report on Form 8-K
dated August 25, 1996.
4. Annual Report on Form 10-K of THI for the fiscal year ended
December 31, 1995 (including those portions of THI's proxy statement for
its 1996 annual meeting of shareholders incorporated by reference therein);
THI's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996;
and THI's Current Report on Form 8-K dated September 25, 1996.
All documents filed by ATC, CAF or THI pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the
consummation of the Offering 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 Prospectus Supplement or the
accompanying 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.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 7, 1996
PROSPECTUS
$1,000,000,000
CONSECO, INC.
DEBT SECURITIES, PREFERRED STOCK, DEPOSITARY SHARES, COMMON STOCK AND WARRANTS
CONSECO FINANCING TRUST I
CONSECO FINANCING TRUST II
CONSECO FINANCING TRUST III
PREFERRED SECURITIES FULLY AND UNCONDITIONALLY GUARANTEED
BY CONSECO, INC.
------------------------
Conseco, Inc., an Indiana corporation ("Conseco" or the "Company"), may
offer and sell from time to time, in one or more series, (i) its debt
securities, consisting of debentures, notes and/or other evidences of
indebtedness representing unsecured obligations of Conseco (the "Debt
Securities"), (ii) shares of its preferred stock, no par value per share
("Preferred Stock"), which may be represented by depositary shares (the
"Depositary Shares") as described herein, (iii) shares of its common stock, no
par value per share ("Common Stock"), and (iv) warrants to purchase Debt
Securities, Preferred Stock, Common Stock or other securities or rights
("Warrants").
Conseco Financing Trust I, Conseco Financing Trust II and Conseco Financing
Trust III (each, a "Conseco Trust"), statutory business trusts formed under the
laws of the State of Delaware, may offer, from time to time, preferred
securities, representing preferred undivided beneficial interests in the assets
of the respective Conseco Trusts ("Preferred Securities"). The payment of
periodic cash distributions ("Distributions") with respect to Preferred
Securities out of moneys held by each of the Conseco Trusts, and payments on
liquidation, redemption or otherwise with respect to such Preferred Securities,
will be guaranteed by the Company to the extent described herein (each, a "Trust
Guarantee"). See "Description of Preferred Securities" and "Description of Trust
Guarantees." The Company's obligations under the Trust Guarantees will rank
junior and subordinate in right of payment to all other liabilities of the
Company and pari passu with its obligations under the senior most preferred or
preference stock of the Company. See "Description of Trust Guarantees -- Status
of the Trust Guarantees." Subordinated Debt Securities (as defined herein) may
be issued and sold by the Company in one or more series to a Conseco Trust or a
trustee of such Conseco Trust in connection with the investment of the proceeds
from the offering of Preferred Securities and Common Securities (as defined
herein) of such Conseco Trust. The Subordinated Debt Securities purchased by a
Conseco Trust may be subsequently distributed pro rata to holders of Preferred
Securities and Common Securities in connection with the dissolution of such
Conseco Trust. The Debt Securities, Preferred Stock, Depositary Shares, Common
Stock, Warrants and Preferred Securities are herein collectively referred to as
the "Securities."
Certain specific terms of the particular Securities in respect of which
this Prospectus is being delivered will be set forth in an accompanying
supplement to this Prospectus (the "Prospectus Supplement"), which will
describe, without limitation and where applicable, the following: (i) in the
case of Debt Securities, the specific designation, aggregate principal amount,
ranking as senior or subordinated Debt Securities, denomination, maturity,
premium, if any, interest rate (which may be fixed or variable), time and method
of calculating interest, if any, place or places where principal of, premium, if
any, and interest, if any, on such Debt Securities will be payable, the
currencies or currency units in which principal of, premium, if any, and
interest, if any, on such Debt Securities will be payable, any terms of
redemption or conversion, any sinking fund provisions, the purchase price, any
listing on a securities exchange, any right of the Company to defer payment of
interest on the Debt Securities and the maximum length of such deferral period
and other special terms; (ii) in the case of Preferred Stock and Depositary
Shares, the specific designation, stated value and
<PAGE> 89
liquidation preference per share and number of shares offered, the purchase
price, dividend rate (which may be fixed or variable), method of calculating
payment of dividends, place or places where dividends on such Preferred Stock
will be payable, any terms of redemption, dates on which dividends shall be
payable and dates from which dividends shall accrue, any listing on a securities
exchange, voting and other rights, including conversion or exchange rights, if
any, and other special terms, including whether interests in the Preferred Stock
will be represented by Depositary Shares and, if so, the fraction of a share of
Preferred Stock represented by each Depositary Share; (iii) in the case of
Common Stock, the number of shares offered, the initial offering price, market
price and dividend information; (iv) in the case of Warrants, the specific
designation, the number, purchase price, exercise price and other terms thereof,
any listing of the Warrants or the underlying Securities on a securities
exchange or any other terms in connection with the offering, sale and exercise
of the Warrants, as well as the terms on which and the Securities for which such
Warrants may be exercised; and (v) in the case of Preferred Securities, the
specific designation, number of securities, liquidation amount per security, the
purchase price, any listing on a securities exchange, distribution rate (or
method of calculation thereof), dates on which distributions shall be payable
and dates from which distributions shall accrue, any voting rights, terms for
any conversion or exchange into other securities, any redemption, exchange or
sinking fund provisions, any other rights, preferences, privileges, limitations
or restrictions relating to the Preferred Securities and the terms upon which
the proceeds of the sale of the Preferred Securities shall be used to purchase a
specific series of Subordinated Debt Securities of the Company.
The offering price to the public of the Securities will be limited to U.S.
$1,000,000,000 in the aggregate (or its equivalent (based on the applicable
exchange rate at the time of issue), if Securities are offered for consideration
denominated in one or more foreign currencies or currency units as shall be
designated by the Company). The Debt Securities may be denominated in United
States dollars or, at the option of the Company if so specified in the
applicable Prospectus Supplement, in one or more foreign currencies or currency
units. The Debt Securities may be issued in registered form or bearer form, or
both. If so specified in the applicable Prospectus Supplement, Debt Securities
of a series may be issued in whole or in part in the form of one or more
temporary or permanent global securities.
The Securities may be sold to or through underwriters, through dealers or
agents or directly to purchasers. See "Plan of Distribution." The names of any
underwriters, dealers or agents involved in the sale of the Securities in
respect of which this Prospectus is being delivered and any applicable fee,
commission or discount arrangements with them will be set forth in a Prospectus
Supplement. See "Plan of Distribution" for possible indemnification arrangements
for dealers, underwriters and agents.
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is November , 1996.
2
<PAGE> 90
FOR NORTH CAROLINA RESIDENTS: 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 THE ADEQUACY OF
THIS DOCUMENT.
State insurance holding company laws and regulations applicable to the
Company generally provide that no person may acquire control of the Company, and
thus indirect control of its 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
Common Stock would be presumed to have acquired such control, unless the
appropriate insurance regulatory authorities upon advance application determine
otherwise.
NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, ANY
ACCOMPANYING PROSPECTUS SUPPLEMENT OR THE DOCUMENTS INCORPORATED OR DEEMED
INCORPORATED BY REFERENCE HEREIN. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY UNDERWRITER, DEALER OR AGENT. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN
THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THOSE SECURITIES TO WHICH IT RELATES, IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY PROSPECTUS
SUPPLEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by Conseco with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
the following regional offices of the Commission: New York Regional Office, 7
World Trade Center, 13th Floor, New York, New York 10048; and Chicago Regional
Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, upon
payment of the prescribed rates. 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 the Company,
that file electronically with the Commission. Copies of such reports, proxy
statements and other information can also be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Company and the Conseco Trusts have filed with the Commission a
Registration Statement on Form S-3 under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Securities offered hereby. This
Prospectus, which constitutes part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits thereto, certain parts of which are omitted in accordance with the
rules and regulations of the Commission. Statements contained herein or in any
Prospectus Supplement concerning the provisions of any document do not purport
to be complete and, in each instance, are qualified in all respects by reference
to the copy of such document filed as an exhibit to the Registration Statement
or otherwise filed with the Commission. For further information with respect to
the Company, the Conseco Trusts and the Securities, reference is hereby made to
such Registration Statement, including the exhibits thereto and the documents
incorporated herein by reference, which can be examined at the Commission's
principal office, 450 Fifth Street, N.W., Washington, D.C. 20549, or copies of
which can be obtained from the Commission at such office upon payment of the
fees prescribed by the Commission.
No separate financial statements of the Conseco Trusts have been included
or incorporated by reference herein. The Company does not consider that such
financial statements would be material to holders of the
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<PAGE> 91
Preferred Securities because (i) all of the voting securities of the Conseco
Trusts will be owned, directly or indirectly, by the Company, a reporting
company under the Exchange Act, (ii) the Conseco Trusts have and will have no
independent operations but exist for the sole purpose of issuing securities
representing undivided beneficial interests in their assets and investing the
proceeds thereof in Subordinated Debt Securities issued by the Company, and
(iii) the Company's obligations described herein and in any accompanying
prospectus supplement, under the Declaration (including the obligation to pay
expenses of the Conseco Trusts), the Subordinated Indenture and any supplemental
indentures thereto, the Subordinated Debt Securities issued to the Conseco Trust
and the Trust Guarantees taken together, constitute a full and unconditional
guarantee by the Company of payments due on the Preferred Securities. See
"Description of Preferred Securities of the Conseco Trusts" and "Description of
Trust Guarantees."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by this reference:
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1995
including Part III thereof which is incorporated by reference from the Company's
proxy statement dated April 24, 1996 for its annual meeting of shareholders (the
"Company's Annual Report");
2. Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996
and June 30, 1996;
3. Current Reports on Form 8-K dated January 17, 1996, March 11, 1996,
March 14, 1996, August 2, 1996, August 25, 1996 and September 25, 1996; and
4. The description of the Company's Common Stock in its 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.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the offering made hereby shall be deemed to be incorporated by
reference in this Prospectus or any Prospectus Supplement and to be part hereof
from the date of filing of such documents.
Any statement contained herein, or in a document incorporated or deemed to
be incorporated by reference herein, shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus or
any Prospectus Supplement. To the extent that any proxy statement is
incorporated by reference herein, such incorporation shall not include any
information contained in such proxy statement that is not, pursuant to the
Commission's rules, deemed to be "filed" with the Commission or subject to the
liabilities of Section 18 of the Exchange Act.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents incorporated herein by reference (other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference into such documents). Any such request should be directed to James W.
Rosensteele, Vice President, Investor Relations, Conseco, Inc., 11825 N.
Pennsylvania Street, Carmel, Indiana 46032 (telephone number: (317) 817-2893).
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THE COMPANY
The Company is a financial services holding company engaged primarily in
the development, marketing and administration of annuity, individual health
insurance and individual life insurance products. The Company's earnings result
primarily from operating life insurance companies and providing investment
management, administrative and other fee-based services to affiliated businesses
as well as non-affiliates. The Company'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.
The Company's principal executive offices are located at 11825 N.
Pennsylvania Street, Carmel, Indiana 46032. Its telephone number is (317)
817-6100.
THE CONSECO TRUSTS
Each of the Conseco Trusts is a statutory business trust formed under
Delaware law pursuant to (i) a declaration of trust (each a "Declaration")
executed by the Company as sponsor for such trust (the "Sponsor"), and the
Conseco Trustees (as defined herein) of such trust and (ii) the filing of a
certificate of trust with the Secretary of State of the State of Delaware on
October 28, 1996. Each Conseco Trust exists for the exclusive purposes of (i)
issuing and selling the Preferred Securities and common securities representing
common undivided beneficial interests in the assets of such Conseco Trust (the
"Common Securities" and, together with the Preferred Securities, the "Trust
Securities"), (ii) using the gross proceeds from the sale of the Trust
Securities to acquire the Subordinated Debt Securities and (iii) engaging in
only those other activities necessary, appropriate, convenient or incidental
thereto. All of the Common Securities will be directly or indirectly owned by
the Company. The Common Securities will rank pari passu, and payments will be
made thereon pro rata, with the Preferred Securities, except that, if an event
of default under the Declaration has occurred and is continuing, the rights of
the holders of the Common Securities to payment in respect of distributions and
payments upon liquidation, redemption and otherwise will be subordinated to the
rights of the holders of the Preferred Securities. The Company will directly or
indirectly acquire Common Securities, in an aggregate liquidation amount equal
to at least 3% of the total capital of each Conseco Trust.
Each Conseco Trust has a term of approximately 55 years but may terminate
earlier, as provided in the Declaration. Each Conseco Trust's business and
affairs will be conducted by the trustees (the "Conseco Trustees") appointed by
the Company as the direct or indirect holder of all of the Common Securities.
The holder of the Common Securities will be entitled to appoint, remove or
replace any of, or increase or reduce the number of, the Conseco Trustees of
each Conseco Trust. The duties and obligations of the Conseco Trustees shall be
governed by the Declaration of such Conseco Trust. A majority of the Conseco
Trustees (the "Regular Trustees") of each Conseco Trust will be persons who are
employees or officers of or who are affiliated with the Company. One Conseco
Trustee of each Conseco Trust will be a financial institution that is not
affiliated with the Company and has a minimum amount of combined capital and
surplus of not less than $50,000,000, which shall act as property trustee and as
indenture trustee for the purposes of compliance with the provisions of Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), pursuant to the
terms set forth in the applicable Prospectus Supplement (the "Property
Trustee"). In addition, unless the Property Trustee maintains a principal place
of business in the State of Delaware and otherwise meets the requirements of
applicable law, one Conseco Trustee of each Conseco Trust will be an entity
having a principal place of business in, or a natural person resident of, the
State of Delaware (the "Delaware Trustee"). The Company will pay all fees and
expenses related to the Conseco Trusts and the offering of the Trust Securities.
The Property Trustee for each Conseco Trust is Fleet National Bank 777 Main
Street, Hartford, Connecticut 06115. The Delaware Trustee for each Conseco Trust
is First Union Bank of Delaware and its address in the State of Delaware is One
Rodney Square, Wilmington, Delaware 19899. The principal place of business of
each Conseco Trust shall be c/o Conseco, Inc., 11825 N. Pennsylvania Street,
Carmel, Indiana 46032; telephone (317) 817-6100.
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<PAGE> 93
USE OF PROCEEDS
Unless otherwise indicated in the accompanying Prospectus Supplement, the
net proceeds received by the Company from the sale of any Subordinated Debt
Securities, Common Stock, Preferred Stock, Depositary Shares or Warrants offered
hereby are expected to be used for general corporate purposes. The proceeds from
the sale of Preferred Securities by the Conseco Trusts will be invested in the
Subordinated Debt Securities of the Company. Except as may otherwise be
described in the Prospectus Supplement relating to such Preferred Securities,
the Company expects to use the net proceeds from the sale of such Subordinated
Debt Securities to the Conseco Trusts for general corporate purposes. Any
specific allocation of the proceeds to a particular purpose that has been made
at the date of any Prospectus Supplement will be described therein.
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the Company's ratios of earnings to fixed
charges and earnings to fixed charges and preferred stock dividends for each of
the five years ended December 31, 1995, and for the six months ended June 30,
1995 and 1996:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges(1)........................ 1.32X 1.54X 2.19X 2.26X 1.57X 1.57X 1.62X
Ratio of earnings to fixed charges,
excluding interest on annuities
and financial products(1), (2).... 3.41X 6.24X 8.85X 4.55X 3.80X 3.90X 4.31X
Ratio of earnings to fixed charges
and preferred stock dividends..... 1.30X 1.50X 2.04X 1.95X 1.50X 1.51X 1.47X
Ratio of earnings to fixed charges
and preferred stock dividends,
excluding interest on annuities
and financial products(2)......... 2.99X 5.09X 6.00X 3.14X 3.06X 3.20X 2.80X
</TABLE>
- ---------------
(1) Excludes preferred stock dividends.
(2) Excludes interest credited to annuity and financial products of $576.7
million, $506.8 million, $408.5 million, $134.7 million and $585.4 million
for the years ended December 31, 1991, 1992, 1993, 1994 and 1995,
respectively, and $282.5 million and $289.7 million for the six months
ended June 30, 1995 and 1996, respectively.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities offered hereby, consisting of notes, debentures and
other evidences of indebtedness, are to be issued in one or more series
constituting either senior Debt Securities ("Senior Debt Securities") or
subordinated Debt Securities ("Subordinated Debt Securities"). The Debt
Securities will be issued pursuant to indentures described below (as applicable,
the "Senior Indenture" or the "Subordinated Indenture", each, an "Indenture"
and, together, the "Indentures"), in each case between the Company and the
trustee identified therein (the "Trustee"), the forms of which have been filed
as exhibits to the Registration Statement of which this Prospectus forms a part.
Except for the subordination provisions of the Subordinated Indenture, for which
there are no counterparts in the Senior Indenture, the provisions of the
Subordinated Indenture are substantially identical in substance to the
provisions of the Senior Indenture that bear the same section numbers.
The statements herein relating to the Debt Securities and the following
summaries of certain general provisions of the Indentures do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the Indentures (as they may be amended or supplemented
from time to
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<PAGE> 94
time), including the definitions therein of certain terms capitalized in this
Prospectus. All article and section references appearing herein are to articles
and sections of the applicable Indenture and whenever particular Sections or
defined terms of the Indentures (as they may be amended or supplemented from
time to time) are referred to herein or in a Prospectus Supplement, such
Sections or defined terms are incorporated herein or therein by reference.
GENERAL
The Debt Securities will be unsecured obligations of the Company. The
Indentures do not limit the aggregate amount of Debt Securities which may be
issued thereunder, nor do they limit the incurrence or issuance of other secured
or unsecured debt of the Company. The Debt Securities issued under the Senior
Indenture will be unsecured and will rank pari passu with all other unsecured
and unsubordinated obligations of the Company. The Debt Securities issued under
the Subordinated Indenture will be subordinate and junior in right of payment,
to the extent and in the manner set forth in the Subordinated Indenture, to all
Senior Indebtedness of the Company. See "-- Subordination under the Subordinated
Indenture."
Reference is made to the applicable Prospectus Supplement which will
accompany this Prospectus for a description of the specific series of Debt
Securities being offered thereby, including: (1) the title, designation and
purchase price, of such Debt Securities; (2) any limit upon the aggregate
principal amount of such Debt Securities; (3) the date or dates on which the
principal of and premium, if any, on such Debt Securities will mature or the
method of determining such date or dates; (4) the rate or rates (which may be
fixed or variable) at which such Debt Securities will bear interest, if any, or
the method of calculating such rate or rates; (5) the date or dates from which
interest, if any, will accrue or the method by which such date or dates will be
determined; (6) the date or dates on which interest, if any, will be payable and
the record date or dates therefor; (7) the place or places where principal of,
premium, if any, and interest, if any, on such Debt Securities will be payable;
(8) the right, if any, of the Company to defer payment of interest on Debt
Securities and the maximum length of any such deferral period; (9) the period or
periods within which, the price or prices at which, the currency or currencies
(including currency unit or units) in which, and the terms and conditions upon
which, such Debt Securities may be redeemed, in whole or in part, at the option
of the Company; (10) the obligation, if any, of the Company to redeem or
purchase such Debt Securities pursuant to any sinking fund or analogous
provisions or upon the happening of a specified event and the period or periods
within which, the price or prices at which and the other terms and conditions
upon which, such Debt Securities shall be redeemed or purchased, in whole or in
part, pursuant to such obligations; (11) the denominations in which such Debt
Securities are authorized to be issued; (12) the currency or currency unit for
which Debt Securities may be purchased or in which Debt Securities may be
denominated and/or the currency or currencies (including currency unit or units)
in which principal of, premium, if any, and interest, if any, on such Debt
Securities will be payable and whether the Company or the holders of any such
Debt Securities may elect to receive payments in respect of such Debt Securities
in a currency or currency unit other than that in which such Debt Securities are
stated to be payable; (13) if other than the principal amount thereof, the
portion of the principal amount of such Debt Securities which will be payable
upon declaration of the acceleration of the maturity thereof or the method by
which such portion shall be determined; (14) the person to whom any interest on
any such Debt Security shall be payable if other than the person in whose name
such Debt Security is registered on the applicable record date; (15) any
addition to, or modification or deletion of, any Event of Default or any
covenant of the Company specified in the Indenture with respect to such Debt
Securities; (16) the application, if any, of such means of defeasance or
covenant defeasance as may be specified for such Debt Securities; (17) whether
such Debt Securities are to be issued in whole or in part in the form of one or
more temporary or permanent global securities and, if so, the identity of the
depositary for such global security or securities; (18) any United States
Federal income tax considerations applicable to holders of the Debt Securities;
and (19) any other special terms pertaining to such Debt Securities. Unless
otherwise specified in the applicable Prospectus Supplement, the Debt Securities
will not be listed on any securities exchange. (Section 3.1.)
Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities will be issued in fully-registered form without coupons. Where Debt
Securities of any series are issued in bearer form, the
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<PAGE> 95
special restrictions and considerations, including special offering restrictions
and special Federal income tax considerations, applicable to any such Debt
Securities and to payment on and transfer and exchange of such Debt Securities
will be described in the applicable Prospectus Supplement. Bearer Debt
Securities will be transferable by delivery. (Section 3.5.)
Debt Securities may be sold at a substantial discount below their stated
principal amount, bearing no interest or interest at a rate which at the time of
issuance is below market rates. Certain Federal income tax consequences and
special considerations applicable to any such Debt Securities, or to Debt
Securities issued at par that are treated as having been issued at a discount,
will be described in the applicable Prospectus Supplement.
If the purchase price of any of the Debt Securities is payable in one or
more foreign currencies or currency units or if any Debt Securities are
denominated in one or more foreign currencies or currency units or if the
principal of, premium, if any, or interest, if any, on any Debt Securities is
payable in one or more foreign currencies or currency units, or by reference to
commodity prices, equity indices or other factors, the restrictions, elections,
certain U.S. Federal income tax considerations, specific terms and other
information with respect to such issue of Debt Securities and such foreign
currency or currency units or commodity prices, equity indices or other factors
will be set forth in the applicable Prospectus Supplement. In general, holders
of such series of Debt Securities may receive a principal amount on any
principal payment date, or a payment of premium, if any, on any premium interest
payment date or a payment of interest on any interest payment date, that is
greater than or less than the amount of principal, premium, if any, or interest
otherwise payable on such dates, depending on the value on such dates of the
applicable currency, commodity, equity index or other factor.
PAYMENT, REGISTRATION, TRANSFER AND EXCHANGE
Unless otherwise provided in the applicable Prospectus Supplement, payments
in respect of the Debt Securities will be made in the designated currency at the
office or agency of the Company maintained for that purpose as the Company may
designate from time to time, except that, at the option of the Company, interest
payments, if any, on Debt Securities in registered form may be made (i) by
checks mailed to the holders of Debt Securities entitled thereto at their
registered addresses or (ii) by wire transfer to an account maintained by the
person entitled thereto as specified in the Register. (Sections 3.7(a) and 9.2.)
Unless otherwise indicated in the applicable Prospectus Supplement, payment of
any installment of interest on Debt Securities in registered form will be made
to the person in whose name such Debt Security is registered at the close of
business on the regular record date for such interest. (Section 3.7(a).)
Payment in respect of Debt Securities in bearer form will be made in the
currency and in the manner designated in the Prospectus Supplement, subject to
any applicable laws and regulations, at such paying agencies outside the United
States as the Company may appoint from time to time. The paying agents outside
the United States initially appointed by the Company for a series of Debt
Securities will be named in the Prospectus Supplement. The Company may at any
time designate additional paying agents or rescind the designation of any paying
agents, except that, if Debt Securities of a series are issuable as Registered
Securities, the Company will be required to maintain at least one paying agent
in each Place of Payment for such series and, if Debt Securities of a series are
issuable as Bearer Securities, the Company will be required to maintain a paying
agent in a Place of Payment outside the United States where Debt Securities of
such series and any coupons appertaining thereto may be presented and
surrendered for payment. (Section 9.2.)
Unless otherwise provided in the applicable Prospectus Supplement, Debt
Securities in registered form will be transferable or exchangeable at the agency
of the Company maintained for such purpose as designated by the Company from
time to time. (Sections 3.5 and 9.2.) Debt Securities may be transferred or
exchanged without service charge, other than any tax or other governmental
charge imposed in connection therewith. (Section 3.5.)
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<PAGE> 96
GLOBAL DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more fully registered global securities (a "Registered Global
Security") that will be deposited with a depository (the "Depository") or with a
nominee for the Depository identified in the applicable Prospectus Supplement.
In such a case, one or more Registered Global Securities will be issued in a
denomination or aggregate denominations equal to the portion of the aggregate
principal amount of outstanding Debt Securities of the series to be represented
by such Registered Global Security or Securities. (Section 3.3 of each
Indenture.) Unless and until it is exchanged in whole or in part for Debt
Securities in definitive certificated form, a Registered Global Security may not
be registered for transfer or exchange except as a whole by the Depository for
such Registered Global Security to a nominee of such Depository or by a nominee
of such Depository to such Depository or another nominee of such Depository or
by such Depository or any such nominee to a successor Depository for such series
or a nominee of such successor Depository and except in the circumstances
described in the applicable Prospectus Supplement. (Section 3.5.)
The specific terms of the depository arrangement with respect to any
portion of a series of Debt Securities to be represented by a Registered Global
Security will be described in the applicable Prospectus Supplement. The Company
expects that the following provisions will apply to such depository
arrangements.
Ownership of beneficial interests in a Registered Global Security will be
limited to participants or persons that may hold interests through participants
(as such term is defined below). Upon the issuance of any Registered Global
Security, and the deposit of such Registered Global Security with or on behalf
of the Depository for such Registered Global Security, the Depository will
credit, on its book-entry registration and transfer system, the respective
principal amounts of the Debt Securities represented by such Registered Global
Security to the accounts of institutions ("participants") that have accounts
with the Depository or its nominee. The accounts to be credited will be
designated by the underwriters or agents engaging in the distribution of such
Debt Securities or by the Company, if such Debt Securities are offered and sold
directly by the Company. Ownership of beneficial interests by participants in
such Registered Global Security will be shown on, and the transfer of such
beneficial interests will be effected only through, records maintained by the
Depository for such Registered Global Security or by its nominee. Ownership of
beneficial interests in such Registered Global Security by persons that hold
through participants will be shown on, and the transfer of such beneficial
interests within such participants will be effected only through, records
maintained by such participants. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
certificated form. The foregoing limitations and such laws may impair the
ability to transfer beneficial interests in such Registered Global Security.
So long as the Depository for a Registered Global Security, or its nominee,
is the registered owner of such Registered Global Security, such Depository or
such nominee, as the case may be, will be considered the sole owner or holder of
the Debt Securities represented by such Registered Global Security for all
purposes under the applicable Indenture. Unless otherwise specified in the
applicable Prospectus Supplement and except as specified below, owners of
beneficial interests in such Registered Global Security will not be entitled to
have Debt Securities of the series represented by such Registered Global
Security registered in their names, will not receive or be entitled to receive
physical delivery of Debt Securities of such series in certificated form and
will not be considered the holders thereof for any purposes under the relevant
Indenture. (Section 3.8.) Accordingly, each person owning a beneficial interest
in such Registered Global Security must rely on the procedures of the Depository
and, if such person is not a participant, on the procedures of the participant
through which such person owns its interest, to exercise any rights of a holder
under the relevant Indenture. The Depository may grant proxies and otherwise
authorize participants to give or take any request, demand, authorization,
direction, notice, consent, waiver or other action which a holder is entitled to
give or take under the relevant Indenture. The Company understands that, under
existing industry practices, if the Company requests any action of holders or if
any owner of a beneficial interest in such Registered Global Security desires to
give any notice or take any action which a holder is entitled to give or take
under the relevant Indenture, the Depository would authorize the participants to
give such notice or take such action, and such participants would authorize
beneficial owners owning through such participants to give such notice or take
such action or would otherwise act upon the instructions of beneficial owners
owning through them.
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Unless otherwise specified in the applicable Prospectus Supplement,
payments with respect to principal, premium, if any, and interest, if any, on
Debt Securities represented by a Registered Global Security registered in the
name of a Depository or its nominee will be made to such Depository or its
nominee, as the case may be, as the registered owner of such Registered Global
Security.
The Company expects that the Depositary for any Debt Securities represented
by a Registered Global Security, upon receipt of any payment of principal,
premium or interest, will immediately credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Registered Global Security as shown on the records
of such Depositary. The Company also expects that payments by participants to
owners of beneficial interests in such Registered Global Security held through
such participants will be governed by standing instructions and customary
practices, as is now the case with the securities held for the accounts of
customers registered in "street names," and will be the responsibility of such
participants. None of the Company, the respective Trustees or any agent of the
Company or the respective Trustees shall have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial interests of a Registered Global Security, or for maintaining,
supervising or reviewing any records relating to such beneficial interests.
(Section 3.8.)
Unless otherwise specified in the applicable Prospectus Supplement, if the
Depository for any Debt Securities represented by a Registered Global Security
is at any time unwilling or unable to continue as Depository or ceases to be a
clearing agency registered under the Exchange Act and a duly registered
successor Depository is not appointed by the Company within 90 days, the Company
will issue such Debt Securities in definitive certificated form in exchange for
such Registered Global Security. In addition, the Company may at any time and in
its sole discretion determine not to have any of the Debt Securities of a series
represented by one or more Registered Global Securities and, in such event, will
issue Debt Securities of such series in definitive certificated form in exchange
for all of the Registered Global Security or Securities representing such Debt
Securities. (Section 3.5.)
The Debt Securities of a series may also be issued in whole or in part in
the form of one or more bearer global securities (a "Bearer Global Security")
that will be deposited with a depository, or with a nominee for such depository,
identified in the applicable Prospectus Supplement. Any such Bearer Global
Security may be issued in temporary or permanent form. (Section 3.4.) The
specific terms and procedures, including the specific terms of the depository
arrangement, with respect to any portion of a series of Debt Securities to be
represented by one or more Bearer Global Securities will be described in the
applicable Prospectus Supplement.
CONSOLIDATION, MERGER OR SALE BY THE COMPANY
The Company shall not consolidate with or merge into any other corporation
or sell its assets substantially as an entirety, unless: (i) the corporation
formed by such consolidation or into which the Company is merged or the
corporation which acquires its assets is organized in the United States; (ii)
the corporation formed by such consolidation or into which the Company is merged
or which acquires the Company's assets substantially as an entirety expressly
assumes all of the obligations of the Company under each Indenture; (iii)
immediately after giving effect to such transaction, no Default or Event of
Default shall have happened and be continuing, and (iv) if, as a result of such
transaction, properties or assets of the Company would become subject to an
encumbrance which would not be permitted by the terms of any series of Debt
Securities, the Company or the successor corporation, as the case may be, shall
take such steps as are necessary to secure such Debt Securities equally and
ratably with all indebtedness secured thereunder. Upon any such consolidation,
merger or sale, the successor corporation formed by such consolidation, or into
which the Company is merged or to which such sale is made, shall succeed to, and
be substituted for the Company under each Indenture. (Section 7.1.)
EVENTS OF DEFAULT, NOTICE AND CERTAIN RIGHTS ON DEFAULT
Each Indenture provides that, if an Event of Default specified therein
occurs with respect to the Debt Securities of any series and is continuing, the
Trustee for such series or the holders of 25% in aggregate principal amount of
all of the outstanding Debt Securities of that series, by written notice to the
Company
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(and to the Trustee for such series, if notice is given by such holders of Debt
Securities), may declare the principal of (or, if the Debt Securities of that
series are Original Issue Discount Securities or Indexed Securities, such
portion of the principal amount specified in the Prospectus Supplement) and
accrued interest on all the Debt Securities of that series to be due and payable
(provided, with respect to any Debt Securities issued under the Subordinated
Indenture, that the payment of principal and interest on such Debt Securities
shall remain subordinated to the extent provided in Article 12 of the
Subordinated Indenture). (Section 5.2.)
Events of Default with respect to Debt Securities of any series are defined
in each Indenture as being: (a) default for 30 days in payment of any interest
on any Debt Security of that series or any coupon appertaining thereto or any
additional amount payable with respect to Debt Securities of such series as
specified in the applicable Prospectus Supplement when due; (b) default in
payment of principal, or premium, if any, at maturity or on redemption or
otherwise, or in the making of a mandatory sinking fund payment of any Debt
Securities of that series when due; (c) default for 60 days after notice to the
Company by the Trustee for such series, or by the holders of 25% in aggregate
principal amount of the Debt Securities of such series then outstanding, in the
performance of any other agreement in the Debt Securities of that series, in the
Indenture or in any supplemental indenture or board resolution referred to
therein under which the Debt Securities of that series may have been issued; (d)
default resulting in acceleration of other indebtedness of the Company for
borrowed money where the aggregate principal amount so accelerated exceeds $25
million and such acceleration is not rescinded or annulled within 30 days after
the written notice thereof to the Company by the Trustee or to the Company and
the Trustee by the holders of 25% in aggregate principal amount of the Debt
Securities of such series then outstanding, provided that such Event of Default
will be remedied, cured or waived if the default that resulted in the
acceleration of such other indebtedness is remedied, cured or waived; and (e)
certain events of bankruptcy, insolvency or reorganization of the Company.
(Section 5.1.) The definition of "Event of Default" in each Indenture
specifically excludes a default under a secured debt under which the obligee has
recourse (exclusive of recourse for ancillary matters such as environmental
indemnities, misapplication of funds, costs of enforcement, etc.) only to the
collateral pledged for repayment, and where the fair market value of such
collateral does not exceed two percent of Total Assets (as defined in the
Indenture) at the time of the default. Events of Default with respect to a
specified series of Debt Securities may be added to the Indenture and, if so
added, will be described in the applicable Prospectus Supplement. (Sections 3.1
and 5.1(7).)
Each Indenture provides that the Trustee will, within 90 days after the
occurrence of a Default with respect to the Debt Securities of any series, give
to the holders of the Debt Securities of that series notice of all Defaults
known to it unless such Default shall have been cured or waived; provided that
except in the case of a Default in payment on the Debt Securities of that
series, the Trustee may withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding such notice is in
the interests of the holders of the Debt Securities of that series. (Section
6.6.) "Default" means any event which is, or after notice or passage of time or
both, would be, an Event of Default. (Section 1.1.)
Each Indenture provides that the holders of a majority in aggregate
principal amount of the Debt Securities of each series affected (with each such
series voting as a class) may, subject to certain limited conditions, direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee for such series, or exercising any trust or power conferred on such
Trustee. (Section 5.8.)
Each Indenture includes a covenant that the Company will file annually with
the Trustee a certificate as to the Company's compliance with all conditions and
covenants of such Indenture. (Section 9.5.)
The holders of a majority in aggregate principal amount of any series of
Debt Securities by notice to the Trustee for such series may waive, on behalf of
the holders of all Debt Securities of such series, any past Default or Event of
Default with respect to that series and its consequences except a Default or
Event of Default in the payment of the principal of, premium, if any, or
interest, if any, on any Debt Security, and except in respect of an Event of
Default resulting from the breach of a covenant or provision of either Indenture
which, pursuant to the applicable Indenture, cannot be amended or modified
without the consent of the holders of each outstanding Debt Security of such
series affected. (Section 5.7.)
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MODIFICATION OF THE INDENTURES
Each Indenture contains provisions permitting the Company and the Trustee
to enter into one or more supplemental indentures without the consent of the
holders of any of the Debt Securities in order (i) to evidence the succession of
another corporation to the Company and the assumption of the covenants of the
Company by a successor to the Company; (ii) to add to the covenants of the
Company or surrender any right or power of the Company; (iii) to add additional
Events of Default with respect to any series of Debt Securities; (iv) to add or
change any provisions to such extent as necessary to permit or facilitate the
issuance of Debt Securities in bearer form; (v) to change or eliminate any
provision affecting only Debt Securities not yet issued; (vi) to secure the Debt
Securities; (vii) to establish the form or terms of Debt Securities; (viii) to
evidence and provide for successor Trustees; (ix) if allowed without penalty
under applicable laws and regulations, to permit payment in respect of Debt
Securities in bearer form in the United States; (x) to correct any defect or
supplement any inconsistent provisions or to make any other provisions with
respect to matters or questions arising under such Indenture, provided that such
action does not adversely affect the interests of any holder of Debt Securities
of any series; or (xi) to cure any ambiguity or correct any mistake. The
Subordinated Indenture also permits the Company and the Trustee thereunder to
enter into such supplemental indentures to modify the subordination provisions
contained in the Subordinated Debenture except in a manner adverse to any
outstanding Debt Securities. (Section 8.1.)
Each Indenture also contains provisions permitting the Company and the
Trustee, with the consent of the holders of a majority in aggregate principal
amount of the outstanding Debt Securities affected by such supplemental
indenture (with the Debt Securities of each series voting as a class), to
execute supplemental indentures adding any provisions to or changing or
eliminating any of the provisions of such Indenture or any supplemental
indenture or modifying the rights of the holders of Debt Securities of such
series, except that, without the consent of the holder of each Debt Security so
affected, no such supplemental indenture may: (i) change the time for payment of
principal or premium, if any, or interest on any Debt Security; (ii) reduce the
principal of, or any installment of principal of, or premium, if any, or
interest on any Debt Security, or change the manner in which the amount of any
of the foregoing is determined; (iii) reduce the amount of premium, if any,
payable upon the redemption of any Debt Security; (iv) reduce the amount of
principal payable upon acceleration of the maturity of any Original Issue
Discount or Index Security; (v) change the currency or currency unit in which
any Debt Security or any premium or interest thereon is payable; (vi) impair the
right to institute suit for the enforcement of any payment on or with respect to
any Debt Security; (vii) reduce the percentage in principal amount of the
outstanding Debt Securities affected thereby the consent of whose holders is
required for modification or amendment of such Indenture or for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults; (viii) change the obligation of the Company to maintain an office or
agency in the places and for the purposes specified in such Indenture; (ix)
modify the provisions relating to the subordination of outstanding Debt
Securities of any series in a manner adverse to the holders thereof; or (x)
modify the provisions relating to waiver of certain defaults or any of the
foregoing provisions. (Section 8.2.)
SUBORDINATION UNDER THE SUBORDINATED INDENTURE
In the Subordinated Indenture, the Company will covenant and agree that any
Subordinated Debt Securities issued thereunder are subordinate and junior in
right of payment to all Senior Indebtedness to the extent provided in the
Subordinated Indenture. (Section 12.1 of the Subordinated Indenture.) The
Subordinated Indenture defines the term "Senior Indebtedness" as the principal,
premium, if any, and interest on: (i) all indebtedness of the Company, whether
outstanding on the date of the issuance of Subordinated Debt Securities or
thereafter created, incurred or assumed, which is for money borrowed, or
evidenced by a note or similar instrument given in connection with the
acquisition of any business, properties or assets, including securities; (ii)
any indebtedness of others of the kinds described in the preceding clause (i)
for the payment of which the Company is responsible or liable as guarantor or
otherwise; and (iii) amendments, renewals, extensions and refundings of any such
indebtedness, unless in any instrument or instruments evidencing or securing
such indebtedness or pursuant to which the same is outstanding, or in any such
amendment, renewal, extension or refunding, it is expressly provided that such
indebtedness is not superior in right of payment to
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Subordinated Debt Securities. The Senior Indebtedness shall continue to be
Senior Indebtedness and entitled to the benefits of the subordination provisions
irrespective of any amendment, modification or waiver of any term of the Senior
Indebtedness or extension or renewal of the Senior Indebtedness. (Section 12.2
of the Subordinated Indenture.)
If (i) the Company defaults in the payment of any principal, or premium, if
any, or interest on any Senior Indebtedness when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or declaration or
otherwise or (ii) an event of default occurs with respect to any Senior
Indebtedness permitting the holders thereof to accelerate the maturity thereof
and written notice of such event of default (requesting that payments on
Subordinated Debt Securities cease) is given to the Company by the holders of
Senior Indebtedness, then unless and until such default in payment or event of
default shall have been cured or waived or shall have ceased to exist, no direct
or indirect payment (in cash, property or securities, by set-off or otherwise)
shall be made or agreed to be made on account of the Subordinated Debt
Securities or interest thereon or in respect of any repayment, redemption,
retirement, purchase or other acquisition of Subordinated Debt Securities.
(Section 12.4 of the Subordinated Indenture.)
In the event of (i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to the Company, its creditors or its property, (ii) any proceeding for the
liquidation, dissolution or other winding-up of the Company, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings,
(iii) any assignment by the Company for the benefit of creditors or (iv) any
other marshalling of the assets of the Company, all Senior Indebtedness
(including, without limitation, interest accruing after the commencement of any
such proceeding, assignment or marshalling of assets) shall first be paid in
full before any payment or distribution, whether in cash, securities or other
property, shall be made by the Company on account of Subordinated Debt
Securities. In any such event, any payment or distribution, whether in cash,
securities or other property (other than securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinate, at least to the extent provided in the
subordination provisions of the Subordinated Indenture with respect to the
indebtedness evidenced by Subordinated Debt Securities, to the payment of all
Senior Indebtedness at the time outstanding and to any securities issued in
respect thereof under any such plan of reorganization or readjustment), which
would otherwise (but for the subordination provisions) be payable or deliverable
in respect of Subordinated Debt Securities (including any such payment or
distribution which may be payable or deliverable by reason of the payment of any
other indebtedness of the Company being subordinated to the payment of
Subordinated Debt Securities) shall be paid or delivered directly to the holders
of Senior Indebtedness, or to their representative or trustee, in accordance
with the priorities then existing among such holders until all Senior
Indebtedness shall have been paid in full. (Section 12.3 of the Subordinated
Indenture.) No present or future holder of any Senior Indebtedness shall be
prejudiced in the right to enforce subordination of the indebtedness evidenced
by Subordinated Debt Securities by any act or failure to act on the part of the
Company. (Section 12.9 of the Subordinated Indenture.)
Senior Indebtedness shall not be deemed to have been paid in full unless
the holders thereof shall have received cash, securities or other property equal
to the amount of such Senior Indebtedness then outstanding. Upon the payment in
full of all Senior Indebtedness, the holders of Subordinated Debt Securities
shall be subrogated to all the rights of any holders of Senior Indebtedness to
receive any further payments or distributions applicable to the Senior
Indebtedness until all Subordinated Debt Securities shall have been paid in
full, and such payments or distributions received by any holder of Subordinated
Debt Securities, by reason of such subrogation, of cash, securities or other
property which otherwise would be paid or distributed to the holders of Senior
Indebtedness, shall, as between the Company and its creditors other than the
holders of Senior Indebtedness, on the one hand, and the holders of Subordinated
Debt Securities, on the other, be deemed to be a payment by the Company on
account of Senior Indebtedness, and not on account of Subordinated Debt
Securities. (Section 12.7 of the Subordinated Indenture.)
The Subordinated Indenture provides that the foregoing subordination
provisions, insofar as they relate to any particular issue of Subordinated Debt
Securities, may be changed prior to such issuance. Any such change would be
described in the applicable Prospectus Supplement relating to such Subordinated
Debt Securities.
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DEFEASANCE AND COVENANT DEFEASANCE
If indicated in the applicable Prospectus Supplement, the Company may elect
either (i) to defease and be discharged from any and all obligations with
respect to the Debt Securities of or within any series (except as otherwise
provided in the relevant Indenture) ("defeasance") or (ii) to be released from
its obligations with respect to certain covenants applicable to the Debt
Securities of or within any series ("covenant defeasance"), upon the deposit
with the relevant Trustee (or other qualifying trustee), in trust for such
purpose, of money and/or Government Obligations which through the payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient, without reinvestment, to pay the principal of and any premium
or interest on such Debt Securities to Maturity or redemption, as the case may
be, and any mandatory sinking fund or analogous payments thereon. As a condition
to defeasance or covenant defeasance, the Company must deliver to the Trustee an
Opinion of Counsel to the effect that the Holders of such Debt Securities will
not recognize income, gain or loss for Federal income tax purposes as a result
of such defeasance or covenant defeasance and will be subject to Federal income
tax on the same amounts and in the same manner and at the same times as would
have been the case if such defeasance or covenant defeasance had not occurred.
Such Opinion of Counsel, in the case of defeasance under clause (i) above, must
refer to and be based upon a ruling of the Internal Revenue Service or a change
in applicable Federal income tax law occurring after the date of the relevant
Indenture. (Article 4.) If indicated in the applicable Prospectus Supplement, in
addition to obligations of the United States or an agency or instrumentality
thereof, Government Obligations may include obligations of the government or an
agency or instrumentality of the government issuing the currency or currency
unit in which Debt Securities of such series are payable. (Section 3.1.)
In addition, with respect to the Subordinated Indenture, in order to be
discharged no event or condition shall exist that, pursuant to certain
provisions described under "-- Subordination under the Subordinated Indenture"
above, would prevent the Company from making payments of principal of (and
premium, if any) and interest on Subordinated Debt Securities at the date of the
irrevocable deposit referred to above. (Section 4.6(j) of the Subordinated
Indenture.)
The Company may exercise its defeasance option with respect to such Debt
Securities notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its defeasance option, payment of such Debt Securities
may not be accelerated because of a Default or an Event of Default. (Section
4.4.) If the Company exercises its covenant defeasance option, payment of such
Debt Securities may not be accelerated by reason of a Default or an Event of
Default with respect to the covenants to which such covenant defeasance is
applicable. However, if such acceleration were to occur by reason of another
Event of Default, the realizable value at the acceleration date of the money and
Government Obligations in the defeasance trust could be less than the principal
and interest then due on such Debt Securities, in that the required deposit in
the defeasance trust is based upon scheduled cash flow rather than market value,
which will vary depending upon interest rates and other factors.
THE TRUSTEES
LTCB Trust Company will be the Trustee under the Senior Indenture. Fleet
National Bank will be the Trustee under the Subordinated Indenture. The Company
may also maintain banking and other commercial relationships with each of the
Trustees and their affiliates in the ordinary course of business.
DESCRIPTION OF CAPITAL STOCK
At October 21, 1996, the authorized capital stock of the Company was
520,000,000 shares, consisting of:
(a) 20,000,000 shares of Preferred Stock, of which 4,369,700 shares of
Preferred Redeemable Increased Dividend Equity Securities, 7% PRIDES,
were outstanding; and
(b) 500,000,000 shares of Common Stock, of which 66,994,809 shares were
outstanding.
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In general, the classes of authorized capital stock are afforded
preferences with respect to dividends and liquidation rights in the order listed
above. The Board of Directors of the Company is empowered, without approval of
the shareholders, to cause the Preferred Stock to be issued in one or more
series, with the numbers of shares of each series and the rights, preferences
and limitations of each series to be determined by it including, without
limitation, the dividend rights, conversion rights, redemption rights and
liquidation preferences, if any, of any wholly unissued series of Preferred
Stock (or of the entire class of Preferred Stock if none of such shares have
been issued), the number of shares constituting each such series and the terms
and conditions of the issue thereof. The descriptions set forth below do not
purport to be complete and are qualified in their entirety by reference to the
Amended and Restated Articles of Incorporation of the Company, as amended (the
"Articles of Incorporation").
The Prospectus Supplement relating to an offering of Common Stock will
describe terms relevant thereto, including the number of shares offered, the
initial offering price, market price and dividend information.
The applicable Prospectus Supplement will describe the following terms of
any Preferred Stock in respect of which this Prospectus is being delivered (to
the extent applicable to such Preferred Stock): (i) the specific designation,
number of shares, seniority and purchase price; (ii) any liquidation preference
per share; (iii) any date of maturity; (iv) any redemption, repayment or sinking
fund provisions; (v) any dividend rate or rates and the dates on which any such
dividends will be payable (or the method by which such rates or dates will be
determined); (vi) any voting rights; (vii) if other than the currency of the
United States of America, the currency or currencies, including composite
currencies, in which such Preferred Stock is denominated and/or in which
payments will or may be payable; (viii) the method by which amounts in respect
of such Preferred Stock may be calculated and any commodities, currencies or
indices, or value, rate or price, relevant to such calculation; (ix) whether the
Preferred Stock is convertible or exchangeable and, if so, the securities or
rights into which such Preferred Stock is convertible or exchangeable (which may
include other Preferred Stock, Debt Securities, Common Stock or other securities
or rights of the Company (including rights to receive payment in cash or
securities based on the value, rate or price of one or more specified
commodities, currencies or indices) or a combination of the foregoing), and the
terms and conditions upon which such conversions or exchanges will be effected,
including the initial conversion or exchange prices or rates, the conversion or
exchange period and any other related provisions; (x) the place or places where
dividends and other payments on the Preferred Stock will be payable; and (xi)
any additional voting, dividend, liquidation, redemption and other rights,
preferences, privileges, limitations and restrictions.
As described under "Description of Depositary Shares", the Company may, at
its option, elect to offer Depositary Shares evidenced by depositary receipts
("Depositary Receipts"), each representing an interest (to be specified in the
applicable Prospectus Supplement relating to the particular series of the
Preferred Stock) in a share of the particular series of the Preferred Stock
issued and deposited with a Preferred Stock Depositary (as defined herein).
All shares of Preferred Stock offered hereby, or issuable upon conversion,
exchange or exercise of Securities, will, when issued, be fully paid and
non-assessable.
COMMON STOCK
Dividends. Except as provided below, holders of Common Stock are entitled
to receive dividends and other distributions in cash, stock or property of the
Company, when, as and if declared by the Board of Directors out of assets or
funds of the Company legally available therefor and shall share equally on a per
share basis in all such dividends and other distributions (subject to the rights
of holders of Preferred Stock).
Voting Rights. At every meeting of shareholders, every holder of Common
Stock is entitled to one vote per share. Subject to any voting rights which may
be granted to holders of Preferred Stock any action submitted to shareholders is
approved if the number of votes cast in favor of such action exceeds the number
of votes against, except where other provision is made by law and subject to
applicable quorum requirements.
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Liquidation Rights. In the event of any liquidation, dissolution or
winding-up of the business of the Company, whether voluntary or involuntary (any
such event, a "Liquidation"), the holders of Common Stock are entitled to share
equally in the assets available for distribution after payment of all
liabilities and provision for the liquidation preference of any shares of
Preferred Stock then outstanding.
Miscellaneous. The holders of Common Stock have no preemptive rights,
cumulative voting rights, subscription rights, or conversion rights and the
Common Stock is not subject to redemption.
The transfer agent and registrar with respect to the Common Stock and the
PRIDES is First Union National Bank of North Carolina.
All shares of Common Stock offered hereby, or issuable upon conversion,
exchange or exercise of Securities, will, when issued, be fully paid and
non-assessable. The Common Stock is traded on the New York Stock Exchange under
the symbol "CNC".
PRIDES
General. The PRIDES are shares of convertible preferred stock and rank
prior to the Common Stock as to payment of dividends and distribution of assets
upon liquidation. The shares of PRIDES mandatorily convert into shares of Common
Stock on February 1, 2000, (the "Mandatory Conversion Date"), and the Company
has the option to redeem the shares of PRIDES, in whole or in part, at any time
and from time to time on or after February 1, 1999 and prior to the Mandatory
Conversion Date pursuant to the terms described below and payable in shares of
Common Stock. In addition, the shares of PRIDES are convertible into shares of
Common Stock at the option of the holder at any time prior to the Mandatory
Conversion Date as set forth below.
Dividends. Holders of shares of PRIDES are entitled to receive annual
cumulative dividends at a rate per annum of 7% of the stated liquidation
preference (equivalent to $4.279 per each share of PRIDES) payable quarterly in
arrears on each February 1, May 1, August 1, and November 1.
Mandatory Conversion. On the Mandatory Conversion Date, unless previously
redeemed or converted, each outstanding share of PRIDES will mandatorily convert
into (i) two shares of Common Stock, subject to adjustment in certain events,
and (ii) the right to receive cash in an amount equal to all accrued and unpaid
dividends thereon (other than previously declared dividends payable to a holder
of record as of a prior date).
Optional Redemption. Shares of PRIDES are not redeemable prior to February
1, 1999. At any time and from time to time on or after February 1, 1999 and
ending immediately prior to the Mandatory Conversion Date, the Company may
redeem any or all of the outstanding shares of PRIDES. Upon any such redemption,
each holder will receive, in exchange for each share of PRIDES, the number of
shares of Common Stock equal to the Call Price (which is the sum of (i) $62.195,
declining after February 1, 1999 to $61.125 until the Mandatory Conversation
Date and (ii) all accrued and unpaid dividends thereon (other than previously
declared dividends payable to a holder of record as of a prior date)) divided by
the current market price on the applicable date of determination, but in no
event less than 1.71 shares of Common Stock, subject to adjustment. The number
of shares of Common Stock to be delivered in payment of the applicable Call
Price will be determined on the basis of the current market price of the Common
Stock prior to the announcement of the redemption.
Conversion at the Option of the Holder. At any time prior to the Mandatory
Conversion Date, unless previously redeemed, each share of PRIDES is convertible
at the option of the holder thereof into 1.71 shares of Common Stock (the
"Optional Conversion Rate"), equivalent to the conversion price of $35.745 per
share of Common Stock, subject to adjustment as described herein. The right of
holders to convert shares of PRIDES called for redemption will terminate
immediately prior to the close of business on the redemption date.
Voting Rights. The holders of shares of PRIDES will have the right with
the holders of Common Stock to vote in the election of directors and upon each
other matter coming before any meeting of the holders of Common Stock on the
basis of 4/5 of one vote for each share of PRIDES. On such matters, the holders
of shares of PRIDES and the holders of Common Stock will vote together as one
class except as otherwise
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provided by law or the Company's Articles of Incorporation. In addition, (i)
whenever dividends on the shares of PRIDES or any other series of the Company's
preferred stock with like voting rights are in arrears and unpaid for six
quarterly dividend periods, and in certain other circumstances, the holders of
the shares of PRIDES (voting separately as a class with the holders of all other
series of the Company's preferred stock with like voting rights that are
exercisable) will be entitled to vote, on the basis of one vote for each share
of PRIDES, for the election of two directors of the Company, such directors to
be in addition to the number of directors constituting the Board of Directors
immediately prior to the accrual of such right, and (ii) the holders of the
shares of PRIDES may have voting rights with respect to certain alterations of
the Company's Articles of Incorporation and certain other matters, voting on the
same basis or separately as a series.
Liquidation Preference and Ranking. The shares of PRIDES rank prior to the
Common Stock as to payment of dividends and distribution of assets upon
liquidation. The liquidation preference of each share of PRIDES is an amount
equal to the sum of (i) $61.125 per share and (ii) all accrued and unpaid
dividends thereon.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BY-LAWS OF CONSECO
Certain provisions of the Articles of Incorporation and the Code of By-laws
of the Company (the "By-laws") may make it more difficult to effect a change in
control of the Company if the Board of Directors determines that such action
would not be in the best interests of the shareholders. It could be argued,
contrary to the belief of the Board of Directors, that such provisions are not
in the best interests of the shareholders to the extent that they will have the
effect of tending to discourage possible takeover bids, which might be at prices
involving a premium over then recent market quotations for the Common Stock. The
most important of those provisions are described below.
The Articles of Incorporation authorize the establishment of a classified
Board of Directors pursuant to the By-laws. The By-laws, in turn, provide that
the Directors serve staggered three-year terms, with the members of only one
class being elected in any year.
A classified Board of Directors may increase the difficulty of removing
incumbent directors, providing such directors with enhanced ability to retain
their positions. A classified Board of Directors may also make the acquisition
of control of the Company by a third party by means of a proxy contest more
difficult. In addition, the classification may make it more difficult to replace
a majority of directors for business reasons unrelated to a change in control.
The Articles of Incorporation provide that holders of the Company's voting
stock shall not be entitled to vote on certain business transactions (defined to
include, among other things, certain mergers, consolidations, sales, leases,
transfers or other dispositions of a substantial part of the Company's assets)
with certain related persons (which includes persons beneficially owning more
than 10% of the Company's outstanding voting stock), nor may such business
combination transactions be effected, unless (i) the relevant business
combination shall have been approved by two-thirds of the continuing directors
or (ii) the aggregate amount of the cash and the fair value of any consideration
other than cash to be received by any holder of the Company's Common Stock or
Preferred Stock in the business combination for each such share of Common Stock
or Preferred Stock shall be at least equal to the highest per share price paid
by the related person in order to acquire any shares of Common Stock or
Preferred Stock, as the case may be, beneficially owned by such related person.
As discussed above, Preferred Stock may be issued from time to time in one
or more series with such rights, preferences, limitations and restrictions as
may be determined by the Board of Directors. The issuance of Preferred Stock
could be used, under certain circumstances, as a method of delaying or
preventing a change of control of the Company and could have a detrimental
effect on the rights of holders of Common Stock, including loss of voting
control.
The provisions of the Articles of Incorporation regarding the classified
Board of Directors and certain business combination transactions may not be
amended without the affirmative approval of holders of not less than 80% of the
outstanding voting stock of the Company.
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The By-laws may be amended by majority vote of the Board of Directors.
CERTAIN PROVISIONS OF CORPORATE AND INSURANCE LAWS
In addition to the Articles of Incorporation and By-laws, certain
provisions of Indiana law may delay, deter or prevent a merger, tender offer or
other takeover attempt of the Company.
Under the Indiana Business Corporation Law (the "IBCL"), a director may, in
considering the best interests of a corporation, consider the effects of any
action on shareholders, employees, suppliers and customers of the corporation,
on communities in which offices or other facilities of the corporation are
located, and any other factors the director considers pertinent.
The IBCL provides that no business combination (defined to include certain
mergers, sales of assets, sales of 5% or more of outstanding stock, loans,
recapitalizations or liquidations or dissolutions) involving a corporation and
an interested shareholder (defined to include any holder of 10% or more of such
corporation's voting stock) may be entered into unless (1) it has been approved
by the board of directors of the corporation or (2) (a) five years have expired
since the acquisition of shares of the corporation by the interested
shareholder, (b) all requirements of the corporation's articles of incorporation
relating to business combinations have been satisfied and (c) either (i) a
majority of shareholders of the corporation (excluding the interested
shareholder) approve the business combination or (ii) all shareholders are paid
fair value (as defined in the statute) for their stock. However, such law does
not restrict any offer to purchase all of a corporation's shares.
The IBCL also provides that when a target corporation (such as the
Company), incorporated in Indiana and having its principal place of business,
principal office or substantial assets in Indiana, has a certain threshold of
ownership by Indiana residents, any acquisition which, together with its
previous holdings, gives the acquiror at least 20% of the target's voting stock
triggers a shareholder approval mechanism. If the acquiror files a statutorily
required disclosure statement, the target's management has 50 days within which
to hold a special meeting of shareholders at which all disinterested
shareholders of the target (those not affiliated with the acquiror or any
officer or inside director of the target) consider and vote upon whether the
acquiror shall have voting rights with respect to the shares of the target held
by it. Without shareholder approval, the shares acquired by the acquiror have no
voting rights. If the acquiror fails to file the statutorily required disclosure
statement, the target can redeem the acquiror's shares at a price to be
determined according to procedures devised by the target. In order for these
provisions of the IBCL not to apply to a particular Indiana company, the company
must affirmatively so provide in its articles of incorporation or bylaws.
In addition, the insurance laws and regulations of the jurisdictions in
which the Company's insurance subsidiaries do business may impede or delay a
business combination involving the Company.
DESCRIPTION OF DEPOSITARY SHARES
The description set forth below of certain provisions of the Deposit
Agreement (as defined below) and of the Depositary Shares and Depositary
Receipts summarizes the material terms of the Deposit Agreement and of the
Depositary Shares and Depositary Receipts and is qualified in its entirety by
reference to the form of Deposit Agreement and form of Depositary Receipts
relating to each series of the Preferred Stock, as well as the Articles of
Incorporation or any required amendment thereto describing the applicable series
of Preferred Stock.
GENERAL
The Company may, as its option, elect to have shares of Preferred Stock be
represented by Depositary Shares. The shares of any series of the Preferred
Stock underlying the Depositary Shares will be deposited under a separate
deposit agreement (the "Deposit Agreement") to be entered into by the Company
and a bank or trust company selected by the Company (the "Preferred Stock
Depositary") a form of which will be filed as an exhibit to a Current Report on
Form 8-K. The Prospectus Supplement relating to a series of Depositary Shares
will set forth the name and address of the Preferred Stock Depositary. Subject
to the terms
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of the Deposit Agreement, each owner of a Depositary Share will be entitled,
proportionately, to all the rights, preferences and privileges of the Preferred
Stock represented thereby (including dividend, voting, redemption, conversion,
exchange and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the Deposit Agreement, each of which will represent the fractional
interest in the number of shares of a particular series of the Preferred Stock
described in the applicable Prospectus Supplement.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions in respect of the series of Preferred Stock represented by
the Depositary Shares to the record holders of Depositary Receipts in
proportion, insofar as possible, to the number of Depositary Shares owned by
such holders. The Depositary, however, will distribute only such amount as can
be distributed without attributing to any Depositary Share a fraction of one
cent, and any balance not so distributed will be added to and treated as part of
the next sum received by the Depositary for distribution to record holders of
Depositary Receipts then outstanding.
In the event of a distribution other than in cash in respect of the
Preferred Stock, the Preferred Stock Depositary will distribute property
received by it to the record holders of Depositary Receipts in proportion,
insofar as possible, to the number of Depositary Shares owned by such holders,
unless the Preferred Stock Depositary determines (after consultation with the
Company) that it is not feasible to make such distribution, in which case the
Preferred Stock Depositary may, with the approval of the Company, adopt such
method as it deems equitable and practicable for the purpose of effecting such
distribution, including a public or private sale, of such property, and
distribution of the net proceeds from such sale to such holders.
The amount so distributed to record holders of Depositary Receipts in any
of the foregoing cases will be reduced by any amount required to be withheld by
the Company or the Preferred Stock Depositary on account of taxes.
CONVERSION AND EXCHANGE
If any series of Preferred Stock underlying the Depositary Shares is
subject to provisions relating to its conversion or exchange, as set forth in
the applicable Prospectus Supplement relating thereto, each record holder of
Depositary Receipts will have the right or obligation to convert or exchange the
Depositary Shares represented by such Depositary Receipts pursuant to the terms
thereof.
REDEMPTION OF DEPOSITARY SHARES
If any series of Preferred Stock underlying the Depositary Shares is
subject to redemption, the Depositary Shares will be redeemed from the proceeds
received by the Preferred Stock Depositary resulting from the redemption, in
whole or in part, of the Preferred Stock held by the Preferred Stock Depositary.
Whenever the Company redeems Preferred Stock from the Preferred Stock
Depositary, the Preferred Stock Depositary will redeem as of the same redemption
date a proportionate number of Depositary Shares representing the shares of
Preferred Stock that were redeemed. If less than all the Depositary Shares are
to be redeemed, the Depositary Shares to be redeemed will be selected by lot or
pro rata as may be determined by the Company.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Shares will cease, except the right to receive the
redemption price upon such redemption. Any funds deposited by the Company with
the Preferred Stock Depositary for any Depositary Shares which the holders
thereof fail to redeem shall be returned to the Company after a period of two
years from the date such funds are so deposited.
VOTING
Upon receipt of notice of any meeting at which the holders of any shares of
Preferred Stock underlying the Depositary Shares are entitled to vote, the
Preferred Stock Depositary will mail the information contained
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in such notice to the record holders of the Depositary Receipts. Each record
holder of such Depositary Receipts on the record date (which will be the same
date as the record date for the Preferred Stock) will be entitled to instruct
the Preferred Stock Depositary as to the exercise of the voting rights
pertaining to the number of shares of Preferred Stock underlying such holder's
Depositary Shares. The Preferred Stock Depositary will endeavor, insofar as
practicable, to vote the number of shares of Preferred Stock underlying such
Depositary Shares in accordance with such instructions, and the Company will
agree to take all reasonable action which may be deemed necessary by the
Preferred Stock Depositary in order to enable the Preferred Stock Depositary to
do so. The Preferred Stock Depositary will abstain from voting any of the
Preferred Stock to the extent it does not receive specific written instructions
from holders of Depositary Receipts representing such Preferred Stock.
RECORD DATE
Whenever (i) any cash dividend or other cash distribution shall become
payable, any distribution other than cash shall be made, or any rights,
preferences or privileges shall be offered with respect to the Preferred Stock,
or (ii) the Preferred Stock Depositary shall receive notice of any meeting at
which holders of Preferred Stock are entitled to vote or of which holders of
Preferred Stock are entitled to notice, or of the mandatory conversion of, or
any election on the part of the Company to call for the redemption of, any
Preferred Stock, the Preferred Stock Depositary shall in each such instance fix
a record date (which shall be the same as the record date for the Preferred
Stock) for the determination of the holders of Depositary Receipts (x) that
shall be entitled to receive such dividend, distribution, rights, preferences or
privileges or the net proceeds of the sale thereof or (y) that shall be entitled
to give instructions for the exercise of voting rights at any such meeting or to
receive notice of such meeting or of such redemption or conversion, subject to
the provisions of the Deposit Agreement.
WITHDRAWAL OF PREFERRED STOCK
Upon surrender of Depositary Receipts at the principal office of the
Preferred Stock Depositary, upon payment of any unpaid amount due the Preferred
Stock Depositary, and subject to the terms of the Deposit Agreement, the owner
of the Depositary Shares evidenced thereby is entitled to delivery of the number
of whole shares of Preferred Stock and all money and other property, if any,
represented by such Depositary Shares. Partial shares of Preferred Stock will
not be issued. If the Depositary Receipts delivered by the holder evidence a
number of Depositary Shares in excess of the number of Depositary Shares
representing the number of whole shares of Preferred Stock to be withdrawn, the
Preferred Stock Depositary will deliver to such holder at the same time a new
Depositary Receipt evidencing such excess number of Depositary Shares. Holders
of Preferred Stock thus withdrawn will not thereafter be entitled to deposit
such shares under the Deposit Agreement or to receive Depositary Receipts
evidencing Depositary Shares therefor.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The Deposit Agreement will provide that the form of Depositary Receipt and
any provision of the Deposit Agreement may at any time be amended by agreement
between the Company and the Preferred Stock Depositary. However, any amendment
which imposes or increases any fees, taxes or other charges payable by the
holders of Depositary Receipts (other than taxes and other governmental charges,
fees and other expenses payable by such holders as stated under "Charges of
Preferred Stock Depositary"), or which otherwise prejudices any substantial
existing right of holders of Depositary Receipts, will not take effect as to
outstanding Depositary Receipts until the expiration of 90 days after notice of
such amendment has been mailed to the record holders of outstanding Depositary
Receipts.
Whenever so directed by the Company, the Preferred Stock Depositary will
terminate the Deposit Agreement by mailing notice of such termination to the
record holders of all Depositary Receipts then outstanding at least 30 days
prior to the date fixed in such notice for such termination. The Preferred Stock
Depositary may likewise terminate the Deposit Agreement if at any time 45 days
shall have expired after the Preferred Stock Depositary shall have delivered to
the Company a written notice of its election to resign and a successor
depositary shall not have been appointed and accepted its appointment. If any
Depositary Receipts
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remain outstanding after the date of termination, the Preferred Stock Depositary
thereafter will discontinue the transfer of Depositary Receipts, will suspend
the distribution of dividends to the holders thereof, and will not give any
further notices (other than notice of such termination) or perform any further
acts under the Deposit Agreement except as provided below and except that the
Preferred Stock Depositary will continue (i) to collect dividends on the
Preferred Stock and any other distributions with respect thereto and (ii) to
deliver the Preferred Stock together with such dividends and distributions and
the net proceeds of any sales of rights, preferences, privileges or other
property, without liability for interest thereon, in exchange for Depositary
Receipts surrendered. At any time after the expiration of two years from the
date of termination, the Preferred Stock Depositary may sell the Preferred Stock
then held by it at public or private sales, at such place or places and upon
such terms as it deems proper, and may thereafter hold the net proceeds of any
such sale, together with any money and other property then held by it, without
liability for interest thereon, for the pro rata benefit of the holders of
Depositary Receipts which have not been surrendered.
CHARGES OF PREFERRED STOCK DEPOSITARY
The Company will pay all charges of the Preferred Stock Depositary
including charges in connection with the initial deposit of the Preferred Stock,
the initial issuance of the Depositary Receipts, the distribution of information
to the holders of Depositary Receipts with respect to matters on which Preferred
Stock is entitled to vote, withdrawals of the Preferred Stock by the holders of
Depositary Receipts or redemption or conversion of the Preferred Stock, except
for taxes (including transfer taxes, if any) and other governmental charges and
such other charges as are expressly provided in the Deposit Agreement to be at
the expense of holders of Depositary Receipts or persons depositing Preferred
Stock.
MISCELLANEOUS
The Preferred Stock Depositary will make available for inspection by
holders of Depositary Receipts, at its Corporate Office and its New York Office,
all reports and communications from the Company which are delivered to the
Preferred Stock Depositary as the holder of Preferred Stock.
Neither the Preferred Stock Depositary nor the Company will be liable if it
is prevented or delayed by law or any circumstance beyond its control in
performing its obligations under the Deposit Agreement. The obligations of the
Preferred Stock Depositary under the Deposit Agreement are limited to performing
its duties thereunder without negligence or bad faith. The obligations of the
Company under the Deposit Agreement are limited to performing its duties
thereunder in good faith. Neither the Company nor the Preferred Stock Depositary
is obligated to prosecute or defend any legal proceeding in respect of any
Depositary Shares or Preferred Stock unless satisfactory indemnity is furnished.
The Company and the Preferred Stock Depositary are entitled to rely upon advice
of or information from counsel, accountants or other persons believed to be
competent and on documents believed to be genuine.
The Preferred Stock Depositary may resign at any time or be removed by the
Company, effective upon the acceptance by its successor of its appointment;
provided, that if a successor Preferred Stock Depositary has not been appointed
or accepted such appointment within 45 days after the Preferred Stock Depositary
has delivered a notice of election to resign to the Company, the Preferred Stock
Depositary may terminate the Deposit Agreement. See "Amendment and Termination
of the Deposit Agreement" above.
DESCRIPTION OF WARRANTS
GENERAL
The Company may issue Warrants to purchase Debt Securities, Preferred
Stock, Common Stock or any combination thereof, and such Warrants may be issued
independently or together with any such Securities and may be attached to or
separate from such Securities. Each series of Warrants will be issued under a
separate warrant agreement (each a "Warrant Agreement") to be entered into
between the Company and a warrant agent ("Warrant Agent") a form of which will
be filed as an exhibit to a Current Report on Form 8-K. The Warrant Agent will
act solely as an agent of the Company in connection with the Warrants of each
such
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series and will not assume any obligation or relationship of agency for or with
holders or beneficial owners of Warrants. The following sets forth certain
general terms and provisions of the Warrants offered hereby. Further terms of
the Warrants and the applicable Warrant Agreement will be set forth in the
applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of any
Warrants in respect of which this Prospectus is being delivered, including the
following: (i) the title of such Warrants; (ii) the aggregate number of such
Warrants; (iii) the price or prices at which such Warrants will be issued; (iv)
the currency or currencies, including composite currencies, in which the price
of such Warrants may be payable; (v) the designation and terms of the Securities
(other than Preferred Securities and Common Securities) purchasable upon
exercise of such Warrants; (vi) the price at which and the currency or
currencies, including composite currencies, in which the Securities (other than
Preferred Securities and Common Securities) purchasable upon exercise of such
Warrants may be purchased; (vii) the date on which the right to exercise such
Warrants shall commence and the date on which such right shall expire; (viii)
whether such Warrants will be issued in registered form or bearer form; (ix) if
applicable, the minimum or maximum amount of such Warrants which may be
exercised at any one time; (x) if applicable, the designation and terms of the
Securities (other than Preferred Securities and Common Securities) with which
such Warrants are issued and the number of such Warrants issued with each such
Security; (xi) if applicable, the date on and after which such Warrants and the
related Securities (other than Preferred Securities and Common Securities) will
be separately transferable; (xii) information with respect to book-entry
procedures, if any; (xiii) if applicable, a discussion of certain United States
federal income tax considerations; and (xiv) any other terms of such Warrants,
including terms, procedures and limitations relating to the exchange and
exercise of such Warrants.
DESCRIPTION OF PREFERRED SECURITIES OF THE CONSECO TRUSTS
GENERAL
Each Conseco Trust may issue, from time to time, only one series of
Preferred Securities having terms described in the Prospectus Supplement
relating thereto. The Declaration of each Conseco Trust authorizes the Regular
Trustees of such Conseco Trust to issue on behalf of such Conseco Trust one
series of Preferred Securities. Each Declaration will be qualified as an
indenture under the Trust Indenture Act. The Property Trustee, an independent
trustee, will act as indenture trustee for the Preferred Securities for purposes
of compliance with the provisions of the Trust Indenture Act. The Preferred
Securities will have such terms, including distributions, redemption, voting,
liquidation rights and such other preferred, deferred or other special rights or
such restrictions as shall be established by the Regular Trustees in accordance
with the applicable Declaration or as shall be set forth in the Declaration or
made part of the Declaration by the Trust Indenture Act. Reference is made to
any Prospectus Supplement relating to the Preferred Securities of a Conseco
Trust for specific terms of the Preferred Securities, including, to the extent
applicable, (i) the distinctive designation of such Preferred Securities, (ii)
the number of Preferred Securities issued by such Conseco Trust, (iii) the
annual distribution rate (or method of determining such rate) for Preferred
Securities issued by such Conseco Trust and the date or dates upon which such
distributions shall be payable (provided, however, that distributions on such
Preferred Securities shall, subject to any deferral provisions, and any
provisions for payment of defaulted distributions, be payable on a quarterly
basis to holders of such Preferred Securities as of a record date in each
quarter during which such Preferred Securities are outstanding), (iv) any right
of such Conseco Trust to defer quarterly distributions on the Preferred
Securities as a result of an interest deferral right exercised by the Company on
the Subordinated Debt Securities held by such Conseco Trust; (v) whether
distributions on Preferred Securities shall be cumulative, and, in the case of
Preferred Securities having such cumulative distribution rights, the date or
dates or method of determining the date or dates from which distributions on
Preferred Securities shall be cumulative, (vi) the amount or amounts which shall
be paid out of the assets of such Conseco Trust to the holders of Preferred
Securities upon voluntary or involuntary dissolution, winding-up or termination
of such Conseco Trust, (vii) the obligation or option, if any, of such Conseco
Trust to purchase or redeem Preferred Securities and the price or prices at
which, the period or periods within which and the terms and conditions upon
which Preferred Securities shall be purchased or redeemed, in whole or in part,
pursuant to such obligation or option with such
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redemption price to be specified in the applicable Prospectus Supplement, (viii)
the voting rights, if any, of Preferred Securities in addition to those required
by law, including the number of votes per Preferred Security and any requirement
for the approval by the holders of Preferred Securities as a condition to
specified action or amendments to the Declaration, (ix) the terms and
conditions, if any, upon which Subordinated Debt Securities held by such Conseco
Trust may be distributed to holders of Preferred Securities, and (x) any other
relevant rights, preferences, privileges, limitations or restrictions of
Preferred Securities consistent with the Declaration or with applicable law. All
Preferred Securities offered hereby will be guaranteed by the Company to the
extent set forth below under "Description of Trust Guarantees." The Trust
Guarantee issued to each Conseco Trust, when taken together with the Company's
back-up undertakings, consisting of its obligations under each Declaration
(including the obligation to pay expenses of each Conseco Trust), the Indenture
and any applicable supplemental indentures thereto and the Subordinated Debt
Securities issued to any Conseco Trust will provide a full and unconditional
guarantee by the Company of amounts due on the Preferred Securities issued by
each Conseco Trust. Certain United States federal income tax considerations
applicable to any offering of Preferred Securities will be described in the
Prospectus Supplement relating thereto and certain proposed tax law changes are
described below. See "Description of Preferred Securities -- Proposed Tax Law
Changes." The payment terms of the Preferred Securities will be the same as the
Subordinated Debt Securities issued to the applicable Conseco Trust by the
Company.
Each Declaration authorizes the Regular Trustees to issue on behalf of the
applicable Trust one series of Common Securities having such terms including
distributions, redemption, voting, liquidation rights or such restrictions as
shall be established by the Regular Trustees in accordance with the Declaration
or as shall otherwise be set forth therein. The terms of the Common Securities
issued by each Conseco Trust will be substantially identical to the terms of the
Preferred Securities issued by such Conseco Trust, and the Common Securities
will rank pari passu, and payments will be made thereon pro rata, with the
Preferred Securities except that, if an event of default under such Declaration
has occurred and is continuing, the rights of the holders of the Common
Securities to payment in respect of distributions and payments upon liquidation,
redemption and otherwise will be subordinated to the rights of the holders of
the Preferred Securities. The Common Securities will also carry the right to
vote and to appoint, remove or replace any of the Conseco Trustees of such
Conseco Trust. All of the Common Securities of each Conseco Trust will be
directly or indirectly owned by the Company.
The financial statements of any Conseco Trust that issues Preferred
Securities will be reflected in the Company's consolidated financial statements
with the Preferred Securities shown as Company-obligated mandatorily-redeemable
preferred securities of a subsidiary trust under minority interest in
consolidated subsidiaries. In a footnote to the Company's audited financial
statements there will be included statements that the applicable Conseco Trust
is wholly-owned by the Company and that the sole asset of such Conseco Trust is
the Subordinated Debentures (indicating the principal amount, interest rate and
maturity date thereof).
PROPOSED TAX LAW CHANGES
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the "Bill"),
the revenue portion of President Clinton's budget proposal, was released. The
Bill would, among other things, generally deny interest deductions for interest
on an instrument, issued by a corporation, that has a maximum weighted average
maturity of more than 40 years. The Bill would also generally deny interest
deductions for interest on an instrument, issued by a corporation, that has a
maximum term of more than 20 years and that is not shown as indebtedness on the
separate balance sheet of the issuer or, where the instrument is issued to a
related party (other than a corporation), where the holder or some other related
party issues a related instrument that is not shown as indebtedness on the
issuer's consolidated balance sheet. For purposes of determining the weighted
average maturity or the term of an instrument, any right to extend would be
treated as exercised. The above-described provisions of the Bill were proposed
to be effective generally for instruments issued on or after December 7, 1995.
However, on March 29, 1996, the Chairmen of the Senate Finance and House Ways
and Means Committees issued a joint statement to the effect that it was their
intention that the effective date of the President's legislative proposals, if
adopted, will be no earlier than the date of appropriate Congressional
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action. In addition, subsequent to the publication of the joint statement,
Senator Daniel Patrick Moynihan and Representatives Sam M. Gibbons and Charles
B. Rangel wrote letters to Treasury Department officials concurring with the
views expressed in the joint statement. If either of the provisions of the Bill
described above were to apply to the Subordinated Debt Securities held by a
Conseco Trust, the Company would be unable to deduct interest on the
Subordinated Debt Securities held by such Conseco Trust. There can be no
assurance that current or future legislative proposals or final legislation will
not affect the ability of the Company to deduct interest on the Subordinated
Debt Securities held by a Conseco Trust. The Prospectus Supplement relating to
any offering of Preferred Securities will describe any additional material
developments with respect to the Bill and will further describe whether the
inability of the Company to deduct interest on the Subordinated Debt Securities
will give rise to a right on the part of the Company to redeem the Subordinated
Debt Securities.
DESCRIPTION OF TRUST GUARANTEES
Set forth below is a summary of information concerning the Trust Guarantees
that will be executed and delivered by the Company for the benefit of the
holders, from time to time, of Preferred Securities. Each Trust Guarantee will
be qualified as an indenture under the Trust Indenture Act. Fleet National Bank
will act as independent indenture trustee for Trust Indenture Act purposes under
each Trust Guarantee (the "Preferred Securities Guarantee Trustee"). The terms
of each Trust Guarantee will be those set forth in such Trust Guarantee and
those made part of such Trust Guarantee by the Trust Indenture Act. The
following summary does not purport to be complete and is subject to and
qualified in its entirety by reference to the provisions of the form of Trust
Guarantee, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part, and the Trust Indenture Act. Each
Trust Guarantee will be held by the Preferred Securities Guarantee Trustee for
the benefit of the holders of the Preferred Securities of the applicable Conseco
Trust.
GENERAL
Pursuant to each Trust Guarantee, the Company will agree, to the extent set
forth therein, to pay in full to the holders of the Preferred Securities, the
Guarantee Payments (as defined below) (except to the extent paid by such Conseco
Trust), as and when due, regardless of any defense, right of set-off or
counterclaim which such Conseco Trust may have or assert. The following payments
or distributions with respect to the Preferred Securities (the "Guarantee
Payments"), to the extent not paid by such Conseco Trust, will be subject to the
Trust Guarantee (without duplication): (i) any accrued and unpaid distributions
that are required to be paid on such Preferred Securities, to the extent such
Conseco Trust shall have funds available therefor, (ii) the redemption price,
including all accrued and unpaid distributions to the date of redemption (the
"Redemption Price"), to the extent such Conseco Trust has funds available
therefor, with respect to any Preferred Securities called for redemption by such
Conseco Trust and (iii) upon a voluntary or involuntary dissolution, winding-up
or termination of such Conseco Trust (other than in connection with such
distribution of Subordinated Debt Securities to the holders of Preferred
Securities or the redemption of all of the Preferred Securities upon maturity or
redemption of the Subordinated Debt Securities) the lesser of (a) the aggregate
of the liquidation amount and all accrued and unpaid distributions on such
Preferred Securities to the date of payment, to the extent such Conseco Trust
has funds available therefor or (b) the amount of assets of such Conseco Trust
remaining for distribution to holders of such Preferred Securities in
liquidation of such Conseco Trust. The Company's obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by the
Company to the holders of Preferred Securities or by causing the applicable
Conseco Trust to pay such amounts to such holders.
Each Trust Guarantee will not apply to any payment of distributions except
to the extent the applicable Conseco Trust shall have funds available therefor.
If the Company does not make interest or principal payments on the Subordinated
Debt Securities purchased by such Conseco Trust, such Conseco Trust will not pay
distributions on the Preferred Securities issued by such Conseco Trust and will
not have funds available therefore.
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The Company has also agreed to guarantee the obligations of each Conseco
Trust with respect to the Common Securities (the "Common Guarantee") issued by
such Conseco Trust to the same extent as the Trust Guarantee, except that, if an
Event of Default under the Subordinated Indenture has occurred and is
continuing, holders of Preferred Securities under the Trust Guarantee shall have
priority over holders of the Common Securities under the Trust Common Guarantee
with respect to distributions and payments on liquidation, redemption or
otherwise.
CERTAIN COVENANTS OF THE COMPANY
In each Trust Guarantee, the Company will covenant that, so long as any
Preferred Securities issued by the applicable Conseco Trust remain outstanding,
if there shall have occurred any event of default under such Trust Guarantee or
under the Declaration of such Conseco Trust, then (a) the Company will not
declare or pay any dividend on, make any distributions with respect to, or
redeem, purchase, acquire or make a liquidation payment with respect to, any of
its capital stock; (b) the Company shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities (including guarantees) issued by the Company which rank pari passu
with or junior to the Subordinated Debt Securities issued to the applicable
Conseco Trust and (c) the Company shall not make any guarantee payments with
respect to the foregoing (other than pursuant to a Trust Guarantee); provided,
however, that the Company may (i) declare and pay a stock dividend where the
dividend stock is the same stock as that on which the dividend is being paid and
(ii) purchase or acquire shares of Company Common Stock in connection with the
satisfaction by the Company of its obligations under any employee benefit plans.
MODIFICATION OF THE TRUST GUARANTEES; ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of Preferred Securities (in which case no consent of such holders
will be required), each Trust Guarantee may be amended only with the prior
approval of the holders of not less than a majority in liquidation amount of the
outstanding Preferred Securities of such Conseco Trust. The manner of obtaining
any such approval of holders of such Preferred Securities will be set forth in
accompanying Prospectus Supplement. All guarantees and agreements contained in a
Trust Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the holders of
the Preferred Securities of the applicable Conseco Trust then outstanding.
EVENTS OF DEFAULT
An event of default under a Trust Guarantee will occur upon the failure of
the Company to perform any of its payment or other obligations thereunder. The
holders of a majority in liquidation amount of the Preferred Securities to which
such Trust Guarantee relates have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Preferred
Securities Guarantee Trustee in respect of such Trust Guarantee or to direct the
exercise of any trust or power conferred upon the Preferred Securities Guarantee
Trustee under such Trust Guarantee.
If the Preferred Securities Guarantee Trustee fails to enforce such Trust
Guarantee, any record holder of Preferred Securities to which such Trust
Guarantee relates may institute a legal proceeding directly against the Company
to enforce the Preferred Securities Guarantee Trustee's rights under such Trust
Guarantee without first instituting a legal proceeding against the applicable
Conseco Trust, the Preferred Securities Guarantee Trustee or any other person or
entity. Notwithstanding the foregoing, if the Company has failed to make a
Guarantee Payment under a Trust Guarantee, a record holder of Preferred
Securities to which such Trust Guarantee relates may directly institute a
proceeding against the Company for enforcement of such Trust Guarantee for such
payment to the record holder of the Preferred Securities to which such Trust
Guarantee relates of the principal of or interest on the applicable Subordinated
Debt Securities on or after the respective due dates specified in the
Subordinated Debt Securities, and the amount of the payment will be based on the
holder's pro rata share of the amount due and owing on all of the Preferred
Securities to which such Trust Guarantee relates. The Company has waived any
right or remedy to require that any action be brought first against the
applicable Conseco Trust or any other person or entity before proceeding
directly
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against the Company. The record holder in the case of the issuance of one or
more global Preferred Securities certificates will be The Depository Trust
Company acting at the direction of the beneficial owners of the Preferred
Securities.
The Company will be required to provide annually to the Preferred
Securities Guarantee Trustee a statement as to the performance by the Company of
certain of its obligations under each outstanding Trust Guarantee and as to any
default in such performance.
INFORMATION CONCERNING THE PREFERRED SECURITIES GUARANTEE TRUSTEE
The Preferred Securities Guarantee Trustee, prior to the occurrence of a
default to a Trust Guarantee, undertakes to perform only such duties as are
specifically set forth in such Trust Guarantee and, after default with respect
to such Trust Guarantee, shall exercise the same degree of care as a prudent
individual would exercise in the conduct of his or her own affairs. Subject to
such provision, the Preferred Securities Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by a Trust Guarantee at
the request of any holder of Preferred Securities to which such Trust Guarantee
relates unless it is offered reasonable indemnity against the costs, expenses
and liabilities that might be incurred thereby.
TERMINATION
Each Trust Guarantee will terminate as to the Preferred Securities issued
by the applicable Conseco Trust upon full payment of the Redemption Price of all
Preferred Securities of such Conseco Trust, upon distribution of the
Subordinated Debt Securities held by such Conseco Trust to the holders of all of
the Preferred Securities of such Conseco Trust or upon full payment of the
amounts payable in accordance with
the Declaration of such Conseco Trust upon liquidation of such Conseco Trust.
Each Trust Guarantee will continue to be effective or will be reinstated, as the
case may be, if at any time any holder of Preferred Securities issued by the
applicable Conseco Trust must restore payment of any sums paid under such
Preferred Securities or such Trust Guarantee.
STATUS OF THE TRUST GUARANTEES
The Trust Guarantees will constitute an unsecured obligation of the Company
and will rank (i) subordinate and junior in right of payment to all other
liabilities of the Company, including the Subordinated Debt Securities, except
those liabilities of the Company made pari passu or subordinate by their terms,
(ii) pari passu with the most senior preferred or preference stock now or
hereafter issued by the Company and with any guarantee now or hereafter entered
into by the Company in respect of any preferred or preference stock of any
affiliate of the Company and (iii) senior to the Company's Common Stock. The
terms of the Preferred Securities provide that each holder of Preferred
Securities by acceptance thereof agrees to the subordination provisions and
other terms of the Trust Guarantee relating thereto.
Each Trust Guarantee will constitute a guarantee of payment and not of
collection (that is, the guaranteed party may institute a legal proceeding
directly against the Company to enforce its rights under such Trust Guarantee
without instituting a legal proceeding against any other person or entity).
GOVERNING LAW
The Trust Guarantees will be governed by and construed in accordance with
the law of the State of New York.
PLAN OF DISTRIBUTION
The Company and/or any Conseco Trust may sell any of the Securities being
offered hereby in any one or more of the following ways from time to time: (i)
through agents; (ii) to or through underwriters; (iii) through dealers; or (iv)
directly to purchasers.
26
<PAGE> 114
The Prospectus Supplement with respect to the Securities will set forth the
terms of the offering of the Securities, including the name or names of any
underwriters, dealers or agents; the purchase price of the Securities and the
proceeds to the Company and/or a Conseco Trust from such sale; any underwriting
discounts and commissions or agency fees and other items constituting
underwriters' or agents' compensation; any initial public offering price and any
discounts or concessions allowed or reallowed or paid to dealers and any
securities exchange on which such Securities may be listed. Any initial public
offering price, discounts or concessions allowed or reallowed or paid to dealers
may be changed from time to time.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices.
Offers to purchase Securities may be solicited by agents designated by the
Company from time to time. Any such agent involved in the offer or sale of the
Securities in respect of which this Prospectus is delivered will be named, and
any commissions payable by the Company and/or the applicable Conseco Trust to
such agent will be set forth, in the applicable Prospectus Supplement. Unless
otherwise indicated in such Prospectus Supplement, any such agent will be acting
on a reasonable best efforts basis for the period of its appointment. Any such
agent may be deemed to be an underwriter, as that term is defined in the
Securities Act, of the Securities so offered and sold.
If Securities are sold by means of an underwritten offering, the Company
and/or the applicable Conseco Trust will execute an underwriting agreement with
an underwriter or underwriters at the time an agreement for such sale is
reached, and the names of the specific managing underwriter or underwriters, as
well as any other underwriters, and the terms of the transaction, including
commissions, discounts and any other compensation of the underwriters and
dealers, if any, will be set forth in the Prospectus Supplement which will be
used by the underwriters to make resales of the Securities in respect of which
this Prospectus is delivered to the public. If underwriters are utilized in the
sale of the Securities in respect of which this Prospectus is delivered, the
Securities will be acquired by the underwriters for their own account and may be
resold from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices determined by
the underwriter at the time of sale. Securities may be offered to the public
either through underwriting syndicates represented by managing underwriters or
directly by the managing underwriters. If any underwriter or underwriters are
utilized in the sale of the Securities, unless otherwise indicated in the
Prospectus Supplement, the underwriting agreement will provide that the
obligations of the underwriters are subject to certain conditions precedent and
that the underwriters with respect to a sale of Securities will be obligated to
purchase all such Securities of a series if any are purchased.
If a dealer is utilized in the sales of the Securities in respect of which
this Prospectus is delivered, the Company and/or the applicable Conseco Trust
will sell such Securities to the dealer as principal. The dealer may then resell
such Securities to the public at varying prices to be determined by such dealer
at the time of resale. Any such dealer may be deemed to be an underwriter, as
such term is defined in the Securities Act, of the Securities so offered and
sold. The name of the dealer and the terms of the transaction will be set forth
in the Prospectus Supplement relating thereto.
Offers to purchase Securities may be solicited directly by the Company
and/or the applicable Conseco Trust and the sale thereof may be made by the
Company and/or the applicable Conseco Trust directly to institutional investors
or others, who may be deemed to be underwriters within the meaning of the
Securities Act with respect to any resale thereof. The terms of any such sales
will be described in the Prospectus Supplement relating thereto.
Agents, underwriters and dealers may be entitled under relevant agreements
to indemnification or contribution by the Company and/or the applicable Conseco
Trust against certain liabilities, including liabilities under the Securities
Act.
Agents, underwriters and dealers may be customers of, engage in
transactions with, or perform services for, the Company and its subsidiaries in
the ordinary course of business.
27
<PAGE> 115
Securities may also be offered and sold, if so indicated in the applicable
Prospectus Supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or otherwise,
by one or more firms ("remarketing firms"), acting as principals for their own
accounts or as agents for the Company and/or the applicable Conseco Trust. Any
remarketing firm will be identified and the terms of its agreement, if any, with
its compensation will be described in the applicable Prospectus Supplement.
Remarketing firms may be deemed to be underwriters, as such term is defined in
the Securities Act, in connection with the Securities remarketed thereby.
Remarketing firms may be entitled under agreements which may be entered into
with the Company and/or the applicable Conseco Trust to indemnification or
contribution by the Company and/or the applicable Conseco Trust against certain
civil liabilities, including liabilities under the Securities Act, and may be
customers of, engage in transactions with or perform services for Conseco and
its subsidiaries in the ordinary course of business.
If so indicated in the applicable Prospectus Supplement, the Company and/or
the applicable Conseco Trust may authorize agents, underwriters or dealers to
solicit offers by certain types of institutions to purchase Securities from the
Company and/or the applicable Conseco Trust at the public offering prices set
forth in the applicable Prospectus Supplement pursuant to delayed delivery
contracts ("Contracts") providing for payment and delivery on a specified date
or dates in the future. A commission indicated in the applicable Prospectus
Supplement will be paid to underwriters, dealers and agents soliciting purchases
of Securities pursuant to Contracts accepted by the Company and/or the
applicable Conseco Trust.
LEGAL MATTERS
Unless otherwise indicated in the applicable Prospectus Supplement, the
legal validity of Securities (other than the Preferred Securities) will be
passed upon for the Company by Lawrence W. Inlow, Executive Vice President,
Secretary and General Counsel of the Company. Mr. Inlow is a full-time employee
and an officer of the Company and owns 808,374 shares and holds options to
purchase 1,406,900 shares of Company common stock.
Certain matters of Delaware law relating to the validity of the Preferred
Securities will be passed upon for the Conseco Trusts by Richards, Layton &
Finger, P.A., Wilmington, Delaware, special Delaware Counsel to the Conseco
Trusts. Certain United States Federal income taxation matters will be passed
upon for the Company and the Conseco Trusts by Locke Reynolds Boyd & Weisell,
Indianapolis, Indiana, special tax counsel to the Company and the Conseco
Trusts.
EXPERTS
The consolidated financial statements and schedules of the Company as of
December 31, 1995 and 1994, and for each of the three years in the period ended
December 31, 1995 incorporated by reference in this Prospectus, have been
audited by Coopers & Lybrand L.L.P., independent accountants, as set forth in
their reports thereon included therein and are incorporated herein by reference
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
28
<PAGE> 116
============================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Risk Factors............................... S-4
Conseco Financing Trust I.................. S-10
Capitalization............................. S-11
Ratio of Earnings to Fixed Charges and
Earnings to Fixed Charges and Preferred
Stock Dividends.......................... S-12
Use of Proceeds............................ S-12
The Company................................ S-13
Pending Acquisitions by the Company........ S-33
Unaudited Pro Forma Consolidated Financial
Statements of the Company................ S-42
Description of the Preferred Securities.... S-62
Description of the Subordinated
Debentures............................... S-72
Description of the Trust Guarantee......... S-78
Effect of Obligations Under the
Subordinated Debentures and the Trust
Guarantee................................ S-79
United States Federal Income Taxation...... S-80
Underwriting............................... S-84
Legal Matters.............................. S-85
Experts.................................... S-85
Incorporation of Certain Documents by
Reference................................ S-86
PROSPECTUS
Available Information...................... 3
Incorporation of Certain Documents by
Reference................................ 4
The Company................................ 5
The Conseco Trusts......................... 5
Use of Proceeds............................ 6
Ratios of Earnings to Fixed Charges and
Earnings to Fixed Charges and Preferred
Stock Dividends.......................... 6
Description of Debt Securities............. 6
Description of Capital Stock............... 14
Description of Depositary Shares........... 18
Description of Warrants.................... 21
Description of Preferred Securities of the
Conseco Trusts........................... 22
Description of the Trust Guarantees........ 24
Plan of Distribution....................... 26
Legal Matters.............................. 28
Experts.................................... 28
</TABLE>
============================================================================
============================================================================
8,000,000
PREFERRED SECURITIES
CONSECO FINANCING
TRUST I
% TRUST ORIGINATED
PREFERRED SECURITIES
("TOPRSSM")
FULLY AND UNCONDITIONALLY
GUARANTEED BY
CONSECO LOGO
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SANDS BROTHERS & CO., LTD.
NOVEMBER , 1996
============================================================================
<PAGE> 117
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............................ $ 262,763
New York Stock Exchange listing fee............................................ 50,000
Legal fees and expenses........................................................ 300,000
Accounting fees and expenses................................................... 750,000
Printing and engraving expenses................................................ 450,000
Trustee's fees and expenses.................................................... 125,000
Rating agencies' fees.......................................................... 300,000
Blue sky fees and expenses..................................................... 60,000
Miscellaneous.................................................................. 202,237
----------
Total.......................................................................... $2,500,000
==========
</TABLE>
Except for the SEC registration fee, all of the foregoing are estimates.
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Indiana Business Corporation Law grants authorization to Indiana
corporations to indemnify officers and directors for their conduct if such
conduct was in good faith and was in the corporation's best interests or, in the
case of directors, was not opposed to such best interests, and permits the
purchase of insurance in this regard. In addition, the shareholders of a
corporation may approve the inclusion of other or additional indemnification
provisions in the articles of incorporation and by-laws.
The 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 Business
Corporation Law is not intended to be exhaustive and is qualified in its
entirety by such By-laws and the Indiana Business Corporation Law.
The Declaration of Trust for each of Conseco Financing Trust I, Conseco
Financing Trust II and Conseco Financing Trust III (the "Trusts") provides that
no Property Trustee or any of its Affiliates, Delaware Trustee or any of its
Affiliates, or any officer, director, shareholder, member, partner, employee,
representative, custodian, nominee or agent of the Property Trustee or the
Delaware Trustee (each a "Fiduciary Indemnified Person"), and no Regular
Trustee, Affiliate of any Regular Trustee, or any officer, director,
shareholder, member, partner, employee, representative or agent of any Regular
Trustee or any Affiliate thereof, or any employee or agent of any of the Trusts
or any of their Affiliates (each a "Company Indemnified Person") shall be
liable, responsible or accountable in damages or otherwise to any of such Trusts
or any officer, director, shareholder, partner, member, representative, employee
or agent of any such Trust or its Affiliates or to any holder of Preferred
Securities for any loss, damage or claim incurred by reason of any act or
omission performed or omitted by such Fiduciary Indemnified Person or Company
Indemnified Person in good faith on behalf of any of such Trusts and in a manner
such Fiduciary Indemnified Person or Company Indemnified Person reasonably
believed to be within the scope of the authority conferred on such Fiduciary
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<PAGE> 118
Indemnified Person or Company Indemnified Person by such Declaration or by law,
except that a Fiduciary Indemnified Person or Company Indemnified Person shall
be liable for any such loss, damage or claim incurred by reason of such
Fiduciary Indemnified Person's or Company Indemnified Person's gross negligence
or willful misconduct with respect to such acts or omissions.
The Declaration of Trust for each of such Trusts also provides that to the
full extent permitted by law, the Company shall indemnify any Company
Indemnified Person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of any such Trust) by reason of the fact that he is or was a Company
Indemnified Person against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
any such Trust, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Each of the Declaration of
Trusts also provides that to the full extent permitted by law, the Company shall
indemnify any Company Indemnified Person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of any such trust to procure a judgment in its favor by reason of
the fact that he is or was a Company Indemnified Person against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of any such trust and except that no such indemnification shall
be made in respect of any claim, issue or matter as to which such Company
Indemnified Person shall have been adjudged to be liable to any such trust
unless and only to the extent that the Court of Chancery of Delaware or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which such Court of Chancery or such other court shall deem proper. The
Declaration of Trust for each such Trust further provides that expenses
(including attorneys' fees) incurred by a Company Indemnified Person in
defending a civil, criminal, administrative or investigative action, suit or
proceeding referred to in the immediately preceding two sentences shall be paid
by the Company in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such Company
Indemnified Person to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Company as authorized in any
such Declaration.
The Declaration of Trust for each Trust also provides that the Company
shall indemnify each Fiduciary Indemnified Person against any loss, liability or
expense incurred without negligence or bad faith on its part, arising out of or
in connection with the acceptance or administration of the trust or trusts under
any such Trust, including the costs and expenses (including reasonable legal
fees and expenses) of defending itself against or investigating any claim or
liability in connection with the exercise or performance of any of its powers or
duties thereunder.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ---------------------------------------------------------------------------
<C> <S>
1.1 Form of Purchase Agreement -- Debt Securities is incorporated herein by
reference to Exhibit 1.1 to the Registration Statement on Form S-3 of the
Registrant (No. 33-53095) ((i) An Underwriting Agreement relating to
Securities to be distributed outside the United States or for Securities
denominated in foreign currencies or foreign currency units or (ii) any
Selling Agency or Distribution Agreement with any Agent will be filed as an
exhibit to a Current Report on Form 8-K and incorporated herein by
reference.)
1.2 Form of Purchase Agreement -- Equity is incorporated herein by reference to
Exhibit 1.2 to the Registration Statement on Form S-3 of the Registrant
(No. 33-53095)
</TABLE>
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<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ---------------------------------------------------------------------------
<C> <S>
3.1 Amended and Restated Articles of Incorporation of Conseco, Inc. were filed
with the Commission as Exhibit 3.1 to the Registration Statement on Form
S-2, No. 33-8498; Articles of Amendment thereto, as filed September 9, 1988
with the Indiana Secretary of State, were filed with the Commission as
Exhibit 3.1.1 to Conseco's Annual Report on Form 10-K for 1988; Articles of
Amendment thereto, as filed June 13, 1989 with the Indiana Secretary of
State, were filed with the Commission as Exhibit 3.1.2 to Conseco's Report
on Form 10-Q for the quarter ended June 30, 1989; and Articles of Amendment
thereto, as filed June 29, 1993 with the Indiana Secretary of State, were
filed with the Commission as Exhibit 3.1.3 to Conseco's Report on Form 10-Q
for the quarter ended June 30, 1993, and Articles of Amendment thereto
relating to the PRIDES were filed with the Commission as Exhibit 3.(i).3 to
the Registrant's Report on Form 8-K dated January 17, 1996, and are
incorporated herein by this reference.
3.2 Amended and Restated Bylaws of Conseco, Inc. effective February 10, 1986
were filed with the Commission as Exhibit 3.2 to its Registration Statement
of Form S-1, No. 33-4367, and an Amendment thereto was filed with the
Commission as Exhibit 3.2.1 to Amendment No. 2 to its Registration
Statement of Form S-1, No. 33-4367; and are incorporated herein by this
reference.
4.1 Form of Senior Indenture dated as of , 1995 by and between
Conseco, Inc. and , as Trustee, pursuant to which the Senior Debt
Securities are to be issued is incorporated herein by reference to Exhibit
4.1 to the Registration Statement on Form S-3 of the Registrant No.
33-53095)
4.2 Form of Subordinated Indenture, dated as of , 1996 between
Conseco, Inc. and , as Trustee, pursuant to which the
Subordinated Debentures are to be issued is incorporated herein by
reference to Exhibit 4.2 to the Registration Statement on Form S-3 of the
Registrant (No. 33-53095).
4.3 Form of Deposit Agreement is incorporated herein by reference to Exhibit
4.3 to the Registration Statement on Form S-3 of the Registrant (No.
33-53095)
4.4 Certificate of Trust of Conseco Financing Trust I**
4.5 Declaration of Trust of Conseco Financing Trust I**
4.6 Certificate of Trust of Conseco Financing Trust II**
4.7 Declaration of Trust of Conseco Financing Trust II**
4.8 Certificate of Trust of Conseco Financing Trust III**
4.9 Declaration of Trust of Conseco Financing Trust III**
4.10 Form of Amended and Restated Declaration of Trust
4.11 Form of Preferred Securities Guarantee Agreement by Conseco, Inc.
4.12 Form of Debt Security
The form or forms of such Debt Securities with respect to each particular
offering will be filed as an exhibit to a Current Report on Form 8-K and
incorporated herein by reference.
4.13 Form of Preferred Stock
Any amendment to the Company's Articles of Incorporation authorizing the
creation of any series of Preferred Stock or Depositary Shares representing
such shares of Preferred Stock and setting forth the rights, preferences
and designations thereof will be filed as an exhibit to a Current Report on
Form 8-K and incorporated herein by reference.
4.14 Form of Warrant Agreement is incorporated herein by reference to Exhibit
4.4 to the Registration Statement on Form S-3 of the Registrant (No.
33-53095).
4.15 Form of Preferred Security
4.16 Form of Supplemental Indenture
</TABLE>
II-3
<PAGE> 120
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ---------------------------------------------------------------------------
<C> <S>
4.17 Form of % Subordinated Deferrable Interest Debenture due ,
2026
5.1 Opinion of Lawrence W. Inlow, Esquire
5.2 Opinion of Richards, Layton & Finger, P.A.
8 Opinion of Locke Reynolds Boyd & Weisell as to certain federal income
taxation matters
10.1 $100,000,000 Promissory Note of Conseco, Inc. dated September 30, 1996
("Bridge Facility")
10.2 Waiver of NationsBank, N.A. (South), dated November 6, 1996, under the
Bridge Facility
10.3 Waiver of the banks, dated November 6, 1996, under the Conseco, Inc. $500
million Senior Credit Facility
10.4 Commitment Letter dated September 13, 1996 by and among Conseco, Inc.,
NationsBank, N.A. and NationsBank Capital Markets, Inc.
12.1 Computation of Ratios of Earnings to Fixed Charges and Preferred
Dividends**
12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges and Preferred
Dividends**
23.1 Consent of Lawrence W. Inlow, Esquire (included in Exhibit 5.1 hereto)
23.2 Consent of Locke Reynolds Boyd & Weisell (included in Exhibit 8 hereto)
23.3 Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.2 hereto)
23.4 Consent of Coopers & Lybrand L.L.P. with respect to the financial
statements of Conseco, Inc.
23.5 Consent of Coopers & Lybrand L.L.P. with respect to the financial
statements of Life Partners Group, Inc.
23.6 Consent of KPMG Peat Marwick LLP with respect to the financial statements
of Capitol American Financial Corporation.
23.7 Consent of Arthur Andersen LLP with respect to the financial statements of
American Travellers Corporation.
23.8 Consent of KPMG Peat Marwick LLP with respect to the financial statements
of Transport Holdings Inc.
24.1 Powers of Attorney of Louis P. Ferrero, James D. Massey and Dennis E.
Murray, Sr.**
24.2 Powers of Attorney of Stephen C. Hilbert, Rollin M. Dick, Donald F.
Gongaware, David R. Decatur, Ngaire E. Cuneo and M. Phil Hathaway.
25.1 Statement of Eligibility on Form T-1 under the Trust Indenture Act of 1939,
as amended, of LTCB Trust Company, as Trustee under the Indenture is
incorporated herein by reference to Exhibit 25.1 to the Registration
Statement on Form S-3 of the Registrant (No. 33-53095)
25.2 Statement of Eligibility on Form T-1 under the Trust Indenture Act of 1939,
as amended, of Fleet National Bank, as Trustee under the Subordinated
Indenture
25.3 Statement of Eligibility on Form T-1 under the Trust Indenture Act of 1939,
as amended, of Fleet National Bank, as Trustee under the Declaration of
Conseco Financing Trust I, the Declaration of Trust of Conseco Financing
Trust II and the Declaration of Trust of Conseco Financing Trust III
25.4 Statement of Eligibility on Form T-1 under the Trust Indenture Act of 1939,
as amended, of Fleet National Bank, as Trustee of the Trust Preferred
Securities Guarantee for the benefit of the holders of Preferred Securities
of Conseco Financing Trust I, Conseco Financing Trust II and Conseco
Financing Trust III
</TABLE>
- ------------------
**Previously Filed.
II-4
<PAGE> 121
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
under the Securities Act if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective Registration
Statement.
(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; Provided, however, that paragraphs
(a)(1)(i) and (a)(1)(ii) above do not apply if the information
required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrants hereby undertake 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 Section
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.
(c) If the securities to be registered are to be offered at competitive
bidding, the undersigned Registrants hereby undertake: (1) to use its
best efforts to distribute prior to the opening of bids, to prospective
bidders, underwriters, and dealers, a reasonable number of copies of a
prospectus which at that time meets the requirements of Section 10(a) of
the Act, and relating to the securities offered at competitive bidding,
as contained in the Registration Statement, together with any
supplements thereto, and (2) to file an amendment to the Registration
Statement reflecting the results of bidding, the terms of the reoffering
and related matters to the extent required by the applicable form, not
later than the first use, authorized by the issuer after the opening of
bids, of a prospectus relating to the securities offered at competitive
bidding, unless no further public offering of such securities by the
issuer and no reoffering of such securities by the purchasers is
proposed to be made.
II-5
<PAGE> 122
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrants pursuant to the foregoing
provisions, or otherwise, each of the Registrants has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of
expenses incurred or paid by a director, officer or controlling person
of the Registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrants
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy
as expressed in the Act and will be governed by the final adjudication
of such issue.
(e) The undersigned Registrants hereby undertake that (1) for purposes of
determining any liability under the Securities Act of 1933, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective;
and (2) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(f) The undersigned Registrants hereby undertake to file, if necessary, an
application for the purpose of determining the eligibility of the
Trustee to act under subsection (a) of Section 310 of the Trust
Indenture Act of 1939, as amended, in accordance with the rules and
regulations prescribed by the Securities and Exchange Commission under
Section 305(b)(2) of such Act.
(g) The undersigned Registrants hereby undertake to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is
sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to
and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulation S-X are
not set forth in the prospectus, to deliver, or cause to be delivered to
each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
II-6
<PAGE> 123
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Conseco, Inc.
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Carmel, State of Indiana, on November 7, 1996.
CONSECO, INC.
By: /S/ STEPHEN C. HILBERT
------------------------------------
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 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 Board, November 7, 1996
- ------------------------------------- President and Chief Executive
Stephen C. Hilbert Officer
(Principal Executive Officer of
Conseco, Inc.)
* Director, Executive Vice President November 7, 1996
- ------------------------------------- and Chief Financial Officer
Rollin M. Dick (Principal Financial and
Accounting Officer of Conseco, Inc.)
* Director November 7, 1996
- -------------------------------------
Ngaire E. Cuneo
* Director November 7, 1996
- -------------------------------------
David R. Decatur
* Director November 7, 1996
- -------------------------------------
M. Phil Hathaway
* Director November 7, 1996
- -------------------------------------
Louis P. Ferrero
* Director November 7, 1996
- -------------------------------------
Donald F. Gongaware
* Director November 7, 1996
- -------------------------------------
James D. Massey
* Director November 7, 1996
- -------------------------------------
Dennis E. Murray, Sr.
*By: /s/ KARL W. KINDIG
- -------------------------------------
Karl W. Kindig,
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 124
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Conseco
Financing Trust I certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Carmel, State of Indiana,
on November 7, 1996.
CONSECO FINANCING TRUST I
By: /s/ STEPHEN C. HILBERT
------------------------------------
Stephen C. Hilbert, as Trustee
By: /s/ ROLLIN M. DICK
------------------------------------
Rollin M. Dick, as Trustee
By: /s/ LAWRENCE W. INLOW
------------------------------------
Lawrence W. Inlow, as Trustee
II-8
<PAGE> 125
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Conseco
Financing Trust II certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Carmel, State of Indiana,
on November 7, 1996.
CONSECO FINANCING TRUST II
By: /s/ STEPHEN C. HILBERT
------------------------------------
Stephen C. Hilbert, as Trustee
By: /s/ ROLLIN M. DICK
------------------------------------
Rollin M. Dick, as Trustee
By: /s/ LAWRENCE W. INLOW
------------------------------------
Lawrence W. Inlow, as Trustee
II-9
<PAGE> 126
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Conseco
Financing Trust III certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Carmel, State of Indiana,
on November, 1996.
CONSECO FINANCING TRUST III
By: /s/ STEPHEN C. HILBERT
------------------------------------
Stephen C. Hilbert, as Trustee
By: /s/ ROLLIN M. DICK
------------------------------------
Rollin M. Dick, as Trustee
By: /s/ LAWRENCE W. INLOW
------------------------------------
Lawrence W. Inlow, as Trustee
II-10
<PAGE> 127
EXHIBIT INDEX
TO REGISTRATION STATEMENT
ON FORM S-3
CONSECO, INC.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- -------------------------------------------------------------------------------
<C> <S>
1.1 Form of Purchase Agreement -- Debt Securities is incorporated herein by
reference to Exhibit 1.1 to the Registration Statement on Form S-3 of the
Registrant (No. 33-53095) ((i) An Underwriting Agreement relating to Securities
to be distributed outside the United States or for Securities denominated in
foreign currencies or foreign currency units or (ii) any Selling Agency or
Distribution Agreement with any Agent will be filed as an exhibit to a Current
Report on Form 8-K and incorporated herein by reference.)
1.2 Form of Purchase Agreement -- Equity is incorporated herein by reference to
Exhibit 1.2 to the Registration Statement on Form S-3 of the Registrant (No.
33-53095)
3.1 Amended and Restated Articles of Incorporation of Conseco, Inc. were filed with
the Commission as Exhibit 3.1 to the Registration Statement on Form S-2, No.
33-8498; Articles of Amendment thereto, as filed September 9, 1988 with the
Indiana Secretary of State, were filed with the Commission as Exhibit 3.1.1 to
Conseco's Annual Report on Form 10-K for 1988; Articles of Amendment thereto,
as filed June 13, 1989 with the Indiana Secretary of State, were filed with the
Commission as Exhibit 3.1.2 to Conseco's Report on Form 10-Q for the quarter
ended June 30, 1989; and Articles of Amendment thereto, as filed June 29, 1993
with the Indiana Secretary of State, were filed with the Commission as Exhibit
3.1.3 to Conseco's Report on Form 10-Q for the quarter ended June 30, 1993, and
Articles of Amendment thereto relating to the PRIDES were filed with the
Commission as Exhibit 3.(i).3 to the Registrant's Report on Form 8-K dated
January 17, 1996, and are incorporated herein by this reference.
3.2 Amended and Restated Bylaws of Conseco, Inc. effective February 10, 1986 were
filed with the Commission as Exhibit 3.2 to its Registration Statement of Form
S-1, No. 33-4367, and an Amendment thereto was filed with the Commission as
Exhibit 3.2.1 to Amendment No. 2 to its Registration Statement of Form S-1, No.
33-4367; and are incorporated herein by this reference.
4.1 Form of Senior Indenture dated as of , 1995 by and between Conseco,
Inc. and , as Trustee, pursuant to which the Senior Debt Securities
are to be issued is incorporated herein by reference to Exhibit 4.1 to the
Registration Statement on Form S-3 of the Registrant No. 33-53095)
4.2 Form of Subordinated Indenture, dated as of , 1996 between Conseco,
Inc. and , as Trustee, pursuant to which the Subordinated Debentures
are to be issued is incorporated herein by reference to Exhibit 4.2 to the
Registration Statement on Form S-3 of the Registrant (No. 33-53095).
4.3 Form of Deposit Agreement is incorporated herein by reference to Exhibit 4.3 to
the Registration Statement on Form S-3 of the Registrant (No. 33-53095)
4.4 Certificate of Trust of Conseco Financing Trust I**
4.5 Declaration of Trust of Conseco Financing Trust I**
4.6 Certificate of Trust of Conseco Financing Trust II**
4.7 Declaration of Trust of Conseco Financing Trust II**
4.8 Certificate of Trust of Conseco Financing Trust III**
4.9 Declaration of Trust of Conseco Financing Trust III**
4.10 Form of Amended and Restated Declaration of Trust
4.11 Form of Preferred Securities Guarantee Agreement by Conseco, Inc.
</TABLE>
II-11
<PAGE> 128
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- -------------------------------------------------------------------------------
<C> <S>
4.12 Form of Debt Security
The form or forms of such Debt Securities with respect to each particular
offering will be filed as an exhibit to a Current Report on Form 8-K and
incorporated herein by reference.
4.13 Form of Preferred Stock
Any amendment to the Company's Articles of Incorporation authorizing the
creation of any series of Preferred Stock or Depositary Shares representing
such shares of Preferred Stock and setting forth the rights, preferences and
designations thereof will be filed as an exhibit to a Current Report on Form
8-K and incorporated herein by reference.
4.14 Form of Warrant Agreement is incorporated herein by reference to Exhibit 4.4 to
the Registration Statement on Form S-3 of the Registrant (No. 33-53095).
4.15 Form of Preferred Security
4.16 Form of Supplemental Indenture
4.17 Form of % Subordinated Deferrable Interest Debenture due , 2026
5.1 Opinion of Lawrence W. Inlow, Esquire
5.2 Opinion of Richards, Layton & Finger, P.A.
8 Opinion of Locke Reynolds Boyd & Weisell as to certain federal income taxation
matters
10.1 $100,000,000 Promissory Note of Conseco, Inc. dated September 30, 1996 ("Bridge
Facility")
10.2 Waiver of NationsBank, N.A. (South), dated November 6, 1996, under the Bridge
Facility
10.3 Waiver of the banks, dated November 6, 1996, under the Conseco, Inc. $500
million Senior Credit Facility
10.4 Commitment Letter dated September 13, 1996 by and among Conseco, Inc.,
NationsBank, N.A. and NationsBank Capital Markets, Inc.
12.1 Computation of Ratios of Earnings to Fixed Charges and Preferred Dividends**
12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges and Preferred
Dividends**
23.1 Consent of Lawrence W. Inlow, Esquire (included in Exhibit 5.1 hereto)
23.2 Consent of Locke Reynolds Boyd & Weisell (included in Exhibit 8 hereto)
23.3 Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.2 hereto)
23.4 Consent of Coopers & Lybrand L.L.P. with respect to the financial statements of
Conseco, Inc.
23.5 Consent of Coopers & Lybrand L.L.P. with respect to the financial statements of
Life Partners Group, Inc.
23.6 Consent of KPMG Peat Marwick LLP with respect to the financial statements of
Capitol American Financial Corporation.
23.7 Consent of Arthur Andersen LLP with respect to the financial statements of
American Travellers Corporation.
23.8 Consent of KPMG Peat Marwick LLP with respect to the financial statements of
Transport Holdings Inc.
24.1 Powers of Attorney of Louis P. Ferrero, James D. Massey and Dennis E. Murray,
Sr.**
24.2 Powers of Attorney of Stephen C. Hilbert, Rollin M. Dick, Donald F. Gongaware,
David R. Decatur, Ngaire E. Cuneo and M. Phil Hathaway.
25.1 Statement of Eligibility on Form T-1 under the Trust Indenture Act of 1939, as
amended, of LTCB Trust Company, as Trustee under the Indenture is incorporated
herein by reference to Exhibit 25.1 to the Registration Statement on Form S-3
of the Registrant (No. 33-53095)
25.2 Statement of Eligibility on Form T-1 under the Trust Indenture Act of 1939, as
amended, of Fleet National Bank, as Trustee under the Subordinated Indenture
</TABLE>
II-12
<PAGE> 129
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- -------------------------------------------------------------------------------
<C> <S>
25.3 Statement of Eligibility on Form T-1 under the Trust Indenture Act of 1939, as
amended, of Fleet National Bank, as Trustee under the Declaration of Conseco
Financing Trust I, the Declaration of Trust of Conseco Financing Trust II and
the Declaration of Trust of Conseco Financing Trust III
25.4 Statement of Eligibility on Form T-1 under the Trust Indenture Act of 1939, as
amended, of Fleet National Bank, as Trustee of the Trust Preferred Securities
Guarantee for the benefit of the holders of Preferred Securities of Conseco
Financing Trust I, Conseco Financing Trust II and Conseco Financing Trust III
</TABLE>
- ---------------
**Previously Filed.
II-13
<PAGE> 1
EX-4.10
AMENDED AND RESTATED
DECLARATION OF TRUST
CONSECO FINANCING TRUST I
Dated as of November , 1996
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
ARTICLE I INTERPRETATION AND DEFINITIONS................................................1
SECTION 1.1 Interpretation and Definitions....................................................1
ARTICLE II TRUST INDENTURE ACT...........................................................7
SECTION 2.1 Trust Indenture Act; Application..................................................7
SECTION 2.2 Lists of Holders of Securities....................................................8
SECTION 2.3 Reports by the Property Trustee...................................................8
SECTION 2.4 Periodic Reports to the Property Trustee..........................................8
SECTION 2.5 Evidence of Compliance with Conditions Precedent..................................9
SECTION 2.6 Events of Default; Waiver.........................................................9
SECTION 2.7 Event of Default; Notice.........................................................10
ARTICLE III ORGANIZATION.................................................................11
SECTION 3.1 Name and Organization............................................................11
SECTION 3.2 Office...........................................................................11
SECTION 3.3 Purpose..........................................................................11
SECTION 3.4 Authority........................................................................11
SECTION 3.5 Title to Property of the Trust...................................................12
SECTION 3.6 Powers and Duties of the Regular Trustees........................................12
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees.............................15
SECTION 3.8 Powers and Duties of the Property Trustee........................................16
SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee......................17
SECTION 3.10 Certain Rights of Property Trustee...............................................19
SECTION 3.11 Delaware Trustee.................................................................21
SECTION 3.12 Execution of Documents...........................................................21
SECTION 3.13 Not Responsible for Recitals or Issuance of Securities...........................21
SECTION 3.14 Duration of Trust................................................................22
SECTION 3.15 Mergers..........................................................................22
SECTION 3.16 Property Trustee May File Proofs of Claim........................................23
ARTICLE IV SPONSOR......................................................................24
SECTION 4.1 Sponsor's Purchase of Common Securities..........................................24
SECTION 4.2 Responsibilities of the Sponsor..................................................24
SECTION 4.3 Right to Dissolve Trust..........................................................25
SECTION 4.4 Direct Right of Action...........................................................25
ARTICLE V TRUSTEES.....................................................................25
SECTION 5.1 Number of Trustees...............................................................25
SECTION 5.2 Delaware Trustee.................................................................26
SECTION 5.3 Property Trustee; Eligibility....................................................26
SECTION 5.4 Regular Trustees.................................................................27
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 5.5 Certain Qualifications of Regular Trustees and Delaware
Trustee Generally.............................................................27
SECTION 5.6 Initial Trustees.................................................................27
SECTION 5.7 Appointment, Removal and Resignation of Trustees.................................27
SECTION 5.8 Vacancies among Trustees.........................................................29
SECTION 5.9 Effect of Vacancies..............................................................29
SECTION 5.10 Meetings.........................................................................29
SECTION 5.11 Delegation of Power..............................................................30
SECTION 5.12 Merger, Conversion, Consolidation or Succession to Business......................30
ARTICLE VI DISTRIBUTIONS................................................................30
SECTION 6.1 Distributions....................................................................30
ARTICLE VII ISSUANCE OF SECURITIES.......................................................30
SECTION 7.1 General Provisions Regarding Securities..........................................30
ARTICLE VIII TERMINATION OF TRUST.........................................................31
SECTION 8.1 Termination of Trust.............................................................31
ARTICLE IX TRANSFER OF INTERESTS........................................................32
SECTION 9.1 Transfer of Securities...........................................................32
SECTION 9.2 Transfer and Exchange of Certificates............................................33
SECTION 9.3 Deemed Security Holders..........................................................33
SECTION 9.4 Book Entry Interests.............................................................33
SECTION 9.5 Notices to Clearing Agency.......................................................34
SECTION 9.6 Appointment of Successor Clearing Agency.........................................34
SECTION 9.7 Definitive Preferred Security Certificates.......................................34
SECTION 9.8 Mutilated, Destroyed, Lost or Stolen Certificates................................35
ARTICLE X LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES,
TRUSTEES OR OTHERS...........................................................36
SECTION 10.1 Liability........................................................................36
SECTION 10.2 Exculpation......................................................................36
SECTION 10.3 Fiduciary Duty...................................................................37
SECTION 10.4 Indemnification..................................................................38
SECTION 10.5 Outside Businesses...............................................................40
ARTICLE XI ACCOUNTING...................................................................41
SECTION 11.1 Fiscal Year......................................................................41
SECTION 11.2 Certain Accounting Matters.......................................................41
SECTION 11.3 Banking..........................................................................41
SECTION 11.4 Withholding......................................................................42
ARTICLE XII AMENDMENTS AND MEETINGS.....................................................42
SECTION 12.1 Amendments.......................................................................42
SECTION 12.2 Meetings of the Holders of Securities; Action by Written Consent.................44
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE XIII REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTEE.........................................................45
SECTION 13.1 Representations and Warranties of the Property Trustee...........................45
SECTION 13.2 Representations and Warranties of the Delaware Trustee...........................46
ARTICLE XIV MISCELLANEOUS................................................................47
SECTION 14.1 Notices..........................................................................47
SECTION 14.2 Governing Law....................................................................48
SECTION 14.3 Intention of the Parties.........................................................48
SECTION 14.4 Headings.........................................................................49
SECTION 14.5 Successors and Assigns...........................................................49
SECTION 14.6 Partial Enforceability...........................................................49
SECTION 14.7 Counterparts.....................................................................49
ANNEX I..........................................................................................................51
EXHIBIT A-1....................................................................................................A1-1
EXHIBIT A-2....................................................................................................A2-1
</TABLE>
iii
<PAGE> 5
CROSS REFERENCE TABLE
<TABLE>
<CAPTION>
Section of
Trust Indenture Act Section of
of 1939, as amended Declaration
------------------- -----------
<S> <C>
310 (a) . . . . . . . . . . . . . . . . . . . . . . 5.3 (a)
310 (c) . . . . . . . . . . . . . . . . . . . . . . Inapplicable
311 (c) . . . . . . . . . . . . . . . . . . . . . . Inapplicable
312 (a) . . . . . . . . . . . . . . . . . . . . . . 2.2 (a)
312 (b) . . . . . . . . . . . . . . . . . . . . . . 2.2 (b)
313 . . . . . . . . . . . . . . . . . . . . . . . . 2.3
314 (a) . . . . . . . . . . . . . . . . . . . . . . 2.4
314 (b) . . . . . . . . . . . . . . . . . . . . . . Inapplicable
314 (c) . . . . . . . . . . . . . . . . . . . . . . 2.5
314 (d) . . . . . . . . . . . . . . . . . . . . . . Inapplicable
314 (f) . . . . . . . . . . . . . . . . . . . . . . Inapplicable
315 (a) . . . . . . . . . . . . . . . . . . . . . . 3.9 (b)
315 (c) . . . . . . . . . . . . . . . . . . . . . . 3.9 (a)
315 (d) . . . . . . . . . . . . . . . . . . . . . . 3.9 (a)
316 (a) . . . . . . . . . . . . . . . . . . . . . . Annex I
316 (c) . . . . . . . . . . . . . . . . . . . . . . 3.6 (c)
--------------
</TABLE>
* This Cross-Reference Table does not constitute part
of the Declaration and shall not affect the inter-
pretation of any of its terms or provisions.
iv
<PAGE> 6
AMENDED AND RESTATED DECLARATION OF TRUST
AMENDED AND RESTATED DECLARATION OF TRUST, including Annex I and all
exhibits attached hereto ("Declaration"), dated and effective as of November
, 1996, by the Trustees (as defined herein), the Sponsor (as defined
herein) and by the holders, from time to time, of undivided beneficial
interests in the assets of the Trust to be issued pursuant to this Declaration;
WHEREAS, four of the Trustees and the Sponsor established Conseco
Financing Trust I (the "Trust"), a trust under the Delaware Business Trust Act
pursuant to a Declaration of Trust dated as of October 28, 1996 (the "Original
Declaration") and a Certificate of Trust filed with the Secretary of State
of the State of Delaware on October 28, 1996 (the "Certificate of Trust"), for
the sole purpose of issuing and selling certain securities representing
undivided beneficial interests in the assets of the Trust and investing
the proceeds thereof in certain Debentures (as defined herein) of the
Debenture Issuer (as defined herein);
WHEREAS, as of the date hereof, no beneficial interests in the Trust
have been issued;
WHEREAS, all of the Trustees and the Sponsor, by this Declaration,
amend and restate each and every term and provision of the Original Declaration;
and
NOW, THEREFORE, it being the intention of the parties hereto to
continue the Trust as a business trust under the Business Trust Act and that
this Declaration constitutes the governing instrument of such business trust,
the Trustees declare that all assets contributed to the Trust will be held in
trust for the benefit of the holders, from time to time, of the securities
representing undivided beneficial interests in the assets of the Trust issued
hereunder, subject to the provisions of this Declaration.
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 Interpretation and Definitions.
Unless the context otherwise requires:
(a) capitalized terms used in this Declaration but not defined in the
preamble above have the respective meanings assigned to them in
this Section 1.1;
(b) a term defined anywhere in this Declaration has the same meaning
throughout;
(c) all references to "the Declaration" or "this Declaration" are to
this Declaration as modified, supplemented or amended from time
to time;
(d) all references in this Declaration to Articles and Sections are
to Articles and Sections of this Declaration unless otherwise
specified;
1
<PAGE> 7
(e) a term defined in the Trust Indenture Act has the same meaning
when used in this Declaration unless otherwise defined in this
Declaration or unless the context otherwise requires; and
(f) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule 405 of
the Securities Act or any successor rule thereunder.
"Authorized Officer" of a Person means any Person that is authorized to
bind such Person.
"Book Entry Interest" means a beneficial interest in a Global
Certificate, ownership and transfers of which shall be maintained and made
through book entries by a Clearing Agency as described in Section 9.4.
"Business Day" means any day other than a day on which banking
institutions in New York, New York or in the city of the principal Corporate
Trust Office of either the Property Trustee of the Debenture Trustee are
authorized or required by law to close.
"Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code,
12 Del. Code Section 3801 et seq., as it may be amended from time to time, or
any successor legislation.
"Certificate" means a Common Security Certificate or a Preferred
Security Certificate.
"Clearing Agency" means an organization registered as a "Clearing
Agency" pursuant to Section 17A of the Exchange Act that is acting as depository
for the Preferred Securities and in whose name or in the name of a nominee of
that organization shall be registered a Global Certificate and which shall
undertake to effect book entry transfers and pledges of the Preferred
Securities.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time the Clearing
Agency effects book entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means the date on which the Preferred Securities are
sold pursuant to the terms of the Underwriting Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor legislation. A reference to a specific section of the
Code refers not only to such specific section but also to any corresponding
provision of any federal tax statute enacted after the date of this Declaration,
as such specific section or corresponding provision is in effect on the date of
application of the provisions of this Declaration containing such reference.
"Commission" means the Securities and Exchange Commission.
"Common Securities Guarantee" means the guarantee agreement of the
Sponsor in respect of the Common Securities.
2
<PAGE> 8
"Common Security" has the meaning specified in Section 7.1.
"Common Security Certificate" means a definitive certificate in fully
registered form representing a Common Security.
"Company Indemnified Person" means (a) any Regular Trustee; (b) any
Affiliate of any Regular Trustee; (c) any officers, directors, shareholders,
members, partners, employees, representatives or agents of any Regular Trustee
or any Affiliate thereof; or (d) any officer, employee or agent of the Trust or
its Affiliates.
"Corporate Trust Office" means the office of the Property Trustee at
which the corporate trust business of the Property Trustee shall, at any
particular time, be principally administered, which office at the date of
execution of this Declaration is located at 777 Main Street, Hartford, CT
06115, Attention: Corporate Trust Administration.
"Covered Person" means (a) any officer, director, shareholder, partner,
member, representative, employee or agent of (i) the Trust or (ii) the Trust's
Affiliates; and (b) any Holder of Securities.
"Debenture Issuer" means Conseco, Inc. in its capacity as issuer of the
Debentures under the Indenture.
"Debenture Trustee" means Fleet National Bank, as trustee under the
Indenture until a successor is appointed thereunder, and thereafter means such
successor trustee.
"Debentures" means the series of subordinated deferrable interest
debentures to be issued by the Debenture Issuer under the Indenture to be held
by the Property Trustee.
"Definitive Preferred Security Certificates" has the meaning set forth
in Section 9.4.
"Delaware Trustee" has the meaning set forth in Section 5.2.
"Direction" by a Person means a written direction signed:
(a) if the Person is a natural person, by that Person; or
(b) in any other case, in the name of such Person by one or
more Authorized Officers of that Person.
"Distribution" means a distribution payable to Holders of Securities in
accordance with Section 6.1.
"DTC" means The Depository Trust Company, the initial Clearing Agency.
"Event of Default" in respect of the Securities means an Event of
Default (as defined in the Indenture) has occurred and is continuing in respect
of the Debentures.
3
<PAGE> 9
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor legislation.
"Fiduciary Indemnified Person" has the meaning set forth in Section
10.4(b).
"Fiscal Year" has the meaning set forth in Section 11.1.
"Global Certificate" has the meaning set forth in Section 9.4.
"Holder" means a Person in whose name a Certificate representing
a Security is registered, such Person being a beneficial owner within the
meaning of the Business Trust Act, PROVIDED, HOWEVER, that in determining
whether the Holders of the requisite liquidation amount of Preferred Securities
have voted on any matter provided for in this Declaration, then for the
purpose of such determination only (and not for any other purpose hereunder),
if the Preferred Securities remain in the form of one or more Global
Certificates, the term "Holders" shall mean the holder of the Global
Certificate acting at the direction of the Preferred Security Beneficial
Owners.
"Indemnified Person" means a Company Indemnified Person or a Fiduciary
Indemnified Person.
"Indenture" means the Indenture dated as of November__, 1996, among the
Debenture Issuer and the Debenture Trustee, and any indenture supplemental
thereto pursuant to which the Debentures are to be issued.
"Investment Company" means an investment company as defined in the
Investment Company Act and the regulations promulgated thereunder.
"Investment Company Act" means the Investment Company Act of 1940, as
amended from time to time, or any successor legislation.
"Investment Company Event" has the meaning set forth in Annex I.
"Legal Action" has the meaning set forth in Section 3.6(g).
"List of Holders" has the meaning specified in Section 2.2(a).
"Majority in Liquidation Amount" means, except as provided in the terms
of the Preferred Securities or by the Trust Indenture Act, Holder(s) of
outstanding Securities, voting together as a single class, or, as the context
may require, Holders of outstanding Preferred Securities or Holders of
outstanding Common Securities, voting separately as a class, who are the record
owners of more than 50% of the aggregate liquidation amount (including the
stated amount that would be paid on redemption, liquidation or otherwise, plus
accrued and unpaid Distributions to the date upon which the voting percentages
are determined) of all outstanding Securities of the relevant class.
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"Officers' Certificate" means, with respect to any Person (other than
Regular Trustees who are natural persons), a certificate signed by two
Authorized Officers of such Person. Any Officers' Certificate delivered with
respect to compliance with a condition or covenant provided for in this
Declaration shall include:
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definitions relating
thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the
Officers' Certificate;
(c) statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to
enable such officer to express an informed opinion as to whether
or not such covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with ;
provided, that the term "Officers' Certificate" when used with reference to
Regular Trustees who are natural persons shall mean a certificate signed by two
of the Regular Trustees which otherwise satisfies the foregoing requirements.
"Paying Agent" has the meaning specified in Section 3.8(h).
"Payment Amount" has the meaning specified in Section 6.1.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"Preferred Securities Guarantee" means the guarantee agreement of the
Sponsor in respect of the Preferred Securities.
"Preferred Security" has the meaning specified in Section 7.1.
"Preferred Security Beneficial Owner" means, with respect to a Book
Entry Interest, a Person who is the beneficial owner of such Book Entry
Interest, as reflected on the books of the Clearing Agency, or on the books of a
Person maintaining an account with such Clearing Agency (directly as a Clearing
Agency Participant or as an indirect participant, in each case in accordance
with the rules of such Clearing Agency).
"Preferred Security Certificate" means a certificate representing a
Preferred Security.
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"Pricing Agreement" means the pricing agreement between the Trust, the
Debenture Issuer and the underwriters designated by the Regular Trustees with
respect to the offer and sale of the Preferred Securities.
"Property Trustee" means the Trustee meeting the eligibility
requirements set forth in Section 5.3
"Property Trustee Account" has the meaning set forth in Section 3.8(c).
"Quorum" means a majority of the Regular Trustees or, if there are only
two Regular Trustees, both of them.
"Regular Trustee" means any Trustee other than the Property Trustee and
the Delaware Trustee.
"Related Party" means, with respect to the Sponsor, any direct or
indirect wholly owned subsidiary of the Sponsor or any Person that owns,
directly or indirectly, 100% of the outstanding voting securities of the
Sponsor.
"Responsible Officer" means, with respect to the Property Trustee, any
officer within the Corporate Trust Office of the Property Trustee, including any
vice-president, any assistant vice-president, the secretary, any assistant
secretary, the treasurer, any assistant treasurer or other officer of the
Corporate Trust Office of the Property Trustee customarily performing functions
similar to those performed by any of the above designated officers and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of that officer's knowledge of and
familiarity with the particular subject.
"Rule 3a-5" means Rule 3a-5 under the Investment Company Act or any
successor rule thereunder.
"Rule 3a-7" means Rule 3a-7 under the Investment Company Act or any
successor rule thereunder.
"Securities" means the Common Securities and the Preferred Securities.
"Securities Act" means the Securities Act of 1933, as amended from time
to time, or any successor legislation.
"Securities Guarantees" means the Common Securities Guarantee and the
Preferred Securities Guarantee.
"Special Event" has the meaning set forth in Annex I.
"Sponsor" means Conseco, Inc., an Indiana corporation, or any successor
entity in a merger, consolidation or amalgamation, in its capacity as sponsor of
the Trust.
"Successor Delaware Trustee" has the meaning specified in Section
5.7(b).
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"Successor Entity" has the meaning specified in Section 3.15(b)(i).
"Successor Property Trustee" has the meaning specified in Section 5.7(b).
"Successor Securities" has the meaning specified in Section 3.15(b)(i)(B).
"Super Majority" has the meaning set forth in Section 2.6(a) (ii).
"Tax Event" has the meaning set forth in Annex I.
"10% in Liquidation Amount" means, except as provided in the terms of
the Preferred Securities or by the Trust Indenture Act, Holder(s) of outstanding
Securities, voting together as a single class, or, as the context may require,
Holders of outstanding Preferred Securities or Holders of outstanding Common
Securities, voting separately as a class, who are the record owners of 10% or
more of the aggregate liquidation amount (including the stated amount that would
be paid on redemption, liquidation or otherwise, plus accrued and unpaid
Distributions to the date upon which the voting percentages are determined) of
all outstanding Securities of the relevant class.
"Treasury Regulations" means the income tax regulations, including
temporary and proposed regulations, promulgated under the Code by the United
States Treasury, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended
from time to time, or any successor legislation.
"Trustee" or "Trustees" means each Person who has signed this
Declaration as a trustee, so long as such Person shall continue in office in
accordance with the terms hereof, and all other Persons who may from time to
time be duly appointed, qualified and serving as Trustees in accordance with the
provisions hereof, and references herein to a Trustee or the Trustees shall
refer to such Person or Persons solely in their capacity as trustees hereunder.
"Underwriting Agreement" means the Underwriting Agreement for the
offering and sale of Preferred Securities between the Trust, the Debenture
Issuer and the underwriters designated by the Regular Trustees.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application.
(a) This Declaration is subject to the provisions of the Trust
Indenture Act that are required to be part of this Declaration and shall, to the
extent applicable, be governed by such provisions.
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(b) The Property Trustee shall be the only Trustee which is a Trustee
for the purposes of the Trust Indenture Act.
(c) If and to the extent that any provision of this Declaration limits,
qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
(d) The application of the Trust Indenture Act to this Declaration
shall not affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
SECTION 2.2 Lists of Holders of Securities.
(a) Each of the Sponsor and the Regular Trustees on behalf of the Trust
shall provide the Property Trustee with a list, in such form as the Property
Trustee may reasonably require, of the names and addresses of the Holders of the
Securities ("List of Holders"), (i) within one Business Day after January 1 and
June 30 of each year and current as of such date, and (ii) at any other time,
within 30 days of receipt by the Trust of a written request from the Property
Trustee for a List of Holders as of a date no more than 14 days before such List
of Holders is given to the Property Trustee; PROVIDED THAT neither the Sponsor
nor the Regular Trustees on behalf of the Trust shall be obligated to provide
such List of Holders at any time the List of Holders does not differ from the
most recent List of Holders given to the Property Trustee by the Sponsor and the
Regular Trustees on behalf of the Trust. The Property Trustee shall preserve, in
as current a form as is reasonably practicable, all information contained in
Lists of Holders given to it or which it receives in the capacity as Paying
Agent (if acting in such capacity) provided that the Property Trustee may
destroy any List of Holders previously given to it on receipt of a new List of
Holders.
(b) The Property Trustee shall comply with its obligations under, and
shall be entitled to the benefits of, Sections 311(a), 311(b) and 312(b) of the
Trust Indenture Act.
SECTION 2.3 Reports by the Property Trustee.
Within 60 days after May 15 of each year (commencing with the year of
the first anniversary of the issuance of the Preferred Securities), the Property
Trustee shall provide to the Holders of the Preferred Securities such reports as
are required by Section 313 of the Trust Indenture Act, if any, in the form and
in the manner provided by Section 313 of the Trust Indenture Act. The Property
Trustee shall also comply with the requirements of Section 313(d) of the Trust
Indenture Act.
SECTION 2.4 Periodic Reports to the Property Trustee.
Each of the Sponsor and the Regular Trustees on behalf of the Trust
shall provide to the Property Trustee such documents, reports and information as
required by Section 314 (if any) of the Trust Indenture Act and the compliance
certificate required by Section 314 of the Trust Indenture Act in the form, in
the manner and at the times required by Section 314 of the Trust Indenture Act.
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SECTION 2.5 Evidence of Compliance with Conditions Precedent.
Each of the Sponsor and the Regular Trustees on behalf of the Trust
shall provide to the Property Trustee such evidence of compliance with any
conditions precedent, if any, provided for in this Declaration that relate to
any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to Section
314(c)(1) may be given in the form of an Officers' Certificate.
SECTION 2.6 Events of Default; Waiver.
(a) The Holders of a Majority in Liquidation Amount of the Preferred
Securities may, by vote, on behalf of the Holders of all of the Preferred
Securities, waive any past Event of Default in respect of the Preferred
Securities and its consequences, provided that, if the underlying Event of
Default under the Indenture:
(i) is not waivable under the Indenture, the Event of Default under
the Declaration shall also not be waivable; or
(ii) requires the consent or vote of greater than a majority in
principal amount of the holders of the Debentures (a "Super
Majority") to be waived under the Indenture, the Event of
Default under the Declaration may only be waived by the vote
of the Holders of at least the proportion in liquidation
amount of the Preferred Securities that the relevant Super
Majority represents of the aggregate principal amount of the
Debentures outstanding.
The foregoing provisions of this Section 2.6(a) shall be in lieu of
Section 316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B) of
the Trust Indenture Act is hereby expressly excluded from this Declaration and
the Securities, as permitted by the Trust Indenture Act. Upon such waiver, any
such default shall cease to exist, and any Event of Default with respect to the
Preferred Securities arising therefrom shall be deemed to have been cured, for
every purpose of this Declaration and the Preferred Securities, but no such
waiver shall extend to any subsequent or other default or Event of Default with
respect to the Preferred Securities or impair any right consequent thereon.
(b) The Holders of a Majority in Liquidation Amount of the Common
Securities may, by vote, on behalf of the Holders of all of the Common
Securities, waive any past Event of Default in respect of the Common Securities
and its consequences, provided that, if the underlying Event of Default under
the Indenture:
(i) is not waivable under the Indenture, except where the Holders
of the Common Securities are deemed to have waived such Event
of Default under the Declaration as provided below in this
Section 2.6(b), the Event of Default under the Declaration
shall also not be waivable; or
(ii) requires the consent or vote of a Super Majority to be waived
under the Indenture, except where the Holders of the Common
Securities are deemed to have waived such Event of Default
under the Declaration as provided below in
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this Section 2.6(b), the Event of Default under the
Declaration may only be waived by the vote of the Holders of
at least the proportion in liquidation amount of the Common
Securities that the relevant Super Majority represents of the
aggregate principal amount of the Debentures outstanding;
provided further, each Holder of Common Securities will be deemed to have waived
any such Event of Default and all Events of Default with respect to the Common
Securities and the consequences thereof until all Events of Default with respect
to the Preferred Securities have been cured, waived or otherwise eliminated, and
until such Events of Default with respect to the Preferred Securities have been
so cured, waived or otherwise eliminated, the Property Trustee will be deemed to
be acting solely on behalf of the Holders of the Preferred Securities and only
the Holders of the Preferred Securities will have the right to direct the
Property Trustee in accordance with the terms of the Securities. The foregoing
provisions of this Section 2.6(b) shall be in lieu of Sections 316(a)(1)(A) and
316(a)(1)(B) of the Trust Indenture Act and such Sections 316(a)(1)(A) and
316(a)(1)(B) of the Trust Indenture Act are hereby expressly excluded from this
Declaration and the Securities, as permitted by the Trust Indenture Act. Subject
to the foregoing provisions of this Section 2.6(b), upon such waiver, any such
default shall cease to exist and any Event of Default with respect to the Common
Securities arising therefrom shall be deemed to have been cured for every
purpose of this Declaration, but no such waiver shall extend to any subsequent
or other default or Event of Default with respect to the Common Securities or
impair any right consequent thereon.
(c) A waiver of an Event of Default under the Indenture by the Property
Trustee at the direction of the Holders of the Preferred Securities constitutes
a waiver of the corresponding Event of Default with respect to the Preferred
Securities under this Declaration. The foregoing provisions of this Section
2.6(c) shall be in lieu of Section 316(a)(1)(B) of the Trust Indenture Act and
such Section 316(a)(1)(B) of the Trust Indenture Act is hereby expressly
excluded from this Declaration and the Securities, as permitted by the Trust
Indenture Act.
SECTION 2.7 Event of Default; Notice.
(a) The Property Trustee shall, within 90 days after the occurrence of
an Event of Default, transmit by mail, first class postage prepaid, to the
Holders of the Securities, notices of all defaults with respect to the
Securities actually known to a Responsible Officer of the Property Trustee,
unless such defaults have been cured before the giving of such notice (the term
"defaults" for the purposes of this Section 2.7(a) being hereby defined to be an
Event of Default as defined in the Indenture, not including any periods of grace
provided for therein and irrespective of the giving of any notice provided
therein); provided that, except for a default in the payment of principal of (or
premium, if any) or interest on any of the Debentures or in the payment of any
sinking fund installment established for the Debentures, the Property Trustee
shall be protected in withholding such notice if and so long as a Responsible
Officer of the Property Trustee in good faith determines that the withholding of
such notice is in the interests of the Holders of the Securities.
(b) The Property Trustee shall not be deemed to have knowledge of any
default except:
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(i) a default under Sections 5.1(1) and 5.1(2) of the Indenture; or
(ii) any default as to which the Property Trustee shall have
received written notice or of which a Responsible Officer of
the Property Trustee charged with the administration of this
Declaration shall have actual knowledge.
ARTICLE III
ORGANIZATION
SECTION 3.1 Name and Organization.
The Trust hereby created is named "Conseco Financing Trust I" as such
name may be modified from time to time by the Regular Trustees following written
notice to the Holders of Securities. The Trust's activities may be conducted
under the name of the Trust or any other name deemed advisable by the Regular
Trustees.
SECTION 3.2 Office.
The address of the principal office of the Trust is 11825 North
Pennsylvania Street, Carmel, Indiana 46032. On ten Business Days written notice
to the Holders of Securities, the Regular Trustees may designate another
principal office.
SECTION 3.3 Purpose.
The exclusive purposes and functions of the Trust are (a) to issue and
sell Securities and use the gross proceeds from such sale to acquire the
Debentures, and (b) except as otherwise limited herein, to engage in only those
other activities necessary, appropriate, convenient or incidental thereto. The
Trust shall not borrow money, issue debt or reinvest proceeds derived from
investments, pledge any of its assets or otherwise undertake (or permit to be
undertaken) any activity that would cause the Trust not to be classified for
United States federal income tax purposes as a grantor trust.
The Trust will be classified as a grantor trust for United States
federal income tax purposes under Subpart E of Subchapter J of the Code,
pursuant to which the owners of the Preferred Securities and the Common
Securities will be the owners of the Trust for United States federal income tax
purposes, and such owners will include directly in their gross income the
income, gain, deduction or loss of the Trust as if the Trust did not exist. By
the acceptance of this Trust, none of the Trustees, the Sponsor, the Holders of
the Preferred Securities or Common Securities or the Preferred Securities
Beneficial Owners will take any position for United States federal income tax
purposes which is contrary to the classification of the Trust as a grantor
trust.
SECTION 3.4 Authority.
Subject to the limitations provided in this Declaration and to the
specific duties of the Property Trustee, the Regular Trustees shall have
exclusive and complete authority to carry out
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the purposes of the Trust. An action taken by the Regular Trustees in accordance
with their powers shall constitute the act of and serve to bind the Trust and an
action taken by the Property Trustee on behalf of the Trust in accordance with
its powers shall constitute the act of and serve to bind the Trust. In dealing
with the Trustees acting on behalf of the Trust, no person shall be required to
inquire into the authority of the Trustees to bind the Trust. Persons dealing
with the Trust are entitled to rely conclusively on the power and authority of
the Trustees as set forth in this Declaration.
SECTION 3.5 Title to Property of the Trust.
Except as provided in Section 3.8 with respect to the Debentures and
the Property Trustee Account or as otherwise provided in this Declaration, legal
title to all assets of the Trust shall be vested in the Trust. The Holders shall
not have legal title to any part of the assets of the Trust, but shall have an
undivided beneficial interest in the assets of the Trust.
SECTION 3.6 Powers and Duties of the Regular Trustees.
The Regular Trustees shall have the exclusive power, duty and authority
to cause the Trust to engage in the following activities:
(a) to issue and sell the Preferred Securities and the Common
Securities in accordance with this Declaration; provided, however,
that the Trust may issue no more than one series of Preferred
Securities and no more than one series of Common Securities,
and, provided further, that there shall be no interests in the
Trust other than the Securities, and the issuance of Securities
shall be limited to a one-time, simultaneous issuance of both
Preferred Securities and Common Securities on the Closing Date;
(b) in connection with the issue and sale of the Preferred Securities,
at the direction of the Sponsor, to:
(i) execute and file with the Commission a registration
statement on Form S-3 prepared by the Sponsor,
including any amendments thereto, pertaining to the
Preferred Securities (and any other securities of the
Sponsor which the Sponsor may desire to include in
such registration statement);
(ii) execute and file any documents prepared by the
Sponsor, or take any acts as determined by the
Sponsor to be necessary, in order to qualify or
register all or part of the Preferred Securities in
any State in which the Sponsor has determined to
qualify or register such Preferred Securities for
sale;
(iii) execute and file an application, prepared by the
Sponsor, to the New York Stock Exchange, Inc. or any
other national stock exchange or the Nasdaq Stock
Market's National Market System for listing upon
notice of issuance of any Preferred Securities;
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(iv) execute and file with the Commission a registration
statement on Form 8-A, including any amendments
thereto, prepared by the Sponsor, relating to the
registration of the Preferred Securities under
Section 12(b) of the Exchange Act; and
(v) execute and enter into the Underwriting Agreement and
Pricing Agreement providing for the sale of the
Preferred Securities;
(c) to acquire the Debentures with the proceeds of the sale of the
Preferred Securities and the Common Securities; provided,
however, that the Regular Trustees shall cause legal title to
the Debentures to be held of record in the name of the
Property Trustee for the benefit of the Holders of the
Preferred Securities and the Holders of the Common Securities;
(d) to give the Sponsor and the Property Trustee prompt written
notice of the occurrence of a Special Event; provided that the
Regular Trustees shall consult with the Sponsor and the
Property Trustee before taking or refraining from taking any
action in relation to a Special Event;
(e) to establish a record date with respect to all actions to be
taken hereunder that require a record date be established,
including and with respect to, for the purposes of Section
316(c) of the Trust Indenture Act, Distributions, voting
rights, redemptions and exchanges, and to issue relevant
notices to the Holders of Preferred Securities and Holders of
Common Securities as to such actions and applicable record
dates;
(f) to take all actions and perform such duties as may be required
of the Regular Trustees pursuant to the terms of this
Declaration and the Securities;
(g) to bring or defend, pay, collect, compromise, arbitrate,
resort to legal action or otherwise adjust claims or demands
of or against the Trust ("Legal Action"), unless pursuant to
Section 3.8(e), the Property Trustee has the exclusive power
to bring such Legal Action;
(h) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors,
advisors and consultants and pay reasonable compensation for
such services;
(i) to cause the Trust to comply with the Trust's obligations
under the Trust Indenture Act;
(j) to give the certificate required by Section 314(a) (4) of the
Trust Indenture Act to the Property Trustee, which certificate
may be executed by any Regular Trustee;
(k) to incur expenses that are necessary, incidental or desirable
to carry out any of the purposes of the Trust;
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(l) to act as, or appoint another Person to act as, registrar and
transfer agent for the Securities;
(m) to give prompt written notice to the Holders of the Securities
of any notice received from the Debenture Issuer of its
election (i) to defer payments of interest on the Debentures
by extending the interest payment period under the Debentures
as authorized by the Indenture, or (ii) to extend the maturity
date of the Debentures if so authorized by the Indenture,
provided that any such extension of the maturity date will not
adversely affect the federal income tax status of the Trust;
(n) to take all action that may be necessary or appropriate for
the preservation and the continuation of the Trust's valid
existence, rights, franchises and privileges as a statutory
business trust under the laws of the State of Delaware and of
each other jurisdiction in which such existence is necessary
to protect the limited liability of the Holders of the
Preferred Securities or to enable the Trust to effect the
purposes for which the Trust was created;
(o) to take any action, not inconsistent with this Declaration or
with applicable law, that the Regular Trustees determine in
their discretion to be necessary or desirable in carrying out
the purposes and functions of the Trust as set out in Section
3.3 or the activities of the Trust as set out in this Section
3.6, including, but not limited to:
(i) causing the Trust not to be deemed to be an Investment
Company required to be registered under the Investment
Company Act;
(ii) causing the Trust to be classified for United States
federal income tax purposes as a grantor trust; and
(iii) cooperating with the Debenture Issuer to ensure that
the Debentures will be treated as indebtedness of the
Debenture Issuer for United States federal income tax
purposes,
provided that such action does not adversely affect the
interests of Holders;
(p) to take all action necessary to cause all applicable tax
returns and tax information reports that are required to be
filed with respect to the Trust to be duly prepared and filed
by the Regular Trustees, on behalf of the Trust; and
(q) to execute all documents or instruments, perform all duties
and powers, and do all things for and on behalf of the Trust
in all matters necessary, incidental or desirable to the
foregoing.
The Regular Trustees must exercise the powers set forth in this Section
3.6 in a manner that is consistent with the purposes and functions of the Trust
set out in Section 3.3, and the
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Regular Trustees shall not take any action that is inconsistent with the
purposes and functions of the Trust set forth in Section 3.3.
Subject to this Section 3.6, the Regular Trustees shall have none of
the powers or the authority of the Property Trustee set forth in Section 3.8.
Any expenses incurred by the Regular Trustees pursuant to this Section
3.6 shall be reimbursed by the Debenture Issuer.
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees.
(a) The Trust shall not, and the Trustees (including the Property
Trustee) shall cause the Trust not to, engage in any activity other than as
required or authorized by this Declaration. In particular, the Trust shall not
and the Regular Trustees and the Property Trustee shall cause the Trust not to:
(i) invest any proceeds received by the Trust from holding the
Debentures, but shall distribute all such proceeds to Holders
of Securities pursuant to the terms of this Declaration and of
the Securities;
(ii) acquire any assets other than as expressly provided herein;
(iii) possess Trust property for other than a Trust purpose;
(iv) make any loans or incur any indebtedness other than loans
represented by the Debentures;
(v) possess any power or otherwise act in such a way as to vary
the Trust assets or the terms of the Securities in any way
whatsoever (except to the extent expressly authorized in this
Declaration or by the terms of the Securities);
(vi) issue any securities or other evidences of beneficial
ownership of, or beneficial interest in, the Trust other than
the Securities; or
(vii) other than as provided in this Declaration or by the terms of
the Securities, (A) direct the time, method and place of
exercising any trust or power conferred upon the Debenture
Trustee with respect to the Debentures, (B) waive any past
default that is waivable under the Indenture, (C) exercise any
right to rescind or annul any declaration that the principal
of all the Debentures shall be due and payable, or (D) consent
to any amendment, modification or termination of the Indenture
or the Debentures where such consent shall be required unless
the Trust shall have received an opinion of counsel to the
effect that such modification will not cause more than an
insubstantial risk that for United States federal income tax
purposes the Trust will not be classified as a grantor trust.
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SECTION 3.8 Powers and Duties of the Property Trustee.
(a) The legal title to the Debentures shall be owned by and held of
record in the name of the Property Trustee in trust for the benefit of the Trust
and the Holders of the Securities. The right, title and interest of the Property
Trustee to the Debentures shall vest automatically in each Person who may
hereafter be appointed as Property Trustee in accordance with Section 5.7. Such
vesting and cessation of title shall be effective whether or not conveyancing
documents with regard to the Debentures have been executed and delivered.
(b) The Property Trustee shall not transfer its right, title and
interest in the Debentures to the Regular Trustees or to the Delaware Trustee
(if the Property Trustee does not also act as Delaware Trustee).
(c) The Property Trustee shall:
(i) establish and maintain a segregated non-interest bearing trust
account (the "Property Trustee Account") in the name of and
under the exclusive control of the Property Trustee on behalf of
the Holders of the Securities and, upon the receipt of payments
of funds made in respect of the Debentures held by the Property
Trustee, deposit such funds into the Property Trustee Account and
make payments to the Holders of the Preferred Securities and
Holders of the Common Securities from the Property Trustee
Account in accordance with Section 6.1. Funds in the Property
Trustee Account shall be held uninvested until disbursed in
accordance with this Declaration. The Property Trustee Account
shall be an account that is maintained with a banking institution
the rating on whose long-term unsecured indebtedness is at least
equal to the rating assigned to the Preferred Securities by a
"nationally recognized statistical rating organization", as that
term is defined for purposes of Rule 436(g)(2)
under the Securities Act;
(ii) engage in such ministerial activities as shall be necessary or
appropriate to effect the redemption of the Preferred
Securities and the Common Securities to the extent the
Debentures are redeemed or mature; and
(iii) upon written notice of distribution issued by the Regular
Trustees in accordance with the terms of the Securities,
engage in such ministerial activities as shall be necessary or
appropriate to effect the distribution of the Debentures to
Holders of Securities upon the occurrence of certain special
events (as may be defined in the terms of the Securities)
arising from a change in law or a change in legal
interpretation or other specified circumstances pursuant to the
terms of the Securities.
(d) The Property Trustee shall take all actions and perform such duties
as may be specifically required of the Property Trustee pursuant to the terms of
this Declaration and the Securities.
(e) The Property Trustee shall take any Legal Action which arises out
of or in connection with an Event of Default of which a Responsible Officer of
the Property Trustee has
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actual knowledge or the Property Trustee's duties and obligations under this
Declaration or the Trust Indenture Act.
(f) The Property Trustee shall continue to serve as a Trustee until
either:
(i) the Trust has been completely liquidated and the proceeds of
the liquidation distributed to the Holders of Securities
pursuant to the terms of the Securities; or
(ii) a Successor Property Trustee has been appointed and has
accepted that appointment in accordance with Section 5.7.
(g) The Property Trustee shall have the legal power to exercise all of
the rights, powers and privileges of a holder of Debentures under the Indenture
and, if an Event of Default actually known to a Responsible Officer of the
Property Trustee occurs and is continuing, the Property Trustee shall, for the
benefit of Holders of the Securities, enforce its rights as holder of the
Debentures subject to the rights of the Holders pursuant to the terms of such
Securities.
(h) The Property Trustee may authorize one or more Persons (each, a
"Paying Agent") to pay Distributions, redemption payments or liquidation
payments on behalf of the Trust with respect to all Securities and any such
Paying Agent shall comply with Section 317(b) of the Trust Indenture Act. Any
Paying Agent may be removed by the Property Trustee at any time and a successor
Paying Agent or additional Paying Agents may be appointed at any time by the
Property Trustee. In the event the Preferred Securities do not remain in the
form of one or more Global Certificates, the Property Trustee will act as Paying
Agent and may designate an additional or substitute Paying Agent at any time.
(i) Subject to this Section 3.8, the Property Trustee shall have none
of the duties, liabilities, powers or the authority of the Regular Trustees set
forth in Section 3.6.
The Property Trustee must exercise the powers set forth in this Section
3.8 in a manner that is consistent with the purposes and functions of the Trust
set out in Section 3.3, and the Property Trustee shall not take any action that
is inconsistent with the purposes and functions of the Trust set out in Section
3.3.
SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee.
(a) The Property Trustee, before the occurrence of any Event of Default
and after the curing of all Events of Default that may have occurred, shall
undertake to perform only such duties as are specifically set forth in this
Declaration and no implied covenants shall be read into this Declaration against
the Property Trustee. In case an Event of Default has occurred (that has not
been cured or waived pursuant to Section 2.6) of which a Responsible Officer of
the Property Trustee has actual knowledge, the Property Trustee shall exercise
such of the rights and powers vested in it by this Declaration, and use the same
degree of care and skill in their exercise, as a prudent person would exercise
or use under the circumstances in the conduct of his or her own affairs.
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(b) No provision of this Declaration shall be construed to relieve the
Property Trustee from liability for its own negligent action, its own negligent
failure to act or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after the
curing or waiving of all such Events of Default that may have
occurred:
(A) the duties and obligations of the Property Trustee
shall be determined solely by the express provisions
of this Declaration and the Securities and the
Property Trustee shall not be liable except for the
performance of such duties and obligations as are
specifically set forth in this Declaration, and no
implied covenants or obligations shall be read into
this Declaration against the Property Trustee; and
(B) in the absence of bad faith on the part of the
Property Trustee, the Property Trustee may conclusively
rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon
any certificates or opinions furnished to the Property
Trustee and conforming to the requirements of this
Declaration; but in the case of any such certificates
or opinions that by any provision hereof are
specifically required to be furnished to the Property
Trustee, the Property Trustee shall be under a duty
to examine the same to determine whether or not they
conform to the requirements of this Declaration;
(ii) the Property Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the
Property Trustee, unless it shall be proved that the Property
Trustee was negligent in ascertaining the pertinent facts;
(iii) the Property Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of not less than
a Majority in Liquidation Amount of the Securities relating to
the time, method and place of conducting any proceeding for
any remedy available to the Property Trustee, or exercising
any trust or power conferred upon the Property Trustee under
this Declaration;
(iv) no provision of this Declaration shall require the Property
Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its
duties or in the exercise of any of its rights or powers, if
it shall have reasonable grounds for believing that the
repayment of such funds or liability is not reasonably assured
to it under the terms of this Declaration or indemnity
reasonably satisfactory to the Property Trustee against such
risk or liability is not reasonably assured to it;
(v) the Property Trustee's sole duty with respect to the custody,
safe keeping and physical preservation of the Debentures and
the Property Trustee Account shall be to deal with such
property in a similar manner as the Property Trustee deals
with similar property for its own account, subject to the
protections and
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limitations on liability afforded to the Property Trustee
under this Declaration and the Trust Indenture Act;
(vi) the Property Trustee shall have no duty or liability for or
with respect to the value, genuineness, existence or
sufficiency of the Debentures or the payment of any taxes or
assessments levied thereon or in connection therewith;
(vii) the Property Trustee shall not be liable for any interest on
any money received by it except as it may otherwise agree in
writing with the Sponsor. Money held by the Property
Trustee need not be segregated from other funds held by it
except in relation to the Property Trustee Account
maintained by the Property Trustee pursuant to Section
3.8(c)(i) and except to the extent otherwise required by law;
and
(viii) the Property Trustee shall not be responsible for monitoring
the compliance by the Regular Trustees or the Sponsor with
their respective duties under this Declaration, nor shall the
Property Trustee be liable for any default or misconduct of
the Regular Trustees or the Sponsor.
SECTION 3.10 Certain Rights of Property Trustee.
(a) Subject to the provisions of Section 3.9:
(i) the Property Trustee may conclusively rely and shall be fully
protected in acting or refraining from acting upon any
resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper
or document believed by it to be genuine and to have been
signed, sent or presented by the proper party or parties;
(ii) any direction or act of the Sponsor or the Regular Trustees
contemplated by this Declaration shall be sufficiently
evidenced by a Direction or an Officers' Certificate;
(iii) whenever in the administration of this Declaration, the
Property Trustee shall deem it desirable that a matter be
proved or established before taking, suffering or omitting any
action hereunder, the Property Trustee (unless other evidence
is herein specifically prescribed) may, in the absence of bad
faith on its part, request and conclusively rely upon an
Officers' Certificate which, upon receipt of such request,
shall be promptly delivered by the Sponsor or the Regular
Trustees;
(iv) the Property Trustee shall have no duty to see to any
recording, filing or registration of any instrument (including
any financing or continuation statement or any filing under
tax or securities laws) or any rerecording, refiling or
registration thereof;
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(v) the Property Trustee may consult with counsel or other experts
and the advice or opinion of such counsel and experts with
respect to legal matters or advice within the scope of such
experts' area of expertise shall be full and complete
authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in
accordance with such advice or opinion, such counsel may be
counsel to the Sponsor or any of its Affiliates, and may
include any of its employees. The Property Trustee shall have
the right at any time to seek instructions concerning the
administration of this Declaration from any court of competent
jurisdiction;
(vi) the Property Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Declaration
at the request or direction of any Holder, unless such Holder
shall have provided to the Property Trustee security and
indemnity, reasonably satisfactory to the Property Trustee,
against the costs, expenses (including attorneys' fees and
expenses and the expenses of the Property Trustee's agents,
nominees or custodians) and liabilities that might be incurred
by it in complying with such request or direction, including
such reasonable advances as may be requested by the Property
Trustee; provided that, nothing contained in this Section
3.10(a)(vi) shall be taken to relieve the Property Trustee,
upon the occurrence of an Event of Default, of its obligation
to exercise the rights and powers vested in it by this
Declaration;
(vii) the Property Trustee shall not be bound to make any
investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper
or document, but the Property Trustee, in its discretion, may
make such further inquiry or investigation into such facts or
matters as it may see fit;
(viii) the Property Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or
by or through agents, custodians, nominees or attorneys and
the Property Trustee shall not be responsible for any
misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder;
(ix) any action taken by the Property Trustee or its agents
hereunder shall bind the Trust and the Holders of the
Securities, and the signature of the Property Trustee or its
agents alone shall be sufficient and effective to perform any
such action and no third party shall be required to inquire as
to the authority of the Property Trustee to so act or as to
its compliance with any of the terms and provisions of this
Declaration, both of which shall be conclusively evidenced by
the Property Trustee's or its agent's taking such action;
(x) whenever in the administration of this Declaration the
Property Trustee shall deem it desirable to receive
instructions with respect to enforcing any remedy or right or
taking any other action hereunder, the Property Trustee (i)
may request instructions from the Holders of the Securities
which instructions may only be
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given by the Holders of the same proportion in liquidation
amount of the Securities as would be entitled to direct the
Property Trustee under the terms of the Securities in respect
of such remedy, right or action, (ii) may refrain from
enforcing such remedy or right or taking such other action
until such instructions are received, and (iii) shall be
protected in conclusively relying on or acting in or
accordance with such instructions; and
(xi) except as otherwise expressly provided by this Declaration,
the Property Trustee shall not be under any obligation to take
any action that is discretionary under the provisions of this
Declaration.
(b) No provision of this Declaration shall be deemed to impose any duty
or obligation on the Property Trustee to perform any act or acts or exercise any
right, power, duty or obligation conferred or imposed on it, in any jurisdiction
in which it shall be illegal, or in which the Property Trustee shall be
unqualified or incompetent in accordance with applicable law, to perform any
such act or acts, or to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Property Trustee shall be
construed to be a duty.
SECTION 3.11 Delaware Trustee.
Notwithstanding any other provision of this Declaration other than
Section 5.2, the Delaware Trustee shall not be entitled to exercise any powers,
nor shall the Delaware Trustee have any of the duties and responsibilities of
the Regular Trustees or the Property Trustee described in this Declaration.
Except as set forth in Section 5.2, the Delaware Trustee shall be a Trustee for
the sole and limited purpose of fulfilling the requirements of Section 3807 of
the Business Trust Act.
SECTION 3.12 Execution of Documents.
Unless otherwise determined by the Regular Trustees, and except as
otherwise required by the Business Trust Act, a majority of the Regular Trustees
or, if there are only two, both Regular Trustees or, if there is only one, such
Regular Trustee is authorized to execute on behalf of the Trust any documents
that the Regular Trustees have the power and authority to execute pursuant to
Section 3.6; provided that, the registration statement referred to in Section
3.6(b)(i), including any amendments thereto, shall be signed by a majority of
the Regular Trustees.
SECTION 3.13 Not Responsible for Recitals or Issuance of Securities.
The recitals contained in this Declaration and the Securities shall be
taken as the statements of the Sponsor, and the Trustees do not assume any
responsibility for their correctness. The Trustees make no representations as to
the value or condition of the property of the Trust or any part thereof. The
Trustees make no representations as to the validity or sufficiency of this
Declaration or the Securities.
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SECTION 3.14 Duration of Trust.
The Trust, unless terminated pursuant to the provisions of Article VIII
hereof, shall have existence for fifty-five (55) years from the Closing Date.
SECTION 3.15 Mergers.
(a) The Trust may not consolidate, amalgamate, merge with or into, or
be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other body, except as
described in Section 3.15(b) and (c).
(b) The Trust may, with the consent of the Regular Trustees or, if
there are more than two, a majority of the Regular Trustees and without the
consent of the Holders of the Securities, the Delaware Trustee or the Property
Trustee, consolidate, amalgamate, merge with or into, or be replaced by a trust
organized as such under the laws of any State; provided that:
(i) such successor entity (the "Successor Entity") either:
(A) expressly assumes all of the obligations of the Trust
under the Securities; or
(B) substitutes for the Preferred Securities
other securities having substantially the same
terms as the Preferred Securities (the "Successor
Securities") so long as the Successor Securities
rank the same as the Preferred Securities
rank with respect to Distributions and
payments upon liquidation, redemption and
otherwise;
(ii) the Debenture Issuer expressly acknowledges a trustee of the
Successor Entity that possesses the same powers and duties as
the Property Trustee as the holder of the Debentures;
(iii) the Preferred Securities or any Successor Securities are
listed, or any Successor Securities will be listed upon
notification of issuance, on any national securities exchange
or with any other organization on which the Preferred
Securities are then listed or quoted;
(iv) such merger, consolidation, amalgamation or replacement does
not cause the Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized
statistical rating organization then rating the Preferred
Securities at the request of the Sponsor;
(v) such merger, consolidation, amalgamation or replacement does
not adversely affect the rights, preferences and privileges of
the Holders of the Securities (including any Successor
Securities) in any material respect (other than with respect
to any dilution of such Holders' interests in the Preferred
Securities as a result of such merger, consolidation,
amalgamation or replacement);
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(vi) such Successor Entity has a purpose identical to that of the
Trust;
(vii) prior to such merger, consolidation, amalgamation or
replacement, the Sponsor has received an opinion of qualified
independent counsel to the Trust experienced in such matters
to the effect that:
(A) such merger, consolidation, amalgamation or
replacement does not adversely affect the rights,
preferences and privileges of the Holders of the
Securities (including any Successor Securities) in
any material respect (other than with respect to any
dilution of such Holders' interests in the Preferred
Securities as a result of such merger, consolidation,
amalgamation or replacement);
(B) following such merger, consolidation, amalgamation or
replacement, neither the Trust nor the Successor
Entity will be required to register as an Investment
Company; and
(C) following such merger, consolidation, amalgamation or
replacement, the Trust (or the Successor Entity) will
continue to be classified as a grantor trust for
United States federal income tax purposes;
(viii) the Sponsor guarantees the obligations of such Successor
Entity under the Successor Securities at least to the extent
provided by the Preferred Securities Guarantee; and
(ix) the Regular Trustees shall have furnished the Delaware
Trustee at least 5 Business Days prior written notice of the
consummation of such merger, consolidation, amalgamation or
replacement; provided that failure to provide such notice
shall not affect the validity of any such transaction.
(c) Notwithstanding Section 3.15(b), the Trust shall not, except with
the consent of Holders of 100% in liquidation amount of the Securities,
consolidate, amalgamate, merge with or into, or be replaced by any other entity
or permit any other entity to consolidate, amalgamate, merge with or into, or
replace it if such consolidation, amalgamation, merger or replacement would
cause the Trust or Successor Entity to be classified as other than a grantor
trust for United States federal income tax purposes.
SECTION 3.16 Property Trustee May File Proofs of Claim. In case of the pendency
of any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other similar judicial proceeding
relative to the Trust or any other obligor upon the Securities or the property
of the Trust or of such other obligor or their creditors, the Property Trustee
(irrespective of whether any Distributions on the Securities shall then be due
and payable as therein expressed or by declaration or otherwise and irrespective
of whether the Property Trustee shall have made any demand on the Trust for the
payment of any past due Distributions) shall be entitled and empowered, to the
fullest extent permitted by law, by intervention in such proceeding or
otherwise:
(a) to file and prove a claim for the whole amount of any
Distributions owing and unpaid in respect of the Securities
(or, if the Securities are original issue discount Securities,
such portion of the liquidation amount as may be specified in
the terms of such Securities) and to file such other papers or
documents as may be necessary or advisable in order to have
the claims of the Property Trustee
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(including any claim for the reasonable compensation,
expenses, disbursements and advances of the Property Trustee,
its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Property Trustee and, in the event the
Property Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Property Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Property Trustee, its
agents and counsel, and any other amounts due the Property Trustee.
Nothing herein contained shall be deemed to authorize the Property
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement adjustment or compensation affecting the
Securities or the rights of any Holder thereof or to authorize the Property
Trustee to vote in respect of the claim of any Holder in any such proceeding.
ARTICLE IV
SPONSOR
SECTION 4.1 Sponsor's Purchase of Common Securities.
On the Closing Date the Sponsor will purchase all of the Common
Securities issued by the Trust, in an amount at least equal to 3% of the capital
of the Trust, at the same time as the Preferred Securities are sold.
SECTION 4.2 Responsibilities of the Sponsor.
In connection with the issue and sale of the Preferred Securities, the
Sponsor shall have the exclusive right and responsibility to engage in the
following activities:
(a) to prepare for filing by the Trust with the Commission a
registration statement on Form S-3 pertaining to the Preferred
Securities, including any amendments thereto (which
registration statement may also include other securities of
the Sponsor);
(b) to determine the States in which to take appropriate action to
qualify or register for sale all or part of the Preferred
Securities and to do any and all such acts, other than actions
which must be taken by the Trust, and advise the Trust of
actions it must take, and prepare for execution and filing any
documents to be executed and filed by the Trust, as the
Sponsor deems necessary or advisable in order to comply with
the applicable laws of any such States;
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(c) to prepare for filing by the Trust an application to the New
York Stock Exchange, Inc. or any other national stock exchange
or the Nasdaq Stock Market's National Market System for
listing upon notice of issuance of any Preferred Securities;
(d) to prepare for filing by the Trust with the Commission a
registration statement on Form 8-A relating to the
registration of the Preferred Securities under Section 12(b)
of the Exchange Act, including any amendments thereto; and
(e) to negotiate the terms of the Underwriting Agreement and
Pricing Agreement providing for the sale of the Preferred
Securities.
SECTION 4.3 Right to Dissolve Trust.
The Sponsor shall have the right at any time after the Closing Date to
elect to dissolve the Trust in accordance with the terms of the Securities and
to direct the Property Trustee to take such action as shall be necessary to
distribute the Debentures to the Holders of the Securities in exchange for all
of the Securities.
SECTION 4.4 Direct Right of Action.
Notwithstanding any provision of this Declaration to the contrary, to
the extent permitted by applicable law, any Holder of Securities may enforce
directly against the Sponsor the obligation of the Sponsor under the Indenture
to duly and punctually pay the principal and interest when due under the
Debentures and the Sponsor irrevocably waives any right or remedy to require
that any such Holder take any action against the Trust or any other Person
before proceeding against the Sponsor.
ARTICLE V
TRUSTEES
SECTION 5.1 Number of Trustees.
The number of Trustees initially shall be five (5), and:
(a) at any time before the issuance of any Securities, the Sponsor
may, by written instrument, increase or decrease the number of
Trustees; and
(b) after the issuance of any Securities, the number of Trustees
may be increased or decreased by vote of the Holders of a
Majority in Liquidation Amount of the Common Securities voting
as a class at a meeting of the Holders of the Common
Securities or by written consent in lieu of such meeting.
provided that, if the Property Trustee does not also act as Delaware Trustee,
the number of Trustees shall be at least three (3).
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SECTION 5.2 Delaware Trustee.
If required by the Business Trust Act, one Trustee (the "Delaware
Trustee") shall be:
(a) a natural person who is a resident of the State of Delaware; or
(b) if not a natural person, an entity which has its principal place
of business in the State of Delaware, and otherwise meets the
requirements of applicable law,
provided that, if the Property Trustee has its principal place of business in
the State of Delaware and otherwise meets the requirements of applicable law,
then the Property Trustee shall also be the Delaware Trustee and Section 3.11
shall have no application.
SECTION 5.3 Property Trustee; Eligibility.
(a) There shall at all times be one Trustee which shall act as
Property Trustee which shall:
(i) not be an Affiliate of the Sponsor;
(ii) be a corporation organized and doing business under the laws
of the United States of America or any State or Territory
thereof or of the District of Columbia, or a corporation or
other Person permitted by the Commission to act as an
institutional trustee under the Trust Indenture Act,
authorized under such laws to exercise corporate trust powers,
having a combined capital and surplus of at least 50 million
U.S. dollars ($50,000,000), and subject to supervision or
examination by Federal, State, Territorial or District of
Columbia authority. If such corporation publishes reports of
condition at least annually, pursuant to law or to the
requirements of the supervising or examining authority
referred to above, then for the purposes of this Section
5.3(a)(ii), the combined capital and surplus of such
corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so
published; and
(iii) if the Trust is excluded from the definition of an Investment
Company solely by means of Rule 3a-7 and to the extent Rule
3a-7 requires a trustee having certain qualifications to hold
title to the "eligible assets" (as defined in Rule 3a-7) of
the Trust, the Property Trustee shall possess those
qualifications.
(b) If at any time the Property Trustee shall cease to be eligible to
so act under Section 5.3(a), the Property Trustee shall immediately resign in
the manner and with the effect set forth in Section 5.7(c).
(c) If the Property Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Property Trustee and the Holder of the Common Securities (as if it were the
Obliger referred to in Section 310(b) of the Trust Indenture Act) shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
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(d) The Preferred Securities Guarantee shall be deemed to be
specifically described in this Declaration for purposes of clause (i) of the
first provision contained in Section 310(b) of the Trust Indenture Act.
SECTION 5.4 Regular Trustees.
(a) Except as expressly set forth in this Declaration and except if a
meeting of the Regular Trustees is called with respect to any matter over which
the Regular Trustees have power to act, any power of the Regular Trustees may be
exercised by, or with the consent of, any one such Regular Trustee.
(b) Unless otherwise determined by the Regular Trustees, and except as
otherwise required by the Business Trust Act or applicable law, any Regular
Trustee is authorized to execute on behalf of the Trust any documents which the
Regular Trustees have the power and authority to cause the Trust to execute
pursuant to Section 3.6, provided, that, the registration statement referred to
in Section 3.6, including any amendments thereto, shall be signed by a majority
of the Regular Trustees; and
(c) a Regular Trustee may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his or
her power for the purposes of signing any documents which the Regular Trustees
have power and authority to cause the Trust to execute pursuant to Section 3.6.
SECTION 5.5 Certain Qualifications of Regular Trustees and Delaware Trustee
Generally.
Each Regular Trustee and the Delaware Trustee (unless the Property
Trustee also acts as Delaware Trustee) shall be either a natural person who is
at least 21 years of age or a legal entity that shall act through one or more
Authorized Officers.
SECTION 5.6 Initial Trustees.
The initial Regular Trustees shall be: Rollin M. Dick, Stephen C.
Hilbert and Lawrence W. Inlow.
The initial Property Trustee shall be: Fleet National Bank.
The initial Delaware Trustee shall be: First Union Bank of Delaware.
In the event that a national banking association, with the name "First
Union Trust Company, National Association" or any other name, succeeds, as
contemplated, to all or substantially all the corporate trust business of First
Union Bank of Delaware, such successor entity shall automatically be deemed to
be the Delaware Trustee, effective as of the consummation of such succession,
with the same effect as if it had executed this Declaration on the Closing
Date, upon delivery to the Sponsor and the Regular Trustees of an instrument,
in form and substance reasonably satisfactory to the Sponsor and the Regular
Trustees accepting the responsibilities hereunder as Delaware Trustee and
agreeing to be bound by all of the provisions hereof applicable to the Delaware
Trustee.
SECTION 5.7 Appointment, Removal and Resignation of Trustees.
(a) Subject to Section 5.7(b), Trustees may be appointed or removed
without cause at any time:
(i) until the issuance of any Securities, by written instrument
executed by the Sponsor; and
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(ii) after the issuance of any Securities, by vote of the Holders
of a Majority in Liquidation Amount of the Common Securities
voting as a class at a meeting of the Holders of the Common
Securities.
(b) The Trustee that acts as Property Trustee shall not be removed in
accordance with Section 5.7(a) until a successor Trustee possessing the
qualifications to act as Property Trustee under Section 5.3 (a "Successor
Property Trustee") has been appointed and has accepted such appointment by
written instrument executed by such Successor Property Trustee and delivered to
the Regular Trustees and the Sponsor. The Trustee that acts as Delaware Trustee
shall not be removed in accordance with Section 5.7(a) until a successor Trustee
possessing the qualifications to act as Delaware Trustee under Sections 5.2 and
5.5 (a "Successor Delaware Trustee") has been appointed and has accepted such
appointment by written instrument executed by such Successor Delaware Trustee
and delivered to the Regular Trustees and the Sponsor.
(c) A Trustee appointed to office shall hold office until his or its
successor shall have been appointed, until his death or its dissolution or until
his or its removal or resignation. Any Trustee may resign from office (without
need for prior or subsequent accounting) by an instrument in writing signed by
the Trustee and delivered to the Sponsor and the Trust, which resignation shall
take effect upon such delivery or upon such later date as is specified therein;
provided, however, that:
(i) No such resignation of the Trustee that acts as the Property
Trustee shall be effective:
(A) until a Successor Property Trustee has been appointed
and has accepted such appointment by instrument
executed by such Successor Property Trustee and
delivered to the Trust, the Sponsor and the resigning
Property Trustee; or
(B) until the assets of the Trust have been completely
liquidated and the proceeds thereof distributed to
the holders of the Securities; and
(ii) no such resignation of the Trustee that acts as the Delaware
Trustee shall be effective until a Successor Delaware Trustee
has been appointed and has accepted such appointment by
instrument executed by such Successor Delaware Trustee and
delivered to the Trust, the Sponsor and the resigning Delaware
Trustee.
(d) The Holders of the Common Securities shall use their best efforts
to promptly appoint a Successor Delaware Trustee or Successor Property Trustee,
as the case may be, if the Property Trustee or the Delaware Trustee delivers an
instrument of resignation in accordance with this Section 5.7.
(e) If no Successor Property Trustee or Successor Delaware Trustee, as
the case may be, shall have been appointed and accepted appointment as provided
in this Section 5.7 within 60 days after delivery to the Sponsor and the Trust
of an instrument of resignation, the resigning Property Trustee or Delaware
Trustee, as applicable, may petition any court of competent jurisdiction for
appointment of a Successor Property Trustee or Successor Delaware Trustee, as
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applicable. Such court may thereupon, after prescribing such notice, if any, as
it may deem proper, appoint a Successor Property Trustee or Successor Delaware
Trustee, as the case may be.
(f) No Property Trustee or Delaware Trustee shall be liable for the
acts or omissions to act of any Successor Property Trustee or Successor Delaware
Trustee, as the case may be.
(g) Any successor to a Regular Trustee shall be an officer, director,
employee or affiliate of the Sponsor.
SECTION 5.8 Vacancies among Trustees.
If a Trustee ceases to hold office for any reason and the number of
Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees is
increased pursuant to Section 5.1, a vacancy shall occur. A resolution
certifying the existence of such vacancy by the Regular Trustees or, if there
are more than two, a majority of the Regular Trustees shall be conclusive
evidence of the existence of such vacancy. The vacancy shall be filled with a
Trustee appointed in accordance with Section 5.7.
SECTION 5.9 Effect of Vacancies.
The death, resignation, retirement, removal, bankruptcy, dissolution,
liquidation, incompetence or incapacity to perform the duties of a Trustee shall
not operate to annul the Trust. Whenever a vacancy in the number of Regular
Trustees shall occur, until such vacancy is filled by the appointment of a
Regular Trustee in accordance with Section 5.7, the Regular Trustees in office,
regardless of their number, shall have all the powers granted to the Regular
Trustees and shall discharge all the duties imposed upon the Regular Trustees by
this Declaration.
SECTION 5.10 Meetings.
If there is more than one Regular Trustee, meetings of the Regular
Trustees shall be held from time to time upon the call of any Regular Trustee.
Regular meetings of the Regular Trustees may be held at a time and place fixed
by resolution of the Regular Trustees. Notice of any in-person meetings of the
Regular Trustees shall be hand delivered or otherwise delivered in writing
(including by facsimile, with a hard copy by overnight courier) not less than 48
hours before such meeting. Notice of any telephonic meetings of the Regular
Trustees shall be hand delivered or otherwise delivered in writing (including by
facsimile, with a hard copy by overnight courier) not less than 24 hours before
a meeting. Notices shall contain a brief statement of the time, place and
anticipated purposes of the meeting. The presence (whether in person or by
telephone) (g) Any successor to a Regular Trustee shall be an officer,
director, employee or affiliate of the Sponsorof a Regular Trustee at a meeting
shall constitute a waiver of notice of such meeting except where a Regular
Trustee attends a meeting for the express purpose of objecting to the
transaction of any activity on the ground that the meeting has not been
lawfully called or convened. Unless provided otherwise in this Declaration,
any action of the Regular Trustees may be taken at a meeting by vote of a
majority of the Regular Trustees present (whether in person or by telephone)
and eligible to vote with respect to such matter, provided that a Quorum is
present, or without a meeting by the unanimous written consent of the Regular
Trustees. In the event there is only one Regular Trustee, any and all action
of such Regular Trustee shall be evidenced by a written consent of such
Regular Trustee.
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SECTION 5.11 Delegation of Power.
(a) Any Regular Trustee may, by power of attorney consistent with
applicable law, delegate to any natural person over the age of 21 his, her or
its power for the purpose of executing any documents contemplated in Section
3.6, including any registration statement or amendment thereto filed with the
Commission, or making any other governmental filing.
(b) The Regular Trustees shall have power to delegate from time to time
to such of their number or to officers of the Trust the doing of such things and
the execution of such instruments either in the name of the Trust or the names
of the Regular Trustees or otherwise as the Regular Trustees may deem expedient,
to the extent such delegation is not prohibited by applicable law or contrary to
the provisions of the Trust, as set forth herein.
SECTION 5.12 Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Property Trustee or the Delaware
Trustee, as the case may be, may be merged or converted or with which either may
be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Property Trustee or the Delaware Trustee, as the case
may be, shall be a party, or any corporation succeeding to all or substantially
all the corporate trust business of the Property Trustee or the Delaware
Trustee, as the case may be, shall be the successor of the Property Trustee or
the Delaware Trustee, as the case may be, hereunder, provided such corporation
shall be otherwise qualified and eligible under this Article without the
execution or filing of any paper or any further act on the part of any of the
parties hereto.
ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 Distributions.
Holders shall receive Distributions (as defined herein) in accordance
with the applicable terms of the relevant Holder's Securities. Distributions
shall be made on the Preferred Securities and the Common Securities in
accordance with the preferences set forth in their respective terms. If and to
the extent that the Debenture Issuer makes a payment of interest (including
Compounded Interest (as defined in the Indenture) and Additional Interest (as
defined in the Indenture)), premium and/or principal on the Debentures held by
the Property Trustee (the amount of any such payment being a "Payment Amount"),
the Property Trustee shall and is directed, to the extent funds are available
for that purpose, to make a distribution (a "Distribution") of the Payment
Amount to Holders.
ARTICLE VII
ISSUANCE OF SECURITIES
SECTION 7.1 General Provisions Regarding Securities.
(a) The Regular Trustees shall on behalf of the Trust issue one class
of preferred securities (the "Preferred Securities") representing undivided
beneficial interests in the assets
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of the Trust having such terms as are set forth in Annex I, as such Annex I may
be amended from time to time in accordance with the provisions of this
Declaration and one class of common securities (the "Common Securities")
representing undivided beneficial interests in the assets of the Trust having
such terms as are set forth in Annex I, as such Annex I may be amended from time
to time in accordance with the provisions of this Declaration. The Trust shall
issue no securities or other interests in the assets of the Trust other than the
Preferred Securities and the Common Securities.
(b) The Certificates shall be signed on behalf of the Trust by a
Regular Trustee. Such signature shall be the manual or facsimile signature of
any present or any future Regular Trustee. In case any Regular Trustee of the
Trust who shall have signed any of the Certificates shall cease to be such
Regular Trustee before the Certificates so signed shall be delivered by the
Trust, such Certificates nevertheless may be delivered as though the person who
signed such Certificates had not ceased to be such Regular Trustee; and any
Certificate may be signed on behalf of the Trust by such persons who, at the
actual date of execution of such Certificate, shall be the Regular Trustees of
the Trust, although at the date of the execution and delivery of the Declaration
any such person was not such a Regular Trustee. Certificates shall be printed,
lithographed or engraved or may be produced in any other manner as is reasonably
acceptable to the Regular Trustees, as evidenced by their execution thereof, and
may have such letters, numbers or other marks of identification or designation
and such legends or endorsements as the Regular Trustees may deem appropriate,
or as may be required to comply with any law or with any rule or regulation of
any stock exchange on which Securities may be listed, or to conform to usage.
(c) The consideration received by the Trust for the issuance of the
Securities shall constitute a contribution to the capital of the Trust and shall
not constitute a loan to the Trust.
(d) Upon issuance of the Securities as provided in this Declaration,
the Securities so issued shall be deemed to be validly issued, fully paid and
non-assessable.
(e) Every Person, by virtue of having become a Holder or a Preferred
Security Beneficial Owner in accordance with the terms of this Declaration,
shall be deemed to have expressly assented and agreed to the terms of, and shall
be bound by, this Declaration and the terms of the Securities, the Securities
Guarantees, the Indenture and the Debentures.
ARTICLE VIII
TERMINATION OF TRUST
SECTION 8.1 Termination of Trust.
(a) The Trust shall dissolve upon the earlier of:
(i) the bankruptcy of the Holder of the Common Securities or the
Sponsor;
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(ii) the filing of a certificate of dissolution or its equivalent
with respect to the Holder of the Common Securities or the
Sponsor; the revocation of the Holder of the Common
Securities' or the Sponsor's charter and the expiration of 90
days after the date of revocation without a
reinstatement thereof;
(iii) upon the entry of a decree of judicial dissolution of
the Holder of the Common Securities, the Sponsor or the Trust;
(iv) when all of the Securities shall have been called for
redemption and the amounts necessary for redemption thereof
shall have been paid to the Holders in accordance with the
terms of the Securities;
(v) the occurrence and continuation of a Special Event pursuant to
which the Trust shall have been dissolved in accordance with
the terms of the Securities and all of the Debentures shall
have been distributed to the Holders of Securities in exchange
for all of the Securities;
(vi) before the issuance of any Securities, when all of the Regular
Trustees and the Sponsor shall have consented to dissolution
of the Trust;
(vii) the distribution of the Subordinated Debentures from the Trust
to the Holders of Securities in exchange for all of the
Securities and in liquidation of the Trust; or
(viii) the expiration of the term of the Trust as set forth in
Section 3.14.
(b) As soon as is practicable after the occurrence of an event referred
to in Section 8.1(a) and upon completion of the winding up of the Trust, the
Trustees shall file a certificate of cancellation with the Secretary of
State of the State of Delaware and thereupon the Trust shall terminate.
(c) The provisions of Section 3.9 and Article X shall survive the
termination of the Trust.
ARTICLE IX
TRANSFER OF INTERESTS
SECTION 9.1 Transfer of Securities.
(a) Securities may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this Declaration and in
the terms of the Securities. Any transfer or purported transfer of any Security
not made in accordance with this Declaration shall be null and void.
(b) Subject to this Article IX, Preferred Securities shall be freely
transferable.
(c) Subject to this Article IX, the Sponsor and any Related Party may
only transfer Common Securities to the Sponsor or a Related Party of the
Sponsor; provided that, any such transfer is subject to the condition precedent
that the transferor obtain the written opinion of
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qualified independent counsel experienced in such matters that such transfer
would not cause more than an insubstantial risk that:
(i) the Trust would not be classified for United States federal
income tax purposes as a grantor trust; and
(ii) the Trust would be an Investment Company or the transferee
would become an Investment Company.
SECTION 9.2 Transfer and Exchange of Certificates.
The Regular Trustees shall provide for the registration of Certificates
and of transfers or exchanges of Certificates, which will be effected without
charge but only upon payment (with such indemnity as the Regular Trustees may
require) in respect of any tax or other government charges that may be imposed
in relation to it. Upon surrender for registration of transfer of any
Certificate, the Regular Trustees shall cause one or more new Certificates to be
issued in the name of the designated transferee or transferees. Upon surrender
for exchange of any Certificate, the Regular Trustees shall cause one or more
new Certificates in the same aggregate liquidation amount as the Certificate
surrendered for exchange to be issued in the name of the Holder of the
Certificate so surrendered. Every Certificate surrendered for registration of
transfer or for exchange shall be accompanied by a written instrument of
transfer in form satisfactory to the Regular Trustees duly executed by the
Holder or such Holder's attorney duly authorized in writing. Each Certificate
surrendered for registration of transfer or for exchange shall be canceled by
the Regular Trustees. A transferee of a Certificate shall be entitled to the
rights and subject to the obligations of a Holder hereunder upon the receipt by
such transferee of a Certificate. By acceptance of a Certificate, each
transferee shall be deemed to have agreed to be bound by this Declaration.
SECTION 9.3 Deemed Security Holders.
The Trustees may treat the Person in whose name any Certificate shall
be registered on the books and records of the Trust as the sole holder of such
Certificate and of the Securities represented by such Certificate for purposes
of receiving Distributions and for all other purposes whatsoever and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such Certificate or in the Securities represented by such
Certificate on the part of any Person, whether or not the Trust shall have
actual or other notice thereof.
SECTION 9.4 Book Entry Interests.
Unless otherwise specified in the terms of the Preferred Securities,
the Preferred Securities Certificates, on original issuance, will be issued in
the form of one or more fully registered, global Preferred Security Certificates
(each a "Global Certificate"), to be delivered to DTC, the initial Clearing
Agency, by, or on behalf of, the Trust. Such Global Certificates shall initially
be registered on the books and records of the Trust in the name of Cede & Co.,
the nominee of DTC, and no Preferred Security Beneficial Owner will receive a
definitive
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Preferred Security Certificate representing such Preferred Security Beneficial
Owner's interests in such Global Certificates, except as provided in Section
9.7. Unless and until definitive, fully registered Preferred Security
Certificates (the "Definitive Preferred Security Certificates") have been issued
to the Preferred Security Beneficial Owners pursuant to Section 9.7:
(a) the provisions of this Section 9.4 shall be in full force and
effect;
(b) the Trust and the Trustees shall be entitled to deal with the
Clearing Agency for all purposes of this Declaration (including the
payment of Distributions on the Global Certificates and receiving
approvals, votes or consents hereunder) as the Holder of the Preferred
Securities and the sole holder of the Global Certificates and shall
have no obligation to the Preferred Security Beneficial Owners;
(c) to the extent that the provisions of this Section 9.4 conflict with
any other provisions of this Declaration, the provisions of this
Section 9.4 shall control; and
(d) the rights of the Preferred Security Beneficial Owners shall be
exercised only through the Clearing Agency and shall be limited to
those established by law and agreements between such Preferred Security
Beneficial Owners and the Clearing Agency and/or the Clearing Agency
Participants. DTC will make book entry transfers among the Clearing
Agency Participants and receive and transmit payments of Distributions
on the Global Certificates to such Clearing Agency Participants.
SECTION 9.5 Notices to Clearing Agency.
Whenever a notice or other communication to the Preferred Security
Holders is required under this Declaration, unless and until Definitive
Preferred Security Certificates shall have been issued to the Preferred Security
Beneficial Owners pursuant to Section 9.7, the Regular Trustees or the
Property Trustee, if the Property Trustee is specifically required to give such
notice, shall give all such notices and communications specified herein to be
given to the Preferred Security Holders to the Clearing Agency, and shall have
no notice obligations to the Preferred Security Beneficial Owners.
SECTION 9.6 Appointment of Successor Clearing Agency.
If any Clearing Agency elects to discontinue its services as securities
depository with respect to the Preferred Securities, the Regular Trustees may,
in their sole discretion, appoint a successor Clearing Agency with respect to
such Preferred Securities.
SECTION 9.7 Definitive Preferred Security Certificates.
If:
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(a) a Clearing Agency elects to discontinue its services as securities
depository with respect to the Preferred Securities and a successor
Clearing Agency is not appointed within 90 days after such
discontinuance pursuant to Section 9.6; or
(b) the Regular Trustees elect after consultation with the Sponsor to
terminate the book entry system through the Clearing Agency with
respect to the Preferred Securities, then:
(i) Definitive Preferred Security Certificates shall be
prepared by the Regular Trustees on behalf of the Trust with
respect to such Preferred Securities; and
(ii) upon surrender of the Global Certificates by the Clearing
Agency, accompanied by registration instructions, the Regular
Trustees shall cause Definitive Preferred Security
Certificates to be delivered to the Preferred Security
Beneficial Owners in accordance with the instructions of the
Clearing Agency. Neither the Trustees nor the Trust shall be
liable for any delay in delivery of such instructions and each
of them may conclusively rely on, and shall be protected in
relying on, said instructions of the Clearing Agency. The
Definitive Preferred Security Certificates shall be printed,
lithographed or engraved or may be produced in any other
manner as is reasonably acceptable to the Regular Trustees, as
evidenced by their execution thereof, and may have such
letters, numbers or other marks of identification or
designation and such legends or endorsements as the Regular
Trustees may deem appropriate, or as may be required to comply
with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange
on which Preferred Securities may be listed, or to conform to
usage.
SECTION 9.8 Mutilated, Destroyed, Lost or Stolen Certificates.
If:
(a) any mutilated Certificates should be surrendered to the Regular
Trustees, or if the Regular Trustees shall receive evidence to their
satisfaction of the destruction, loss or theft of any Certificate; and
(b) there shall be delivered to the Regular Trustees such security or
indemnity as may be required by them to keep each of them, the Sponsor
and the Trust harmless,
then, in the absence of notice that such Certificate shall have been acquired by
a bona fide purchaser, any Regular Trustee on behalf of the Trust shall execute
and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost
or stolen Certificate, a new Certificate of like denomination. In connection
with the issuance of any new Certificate under this Section 9.8, the Regular
Trustees may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith. Any duplicate
Certificate issued pursuant to this Section shall constitute conclusive evidence
of an ownership interest in
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the relevant Securities, as if originally issued, whether or not the lost,
stolen or destroyed Certificate shall be found at any time.
ARTICLE X
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 10.1 Liability.
(a) Except as expressly set forth in this Declaration, the Securities
Guarantees and the terms of the Securities, the Sponsor shall not be:
(i) personally liable for the return of any portion of the capital
contributions (or any return thereon) of the Holders of the Securities
which shall be made solely from assets of the Trust; and
(ii) be required to pay to the Trust or to any Holder of Securities
any deficit upon dissolution of the Trust or otherwise.
(b) The Holder of the Common Securities shall be liable for all of the
debts and obligations of the Trust (other than with respect to the Securities)
to the extent not satisfied out of the Trust's assets.
(c) Pursuant to Section 3803(a) of the Business Trust Act, the Holders
of the Preferred Securities shall be entitled to the same limitation of personal
liability extended to stockholders of private corporations for profit organized
under the General Corporation Law of the State of Delaware.
SECTION 10.2 Exculpation.
(a) No Indemnified Person shall be liable, responsible or accountable
in damages or otherwise to the Trust or any Covered Person for any loss, damage
or claim incurred by reason of any act or omission performed or omitted by such
Indemnified Person in good faith on behalf of the Trust and in a manner such
Indemnified Person reasonably believed to be within the scope of the authority
conferred on such Indemnified Person by this Declaration or by law, except that
an Indemnified Person shall be liable for any such loss, damage or claim
incurred by reason of such Indemnified Person's gross negligence or willful
misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Trust and upon such information, opinions, reports
or statements presented to the Trust by any Person as to matters the Indemnified
Person reasonably believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Trust, including information, opinions, reports or statements as to the value
and amount of the assets, liabilities, profits, losses or any other facts
pertinent to the
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existence and amount of assets from which Distributions to Holders of Securities
might properly be paid.
SECTION 10.3 Fiduciary Duty.
(a) To the extent that, at law or in equity, an Indemnified Person has
duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to any other Covered Person, an Indemnified Person acting under this
Declaration shall not be liable to the Trust or to any other Covered Person for
its good faith reliance on the provisions of this Declaration. The provisions of
this Declaration, to the extent that they restrict the duties and liabilities of
an Indemnified Person otherwise existing at law or in equity (other than the
duties imposed on the Property Trustee under the Trust Indenture Act), are
agreed by the parties hereto to replace such other duties and liabilities of
such Indemnified Person.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises between any
Covered Persons; or
(ii) whenever this Declaration or any other agreement contemplated
herein or therein provides that an Indemnified Person shall act in a
manner that is, or provides terms that are, fair and reasonable to the
Trust or any Holder of Securities,
the Indemnified Person shall resolve such conflict of interest, take such action
or provide such terms, considering in each case the relative interest of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices and any applicable generally accepted accounting
practices or principles. In the absence of bad faith by the Indemnified Person,
the resolution, action or term so made, taken or provided by the Indemnified
Person shall not constitute a breach of this Declaration or any other agreement
contemplated herein or of any duty or obligation of the Indemnified Person at
law or in equity or otherwise.
(c) Whenever in this Declaration an Indemnified Person is permitted
or required to make a decision:
(i) in its "discretion" or under a grant of similar authority, the
Indemnified Person shall be entitled to consider such interests and
factors as it desires, including its own interests, and shall have no
duty or obligation to give any consideration to any interest of or
factors affecting the Trust or any other Person; or
(ii) in its "good faith" or under another express standard, the
Indemnified Person shall act under such express standard and shall not
be subject to any other or different standard imposed by this
Declaration or by applicable law.
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SECTION 10.4 Indemnification.
(a) (i) The Sponsor shall indemnify, to the full extent permitted by
law, any Company Indemnified Person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Trust) by reason of the fact that he is or was a
Company Indemnified Person against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Trust, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the Company Indemnified Person did not act in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the Trust, and, with respect to any criminal action or proceeding,
had reasonable cause to believe that his conduct was unlawful.
(ii) The Sponsor shall indemnify, to the full extent permitted by law,
any Company Indemnified Person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Trust to procure a judgment in its favor by reason of the fact that
he is or was a Company Indemnified Person against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the Trust
and except that no such indemnification shall be made in respect of any claim,
issue or matter as to which such Company Indemnified Person shall have been
adjudged to be liable to the Trust unless and only to the extent that the Court
of Chancery of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which such Court of Chancery
or such other court shall deem proper.
(iii) Any indemnification under paragraphs (i) and (ii) of this Section
10.4(a) (unless ordered by a court) shall be made by the Sponsor only as
authorized in the specific case upon a determination that indemnification of the
Company Indemnified Person is proper in the circumstances because he has met the
applicable standard of conduct set forth in paragraphs (i) and (ii). Such
determination shall be made (1) by the Regular Trustees by a majority vote of a
quorum consisting of such Regular Trustees who were not parties to such action,
suit or proceeding, (2) if such a quorum is not obtainable, or, even if
obtainable, if a quorum of disinterested Regular Trustees so directs, by
independent legal counsel in a written opinion, or (3) by the Common Security
Holder of the Trust.
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(iv) Expenses (including attorneys' fees) incurred by a Company
Indemnified Person in defending a civil, criminal, administrative or
investigative action, suit or proceeding referred to in paragraphs (i) and (ii)
of this Section 10.4(a) shall be paid by the Sponsor in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such Company Indemnified Person to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Sponsor as authorized in this Section 10.4(a). Notwithstanding the foregoing, no
advance shall be made by the Sponsor if a determination is reasonably and
promptly made (i) by the Regular Trustees by a majority vote of a quorum of
disinterested Regular Trustees, (ii) if such a quorum is not obtainable, or,
even if obtainable, if a quorum of disinterested Regular Trustees so directs, by
independent legal counsel in a written opinion or (iii) the Common Security
Holder of the Trust, that, based upon the facts known to the Regular Trustees,
counsel or the Common Security Holder at the time such determination is made,
such Company Indemnified Person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
Trust, or, with respect to any criminal proceeding, that such Company
Indemnified Person believed or had reasonable cause to believe his conduct was
unlawful. In no event shall any advance be made in instances where the Regular
Trustees, independent legal counsel or Common Security Holder reasonably
determine that such person deliberately breached his duty to the Trust or its
Common or Preferred Security Holders.
(v) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other paragraphs of this Section 10.4(a) shall not be
deemed exclusive of any other rights to which those seeking indemnification and
advancement of expenses may be entitled under any agreement, vote of
stockholders or disinterested directors of the Debenture Issuer or Preferred
Security Holders of the Trust or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office. All
rights to indemnification under this Section 10.4(a) shall be deemed to be
provided by a contract between the Debenture Issuer and each Company Indemnified
Person who serves in such capacity at any time while this Section 10.4(a) is in
effect. Any repeal or modification of this Section 10.4(a) shall not affect any
rights or obligations then existing.
(vi) The Debenture Issuer or the Trust may purchase and maintain
insurance on behalf of any person who is or was a Company Indemnified Person
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Debenture
Issuer would have the power to indemnify him against such liability under the
provisions of this Section 10.4(a).
(vii) For purposes of this Section 10.4(a), references to "the Trust"
shall include, in addition to the resulting or surviving entity, any constituent
entity (including any constituent of a constituent) absorbed in a consolidation
or merger, so that any person who is or was a director, trustee, officer or
employee of such constituent entity, or is or was serving at the request of such
constituent entity as a director, trustee, member, partner, officer, employee or
agent of another entity, shall stand in the same position under the provisions
of this Section
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10.4(a) with respect to the resulting or surviving entity as he would have with
respect to such constituent entity if its separate existence had continued.
(viii) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section 10.4(a) shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a Company
Indemnified Person and shall inure to the benefit of the heirs, executors and
administrators of such a person. The obligation to indemnify as set forth in
this Section 10.4(a) shall survive the satisfaction and discharge of this
Declaration.
(b) The Debenture Issuer agrees to indemnify the (i) Property Trustee,
(ii) the Delaware Trustee, (iii) any Affiliate of the Property Trustee and the
Delaware Trustee, and (iv) any officers, directors, shareholders, members,
partners, employees, representatives, custodians, nominees or agents of the
Property Trustee and the Delaware Trustee (each of the Persons in (i) through
(iv) being referred to as a "Fiduciary Indemnified Person") for, and to hold
each Fiduciary Indemnified Person harmless against, any loss, liability or
expense incurred without negligence or bad faith on its part, arising out of or
in connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses (including reasonable legal fees and
expenses) of defending itself against or investigating any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder. The obligation to indemnify as set forth in this Section 10.4(b)
shall survive the satisfaction and discharge of this Declaration.
SECTION 10.5 Outside Businesses.
Any Covered Person, the Sponsor, the Delaware Trustee and the Property
Trustee may engage in or possess an interest in other business ventures of any
nature or description, independently or with others, similar or dissimilar to
the business of the Trust, and the Trust and the Holders of Securities shall
have no rights by virtue of this Declaration in and to such independent ventures
or the income or profits derived therefrom, and the pursuit of any such venture,
even if competitive with the business of the Trust, shall not be deemed wrongful
or improper. No Covered Person, the Sponsor, the Delaware Trustee or the
Property Trustee shall be obligated to present any particular investment or
other opportunity to the Trust even if such opportunity is of a character that,
if presented to the Trust, could be taken by the Trust, and any Covered Person,
the Sponsor, the Delaware Trustee and the Property Trustee shall have the right
to take for its own account (individually or as a partner or fiduciary) or to
recommend to others any such particular investment or other opportunity. Any
Covered Person, the Delaware Trustee and the Property Trustee may engage or be
interested in any financial or other transaction with the Sponsor or any
Affiliate of the Sponsor, or may act as depository for, trustee or agent for, or
act on any committee or body of holders of, securities or other obligations of
the Sponsor or its Affiliates.
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ARTICLE XI
ACCOUNTING
SECTION 11.1 Fiscal Year.
The fiscal year ("Fiscal Year") of the Trust shall be the calendar
year, or such other year as is required by the Code.
SECTION 11.2 Certain Accounting Matters.
(a) At all times during the existence of the Trust, the Regular
Trustees shall keep, or cause to be kept, full books of account, records and
supporting documents, which shall reflect in reasonable detail, each transaction
of the Trust. The books of account shall be maintained on the accrual method of
accounting, in accordance with generally accepted accounting principles. The
Trust shall use the accrual method of accounting for United States federal
income tax purposes. The books of account and the records of the Trust shall be
examined by and reported upon as of the end of each Fiscal Year of the Trust by
a firm of independent certified public accountants selected by the Regular
Trustees.
(b) The Regular Trustees shall cause to be duly prepared and delivered
to each of the Holders of Securities, any annual United States federal income
tax information statement, required by the Code, containing such information
with regard to the Securities held by each Holder as is required by the Code and
the Treasury Regulations. Notwithstanding any right under the Code to deliver
any such statement at a later date, the Regular Trustees shall endeavor to
deliver all such statements within 30 days after the end of each Fiscal Year of
the Trust.
(c) The Regular Trustees shall cause to be duly prepared and filed with
the appropriate taxing authority, an annual United States federal income tax
return, on a Form 1041 or such other form required by United States federal
income tax law, and any other annual income tax returns required to be filed by
the Regular Trustees on behalf of the Trust with any state or local taxing
authority.
SECTION 11.3 Banking.
The Trust shall maintain one or more bank accounts in the name and for
the sole benefit of the Trust; provided, however, that all payments of funds in
respect of the Debentures held by the Property Trustee shall be made directly to
the Property Trustee Account and no other funds of the Trust shall be deposited
in the Property Trustee Account. The sole signatories for such accounts shall be
designated by the Regular Trustees; provided, however, that the Property Trustee
shall designate the signatories for the Property Trustee Account.
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SECTION 11.4 Withholding.
The Trust and the Regular Trustees shall comply with all withholding
requirements under United States federal, state and local law. The Trust shall
request, and the Holders shall provide to the Trust, such forms or certificates
as are necessary to establish an exemption from withholding with respect to each
Holder, and any representations and forms as shall reasonably be requested by
the Trust to assist it in determining the extent of, and in fulfilling, its
withholding obligations. The Regular Trustees shall file required forms with
applicable jurisdictions and, unless an exemption from withholding is properly
established by a Holder, shall remit amounts withheld with respect to the Holder
to applicable jurisdictions. To the extent that the Trust is required to
withhold and pay over any amounts to any authority with respect to distributions
or allocations to any Holder, the amount withheld shall be deemed to be a
distribution in the amount of the withholding to the Holder. In the event of any
claimed over withholding, Holders shall be limited to an action against the
applicable jurisdiction. If the amount required to be withheld was not withheld
from actual Distributions made, the Trust may reduce subsequent Distributions by
the amount of such withholding.
ARTICLE XII
AMENDMENTS AND MEETINGS
SECTION 12.1 Amendments.
(a) Except as otherwise provided in this Declaration or by any
applicable terms of the Securities, this Declaration may only be amended by:
(i) a written instrument approved and executed by the Regular
Trustees (or, if there are more than two Regular Trustees, a majority of the
Regular Trustees);
(ii) the Property Trustee if the amendment affects the rights,
powers, duties, obligations or immunities of the Property Trustee; and
(iii) the Delaware Trustee if the amendment affects the rights,
powers, duties, obligations or immunities of the Delaware Trustee;
(b) no amendment shall be made, and any such purported amendment
shall be void and ineffective:
(i) unless, in the case of any proposed amendment, the Property Trustee
shall have first received an Officers' Certificate from each of the
Trust and the Sponsor that such amendment is permitted by, and conforms
to, the terms of this Declaration (including the terms of the
Securities);
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(ii) unless, in the case of any proposed amendment which affects the
rights, powers, duties, obligations or immunities of the Property
Trustee, the Property Trustee shall have first received:
(A) an Officers' Certificate from each of the Trust and
the Sponsor that such amendment is permitted by, and conforms
to, the terms of this Declaration (including the terms of
the Securities); and
(B) an opinion of counsel (who may be counsel to the
Sponsor or the Trust) that such amendment is permitted by,
and conforms to, the terms of this Declaration (including
the terms of the Securities); and
(iii) to the extent the result of such amendment would be to:
(A) cause the Trust to fail to continue to be classified
for purposes of United States federal income taxation as a
grantor trust;
(B) reduce or otherwise adversely affect the powers of
the Property Trustee in contravention of the Trust Indenture
Act; or
(C) cause the Trust to be deemed to be an Investment
Company required to be registered under the Investment Company
Act;
(c) at such time after the Trust has issued any Securities that
remain outstanding, any amendment that would adversely affect the rights,
privileges or preferences of any Holder of Securities may be effected only with
such additional requirements as may be set forth in the terms of such
Securities;
(d) Section 9.1(c) and this Section 12.1 shall not be amended
without the consent of all of the Holders of the Securities;
(e) Article IV shall not be amended without the consent of the
Holders of a Majority in Liquidation Amount of the Common Securities;
(f) the rights of the Holders of the Common Securities under
Article V to increase or decrease the number of, and appoint and remove Trustees
shall not be amended without the consent of the Holders of a Majority in
Liquidation Amount of the Common Securities; and
(g) notwithstanding Section 12.1(c), this Declaration may be
amended without the consent of the Holders of the Securities to:
(i) cure any ambiguity;
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(ii) correct or supplement any provision in this Declaration that
may be defective or inconsistent with any other provision of this
Declaration;
(iii) add to the covenants, restrictions or obligations of the Sponsor;
(iv) to conform to any change in Rule 3a-5 or written change in
interpretation or application of Rule 3a-5 by any legislative body,
court, government agency or regulatory authority which amendment does
not have a material adverse effect on the rights, preferences or
privileges of the Holders; and
(v) to modify, eliminate and add to any provision of this Declaration,
provided such modification, elimination or addition would not adversely
affect the rights, privileges or preferences of any Holder of the
Securities.
SECTION 12.2 Meetings of the Holders of Securities; Action by Written Consent.
(a) Meetings of the Holders of any class of Securities may be called at
any time by the Regular Trustees (or as provided in the terms of the Securities)
to consider and act on any matter on which Holders of such class of Securities
are entitled to act under the terms of this Declaration, the terms of the
Securities or the rules of any stock exchange on which the Preferred Securities
are listed or admitted for trading. The Regular Trustees shall call a meeting of
the Holders of such class if directed to do so by the Holders of at least 10% in
Liquidation Amount of such class of Securities. Such direction shall be given by
delivering to the Regular Trustees one or more calls in a writing stating that
the signing Holders of Securities wish to call a meeting and indicating the
general or specific purpose for which the meeting is to be called. Any Holders
of Securities calling a meeting shall specify in writing the Certificates held
by the Holders of Securities exercising the right to call a meeting and only
those Securities specified shall be counted for purposes of determining whether
the required percentage set forth in the second sentence of this paragraph has
been met.
(b) Except to the extent otherwise provided in the terms of the
Securities, the following provisions shall apply to meetings of Holders of
Securities:
(i) notice of any such meeting shall be given to all the Holders of
Securities having a right to vote thereat at least 7 days and not more
than 60 days before the date of such meeting. Whenever a vote, consent
or approval of the Holders of Securities is permitted or required under
this Declaration or the rules of any stock exchange on which the
Preferred Securities are listed or admitted for trading, such vote,
consent or approval may be given at a meeting of the Holders of
Securities. Any action that may be taken at a meeting of the Holders of
Securities may be taken without a meeting if a consent in writing
setting forth the action so taken is signed by the Holders of
Securities owning not less than the minimum amount of Securities in
liquidation amount that would be necessary to authorize or take such
action at a meeting at which all Holders of Securities having a right
to vote thereon were present and voting. Prompt notice of the taking of
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action without a meeting shall be given to the Holders of Securities
entitled to vote who have not consented in writing. The Regular
Trustees may specify that any written ballot submitted to the Security
Holders for the purpose of taking any action without a meeting shall be
returned to the Trust within the time specified by the Regular
Trustees;
(ii) each Holder of a Security may authorize any Person to act for it
by proxy on all matters in which a Holder of Securities is entitled to
participate, including waiving notice of any meeting, or voting or
participating at a meeting. No proxy shall be valid after the
expiration of 11 months from the date thereof unless otherwise provided
in the proxy. Every proxy shall be revocable at the pleasure of the
Holder of Securities executing such proxy. Except as otherwise provided
herein, all matters relating to the giving, voting or validity of
proxies shall be governed by the General Corporation Law of the State
of Delaware relating to proxies, and judicial interpretations
thereunder, as if the Trust were a Delaware corporation and the Holders
of the Securities were stockholders of a Delaware corporation;
(iii) each meeting of the Holders of the Securities shall be conducted
by the Regular Trustees or by such other Person that the Regular
Trustees may designate; and
(iv) unless the Business Trust Act, this Declaration, the terms of the
Securities, the Trust Indenture Act or the listing rules of any stock
exchange on which the Preferred Securities are then listed for trading,
otherwise provides, the Regular Trustees, in their sole discretion,
shall establish all other provisions relating to meetings of Holders of
Securities, including notice of the time, place or purpose of any
meeting at which any matter is to be voted on by any Holders of
Securities, waiver of any such notice, action by consent without a
meeting, the establishment of a record date, quorum requirements,
voting in person or by proxy or any other matter with respect to the
exercise of any such right to vote.
ARTICLE XIII
REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTEE
SECTION 13.1 Representations and Warranties of the Property Trustee.
The Trustee that acts as initial Property Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration, and
each Successor Property Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Property Trustee's acceptance of its
appointment as Property Trustee that:
(a) the Property Trustee is a corporation or natural banking
association, duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or
organization, with trust power and authority to execute and
deliver, and to carry out and perform its obligations under the terms
of, this Declaration;
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(b) the Property Trustee satisfies the requirements set forth in
Section 5.3(a);
(c) the execution, delivery and performance by the Property Trustee of
this Declaration has been duly authorized by all necessary corporate
action on the part of the Property Trustee. This Declaration has been
duly executed and delivered by the Property Trustee, and it constitutes
a legal, valid and binding obligation of the Property Trustee,
enforceable against it in accordance with its terms, subject to
applicable bankruptcy, reorganization, moratorium, insolvency and other
similar laws affecting creditors' rights generally and to general
principles of equity and the discretion of the court (regardless of
whether the enforcement of such remedies is considered in a proceeding
in equity or at law);
(d) the execution, delivery and performance of this Declaration by the
Property Trustee does not conflict with or constitute a breach of the
articles of association or incorporation, as the case may be, or the
by-laws (or other similar organizational documents) of the Property
Trustee;
(e) no consent, approval or authorization of, or registration with or
notice to, any State or Federal banking authority is required for the
execution, delivery or performance by the Property Trustee of this
Declaration; and
(f) the Property Trustee, pursuant to this Declaration, shall hold
legal title and a valid ownership interest in the Debentures.
SECTION 13.2 Representations and Warranties of the Delaware Trustee.
The Trustee that acts as initial Delaware Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration, and
each Successor Delaware Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Delaware Trustee's acceptance of its
appointment as Delaware Trustee that:
(a) the Delaware Trustee satisfies the requirements set forth in
Section 5.2 and has the power and authority to execute and deliver, and
to carry out and perform its obligations under the terms of, this
Declaration and, if it is not a natural person, is duly organized,
validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization;
(b) the Delaware Trustee has been authorized to perform its obligations
under the Certificate of Trust and this Declaration. This Declaration
under Delaware law constitutes a legal, valid and binding obligation of
the Delaware Trustee, enforceable against it in accordance with its
terms, subject to applicable bankruptcy, reorganization, moratorium,
insolvency and other similar laws affecting creditors' rights generally
and to general principles of equity and the discretion of the court
(regardless of whether the enforcement of such remedies is considered
in a proceeding in equity or at law); and
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(c) no consent, approval or authorization of, or registration with or
notice to, any State or Federal banking authority is required for the
execution, delivery or performance by the Delaware Trustee of this
Declaration.
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 Notices.
All notices provided for in this Declaration shall be in writing, duly
signed by the party giving such notice, and shall be delivered, telecopied or
mailed by registered or certified mail, as follows:
(a) if given to the Trust, in care of the Regular Trustees at the
Trust's mailing address set forth below (or such other address as the
Trust may give notice of to the Property Trustee, the Delaware Trustee
and the Holders of the Securities):
11825 North Pennsylvania Street
Carmel, Indiana 46032
Attention: Lawrence W. Inlow, Esq.
(b) if given to the Delaware Trustee, at the mailing address set forth
below (or such other address as Delaware Trustee may give notice of to
the Regular Trustees, the Property Trustee and the Holders of the
Securities):
First Union Bank of Delaware
Corporate Trust Administration
One Rodney Square
920 King Street
Wilmington, Delaware 19801
Attention: Stephen J. Kaba
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(c) if given to the Property Trustee, at its Corporate Trust Office (or
such other address as the Property Trustee may give notice of to the
Regular Trustees, the Delaware Trustee and the Holders of the
Securities):
Fleet National Bank
Corporate Trust Department
777 Main Street
Hartford, Connecticut 06115
Attention: Michael Hopkins
(d) if given to the Holder of the Common Securities, at the mailing
address of the Sponsor set forth below (or such other address as the
Holder of the Common Securities may give notice of to the Property
Trustee, the Delaware Trustee and the Trust):
Conseco, Inc.
11825 North Pennsylvania Street
Carmel, Indiana 46032
Attention: Lawrence W. Inlow, Esq.
(e) if given to any other Holder, at the address set forth on the books
and records of the Trust.
All such notices shall be deemed to have been given when received in person,
telecopied with receipt confirmed or mailed by first class mail, postage prepaid
except that if a notice or other document is refused delivery or cannot be
delivered because of a changed address of which no notice was given, such notice
or other document shall be deemed to have been delivered on the date of such
refusal or inability to deliver.
SECTION 14.2 Governing Law.
This Declaration and the rights of the parties hereunder shall be
governed by and interpreted in accordance with the laws of the State of Delaware
and all rights and remedies shall be governed by such laws without regard to
principles of conflict of laws.
SECTION 14.3 Intention of the Parties.
It is the intention of the parties hereto that the Trust be classified
for United States federal income tax purposes as a grantor trust. The provisions
of this Declaration shall be interpreted to further this intention of the
parties.
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SECTION 14.4 Headings.
Headings contained in this Declaration are inserted for convenience of
reference only and do not affect the interpretation of this Declaration or any
provision hereof.
SECTION 14.5 Successors and Assigns.
Whenever in this Declaration any of the parties hereto is named or
referred to, the successors and assigns of such party shall be deemed to be
included, and all covenants and agreements in this Declaration by the Sponsor
and the Trustees shall bind and inure to the benefit of their respective
successors and assigns, whether so expressed.
SECTION 14.6 Partial Enforceability.
If any provision of this Declaration, or the application of such
provision to any Person or circumstance, shall be held invalid, the remainder of
this Declaration, or the application of such provision to persons or
circumstances other than those to which it is held invalid, shall not be
affected thereby.
SECTION 14.7 Counterparts.
This Declaration may contain more than one counterpart of the signature
page and this Declaration may be executed by the affixing of the signature of
each of the Trustees to one of such counterpart signature pages. All of such
counterpart signature pages shall be read as though one, and they shall have the
same force and effect as though all of the signers had signed a single signature
page.
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IN WITNESS WHEREOF, the undersigned have caused these presents to be executed as
of the day and year first above written.
CONSECO INC, as Sponsor and Debenture Issuer
By:___________________________________
Name:
Title:
FLEET NATIONAL BANK, as Property Trustee
By:___________________________________
Name:
Title:
FIRST UNION BANK OF DELAWARE, as Delaware Trustee
By:___________________________________
Name:
Title:
/s/ Rollin M. Dick
--------------------------------------
Rollin M. Dick, as Regular Trustee
/s/ Stephen C. Hilbert
--------------------------------------
Stephen C. Hilbert, as Regular Trustee
/s/ Lawrence W. Inlow
--------------------------------------
Lawrence W. Inlow, as Regular Trustee
<PAGE> 56
ANNEX I
TERMS OF
__% TRUST ORIGINATED PREFERRED SECURITIES
__% TRUST ORIGINATED COMMON SECURITIES
Pursuant to Section 7.1 of the Amended and Restated
Declaration of Trust, dated as of ________, 1996 (as amended from time to time,
the "Declaration"), the designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Preferred Securities are set
forth below (each capitalized term used but not defined herein having the
meaning set forth in the Declaration or, if not defined in the Declaration, as
defined in the Prospectus referred to below):
1. Designation and Number.
(a) PREFERRED SECURITIES. _______ Preferred Securities of the Trust
with an aggregate liquidation amount with respect to the assets of the Trust of
_____________ Dollars ($________) and a liquidation amount with respect to the
assets of the Trust of $25 per Preferred Security, are hereby designated for the
purposes of identification only as "___% Trust Originated Preferred
Securities(sm) ('TOPrS'(sm))" (the "Preferred Securities"). The Preferred
Security Certificates evidencing the Preferred Securities shall be substantially
in the form of Exhibit A-1 to the Declaration, with such changes and additions
thereto or deletions therefrom as may be required by ordinary usage, custom or
practice or to conform to the rules of any stock exchange on which the Preferred
Securities are listed.
(b) COMMON SECURITIES. ________ Common Securities of the Trust with an
aggregate liquidation amount with respect to the assets of the Trust of
_____________ Dollars ($_______) and a liquidation amount with respect to the
assets of the Trust of $25 per Common Security, are hereby designated for the
purposes of identification only as "___% Trust Originated Common Securities"
(the "Common Securities"). The Common Security Certificates evidencing the
Common Securities shall be substantially in the form of Exhibit A-2 to the
Declaration, with such changes and additions thereto or deletions therefrom as
may be required by ordinary usage, custom or practice.
2. Distributions.
(a) Distributions payable on each Security will be fixed at a rate per
annum of ___% (the "Coupon Rate") of the stated liquidation amount of $25 per
Security, such rate being the rate of interest payable on the Debentures to be
held by the Property Trustee. Distributions in arrears for more than one quarter
will bear interest thereon from and including the last day of such quarter at
the Coupon Rate compounded quarterly (to the extent permitted by applicable
law). The term "Distributions" as used herein includes such cash distributions
and any such interest payable unless otherwise stated. A Distribution is payable
only to the extent that payments are made in respect of the Debentures held by
the Property Trustee and to the extent
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the Property Trustee has funds available therefor. The amount of Distributions
payable for any period will be computed for any full quarterly Distribution
period on the basis of a 360-day year of twelve 30-day months, and for any
period shorter than a full quarterly Distribution period for which Distributions
are computed, Distributions will be computed on the basis of the actual number
of days elapsed per 90-day quarter.
(b) Distributions on the Securities will be cumulative, will accrue
from ______, 1996, and will be payable quarterly in arrears, on March 31, June
30, September 30 and December 31 of each year, commencing on December 31, 1996,
except as otherwise described below. The Debenture Issuer has the right under
the Indenture to defer payments of interest on the Debentures by extending the
interest payment period at any time and from time to time for a period not
exceeding 20 consecutive quarters (each an "Extension Period"), during which
Extension Period no interest shall be due and payable on the Debentures,
provided that no Extension Period shall last beyond the date of maturity of the
Debentures. As a consequence of such deferral, Distributions will also be
deferred. Despite such deferral, quarterly Distributions will continue to accrue
with interest thereon (to the extent permitted by applicable law) at the Coupon
Rate compounded quarterly during any such Extension Period. Prior to the
termination of any such Extension Period, the Debenture Issuer may further
extend such Extension Period, provided that such Extension Period together with
all such previous and further extensions thereof may not exceed 20 consecutive
quarters and may not extend beyond the date of maturity of the Debentures.
Payments of deferred Distributions will be payable to Holders of record of the
Securities as they appear on the books and records of the Trust on the record
date for Distributions due at the end of such Extension Period. Upon the
termination of any Extension Period and the payment of all amounts then due, the
Debenture Issuer may commence a new Extension Period, subject to the above
requirements.
(c) Distributions on the Securities will be payable to the Holders
thereof as they appear on the books and records of the Trust on the relevant
record dates. While the Preferred Securities remain in global form, the relevant
record dates shall be one Business Day prior to the relevant payment dates which
payment dates correspond to the interest payment dates on the Debentures.
Subject to any applicable laws and regulations and the provisions of the
Declaration, each such payment in respect of the Preferred Securities will be
made as described under the heading "Description of the Preferred Securities --
Book-Entry Issuance -- The Depository Trust Company" in the Prospectus
Supplement dated _______, 1996, to the Prospectus dated _______, 1996 (together,
the "Prospectus") included in the Registration Statement on Form S-3 of the
Sponsor and the Trust. The relevant record dates for the Common Securities shall
be the same record date as for the Preferred Securities. If the Preferred
Securities shall not continue to remain in global form, the relevant record
dates for the Preferred Securities shall conform to the rules of any securities
exchange on which the Preferred Securities are listed and, if none, shall be
selected by the Regular Trustees, which dates shall be at least one Business Day
but less than 60 Business Days before the relevant payment dates, which payment
dates correspond to the interest payment dates on the Debentures. Distributions
payable on any Securities that are not punctually paid on any Distribution
payment date, as a result of the Debenture Issuer having failed to make a
payment under the Debentures, will cease to be payable to the Person in whose
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name such Securities are registered on the relevant record date, and such
defaulted Distribution will instead be payable to the Person in whose name such
Securities are registered on the special record date or other specified date
determined in accordance with the Indenture. If any date on which Distributions
are payable on the Securities is not a Business Day, then payment of the
Distribution payable on such date will be made on the next succeeding day that
is a Business Day (and without any interest or other payment in respect of any
such delay) except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date.
(d) In the event that there is any money or other property held by or
for the Trust that is not accounted for hereunder, such property shall be
distributed Pro Rata (as defined herein) among the Holders of the Securities.
3. Liquidation Distribution Upon Dissolution.
(a) In the event of any voluntary or involuntary liquidation,
dissolution, winding-up or termination of the Trust, the Holders of the
Securities on the date of the liquidation, dissolution, winding-up or
termination, as the case may be, will be entitled to receive solely out of the
assets of the Trust available for distribution to Holders of Securities, after
satisfaction of liabilities of creditors, an amount equal to the aggregate of
the stated liquidation amount of $25 per Security plus accrued and unpaid
Distributions thereon to the date of payment (such amount being the "Liquidation
Distribution"), unless, in connection with such liquidation, dissolution,
winding-up or termination, Debentures in an aggregate principal amount equal to
the aggregate stated liquidation amount of such Securities, with an interest
rate equal to the Coupon Rate of, and bearing accrued and unpaid interest in an
amount equal to the accrued and unpaid Distributions on, such Securities, shall
be distributed on a Pro Rata basis to the Holders of the Securities in exchange
for such Securities in accordance with Section 4(e) hereof.
(b) If, upon any such dissolution, the Liquidation Distribution can be
paid only in part because the Trust has insufficient assets available to pay in
full the aggregate Liquidation Distribution, then the amounts payable directly
by the Trust on the Securities shall be paid on a Pro Rata basis.
4. Redemption and Distribution.
(a) Upon the repayment of the Debentures in whole or in part, whether
at maturity or upon redemption (such redemption being either at the option of
the Debenture Issuer on or after ______, 2001 or at the option of the Debenture
Issuer in connection with the occurrence of a Special Event as described below),
the proceeds from such repayment or redemption shall be simultaneously applied
to redeem Securities having an aggregate liquidation amount equal to the
aggregate principal amount of the Debentures so repaid or redeemed at a
redemption price of $25 per Security plus an amount equal to accrued and unpaid
Distributions thereon at the date
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of the redemption, payable in cash (the "Redemption Price"). Holders will be
given not less than 30 nor more than 60 days notice of such redemption.
(b) If fewer than all the outstanding Securities are to be so redeemed,
the Common Securities and the Preferred Securities will be redeemed Pro Rata and
the Preferred Securities to be redeemed will be as described in Section 4(f)(ii)
below.
(c) If, at any time, a Tax Event or an Investment Company Event (each
as defined below, and each a "Special Event") shall occur and be continuing the
Debenture Issuer shall have the right, upon not less than 30 nor more than 60
days notice, to redeem the Debentures in whole (but not in part) for cash within
90 days following the occurrence of such Special Event, and, following such
redemption, Securities with an aggregate liquidation amount equal to the
aggregate principal amount of the Debentures so redeemed shall be redeemed by
the Trust at the Redemption Price on a Pro Rata basis in accordance with Section
8 hereof. The Common Securities will be redeemed Pro Rata with the Preferred
Securities, except that if an Event of Default has occurred and is continuing,
the Preferred Securities will have priority over the Common Securities with
respect to payment of the Redemption Price.
"Tax Event" means that the Regular Trustees shall have received an
opinion of an independent tax counsel experienced in such matters to the effect
that, as a result of (i) any amendment to, or change (including any announced
prospective change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or therein, or
(ii) any official administrative pronouncement or judicial decision interpreting
or applying such laws or regulations, which amendment or change is effective or
such pronouncement or decision is announced on or after the date of original
issuance of the Preferred Securities, there is more than an insubstantial risk
that (A) the Trust is, or will be within 90 days after the date thereof, subject
to United States federal income tax with respect to interest accrued or received
on the Debentures, (B) the Trust is, or will be within 90 days after the date
thereof, subject to more than a de minimis amount of taxes, duties or other
governmental charges, or (C) interest payable by the Debenture Issuer to the
Trust on the Debentures is not, or within 90 days of the date thereof, will not
be deductible, in whole or in part, by the Debenture Issuer for United States
federal income tax purposes.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of an independent counsel experienced in practice under the
Investment Company Act to the effect that, as a result of the occurrence of a
change in law or regulation or a change in interpretation or application of law
or regulation by any legislative body, court, governmental agency or regulatory
authority (a "Change in 1940 Act Law"), there is a more than an insubstantial
risk that the Trust is or will be considered an "investment company" which is
required to be registered under the Investment Company Act, which Change in 1940
Act Law becomes effective on or after the date of original issuance of the
Preferred Securities.
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(d) The Trust may not redeem fewer than all the outstanding Securities
unless all accrued and unpaid Distributions have been paid on all Securities for
all quarterly Distribution periods terminating on or before the date of
redemption.
(e) In the event that the Sponsor makes the election referred to in
Section 8.1(a)(v) of the Declaration, the Regular Trustees shall dissolve the
Trust and, after satisfaction of creditors, cause Debentures, held by the
Property Trustee, having an aggregate principal amount equal to the aggregate
stated liquidation amount of, with an interest rate identical to the Coupon Rate
of, and accrued and unpaid interest equal to accrued and unpaid Distributions on
and having the same record date for payment, as the Securities, to be
distributed to the Holders of the Securities in liquidation of such Holders'
interests in the Trust on a Pro Rata basis in accordance with Section 8 hereof.
On and from the date fixed by the Regular Trustees for any distribution of
Debentures and dissolution of the Trust: (i) the Securities will no longer be
deemed to be outstanding, and (ii) the Depository or its nominee (or any
successor Depository or its nominee) will receive one or more global certificate
or certificates representing the Debentures to be delivered upon such
distribution, and having an aggregate principal amount equal to the aggregated
stated liquidation amount of, with an interest rate identical to the Coupon Rate
of, and accrued and unpaid interest equal to accrued and unpaid Distributions on
such Securities. Any certificates representing Securities, except for
certificates representing Preferred Securities held by the Depository or its
nominee (or any successor Clearing Agency or its nominee), will be deemed to
represent beneficial interests in the Debentures having an aggregate principal
amount equal to the aggregated stated liquidation amount of, with an interest
rate identical to the Coupon Rate of, and accrued and unpaid interest equal to
accrued and unpaid Distributions on such Securities until such certificates are
presented to the Debenture Issuer or its agent for transfer or reissue. If the
Debentures are distributed to Holders of the Securities, pursuant to the terms
of the Indenture, the Debenture Issuer will use its best efforts to have the
Debentures listed on the New York Stock Exchange or on such other exchange as
the Preferred Securities were listed immediately prior to the distribution of
the Debentures.
(f) Redemption or Distribution Procedures.
(i) Notice of any redemption of, or notice of distribution of
Debentures in exchange for the Securities (a "Redemption/Distribution Notice")
will be given by the Trust by mail to each Holder of Securities to be redeemed
or exchanged not fewer than 30 nor more than 60 days before the date fixed for
redemption or exchange thereof which, in the case of a redemption, will be the
date fixed for redemption of the Debentures. For purposes of the calculation of
the date of redemption or exchange and the dates on which notices are given
pursuant to this Section 4(f)(i), a Redemption/ Distribution Notice shall be
deemed to be given on the day such notice is first mailed by first-class mail,
postage prepaid, to Holders of Securities. Each Redemption/Distribution Notice
shall be addressed to the Holders of Securities at the address of each such
Holder appearing in the books and records of the Trust. No defect in the
Redemption/Distribution Notice or in the mailing of either thereof with respect
to any Holder shall affect the validity of the redemption or exchange
proceedings with respect to any other Holder.
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<PAGE> 61
(ii) In the event that fewer than all the outstanding Securities are to
be redeemed, the Securities to be redeemed shall be redeemed Pro Rata from each
Holder of Preferred Securities, it being understood that, in respect of
Preferred Securities registered in the name of and held of record by the
Depository or its nominee (or any successor Clearing Agency or its nominee), the
distribution of the proceeds of such redemption will be made to each Clearing
Agency Participant (or Person on whose behalf such nominee holds such
securities) in accordance with the procedures applied by such agency or nominee.
(iii) If Securities are to be redeemed and the Trust gives a
Redemption/Distribution Notice (which notice will be irrevocable), then (A)
while the Preferred Securities are in global form, with respect to the Preferred
Securities, by 12:00 noon, New York City time, on the redemption date, provided
that the Debenture Issuer has paid the Property Trustee a sufficient amount of
cash in connection with the related redemption or maturity of the Debentures,
the Property Trustee will deposit irrevocably with the Depository or its nominee
(or successor Clearing Agency or its nominee) funds sufficient to pay the
applicable Redemption Price with respect to the Preferred Securities and will
give the Depository irrevocable instructions and authority to pay the Redemption
Price to the Holders of the Preferred Securities, and (B) with respect to
Preferred Securities issued in definitive form and Common Securities, provided
that the Debenture Issuer has paid the Property Trustee a sufficient amount of
cash in connection with the related redemption or maturity of the Debentures,
the Property Trustee will pay the relevant Redemption Price to the Holders of
such Securities by check mailed to the address of the relevant Holder appearing
on the books and records of the Trust on the redemption date. If a
Redemption/Distribution Notice shall have been given and funds deposited as
required, then immediately prior to the close of business on the date of such
deposit, Distributions will cease to accrue on the Securities so called for
redemption and all rights of Holders of such Securities so called for redemption
will cease, except the right of the Holders of such Securities to receive the
Redemption Price, but without interest on such Redemption Price. Neither the
Regular Trustees nor the Trust shall be required to register or cause to be
registered the transfer of any Securities that have been so called for
redemption. If any date fixed for redemption of Securities is not a Business
Day, then payment of the Redemption Price payable on such date will be made on
the next succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay) except that, if such Business Day
falls in the next calendar year, such payment will be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date fixed for redemption. If the Debenture Issuer fails to repay the
Debentures on the date of redemption or on maturity or if payment of the
Redemption Price in respect of any Securities is improperly withheld or
refused and not paid either by the Property Trustee or by the Sponsor as
guarantor pursuant to the relevant Securities Guarantee, Distributions on
such Securities will continue to accrue at the then applicable rate from the
original redemption date to the actual date of payment, in which case the
actual payment date will be considered the date fixed for redemption for
purposes of calculating the Redemption Price.
(iv) Redemption/Distribution Notices shall be sent by the Regular
Trustees on behalf of the Trust to (A) in respect of the Preferred Securities,
the Depository or its nominee (or any successor Clearing Agency or its nominee)
if the Global Certificates have been issued or, if
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<PAGE> 62
Definitive Preferred Security Certificates have been issued, to the Holder
thereof, and (B) in respect of the Common Securities to the Holder thereof.
(v) Subject to the foregoing and applicable law (including, without
limitation, United States federal securities laws), the Sponsor or any of its
subsidiaries may at any time and from time to time purchase outstanding
Preferred Securities by tender, in the open market or by private agreement.
5. Voting Rights - Preferred Securities.
(a) Except as provided under Sections 5(b) and 7 and as otherwise
required by law and the Declaration, the Holders of the Preferred Securities
will have no voting rights.
(b) Subject to the requirements set forth in this paragraph, the
Holders of a Majority in Liquidation Amount of the Preferred Securities, voting
separately as a class, may direct the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee, or direct the
exercise of any trust or power conferred upon the Property Trustee under the
Declaration, including the right to direct the Property Trustee, as Holder of
the Debentures, to (i) exercise the remedies available under the Indenture with
respect to the Debentures, (ii) waive any past default and its consequences that
is waivable under the Indenture, or (iii) exercise any right to rescind or annul
a declaration that the principal of all the Debentures shall be due and payable,
or consent to any amendment, modification or termination of the Indenture or the
Debentures, where such consent would be required; provided that where a consent
or action under the Indenture would require the consent or act of the Holders of
greater than a majority in principal amount of Debentures affected thereby (a
"Super Majority"), the Property Trustee may only give such consent or take such
action at the written direction of the Holders of at least the proportion in
liquidation amount of the Preferred Securities which the relevant Super Majority
represents of the aggregate principal amount of the Debentures outstanding. The
Property Trustee shall not revoke any action previously authorized or approved
by a vote of the Holders of the Preferred Securities. Other than with respect to
directing the time, method and place of conducting a proceeding for any remedy
available to the Property Trustee or the Debenture Trustee as set forth above,
the Property Trustee shall not take any action in accordance with the directions
of the Holders of the Preferred Securities under this paragraph unless the
Property Trustee has obtained an opinion of tax counsel to the effect that for
the purposes of United States federal income tax the Trust will not be
classified as other than a grantor trust on account of such action. If the
Property Trustee fails to enforce its rights with respect to the Debentures held
by the Trust, any Holder of Preferred Securities may, to the extent permitted by
applicable law, institute legal proceedings directly against the Debenture
Issuer to enforce the Property Trustee's rights under the Debentures without
first instituting any legal proceedings against the Property Trustee or any
other person or entity. Notwithstanding the foregoing, if an Event of Default
under the Declaration has occurred and is continuing and such event is
attributable to the failure of the Debenture Issuer to pay interest or principal
on the Debentures issued to the Trust on the date such interest or principal is
otherwise payable, then a Holder of Preferred Securities may institute a
proceeding directly against the Debenture
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<PAGE> 63
Issuer for enforcement of payment to the Holder of the Preferred Securities of
the principal of or interest on the Debentures on or after the respective due
dates specified in the Debentures, and the amount of the payment will be based
on the Holder's pro rata share of the amount due and owing on all of the
Preferred Securities.
Any approval or direction of Holders of Preferred Securities may be
given at a separate meeting of Holders of Preferred Securities convened for such
purpose, at a meeting of all of the Holders of Securities in the Trust or
pursuant to written consent. The Regular Trustees will cause a notice of any
meeting at which Holders of Preferred Securities are entitled to vote, or of any
matter upon which action by written consent of such Holders is to be taken, to
be mailed to each Holder of Preferred Securities. Each such notice will include
a statement setting forth (i) the date of such meeting or the date by which such
action is to be taken, (ii) a description of any resolution proposed for
adoption at such meeting on which such Holders are entitled to vote or of such
matter upon which written consent is sought and (iii) instructions for the
delivery of proxies or consents.
No vote or consent of the Holders of the Preferred Securities will be
required for the Trust to redeem and cancel Preferred Securities or to
distribute the Debentures in accordance with the Declaration and the terms of
the Securities.
Notwithstanding that Holders of Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by the Sponsor or any Affiliate of the
Sponsor shall not be entitled to vote or consent and shall, for purposes of such
vote or consent, be treated as if they were not outstanding.
6. Voting Rights - Common Securities.
(a) Except as provided under Sections 6(b) and (c) and as otherwise
required by law and the Declaration, the Holders of the Common Securities will
have no voting rights.
(b) The Holders of the Common Securities are entitled, in accordance
with Article V of the Declaration, to vote to appoint, remove or replace any
Trustee or to increase or decrease the number of Trustees.
(c) Subject to Section 2.6 of the Declaration and only after the Event
of Default with respect to the Preferred Securities has been cured, waived or
otherwise eliminated and subject to the requirements set forth in this
paragraph, the Holders of a Majority in Liquidation Amount of the Common
Securities, voting separately as a class, may direct the time, method and place
of conducting any proceeding for any remedy available to the Property Trustee,
or direct the exercise of any trust or power conferred upon the Property Trustee
under the Declaration, including the right to direct the Property Trustee, as
Holder of the Debentures, to (i) exercise the remedies available under the
Indenture with respect to the Debentures, (ii) waive any past default and its
consequences that is waivable under the Indenture, or (iii) exercise any right
to
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<PAGE> 64
rescind or annul a declaration that the principal of all the Debentures shall be
due and payable, or consent to any amendment, modification or termination of the
Indenture or the Debentures, where such consent would be required; provided
that, where a consent or action under the Indenture would require the consent or
act of a Super Majority of the Holders of the Debentures affected thereby, the
Property Trustee may only give such consent or take such action at the written
direction of the Holders of at least the proportion in liquidation amount of the
Common Securities which the relevant Super Majority represents of the aggregate
principal amount of the Debentures outstanding. The Property Trustee shall not
revoke any action previously authorized or approved by a vote of the Holders of
the Common Securities. Other than with respect to directing the time, method and
place of conducting a proceeding for any remedy available to the Property
Trustee or the Debenture Trustee as set forth above, the Property Trustee shall
not take any action in accordance with the directions of the Holders of the
Common Securities under this paragraph unless the Property Trustee has obtained
an opinion of tax counsel to the effect that for the purposes of United States
federal income tax the Trust will not be classified as other than a grantor
trust on account of such action. If the Property Trustee fails to enforce its
rights with respect to the Debentures held by the Trust, any Holder of Common
Securities may, to the extent permitted by applicable law, institute legal
proceedings directly against the Debenture Issuer to enforce the Property
Trustee's rights under the Debentures without first instituting any legal
proceedings against the Property Trustee or any other person or entity.
Notwithstanding the foregoing, if an Event of Default under the Declaration has
occurred and is continuing and such event is attributable to the failure of the
Debenture Issuer to pay interest or principal on the Debentures issued to the
Trust on the date such interest or principal is otherwise payable, then a Holder
of Common Securities may institute a proceeding directly against the Debenture
Issuer for enforcement of payment to the Holder of the Common Securities of the
principal of or interest on the Debentures on or after the respective due dates
specified in the Debentures, and the amount of the payment will be based on the
Holder's pro rata share of the amount due and owing on all of the Common
Securities.
Any approval or direction of Holders of Common Securities may be given
at a separate meeting of Holders of Common Securities convened for such purpose,
at a meeting of all of the Holders of Securities in the Trust or pursuant to
written consent. The Regular Trustees will cause a notice of any meeting at
which Holders of Common Securities are entitled to vote, or of any matter upon
which action by written consent of such Holders is to be taken, to be mailed to
each Holder of Common Securities. Each such notice will include a statement
setting forth (i) the date of such meeting or the date by which such action is
to be taken, (ii) a description of any resolution proposed for adoption at such
meeting on which such Holders are entitled to vote or of such matter upon which
written consent is sought and (iii) instructions for the delivery of proxies or
consents.
No vote or consent of the Holders of the Common Securities will be
required for the Trust to redeem and cancel Common Securities or to distribute
the Debentures in accordance with the Declaration and the terms of the
Securities.
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7. Amendments to Declaration and Indenture.
(a) In addition to any requirements under Section 12.1 of the
Declaration, if any proposed amendment to the Declaration provides for, or the
Regular Trustees otherwise propose to effect, (i) any action that would
adversely affect the powers, preferences or special rights of the Securities,
whether by way of amendment to the Declaration or otherwise, or (ii) the
dissolution, winding-up or termination of the Trust, other than as described in
Section 8.1 of the Declaration, then the Holders of outstanding Securities
voting together as a single class, will be entitled to vote on such amendment or
proposal (but not on any other amendment or proposal) and such amendment or
proposal shall not be effective except with the approval of the Holders of at
least a Majority in Liquidation Amount of the Securities affected thereby,
voting together as a single class; provided, however, if any amendment or
proposal referred to in clause (i) above would adversely affect only the
Preferred Securities or only the Common Securities, then only the affected class
will be entitled to vote on such amendment or proposal and such amendment or
proposal shall not be effective except with the approval of a Majority in
Liquidation Amount of such class of Securities.
(b) In the event the consent of the Property Trustee as the holder of
the Debentures is required under the Indenture with respect to any amendment,
modification or termination of the Indenture or the Debentures, the Property
Trustee shall request the written direction of the Holders of the Securities
with respect to such amendment, modification or termination and shall vote with
respect to such amendment, modification or termination as directed by a Majority
in Liquidation Amount of the Securities voting together as a single class;
provided, however, that where a consent under the Indenture would require the
consent of a Super Majority of the Holders of the Debentures, the Property
Trustee may only give such consent at the direction of the Holders of at least
the proportion in liquidation amount of the Securities which the relevant Super
Majority represents of the aggregate principal amount of the Debentures
outstanding; provided, further, that the Property Trustee shall not take any
action in accordance with the directions of the Holders of the Securities under
this Section 7(b) unless the Property Trustee has obtained an opinion of tax
counsel to the effect that for the purposes of United States federal income tax
the Trust will not be classified as other than a grantor trust on account of
such action.
8. Pro Rata.
A reference in these terms of the Securities to any payment,
distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder
of Securities according to the aggregate liquidation amount of the Securities
held by the relevant Holder in relation to the aggregate liquidation amount of
all Securities outstanding unless, in relation to a payment, an Event of Default
under the Declaration has occurred and is continuing, in which case any funds
available to make such payment shall be paid first to each Holder of the
Preferred Securities pro rata according to the aggregate liquidation amount of
Preferred Securities held by the relevant Holder relative to the aggregate
liquidation amount of all Preferred Securities outstanding, and only after
satisfaction of all amounts owed to the Holders of the Preferred Securities, to
each Holder of
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Common Securities pro rata according to the aggregate liquidation amount of
Common Securities held by the relevant Holder relative to the aggregate
liquidation amount of all Common Securities outstanding. When the Property
Trustee is making payments on the Securities, it is entitled to assume that no
Event of Default has occurred and is continuing unless the Event of Default is
actually known to a Responsible Officer of the Property Trustee.
9. Ranking.
The Preferred Securities rank pari passu and payment thereon shall be
made Pro Rata with the Common Securities except that, where an Event of Default
occurs and is continuing under the Indenture in respect of the Debentures held
by the Property Trustee, the rights of Holders of the Common Securities to
payment in respect of Distributions and payments upon liquidation, redemption
and otherwise are subordinated to the rights to payment of the Holders of the
Preferred Securities.
10. Listing.
The Regular Trustees shall use their best efforts to cause the
Preferred Securities to be listed for quotation on the New York Stock Exchange,
Inc.
11. Acceptance of Securities Guarantee and Indenture.
Each Holder of Preferred Securities and Common Securities, by the
acceptance thereof, agrees to the provisions of the Preferred Securities
Guarantee and the Common Securities Guarantee, respectively, including the
subordination provisions therein and to the provisions of the Indenture and the
Debentures.
12. No Preemptive Rights.
The Holders of the Securities shall have no preemptive rights to
subscribe for any additional securities.
13. Miscellaneous.
These terms constitute a part of the Declaration.
The Sponsor will provide a copy of the Declaration, the Preferred
Securities Guarantee or the Common Securities Guarantee (as may be appropriate)
and the Indenture to a Holder without charge on written request to the Sponsor
at its principal place of business.
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EXHIBIT A-1
FORM OF PREFERRED SECURITY CERTIFICATE
[IF THE PREFERRED SECURITY IS TO BE A GLOBAL CERTIFICATE
INSERT - This Preferred Security is a Global Certificate within the meaning of
the Declaration hereinafter referred to and is registered in the name of The
Depository Trust Company (the "Depository") or a nominee of the Depository. This
Preferred Security is exchangeable for Preferred Securities registered in the
name of a person other than the Depository or its nominee only in the limited
circumstances described in the Declaration and no transfer of this Preferred
Security (other than a transfer of this Preferred Security as a whole by the
Depository to a nominee of the Depository or by a nominee of the Depository to
the Depository or another nominee of the Depository) may be registered except in
limited circumstances.
Unless this Preferred Security Certificate is presented by an
authorized representative of the Depository to the Trust or its agent for
registration of transfer, exchange or payment, and any Preferred Security
Certificate issued is registered in the name of Cede & Co. or such other name as
requested by an authorized representative of the Depository (and any payment
hereon is made to Cede & Co. or to such other entity as is requested by an
authorized representative of the Depository), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the
registered owner hereof, Cede & Co., has an interest herein.]
Certificate Number Number of Preferred Securities
CUSIP NO.
Certificate Evidencing Preferred Securities
of
CONSECO FINANCING TRUST I
____% Trust Originated Preferred SecuritiesSM ("TOPrS"SM)
(liquidation amount $25 per Preferred Security)
CONSECO FINANCING TRUST I, a statutory business trust formed under the
laws of the State of Delaware (the "Trust"), hereby certifies that
_______________________________ (the "Holder") is the registered owner of
preferred securities of the Trust representing undivided beneficial interests in
the assets of the Trust designated the ___% Trust Originated Preferred
SecuritiesSM (liquidation amount $25 per Preferred Security) (the "Preferred
Securities"). The Preferred Securities are transferable on the books and records
of the Trust, in person or by a duly authorized attorney, upon surrender of this
certificate duly endorsed and in proper form for transfer. The designation,
rights, privileges, restrictions, preferences and other terms and
A1-1
<PAGE> 68
provisions of the Preferred Securities represented hereby are issued and shall
in all respects be subject to the provisions of the Amended and Restated
Declaration of Trust of the Trust dated as of November __, 1996, as the same
may be amended from time to time (the "Declaration"), including the
designation of the terms of the Preferred Securities as set forth in Annex I
to the Declaration. Capitalized terms used herein but not defined shall have
the meaning given them in the Declaration. The Holder is entitled to the
benefits of the Preferred Securities Guarantee to the extent provided
therein. The Sponsor will provide a copy of the Declaration, the Preferred
Securities Guarantee and the Indenture to a Holder without charge upon
written request to the Sponsor at its principal place of business.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal
income tax purposes, the Debentures as indebtedness and the Preferred Securities
as evidence of indirect beneficial ownership in the Debentures.
IN WITNESS WHEREOF, the Trust has executed this certificate this _____ day of
___________________, 199___.
CONSECO FINANCING TRUST I
By: _________________________________________
Name: _______________________________________
Title: Regular Trustee
A1-2
<PAGE> 69
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Preferred Security will be fixed
at a rate per annum of ____% (the "Coupon Rate") of the stated liquidation
amount of $25 per Preferred Security, such rate being the rate of interest
payable on the Debentures to be held by the Property Trustee. Distributions in
arrears for more than one quarter will bear interest thereon compounded
quarterly at the Coupon Rate (to the extent permitted by applicable law). The
term "Distributions" as used herein includes such cash distributions and any
such interest payable unless otherwise stated. A Distribution is payable only to
the extent that payments are made in respect of the Debentures held by the
Property Trustee and to the extent the Property Trustee has funds available
therefor. The amount of Distributions payable for any period will be computed
for any full quarterly Distribution period on the basis of a 360-day year of
twelve 30-day months, and for any period shorter than a full quarterly
Distribution period for which Distributions are computed, Distributions will be
computed on the basis of the actual number of days elapsed per 90-day quarter.
Except as otherwise described below, distributions on the
Preferred Securities will be cumulative, will accrue from the date of
original issuance and will be payable quarterly in arrears, on March 31, June
30, September 30 and December 31 of each year, commencing on December 31, 1996,
which payment dates shall correspond to the interest payment dates on the
Debentures. The Debenture Issuer has the right under the Indenture to defer
payments of interest by extending the interest payment period from time to time
on the Debentures for a period not exceeding 20 consecutive quarters (each an
"Extension Period") and, as a consequence of such deferral, Distributions will
also be deferred. Despite such deferral, quarterly Distributions will continue
to accrue with interest thereon (to the extent permitted by applicable law) at
the Coupon Rate compounded quarterly during any such Extension Period. Prior to
the termination of any such Extension Period, the Debenture Issuer may further
extend such Extension Period; provided that such Extension Period together with
all such previous and further extensions thereof may not exceed 20 consecutive
quarters. Payments of accrued Distributions will be payable to Holders as they
appear on the books and records of the Trust on the first record date after the
end of the Extension Period. Upon the termination of any Extension Period and
the payment of all amounts then due, the Debenture Issuer may commence a new
Extension Period, subject to the above requirements.
The Preferred Securities shall be redeemable as provided in
the Declaration.
A1-3
<PAGE> 70
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred
Security Certificate to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax identification number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints
________________________________________________________________________________
________________________________________________________________________________
___________________________________________ agent to transfer this Preferred
Security Certificate on the books of the Trust. The agent may substitute another
to act for him or her.
Date: __________________
Signature: _____________________________
(Sign exactly as your name appears on the other side of this Preferred Security
Certificate)
A1-4
<PAGE> 71
EXHIBIT A-2
FORM OF COMMON SECURITY CERTIFICATE
Certificate Number Number of Common Securities
Certificate Evidencing Common Securities
of
CONSECO FINANCING TRUST I
____% Trust Originated Common Securities
(liquidation amount $25 per Common Security)
CONSECO FINANCING TRUST I, a statutory business trust formed
under the laws of the State of Delaware (the "Trust"), hereby certifies that
___________________ (the "Holder") is the registered owner of common securities
of the Trust representing common undivided beneficial interests in the assets of
the Trust designated the ____% Trust Originated Common Securities (liquidation
amount $25 per Common Security) (the "Common Securities"). The Common Securities
are transferable on the books and records of the Trust, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer. The designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Common Securities represented
hereby are issued and shall in all respects be subject to the provisions of the
Amended and Restated Declaration of Trust of the Trust dated as of November __,
1996, as the same may be amended from time to time (the "Declaration"),
including the designation of the terms of the Common Securities as set forth in
Annex I to the Declaration. Capitalized terms used herein but not defined shall
have the meaning given them in the Declaration. The Holder is entitled to the
benefits of the Common Securities Guarantee to the extent provided therein. The
Sponsor will provide a copy of the Declaration, the Common Securities Guarantee
and the Indenture to a Holder without charge upon written request to the Sponsor
at its principal place of business.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States
federal income tax purposes, the Debentures as indebtedness and the Common
Securities as evidence of indirect beneficial ownership in the Debentures.
A2-1
<PAGE> 72
IN WITNESS WHEREOF, the Trust has executed this certificate this _____ day of
________________, 199___.
CONSECO FINANCING TRUST I
By:_______________________________
Name:_____________________________
Title: Regular Trustee
A2-2
<PAGE> 73
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Common Security will be fixed at
a rate per annum of _____% (the "Coupon Rate") of the stated liquidation amount
of $25 per Common Security, such rate being the rate of interest payable on the
Debentures to be held by the Property Trustee. Distributions in arrears for more
than one quarter will bear interest thereon compounded quarterly at the Coupon
Rate (to the extent permitted by applicable law). The term "Distributions" as
used herein includes such cash distributions and any such interest payable
unless otherwise stated. A Distribution is payable only to the extent that
payments are made in respect of the Debentures held by the Property Trustee
and to the extent the Property Trustee has funds available therefor. The
amount of Distributions payable for any period will be computed for any full
quarterly Distribution period on the basis of a 360-day year of twelve 30-day
months, and for any period shorter than a full quarterly Distribution period for
which Distributions are computed, Distributions will be computed on the basis of
the actual number of days elapsed per 90-day quarter.
Except as otherwise described below, distributions on the
Common Securities will be cumulative, will accrue from the date of original
issuance and will be payable quarterly in arrears, on March 31, June 30,
September 30 and December 31 of each year, commencing on December 31, 1996, to
Holders of record fifteen (15) days prior to such payment dates, which payment
dates shall correspond to the interest payment dates on the Debentures. The
Debentures Issuer has the right under the Indenture to defer payments of
interest by extending the interest payment period from time to time on the
Debentures for a period not exceeding 20 consecutive quarters (each an
"Extension Period") and, as a consequence of such deferral, Distributions will
also be deferred. Despite such deferral, quarterly Distributions will continue
to accrue with interest thereon (to the extent permitted by applicable law) at
the Coupon Rate compounded quarterly during any such Extension Period. Prior to
the termination of any such Extension Period, the Debenture Issuer may further
extend such Extension Period; provided that such Extension Period together with
all such previous and further extensions thereof may not exceed 20 consecutive
quarters. Payments of accrued Distributions will be payable to Holders as they
appear on the books and records of the Trust on the first record date after
the end of the Extension Period. Upon the termination of any Extension
Period and the Payment of all amounts then due, the Debenture Issuer may
commence a new Extension Period, subject to the above requirements.
The Common Securities shall be redeemable as provided in the
Declaration.
A2-3
<PAGE> 74
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security
Certificate to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax identification number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints
________________________________________________________________________________
________________________________________________________________________________
______________________________________________________________agent to transfer
this Common Security Certificate on the books of the Trust. The agent ma
substitute another to act for him or her.
Date: ________________________
Signature: ______________________
(Sign exactly as your name appears on the other side of this Common Security
Certificate)
A2-4
<PAGE> 1
EX-4.11
-----------------------------------------------------------------
PREFERRED SECURITIES GUARANTEE AGREEMENT
CONSECO FINANCING TRUST I
Dated as of ___________, 1996
----------------------------------------------------------------
<PAGE> 2
CROSS REFERENCE TABLE*
<TABLE>
<CAPTION>
Section of Trust Section of
Indenture Act of Guarantee
1939, as amended Agreement
- ---------------- ---------
<S> <C>
310(a) ......................................................................................................4.1(a)
310(b) ......................................................................................................4.1(c)
310(c) ................................................................................................Inapplicable
311(a) ......................................................................................................2.2(b)
311(b) ......................................................................................................2.2(b)
311(c) ................................................................................................Inapplicable
312(a) ......................................................................................................2.2(a)
312(b) ......................................................................................................2.2(b)
312(c) ......................................................................................................2.9
313(a) ......................................................................................................2.3
313(b) ......................................................................................................2.3
313(c) ......................................................................................................2.3
313(d) ......................................................................................................2.3
314(a) ......................................................................................................2.4
314(b) ................................................................................................Inapplicable
314(c) ......................................................................................................2.5
314(d) ................................................................................................Inapplicable
314(e) .........................................................................................................2.5
314(f) ................................................................................................Inapplicable
315(a) ..............................................................................................3.1(d); 3.2(a)
315(b) ......................................................................................................2.7(a)
315(c) ......................................................................................................3.1(c)
315(d) ......................................................................................................3.1(d)
316(a) .................................................................................................2.6; 5.4(a)
317(a) ...................................................................................................2.10; 5.4
318(a) ......................................................................................................2.1(b)
</TABLE>
- ----------------------
* This Cross-Reference Table does not constitute part of the Guarantee Agreement
and shall not have any bearing upon the interpretation of any of its terms or
provisions.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I INTERPRETATION AND DEFINITIONS
SECTION 1.1 Interpretation and Definitions................................................1
ARTICLE II TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application..............................................4
SECTION 2.2 Lists of Holders of Securities................................................4
SECTION 2.3 Reports by Preferred Guarantee Trustee........................................4
SECTION 2.4 Periodic Reports to Preferred Guarantee Trustee...............................5
SECTION 2.5 Evidence of Compliance with Conditions Precedent..............................5
SECTION 2.6 Guarantee Event of Default; Waiver............................................5
SECTION 2.7 Guarantee Event of Default; Notice............................................5
SECTION 2.8 Conflicting Interests.........................................................5
ARTICLE III POWERS, DUTIES AND RIGHTS OFPREFERRED GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of Preferred Guarantee Trustee..............................5
SECTION 3.2 Certain Rights of Preferred Guarantee Trustee.................................7
SECTION 3.3 Not Responsible for Recitals or Issuance of Guarantee.........................8
ARTICLE IV PREFERRED GUARANTEE TRUSTEE
SECTION 4.1 Preferred Guarantee Trustee; Eligibility......................................8
SECTION 4.2 Appointment, Removal and Resignation of Preferred Guarantee Trustee...........9
ARTICLE V GUARANTEE
SECTION 5.1 Guarantee....................................................................10
SECTION 5.2 Waiver of Notice and Demand..................................................10
SECTION 5.3 Obligations Not Affected.....................................................10
SECTION 5.4 Rights of Holders............................................................11
SECTION 5.5 Guarantee of Payment.........................................................11
SECTION 5.6 Subrogation..................................................................11
SECTION 5.7 Independent Obligations......................................................12
ARTICLE VI LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 Limitation of Transactions...................................................12
SECTION 6.2 Ranking......................................................................12
ARTICLE VII TERMINATION
SECTION 7.1 Termination..................................................................12
ARTICLE VIII INDEMNIFICATION
SECTION 8.1 Exculpation..................................................................13
SECTION 8.2 Indemnification..............................................................13
ARTICLE IX MISCELLANEOUS
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C>
SECTION 9.1 Successors and Assigns.......................................................13
SECTION 9.2 Amendments...................................................................13
SECTION 9.3 Notices......................................................................14
SECTION 9.4 Benefit......................................................................14
SECTION 9.5 Governing Law................................................................14
</TABLE>
ii
<PAGE> 5
PREFERRED SECURITIES GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT (the "Preferred Securities Guarantee"), dated
as of _______, 1996, is executed and delivered by Conseco, Inc., an Indiana
corporation (the "Guarantor"), and Fleet National Bank, as trustee (the
"Preferred Guarantee Trustee"), for the benefit of the Holders (as defined
herein) from time to time of the Preferred Securities (as defined herein) of
Conseco Financing Trust I, a Delaware statutory business trust (the "Issuer").
WHEREAS, pursuant to the Declaration (as defined herein), the Issuer is
issuing on the date hereof [ ] preferred securities, having an aggregate
liquidation amount of $25, designated the ____% Trust Originated Preferred
Securities (the "Preferred Securities");
WHEREAS, as incentive for the Holders to purchase the Preferred
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth in this Preferred Securities Guarantee, to pay to the
Holders of the Preferred Securities the Guarantee Payments (as defined herein)
and to make certain other payments on the terms and conditions set forth herein;
and
WHEREAS, the Guarantor is also executing and delivering a guarantee
agreement (as amended, modified or supplemented from time to time, the "Common
Securities Guarantee") in substantially identical terms to this Preferred
Securities Guarantee for the benefit of the holders of the Common Securities (as
defined herein), except that if an Event of Default (as defined in the
Declaration), has occurred and is continuing, the rights of holders of the
Common Securities to receive payments under the Common Securities Guarantee are
subordinated to the rights of Holders of Preferred Securities to receive
Guarantee Payments under this Preferred Securities Guarantee.
NOW, THEREFORE, in consideration of the purchase by each Holder of
Preferred Securities, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Preferred Securities
Guarantee for the benefit of the Holders.
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 Interpretation and Definitions.
In this Preferred Securities Guarantee, unless the context otherwise
requires:
(a) capitalized terms used in this Preferred Securities Guarantee but
not defined in the preamble above have the respective meanings assigned to them
in this Section 1.1;
(b) a term defined anywhere in this Preferred Securities Guarantee
has the same meaning throughout;
(c) all references to "the Preferred Securities Guarantee" or "this
Preferred Securities Guarantee" are to this Preferred Securities Guarantee as
modified, supplemented or amended from time to time;
(d) all references in this Preferred Securities Guarantee to Articles
and Sections are to Articles and Sections of this Preferred Securities
Guarantee, unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning when
used in this Preferred Securities Guarantee, unless otherwise defined in this
Preferred Securities Guarantee or unless the context otherwise requires; and
<PAGE> 6
(f) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule 405 of
the Securities Act of 1933, as amended, or any successor rule thereunder.
"Business Day" means any day other than a day on which banking
institutions in New York, New York or in the city of the Corporate Trust Office
are authorized or required by law to close.
"Common Securities" means the securities representing common undivided
beneficial interests in the assets of the Issuer.
"Corporate Trust Office" means the office of the Preferred Guarantee
Trustee at which the corporate trust business of the Preferred Guarantee Trustee
shall, at any particular time, be principally administered, which office at the
date of execution of this Preferred Securities Guarantee is located at 777 Main
Street, Hartford, Connecticut 06115, Attention: Corporate Trust Administration.
"Covered Person" means any Holder or beneficial owner of Preferred
Securities.
"Debentures" means the series of subordinated deferrable interest
debentures to be issued by the Guarantor designated the ___% Subordinated
Deferrable Interest Debentures due 2026 held by the Property Trustee (as defined
in the Declaration) of the Issuer.
"Declaration" means the Amended and Restated Declaration of Trust,
dated as of November __, 1996, as amended, modified or supplemented from time
to time, among the trustees of the Issuer named therein, the Guarantor, as
sponsor, and the Holders from time to time of undivided beneficial interests
in the assets of the Issuer.
"Guarantee Event of Default" means a default by the Guarantor on any of
its payment or other obligations under this Preferred Securities Guarantee.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Preferred Securities, to the extent not
paid or made by the Issuer: (i) any accrued and unpaid Distributions (as defined
in the Declaration) that are required to be paid on such Preferred Securities to
the extent the Issuer shall have funds available therefor, (ii) the redemption
price, including all accrued and unpaid Distributions to the date of redemption
(the "Redemption Price") to the extent the Issuer has funds available therefor,
with respect to any Preferred Securities called for redemption by the Issuer,
and (iii) upon a voluntary or involuntary dissolution, winding-up or termination
of the Issuer (other than in connection with the distribution of Debentures to
the Holders in exchange for Preferred Securities as provided in the Declaration
or the redemption of all the Preferred Securities upon maturity or redemption of
the Debentures as provided in the Declaration), the lesser of (a) the aggregate
of the liquidation amount and all accrued and unpaid Distributions on the
Preferred Securities to the date of payment, to the extent the Issuer shall have
funds available therefor, and (b) the amount of assets of the Issuer remaining
available for distribution to Holders in liquidation of the Issuer (in either
case, the "Liquidation Distribution"). If an Event of Default (as defined in the
Declaration) has occurred and is continuing, the rights of holders of the Common
Securities to receive payments under the Common Securities Guarantee are
subordinated to the rights of Holders of Preferred Securities to receive
Guarantee Payments under this Preferred Securities Guarantee.
"Holder" shall mean any holder, as registered on the books and records
of the Issuer of any Preferred Securities; provided, however, that, in
determining whether the holders of the requisite percentage of Preferred
Securities have given any request, notice, consent or waiver hereunder, "Holder"
shall not include the Guarantor or any Affiliate of the Guarantor; and provided
further, that in determining whether the Holders of the requisite liquidation
amount of Preferred Securities have voted on any matter provided for in this
Preferred Securities Guarantee, then for the purpose of
2
<PAGE> 7
such determination only (and not for any other purpose hereunder), if the
Preferred Securities remain in the form of one or more Global Certificates (as
defined in the Declaration), the term "Holders" shall mean the holder of the
Global Certificate acting at the direction of the Preferred Security Beneficial
Owners (as defined in the Declaration).
"Indemnified Person" means the Preferred Guarantee Trustee, any
Affiliate of the Preferred Guarantee Trustee, or any officers, directors,
shareholders, members, partners, employees, representatives, nominees,
custodians or agents of the Preferred Guarantee Trustee.
"Indenture" means the Indenture dated as of November __, 1996, among
the Guarantor (the "Debenture Issuer") and Fleet National Bank, as trustee, and
any indenture supplemental thereto pursuant to which the Debentures are to be
issued to the Property Trustee (as defined in the Declaration) of the Issuer.
"Majority in Liquidation Amount of the Preferred Securities" means,
except as provided in the terms of the Preferred Securities or by the Trust
Indenture Act, Holder(s) of outstanding Preferred Securities, voting separately
as a class, who are the record holders of more than 50% of the aggregate
liquidation amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions to
the date upon which the voting percentages are determined) of all outstanding
Preferred Securities. In determining whether the Holders of the requisite amount
of Preferred Securities have voted, Preferred Securities which are owned by the
Guarantor or any Affiliate of the Guarantor or any other obligor on the
Preferred Securities shall be disregarded (to the extent known to be so owned
by the Preferred Guarantee Trustee) for the purpose of any such
determination.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two Authorized Officers (as defined in the Declaration) of
such Person. Any Officers' Certificate delivered with respect to compliance with
a condition or covenant provided for in this Preferred Securities Guarantee
shall include:
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination
or investigation undertaken by each officer in rendering the Officers'
Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"Preferred Guarantee Trustee" means Fleet National Bank, until a
Successor Preferred Guarantee Trustee has been appointed and has accepted such
appointment pursuant to the terms of this Preferred Securities Guarantee and
thereafter means each such Successor Preferred Guarantee Trustee.
"Responsible Officer" means, with respect to the Preferred Guarantee
Trustee, any officer within the Corporate Trust Office of the Preferred
Guarantee Trustee, including any vice-president, any assistant vice-president,
the secretary, any assistant secretary, the treasurer, any assistant
3
<PAGE> 8
treasurer or other officer of the Corporate Trust Office of the Preferred
Guarantee Trustee customarily performing functions similar to those performed by
any of the above designated officers and also means, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of that officer's knowledge of and familiarity with the
particular subject.
"Successor Preferred Guarantee Trustee" means a successor Preferred
Guarantee Trustee possessing the qualifications to act as Preferred Guarantee
Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended
from time to time, or any successor legislation.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application.
(a) This Preferred Securities Guarantee is subject to the provisions of
the Trust Indenture Act that are required to be part of this Preferred
Securities Guarantee and shall, to the extent applicable, be governed by such
provisions.
(b) If and to the extent that any provision of this Preferred
Securities Guarantee limits, qualifies or conflicts with the duties imposed by
Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties
shall control.
SECTION 2.2 Lists of Holders of Securities.
(a) The Guarantor shall provide the Preferred Guarantee Trustee with a
list, in such form as the Preferred Guarantee Trustee may reasonably require, of
the names and addresses of the Holders of the Preferred Securities ("List of
Holders"), (i) within one Business Day after January 1 and June 30 of each year
and current as of such date, and (ii) at any other time, within 30 days of
receipt by the Guarantor of a written request from the Preferred Guarantee
Trustee for a List of Holders as of a date no more than 14 days before such List
of Holders is given to the Preferred Guarantee Trustee; provided, that the
Guarantor shall not be obligated to provide such List of Holders at any time the
List of Holders does not differ from the most recent List of Holders given to
the Preferred Guarantee Trustee by the Guarantor. The Preferred Guarantee
Trustee shall preserve, in as current a form as is reasonably practicable, all
information contained in Lists of Holders given to it, provided that it may
destroy any List of Holders previously given to it on receipt of a new List of
Holders.
(b) The Preferred Guarantee Trustee shall comply with its obligations
under Section 311(a), 311(b) and Section 312(b) of the Trust Indenture Act.
SECTION 2.3 Reports by Preferred Guarantee Trustee.
Within 60 days after May 15 of each year (commencing with the year of
the first anniversary of the issuance of the Preferred Securities), the
Preferred Guarantee Trustee shall provide to the Holders of the Preferred
Securities such reports as are required by Section 313 of the Trust Indenture
Act, if any, in the form and in the manner provided by Section 313 of the Trust
Indenture Act. The Preferred Guarantee Trustee shall also comply with the
requirements of Section 313(d) of the Trust Indenture Act.
4
<PAGE> 9
SECTION 2.4 Periodic Reports to Preferred Guarantee Trustee.
The Guarantor shall provide to the Preferred Guarantee Trustee such
documents, reports and information as required by Section 314 (if any) of the
Trust Indenture Act and the compliance certificate required by Section 314 of
the Trust Indenture Act in the form, in the manner and at the times required by
Section 314 of the Trust Indenture Act.
SECTION 2.5 Evidence of Compliance with Conditions Precedent.
The Guarantor shall provide to the Preferred Guarantee Trustee such
evidence of compliance with any conditions precedent provided for in
this Preferred Securities Guarantee that relate to any of the matters set forth
in Section 314(c) of the Trust Indenture Act. Any certificate or opinion
required to be given by an officer pursuant to Section 314(c)(1) may be given in
the form of an Officers' Certificate.
SECTION 2.6 Guarantee Event of Default; Waiver.
The Holders of a Majority in Liquidation Amount of the Preferred
Securities may, by vote, on behalf of the Holders of all of the Preferred
Securities, waive any past Guarantee Event of Default and its consequences. Upon
such waiver, any such Guarantee Event of Default shall cease to exist, and any
Guarantee Event of Default arising therefrom shall be deemed to have been cured,
for every purpose of this Preferred Securities Guarantee, but no such waiver
shall extend to any subsequent or other default or Guarantee Event of Default or
impair any right consequent thereon.
SECTION 2.7 Guarantee Event of Default; Notice.
(a) The Preferred Guarantee Trustee shall, within 90 days after the
occurrence of a Guarantee Event of Default, transmit by mail, first class
postage prepaid, to the Holders of the Preferred Securities, notices of all
Guarantee Events of Default actually known to a Responsible Officer of the
Preferred Guarantee Trustee, unless such defaults have been cured before the
giving of such notice; provided, that the Preferred Guarantee Trustee shall be
protected in withholding such notice if and so long as a Responsible Officer of
the Preferred Guarantee Trustee in good faith determines that the withholding of
such notice is in the interests of the Holders of the Preferred Securities.
(b) The Preferred Guarantee Trustee shall not be deemed to have
knowledge of any Guarantee Event of Default unless the Preferred Guarantee
Trustee shall have received written notice thereof, or a Responsible Officer of
the Preferred Guarantee Trustee charged with the administration of the
Declaration shall have obtained actual knowledge thereof.
SECTION 2.8 Conflicting Interests
The Declaration shall be deemed to be specifically described in this
Preferred Securities Guarantee for the purposes of clause (i) of the first
proviso contained in Section 310(b) of the Trust Indenture.
5
<PAGE> 10
ARTICLE III
POWERS, DUTIES AND RIGHTS OF
PREFERRED GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of Preferred Guarantee Trustee.
(a) This Preferred Securities Guarantee shall be held by the Preferred
Guarantee Trustee on behalf of the Issuer for the benefit of the Holders of the
Preferred Securities, and the Preferred Guarantee Trustee shall not transfer
this Preferred Securities Guarantee to any Person except a Holder of Preferred
Securities exercising his or her rights pursuant to Section 5.4(b) or to a
Successor Preferred Guarantee Trustee on acceptance by such Successor Preferred
Guarantee Trustee of its appointment to act as Successor Preferred Guarantee
Trustee. The right, title and interest of the Preferred Guarantee Trustee in and
to this Preferred Securities Guarantee shall automatically vest in any Successor
Preferred Guarantee Trustee, and such vesting and cessation of title shall be
effective whether or not conveyancing documents have been executed and delivered
pursuant to the appointment of such Successor Preferred Guarantee Trustee.
(b) If a Guarantee Event of Default actually known to a Responsible
Officer of the Preferred Guarantee Trustee has occurred and is continuing, the
Preferred Guarantee Trustee shall enforce this Preferred Securities Guarantee
for the benefit of the Holders of the Preferred Securities.
(c) The Preferred Guarantee Trustee, before the occurrence of any
Guarantee Event of Default and after the curing of all Guarantee Events of
Default that may have occurred, shall undertake to perform only such duties as
are specifically set forth in this Preferred Securities Guarantee, and no
implied covenants shall be read into this Preferred Securities Guarantee against
the Preferred Guarantee Trustee. In case a Guarantee Event of Default has
occurred (that has not been cured or waived pursuant to Section 2.6) and is
actually known to a Responsible Officer of the Preferred Guarantee Trustee, the
Preferred Guarantee Trustee shall exercise such of the rights and powers vested
in it by this Preferred Securities Guarantee, and use the same degree of care
and skill in its exercise thereof, as a prudent person would exercise or use
under the circumstances in the conduct of his or her own affairs.
(d) No provision of this Preferred Securities Guarantee shall be
construed to relieve the Preferred Guarantee Trustee from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) prior to the occurrence of any Guarantee Event of Default
and after the curing or waiving of all such Guarantee Events of Default that may
have occurred:
(A) the duties and obligations of the Preferred
Guarantee Trustee shall be determined solely by the express provisions of this
Preferred Securities Guarantee, and the Preferred Guarantee Trustee shall not be
liable except for the performance of such duties and obligations as are
specifically set forth in this Preferred Securities Guarantee, and no implied
covenants or obligations shall be read into this Preferred Securities Guarantee
against the Preferred Guarantee Trustee; and
(B) in the absence of bad faith on the part of
the Preferred Guarantee Trustee, the Preferred Guarantee Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions furnished to the
Preferred Guarantee Trustee and conforming to the requirements of this Preferred
Securities Guarantee; but in the case of any such certificates or opinions that
by any provision hereof are specifically required to be furnished to the
Preferred Guarantee Trustee, the Preferred Guarantee
6
<PAGE> 11
Trustee shall be under a duty to examine the same to determine whether or not
they conform to the requirements of this Preferred Securities Guarantee;
(ii) the Preferred Guarantee Trustee shall not be liable for
any error of judgment made in good faith by a Responsible Officer of the
Preferred Guarantee Trustee, unless it shall be proved that the Preferred
Guarantee Trustee was negligent in ascertaining the pertinent facts upon which
such judgment was made;
(iii) the Preferred Guarantee Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of not less than a Majority in
Liquidation Amount of the Preferred Securities relating to the time, method and
place of conducting any proceeding for any remedy available to the Preferred
Guarantee Trustee, or exercising any trust or power conferred upon the Preferred
Guarantee Trustee under this Preferred Securities Guarantee; and
(iv) no provision of this Preferred Securities Guarantee shall
require the Preferred Guarantee Trustee to expend or risk its own funds or
otherwise incur personal financial liability in the performance of any of its
duties or in the exercise of any of its rights or powers, if the Preferred
Guarantee Trustee shall have reasonable grounds for believing that the repayment
of such funds or liability is not reasonably assured to it under the terms of
this Preferred Securities Guarantee or indemnity, reasonably satisfactory to the
Preferred Guarantee Trustee, against such risk or liability is not reasonably
assured to it.
SECTION 3.2 Certain Rights of Preferred Guarantee Trustee.
(a) Subject to the provisions of Section 3.1:
(i) The Preferred Guarantee Trustee may conclusively rely, and
shall be fully protected in acting or refraining from acting upon, any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and to have
been signed, sent or presented by the proper party or parties.
(ii) Any direction or act of the Guarantor contemplated by
this Preferred Securities Guarantee shall be sufficiently evidenced by an
Officers' Certificate.
(iii) Whenever, in the administration of this Preferred
Securities Guarantee, the Preferred Guarantee Trustee shall deem it desirable
that a matter be proved or established before taking, suffering or omitting any
action hereunder, the Preferred Guarantee Trustee (unless other evidence is
herein specifically prescribed) may, in the absence of bad faith on its part,
request and conclusively rely upon an Officers' Certificate which, upon receipt
of such request, shall be promptly delivered by the Guarantor.
(iv) The Preferred Guarantee Trustee shall have no duty to see
to any recording, filing or registration of any instrument (or any rerecording,
refiling or registration thereof).
(v) The Preferred Guarantee Trustee may consult with counsel,
and the written advice or opinion of such counsel with respect to legal matters
shall be full and complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in accordance with
such advice or opinion. Such counsel may be counsel to the Guarantor or any of
its Affiliates and may include any of its employees. The Preferred Guarantee
Trustee shall have the right at any time to seek instructions concerning the
administration of this Preferred Securities Guarantee from any court of
competent jurisdiction.
7
<PAGE> 12
(vi) The Preferred Guarantee Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by this
Preferred Securities Guarantee at the request or direction of any Holder, unless
such Holder shall have provided to the Preferred Guarantee Trustee such security
and indemnity, reasonably satisfactory to the Preferred Guarantee Trustee,
against the costs, expenses (including attorneys' fees and expenses and the
expenses of the Preferred Guarantee Trustee's agents, nominees or custodians)
and liabilities that might be incurred by it in complying with such request or
direction, including such reasonable advances as may be requested by the
Preferred Guarantee Trustee; provided, that nothing contained in this Section
3.2(a)(vi) shall be taken to relieve the Preferred Guarantee Trustee, upon the
occurrence of a Guarantee Event of Default, of its obligation to exercise the
rights and powers vested in it by this Preferred Securities Guarantee.
(vii) The Preferred Guarantee Trustee shall not be bound to
make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or other
paper or document, but the Preferred Guarantee Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters as it may
see fit.
(viii) The Preferred Guarantee Trustee may execute any of the
trusts or powers hereunder or perform any duties hereunder either directly or by
or through agents, nominees, custodians or attorneys, and the Preferred
Guarantee Trustee shall not be responsible for any misconduct or negligence on
the part of any agent or attorney appointed with due care by it hereunder.
(ix) Any action taken by the Preferred Guarantee Trustee or
its agents hereunder shall bind the Holders of the Preferred Securities, and the
signature of the Preferred Guarantee Trustee or its agents alone shall be
sufficient and effective to perform any such action. No third party shall be
required to inquire as to the authority of the Preferred Guarantee Trustee to so
act or as to its compliance with any of the terms and provisions of this
Preferred Securities Guarantee, both of which shall be conclusively evidenced by
the Preferred Guarantee Trustee's or its agent's taking such action.
(x) Whenever in the administration of this Preferred
Securities Guarantee the Preferred Guarantee Trustee shall deem it desirable to
receive instructions with respect to enforcing any remedy or right or taking any
other action hereunder, the Preferred Guarantee Trustee (i) may request
instructions from the Holders of a Majority in Liquidation Amount of the
Preferred Securities, (ii) may refrain from enforcing such remedy or right or
taking such other action until such instructions are received, and (iii) shall
be protected in conclusively relying on or acting in accordance with such
instructions.
(b) No provision of this Preferred Securities Guarantee shall be deemed
to impose any duty or obligation on the Preferred Guarantee Trustee to perform
any act or acts or exercise any right, power, duty or obligation conferred or
imposed on it in any jurisdiction in which it shall be illegal, or in which the
Preferred Guarantee Trustee shall be unqualified or incompetent in accordance
with applicable law, to perform any such act or acts or to exercise any such
right, power, duty or obligation. No permissive power or authority available to
the Preferred Guarantee Trustee shall be construed to be a duty.
SECTION 3.3 Not Responsible for Recitals or Issuance of Guarantee.
The recitals contained in this Preferred Securities Guarantee shall be
taken as the statements of the Guarantor, and the Preferred Guarantee Trustee
does not assume any responsibility for their correctness. The Preferred
Guarantee Trustee makes no representation as to the validity or sufficiency of
this Preferred Securities Guarantee.
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ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
SECTION 4.1 Preferred Guarantee Trustee; Eligibility.
(a) There shall at all times be a Preferred Guarantee Trustee
which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under the
laws of the United States of America or any State or Territory thereof or of the
District of Columbia, or a corporation or Person permitted by the Securities and
Exchange Commission to act as an institutional trustee under the Trust Indenture
Act, authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least 50 million U.S. dollars ($50,000,000),
and subject to supervision or examination by Federal, State, Territorial or
District of Columbia authority. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of the
supervising or examining authority referred to above, then, for the purposes of
this Section 4.1(a)(ii), the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published.
(b) If at any time the Preferred Guarantee Trustee shall cease to be
eligible to so act under Section 4.1(a), the Preferred Guarantee Trustee shall
immediately resign in the manner and with the effect set out in Section 4.2(c).
(c) If the Preferred Guarantee Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
SECTION 4.2 Appointment, Removal and Resignation of Preferred Guarantee
Trustee.
(a) Subject to Section 4.2(b), the Preferred Guarantee Trustee may
be appointed or removed without cause at any time by the Guarantor.
(b) The Preferred Guarantee Trustee shall not be removed in accordance
with Section 4.2(a) until a Successor Preferred Guarantee Trustee has been
appointed and has accepted such appointment by written instrument executed by
such Successor Preferred Guarantee Trustee and delivered to the Guarantor.
(c) The Preferred Guarantee Trustee appointed to office shall hold
office until a Successor Preferred Guarantee Trustee shall have been appointed
or until its removal or resignation. The Preferred Guarantee Trustee may resign
from office (without need for prior or subsequent accounting) by an instrument
in writing executed by the Preferred Guarantee Trustee and delivered to the
Guarantor, which resignation shall not take effect until a Successor Preferred
Guarantee Trustee has been appointed and has accepted such appointment by
instrument in writing executed by such Successor Preferred Guarantee Trustee and
delivered to the Guarantor and the resigning Preferred Guarantee Trustee.
(d) If no Successor Preferred Guarantee Trustee shall have been
appointed and accepted appointment as provided in this Section 4.2 within 60
days after delivery to the Guarantor of an instrument of resignation, the
resigning Preferred Guarantee Trustee may petition any court of competent
jurisdiction for appointment of a Successor Preferred Guarantee Trustee.
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Such court may thereupon, after prescribing such notice, if any, as it may deem
proper, appoint a Successor Preferred Guarantee Trustee.
(e) No Preferred Guarantee Trustee shall be liable for the acts or
omissions to act of any Successor Preferred Guarantee Trustee.
(f) Upon termination of this Preferred Securities Guarantee or removal
or resignation of the Preferred Guarantee Trustee pursuant to this Section 4.2,
the Guarantor shall pay to the Preferred Guarantee Trustee all amounts owing for
fees and reimbursement of expenses which have accrued to the date of such
termination, removal or resignation.
ARTICLE V
GUARANTEE
SECTION 5.1 Guarantee.
The Guarantor irrevocably and unconditionally agrees to pay in full to
the Holders the Guarantee Payments (without duplication of amounts theretofore
paid by the Issuer), as and when due, regardless of any defense, right of
set-off or counterclaim that the Issuer may have or assert. The Guarantor's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by the Guarantor to the Holders or by causing the Issuer to pay
such amounts to the Holders.
SECTION 5.2 Waiver of Notice and Demand.
The Guarantor hereby waives notice of acceptance of this Preferred
Securities Guarantee and of any liability to which it applies or may apply,
presentment, demand for payment, any right to require a proceeding first against
the Issuer or any other Person before proceeding against the Guarantor, protest,
notice of nonpayment, notice of dishonor, notice of redemption and all other
notices and demands. Notwithstanding anything to the contrary herein, the
Guarantor retains all of its rights under the Indenture to (i) extend the
interest payment period on the Debentures and the Guarantor shall not be
obligated hereunder to make any Guarantee Payments during any Extended Interest
Payment Period (as defined in the Indenture) with respect to the Distributions
(as defined in the Declaration) on the Preferred Securities, and (ii) change the
maturity date of the Debentures to the extent permitted by the Indenture.
SECTION 5.3 Obligations Not Affected.
The obligations, covenants, agreements and duties of the Guarantor
under this Preferred Securities Guarantee shall be absolute and unconditional
and shall remain in full force and effect until the entire liquidation amount of
all outstanding Preferred Securities shall have been paid and such obligation
shall in no way be affected or impaired by reason of the happening from time to
time of any event, including without limitation, the following, whether or not
with notice to, or the consent of, the Guarantor:
(a) The release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied agreement,
covenant, term or condition relating to the Preferred Securities to be performed
or observed by the Issuer;
(b) The extension of time for the payment by the Issuer of all or any
portion of the Distributions, Redemption Price, Liquidation Distribution or any
other sums payable under the terms of the Preferred Securities or the extension
of time for the performance of any other obligation under, arising out of, or in
connection with, the Preferred Securities (other than an extension of
10
<PAGE> 15
time for payment of Distributions, Redemption Price, Liquidation Distribution or
other sum payable that results from the extension of any interest payment period
on the Debentures or any change to the maturity date of the Debentures permitted
by the Indenture);
(c) Any failure, omission, delay or lack of diligence on the part of
the Property Trustee or the Holders to enforce, assert or exercise any right,
privilege, power or remedy conferred on the Property Trustee or the Holders
pursuant to the terms of the Preferred Securities, or any action on the part of
the Issuer granting indulgence or extension of any kind;
(d) The voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Issuer or any of the assets of the
Issuer;
(e) Any invalidity of, or defect or deficiency in, the Preferred
Securities;
(f) The settlement or compromise of any obligation guaranteed
hereby or hereby incurred; or
(g) Any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 5.3 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances. There shall be no
obligation of the Preferred Guarantee Trustee or the Holders to give notice to,
or obtain consent of, the Guarantor or any other Person with respect to the
happening of any of the foregoing. No setoff, counterclaim, reduction or
diminution of any obligation, or any defense of any kind or nature that the
Guarantor has or may have against any Holder shall be available hereunder to the
Guarantor against such Holder to reduce the payments to it under this Preferred
Securities Guarantee.
SECTION 5.4 Rights of Holders.
(a) The Holders of a Majority in Liquidation Amount of the Preferred
Securities have the right to direct the time, method and place of conducting of
any proceeding for any remedy available to the Preferred Guarantee Trustee in
respect of this Preferred Securities Guarantee or exercising any trust or power
conferred upon the Preferred Guarantee Trustee under this Preferred Securities
Guarantee.
(b) If the Preferred Guarantee Trustee fails to enforce this Preferred
Securities Guarantee, then any Holder of Preferred Securities may institute a
legal proceeding directly against the Guarantor to enforce the Preferred
Guarantee Trustee's rights under this Preferred Securities Guarantee without
first instituting a legal proceeding against the Issuer, the Preferred Guarantee
Trustee or any other person or entity. Notwithstanding the foregoing, if the
Guarantor has failed to make a Guarantee Payment, a Holder of Preferred
Securities may directly institute a proceeding against the Guarantor for
enforcement of the Preferred Securities Guarantee for such payment to the Holder
of the Preferred Securities of the principal of or interest on the Debentures on
or after the respective due dates specified in the Debentures, and the amount of
the payment will be based on the Holder's pro rata share of the amount due and
owing on all of the Preferred Securities. The Guarantor hereby waives any right
or remedy to require that any action on this Preferred Securities Guarantee be
brought first against the Issuer or any other person or entity before proceeding
directly against the Guarantor.
SECTION 5.5 Guarantee of Payment.
This Preferred Securities Guarantee creates a guarantee of payment and
not of collection.
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SECTION 5.6 Subrogation.
The Guarantor shall be subrogated to all (if any) rights of the Holders
of Preferred Securities against the Issuer in respect of any amounts paid to
such Holders by the Guarantor under this Preferred Securities Guarantee;
provided, however, that the Guarantor shall not (except to the extent required
by mandatory provisions of law) be entitled to enforce or exercise any right
that it may acquire by way of subrogation or any indemnity, reimbursement or
other agreement, in all cases as a result of payment under this Preferred
Securities Guarantee, if, at the time of any such payment, any amounts are due
and unpaid under this Preferred Securities Guarantee. If any amount shall be
paid to the Guarantor in violation of the preceding sentence, the Guarantor
agrees to hold such amount in trust for the Holders and to pay over such amount
to the Preferred Guarantee Trustee for the benefit of the Holders.
SECTION 5.7 Independent Obligations.
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the Preferred
Securities, and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Preferred
Securities Guarantee notwithstanding the occurrence of any event referred to in
subsections (a) through (g), inclusive, of Section 5.3 hereof.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 Limitation of Transactions.
So long as any Preferred Securities remain outstanding, if there shall
have occurred a Guarantee Event of Default or an event of default under the
Declaration, then (a) the Guarantor shall not declare or pay any dividend on,
make any distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock, (b) the Guarantor
shall not make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities (including guarantees) issued by
the Guarantor which rank pari passu with or junior to the Debentures and (c) the
Guarantor shall not make any guarantee payments with respect to the foregoing
(other than pursuant to this Preferred Securities Guarantee); provided, however,
the Guarantor may declare and pay a stock dividend where the stock dividend is
the same stock as that on which the dividend is being paid or (ii) purchase or
acquire shares of its common stock in connection with the satisfaction by the
Guarantor of its obligations under any employee benefit plans.
SECTION 6.2 Ranking.
This Preferred Securities Guarantee will constitute an unsecured
obligation of the Guarantor and will rank (i) subordinate and junior in right of
payment to all other liabilities of the Guarantor, except those liabilities of
the Guarantor made pari passu or subordinate by their terms, (ii) pari passu
with the most senior preferred or preference stock now or hereafter issued by
the Guarantor and with any guarantee now or hereafter entered into by the
Guarantor in respect of any preferred or preference stock of any Affiliate of
the Guarantor, and (iii) senior to the Guarantor's common stock.
If an Event of Default has occurred and is continuing under the
Declaration, the rights of the holders of the Common Securities to receive any
payments under the Common Securities Guarantee Agreement shall be subordinated
to the rights of the Holders of Preferred Securities to receive Guarantee
Payments hereunder.
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ARTICLE VII
TERMINATION
SECTION 7.1 Termination.
This Preferred Securities Guarantee shall terminate upon (i) full
payment of the Redemption Price of all Preferred Securities, (ii) upon the
distribution of the Debentures to the Holders of all of the Preferred Securities
or (iii) upon full payment of the amounts payable in accordance with the
Declaration upon liquidation of the Issuer. Notwithstanding the foregoing, this
Preferred Securities Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any Holder of Preferred
Securities must restore payment of any sums paid under the Preferred Securities
or under this Preferred Securities Guarantee.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 Exculpation.
(a) No Indemnified Person shall be liable, responsible or accountable
in damages or otherwise to the Guarantor or any Covered Person for any loss,
damage or claim incurred by reason of any act or omission performed or omitted
by such Indemnified Person in good faith in accordance with this Preferred
Securities Guarantee and in a manner that such Indemnified Person reasonably
believed to be within the scope of the authority conferred on such Indemnified
Person by this Preferred Securities Guarantee or by law, except that an
Indemnified Person shall be liable for any such loss, damage or claim incurred
by reason of such Indemnified Person's negligence or willful misconduct with
respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Guarantor and upon such information, opinions,
reports or statements presented to the Guarantor by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Guarantor, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Preferred Securities might properly be paid.
SECTION 8.2 Indemnification.
The Guarantor agrees to indemnify each Indemnified Person for, and to
hold each Indemnified Person harmless against, any loss, liability or expense
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses (including reasonable legal fees and
expenses) of defending itself against, or investigating, any claim or liability
in connection with the exercise or performance of any of its powers or duties
hereunder. The obligation to indemnify as set forth in this Section 8.2 shall
survive the termination of this Preferred Securities Guarantee.
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ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Successors and Assigns.
All guarantees and agreements contained in this Preferred Securities
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
of the Preferred Securities then outstanding.
SECTION 9.2 Amendments.
Except with respect to any changes that do not adversely affect the
rights of the Holders (in which case no consent of the Holders will be
required), this Preferred Securities Guarantee may only be amended with the
prior approval of the Holders of at least a Majority in Liquidation Amount of
the Preferred Securities. The provisions of Section 12.2 of the Declaration with
respect to meetings of, and action by written consent of, the Holders of the
Securities apply to the giving of such approval.
SECTION 9.3 Notices.
All notices provided for in this Preferred Securities Guarantee shall
be in writing, duly signed by the party giving such notice, and shall be
delivered, telecopied or mailed by registered or certified mail, as follows:
(a) If given to the Preferred Guarantee Trustee, at the Preferred
Guarantee Trustee's mailing address set forth below (or such other address as
the Preferred Guarantee Trustee may give notice of to the Guarantor and the
Holders of the Preferred Securities):
(b) If given to the Guarantor, at the Guarantor's mailing address set
forth below (or such other address as the Guarantor may give notice of to the
Preferred Guarantee Trustee and the Holders of the Preferred Securities):
(c) If given to any Holder of Preferred Securities, at the address
set forth on the books and records of the Issuer.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.
SECTION 9.4 Benefit.
This Preferred Securities Guarantee is solely for the benefit of the
Holders of the Preferred Securities and, subject to Section 3.1(a), is not
separately transferable from the Preferred Securities.
SECTION 9.5 Governing Law.
THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
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<PAGE> 19
IN WITNESS WHEREOF, this Preferred Securities Guarantee is executed as
of the day and year first above written.
CONSECO, INC., as Guarantor
By:___________________________
Name:___________________________
Title:___________________________
FLEET NATIONAL BANK,
as Preferred Guarantee Trustee
By:___________________________
Name:___________________________
Title:___________________________
15
<PAGE> 1
EXHIBIT 4.15
FORM OF PREFERRED SECURITY CERTIFICATE
[IF THE PREFERRED SECURITY IS TO BE A GLOBAL CERTIFICATE
INSERT - This Preferred Security is a Global Certificate within the meaning of
the Declaration hereinafter referred to and is registered in the name of The
Depository Trust Company (the "Depository") or a nominee of the Depository. This
Preferred Security is exchangeable for Preferred Securities registered in the
name of a person other than the Depository or its nominee only in the limited
circumstances described in the Declaration and no transfer of this Preferred
Security (other than a transfer of this Preferred Security as a whole by the
Depository to a nominee of the Depository or by a nominee of the Depository to
the Depository or another nominee of the Depository) may be registered except in
limited circumstances.
Unless this Preferred Security Certificate is presented by an
authorized representative of the Depository to the Trust or its agent for
registration of transfer, exchange or payment, and any Preferred Security
Certificate issued is registered in the name of Cede & Co. or such other name as
requested by an authorized representative of the Depository (and any payment
hereon is made to Cede & Co. or to such other entity as is requested by an
authorized representative of the Depository), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the
registered owner hereof, Cede & Co., has an interest herein.]
Certificate Number Number of Preferred Securities
CUSIP NO.
Certificate Evidencing Preferred Securities
of
CONSECO FINANCING TRUST I
____% Trust Originated Preferred SecuritiesSM ("TOPrS"SM)
(liquidation amount $25 per Preferred Security)
CONSECO FINANCING TRUST I, a statutory business trust formed under the
laws of the State of Delaware (the "Trust"), hereby certifies that
_______________________________ (the "Holder") is the registered owner of
preferred securities of the Trust representing undivided beneficial interests in
the assets of the Trust designated the ___% Trust Originated Preferred
SecuritiesSM (liquidation amount $25 per Preferred Security) (the "Preferred
Securities"). The Preferred Securities are transferable on the books and records
of the Trust, in person or by a duly authorized attorney, upon surrender of this
certificate duly endorsed and in proper form for transfer. The designation,
rights, privileges, restrictions, preferences and other terms and
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<PAGE> 2
provisions of the Preferred Securities represented hereby are issued and shall
in all respects be subject to the provisions of the Amended and Restated
Declaration of Trust of the Trust dated as of November __, 1996, as the same
may be amended from time to time (the "Declaration"), including the
designation of the terms of the Preferred Securities as set forth in Annex I
to the Declaration. Capitalized terms used herein but not defined shall have
the meaning given them in the Declaration. The Holder is entitled to the
benefits of the Preferred Securities Guarantee to the extent provided
therein. The Sponsor will provide a copy of the Declaration, the Preferred
Securities Guarantee and the Indenture to a Holder without charge upon
written request to the Sponsor at its principal place of business.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal
income tax purposes, the Debentures as indebtedness and the Preferred Securities
as evidence of indirect beneficial ownership in the Debentures.
IN WITNESS WHEREOF, the Trust has executed this certificate this _____ day of
___________________, 199___.
CONSECO FINANCING TRUST I
By: _________________________________________
Name: _______________________________________
Title: Regular Trustee
2
<PAGE> 3
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Preferred Security will be fixed
at a rate per annum of ____% (the "Coupon Rate") of the stated liquidation
amount of $25 per Preferred Security, such rate being the rate of interest
payable on the Debentures to be held by the Property Trustee. Distributions in
arrears for more than one quarter will bear interest thereon compounded
quarterly at the Coupon Rate (to the extent permitted by applicable law). The
term "Distributions" as used herein includes such cash distributions and any
such interest payable unless otherwise stated. A Distribution is payable only to
the extent that payments are made in respect of the Debentures held by the
Property Trustee and to the extent the Property Trustee has funds available
therefor. The amount of Distributions payable for any period will be computed
for any full quarterly Distribution period on the basis of a 360-day year of
twelve 30-day months, and for any period shorter than a full quarterly
Distribution period for which Distributions are computed, Distributions will be
computed on the basis of the actual number of days elapsed per 90-day quarter.
Except as otherwise described below, distributions on the
Preferred Securities will be cumulative, will accrue from the date of
original issuance and will be payable quarterly in arrears, on March 31, June
30, September 30 and December 31 of each year, commencing on December 31, 1996,
which payment dates shall correspond to the interest payment dates on the
Debentures. The Debenture Issuer has the right under the Indenture to defer
payments of interest by extending the interest payment period from time to time
on the Debentures for a period not exceeding 20 consecutive quarters (each an
"Extension Period") and, as a consequence of such deferral, Distributions will
also be deferred. Despite such deferral, quarterly Distributions will continue
to accrue with interest thereon (to the extent permitted by applicable law) at
the Coupon Rate compounded quarterly during any such Extension Period. Prior to
the termination of any such Extension Period, the Debenture Issuer may further
extend such Extension Period; provided that such Extension Period together with
all such previous and further extensions thereof may not exceed 20 consecutive
quarters. Payments of accrued Distributions will be payable to Holders as they
appear on the books and records of the Trust on the first record date after the
end of the Extension Period. Upon the termination of any Extension Period and
the payment of all amounts then due, the Debenture Issuer may commence a new
Extension Period, subject to the above requirements.
The Preferred Securities shall be redeemable as provided in
the Declaration.
3
<PAGE> 4
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred
Security Certificate to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax identification number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints
________________________________________________________________________________
________________________________________________________________________________
___________________________________________ agent to transfer this Preferred
Security Certificate on the books of the Trust. The agent may substitute another
to act for him or her.
Date: __________________
Signature: _____________________________
(Sign exactly as your name appears on the other side of this Preferred Security
Certificate)
4
<PAGE> 1
EX-4.16
---------------------------------------------------------------
FIRST SUPPLEMENTAL INDENTURE
between
CONSECO, INC.
and
FLEET NATIONAL BANK, AS TRUSTEE
Dated as of November , 1996
---------------------------------------------------------------
<PAGE> 2
<TABLE>
<CAPTION>
ARTICLE I
DEFINITIONS
<S> <C> <C>
SECTION 1.1. Definition of Terms.................................................................. 2
ARTICLE II
GENERAL TERMS AND CONDITIONS OF THE DEBENTURES
SECTION 2.1. Designation and Principal Amount; Purchase Price; Payment of
Principal; Global Securities......................................................... 4
SECTION 2.2. Maturity............................................................................. 5
SECTION 2.3. Form and Payment. ................................................................... 6
SECTION 2.4. Global Debenture. ................................................................... 6
SECTION 2.5. Interest............................................................................. 7
SECTION 2.6. Authorized Denominations............................................................. 8
SECTION 2.7. Redemption........................................................................... 9
SECTION 2.8 Defeasance........................................................................... 9
SECTION 2.9 No Sinking Fund...................................................................... 9
SECTION 2.10 Depository........................................................................... 9
ARTICLE III
REDEMPTION OF THE DEBENTURES
SECTION 3.1. Special Event Redemption............................................................. 9
SECTION 3.2. Optional Redemption. ................................................................ 9
SECTION 3.3. Partial Redemption................................................................... 10
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.1. Extension of Interest Payment Period................................................. 10
SECTION 4.2. Notice of Extension. ................................................................ 11
SECTION 4.3. Limitation of Transactions. ......................................................... 11
ARTICLE V
EXPENSES
SECTION 5.1. Payment of Expenses.................................................................. 12
SECTION 5.2. Payment Upon Resignation or Removal.................................................. 13
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE VI
COVENANT TO LIST ON EXCHANGE
SECTION 6.1. Listing on an Exchange. ............................................................. 13
ARTICLE VII
FORM OF DEBENTURE
SECTION 7.1. Form of Debenture.................................................................... 13
ARTICLE VIII
ORIGINAL ISSUE OF DEBENTURES
SECTION 8.1. Original Issue of Debentures......................................................... 21
SECTION 8.2. Reports by the Trustee............................................................... 21
ARTICLE IX
COVENANTS
SECTION 9.1. Covenants as to Trust................................................................ 21
ARTICLE X
DEFAULT
SECTION 10.1. Additional Event of Default.......................................................... 22
SECTION 10.2. Limitations on Waivers and Consents.................................................. 22
SECTION 10.3. Acknowledgment of Rights............................................................. 23
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Ratification of Indenture............................................................ 23
SECTION 11.2. Trustee Not Responsible for Recitals................................................. 23
SECTION 11.3. Governing Law........................................................................ 23
SECTION 11.4. Separability......................................................................... 24
SECTION 11.5. Counterparts......................................................................... 24
SECTION 11.6. Effect of Headings................................................................... 24
</TABLE>
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<PAGE> 4
FIRST SUPPLEMENTAL INDENTURE dated as of November , 1996 (the "First
Supplemental Indenture") between Conseco, Inc., an Indiana corporation (the
"Issuer"), and Fleet National Bank, as trustee (the "Trustee") under the
Indenture dated as of November ___, 1996 between the Issuer and the Trustee (the
"Indenture").
WHEREAS, the Issuer executed and delivered the Indenture to the Trustee
to provide for the future issuance of the Issuer's unsecured subordinated
debentures, notes or other evidence of indebtedness (the "Securities") to be
issued from time to time in one or more series as might be determined by the
Issuer under the Indenture, in an unlimited aggregate principal amount which may
be authenticated and delivered as provided in the Indenture;
WHEREAS, pursuant to the terms of the Indenture, the Issuer desires to
provide for the establishment of a new series of its Securities to be known as
its _____% Subordinated Deferrable Interest Debentures due 2026 (the
"Debentures"), the form and substance of such Debentures and the terms,
provisions and conditions thereof to be set forth as provided in the Indenture
and this First Supplemental Indenture;
WHEREAS, Conseco Financing Trust I, a Delaware statutory business trust
(the "Trust"), is offering to the public $___________ aggregate liquidation
amount of its _____% Trust Originated Preferred Securities (the "Preferred
Securities"), representing preferred undivided beneficial interests in the
assets of the Trust and proposes to invest the proceeds from such offering,
together with the proceeds of the issuance and sale by the Trust to the Issuer
of $__________ aggregate liquidation amount of its ____% Trust Originated Common
Securities (the"Common Securities"), in $___________ aggregate principal amount
of the Debentures;
WHEREAS, the Issuer has requested that the Trustee execute and deliver
this First Supplemental Indenture; and
WHEREAS, all requirements necessary to make this First Supplemental
Indenture a valid instrument in accordance with its terms and to make the
Debentures, when executed by the Issuer and authenticated and delivered by the
Trustee as provided in the Indenture, the valid obligations of the Issuer have
been performed, and the execution and delivery of this First Supplemental
Indenture has been duly authorized in all respects.
NOW, THEREFORE, in consideration of the purchase and acceptance of the
Debentures by the Holders thereof, and for the purpose of setting forth, as
provided in the Indenture, the form and substance of the Debentures and the
terms, provisions and conditions thereof, the Issuer covenants and agrees with
the Trustee as follows:
<PAGE> 5
ARTICLE I
DEFINITIONS
SECTION 1.1. Definition of Terms.
Unless the context otherwise requires:
(a) a term defined in the Indenture (including as set forth in the
first paragraph of Section 1.1 of the Indenture) has the same meaning when used
in this First Supplemental Indenture unless otherwise defined herein;
(b) a term defined anywhere in this First Supplemental Indenture
has the same meaning throughout;
(c) the singular includes the plural and vice versa;
(d) a reference to a Section or Article is to a Section or Article
of this First Supplemental Indenture unless otherwise specified herein;
(e) headings are for convenience of reference only and do not
affect interpretation;
(f) the following terms have the meanings given to them in the
Declaration (as defined herein) or in the terms of the Trust Securities (as
defined herein) as established in accordance with the Declaration:
(i) Affiliate;
(ii) Business Day;
(iii) Debenture Issuer;
(iv) Delaware Trustee;
(v) Distribution;
(vi) Investment Company Event;
(vii) Preferred Security Certificate;
(viii) Pricing Agreement;
(ix) Pro Rata;
(x) Property Trustee;
(xi) Regular Trustees;
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(xii) Securities;
(xiii) Securities Guarantees;
(xiv) Special Event;
(xv) Sponsor;
(xvi) Tax Event; and
(xvii) Underwriting Agreement;
(g) The following terms have the meanings given to them in this
Section 1.1(g):
"Additional Interest" shall have the meaning set forth in
Section 2.5(c).
"Compounded Interest" shall have the meaning set forth in Section 4.1.
"Coupon Rate" shall have the meaning set forth in Section 2.5(a).
"Declaration" means the Amended and Restated Declaration of Trust of
Conseco Financing Trust I, a Delaware statutory business trust, dated as of
November_____, 1996.
"Deferred Interest" shall have the meaning set forth in Section 4.1.
"Dissolution Event" means that as a result of an election by the
Issuer, the Trust is to be dissolved in accordance with the Declaration, and the
Debentures held by the Property Trustee are to be distributed to the holders of
the Trust Securities Pro Rata in accordance with the Declaration.
"Extended Interest Payment Period" shall have the meaning set forth in
Section 4.1.
"Extension Conditions" means the following:
(i) the Issuer is not in bankruptcy or otherwise insolvent;
(ii) the Issuer is not in default on any Debentures issued
to the Trust or to any trustee of the Trust in connection with
the issuance of Trust Securities by the Trust; (iii) the
Issuer has made timely payments on the Debentures for
the immediately preceding six quarters without deferrals;
(iv) the Trust is not in arrears on payments of Distributions
on the Trust Securities;
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(v) the Debentures or the Preferred Securities are rated
investment grade by any one of Standard & Poor's Corporation,
Moody's Investors Service, Inc., Fitch Investor Service, LP,
Duff & Phelps Credit Rating Company or any other nationally
recognized statistical rating organization; and
(vi) the final maturity of such Debentures is no later
than the forty-ninth anniversary of the issuance of the
Preferred Securities.
"Global Debenture" shall have the meaning set forth in Section 2.4(a)(i).
"Interest Deduction Date" shall have the meaning set forth in
Section 2.2(b).
"Interest Payment Date" shall have the meaning set forth in Section 2.5(a).
"Maturity Date" shall have the meaning set forth in Section 2.2(a).
"Non Book-Entry Preferred Securities" shall have the meaning set forth
in Section 2.4(a)(ii).
"Optional Redemption Price" shall have the meaning set forth in Section 3.2.
"Preceding Maturity Date" shall have the meaning set forth in
Section 2.2(c).
"Redemption Price" shall have the meaning set forth in Section 3.1.
"Scheduled Maturity Date" means ________, 2026.
"Trust Securities" shall mean the Securities.
ARTICLE II
GENERAL TERMS AND CONDITIONS OF THE DEBENTURES
SECTION 2.1. Designation and Principal Amount; Purchase Price; Payment
of Principal; Global Securities.
(a) There is hereby authorized a series of Securities designated the
"_____% Subordinated Deferrable Interest Debentures due 2026," limited in
aggregate principal amount to $___________ (not including Debentures
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Debentures pursuant to Sections 3.4, 3.5, 3.6, 8.6 or
10.7 of the Indenture), which amount shall be as set forth in a Company Order
for the authentication and delivery of Debentures pursuant to Section 3.3 of the
Indenture.
(b) The Debentures shall be issued for a purchase price equal to
100% of the principal amount of such Debentures.
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(c) The principal of the Debentures shall be due and payable in full on
the Maturity Date.
(d) The Debentures shall initially be issued in fully registered
non-book entry certificated form in the aggregate principal amount of
$__________.
SECTION 2.2. Maturity.
(a) The Maturity Date means the date on which the Debentures mature and
on which the principal shall be due and payable together with all accrued and
unpaid interest thereon (including Compounded Interest, if any), which date
shall be the Scheduled Maturity Date unless the Maturity Date has been changed
pursuant to Section 2.2(c) or (d), in which case the Maturity Date shall be the
Maturity Date most recently established in accordance with Section 2.2(c) or
(d).
(b) The Interest Deduction Date shall mean the date which is six months
earlier than the ending date of the maximum term (beginning on the date of issue
of the Debentures and including any extensions thereof), as determined under any
federal statute applicable by its terms to the Debentures which is enacted at
any time after the issuance of the Debentures, of a debt instrument for which
interest is deductible for federal income tax purposes.
(c) If the Issuer has elected to dissolve the Trust and cause the
Debentures to be distributed to the holders of the Trust Securities in
liquidation of the Trust in accordance with Section 8.1(a)(v) of the
Declaration, then the Issuer may elect to shorten the Maturity Date to a date
not earlier than ________, 2001, or extend the Maturity Date to a date which is
not later than the earlier of (i) ________, 2045, or (ii) the Interest Deduction
Date, and such election shall be made, and such change in the Maturity Date
shall be effective, on such date as notice thereof has been given in accordance
with Section 2.2(e) so long as, in the case of an extension of the Maturity
Date, the Issuer meets the Extension Conditions on such date; provided that (i)
any such extension of the Maturity Date shall cease to be in effect (and the
Maturity Date shall be the Maturity Date in effect prior to such extension (the
"Preceding Maturity Date")) unless the Extension Conditions also are met on the
Preceding Maturity Date, and (ii) in no event shall an extended Maturity Date be
later than the Interest Deduction Date even if the Maturity Date has previously
been extended to a date beyond the Interest Deduction Date.
(d) The Issuer may at any time before the date which is 90 days before
the Maturity Date, elect to extend the Maturity Date for one or more periods,
but in no event to a date later than the earlier of (i) ________, 2045, or (ii)
the Interest Deduction Date, and such election shall be made, and such extension
of the Maturity Date shall be effective, on such date as notice thereof has been
given in accordance with Section 2.2(e) so long as the Issuer meets the
Extension Conditions on such date; provided that (i) any such extension of the
Maturity Date shall cease to be in effect (and the Maturity Date shall be the
Preceding Maturity Date) unless the Extension Conditions also are met on the
Preceding Maturity Date, and (ii) in no event shall an extended Maturity Date be
later than the Interest Deduction Date even if the Maturity Date has previously
been extended to a date beyond the Interest Deduction Date.
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(e) If the Issuer desires to change the Maturity Date pursuant to
Section 2.2(c) or (d), the Issuer shall give notice to Holders of the
Debentures, the Property Trustee, the Trust and the Trustee of the new Maturity
Date.
SECTION 2.3. Form and Payment.
Except as provided in Section 2.4, the Debentures shall be issued as
Registered Securities in fully registered certificated form without interest
coupons. The place where principal of and interest (including the Compounded
Interest, if any) on the Debentures will be payable, the Debentures may be
surrendered for registration of transfer or exchange, and where notices and
demands to or upon the Issuer in respect of the Debentures and the Indenture
may be served shall be the Corporate Trust Office of the Trustee, provided,
however, the payment of interest may be made at the option of the Issuer by
wire transfer to an account maintained by a Holder (upon appropriate
instructions from such Holder) or by check mailed to the Holder at such address
as shall appear in the Register. Notwithstanding the foregoing, so long as the
Holder of any Debentures is the Property Trustee, the payment of the principal
of and interest (including Compounded Interest, if any) on such Debentures held
by the Property Trustee will be made by wire transfer of immediately available
funds at such place and to such account as may be designated by the Property
Trustee. Payment of principal of the Debentures will only be made upon
surrender of the Debentures to the Trustee. The Debentures will be denominated
in Dollars and payment of principal and interest on the Debentures shall be
made in Dollars.
SECTION 2.4. Global Debenture.
(a) In connection with a distribution of the Debentures to the
holders of the Trust Securities pursuant to the Declaration:
(i) The Debentures in certificated form may be presented to
the Trustee by the Property Trustee in exchange for a global Debenture in an
aggregate principal amount equal to the aggregate principal amount of all
Outstanding Debentures of such series (a "Global Debenture"), to be registered
in the name of the Depository, or its nominee, and delivered by the Trustee to
the Depository for crediting to the accounts of its participants pursuant to the
instructions of the Regular Trustees. The Issuer upon any such presentation
shall execute a Global Debenture in such aggregate principal amount and deliver
the same to the Trustee for authentication and delivery in accordance with the
Indenture and this First Supplemental Indenture. Payments on the Debentures
issued as a Global Debenture will be made to the Depository.
(ii) If any Preferred Securities are held in non book-entry
certificated form, the Debentures in certificated form may be presented to the
Trustee by the Property Trustee and any Preferred Security Certificate which
represents Preferred Securities other than Preferred Securities held by the
Depository or its nominee ("Non Book-Entry Preferred Securities") will be deemed
to represent beneficial interests in Debentures presented to the Trustee by the
Property Trustee having an aggregate principal amount equal to the aggregate
liquidation amount of the Non Book-Entry Preferred Securities until such
Preferred Security Certificates are presented to the Registrar for transfer or
reissuance at which time such Preferred Security Certificates will be canceled
and a Debenture, registered in the name of the holder of the
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Preferred Security Certificate or the transferee of the holder of such Preferred
Security Certificate, as the case may be, with an aggregate principal amount
equal to the aggregate liquidation amount of the Preferred Security Certificate
canceled, will be executed by the Issuer and delivered to the Trustee for
authentication and delivery in accordance with the Indenture and this First
Supplemental Indenture. On issue of such Debentures, Debentures with an
equivalent aggregate principal amount that were presented by the Property
Trustee to the Trustee will be deemed to have been canceled.
(b) Unless and until it is exchanged for Debentures in registered
certificated form, a Global Debenture may be transferred, in whole but not in
part, only by the Depository to a nominee of the Depository or by a nominee of
the Depository to the Depository or another nominee of the Depository or by the
Depository or any such nominee to a successor Depository selected or approved by
the Issuer or a nominee of such successor Depository.
(c) If at any time the Depository for the Debentures notifies the
Issuer that it is unwilling or unable to continue as Depository for the
Debentures or if at any time the Depository for the Debentures shall no longer
be registered or in good standing as a clearing agency under the Securities
Exchange Act of 1934, as amended, or other applicable statute or regulation, at
a time at which the Depository is required to be so registered to act as
Depository for the Debentures, and a successor Depository for such series is not
appointed by the Issuer within 90 days after the Issuer receives such notice or
becomes aware of such condition, as the case may be, the Issuer will execute,
and, subject to Article 3 of the Indenture, the Trustee, upon written notice
from the Issuer, will authenticate and deliver the Debentures in definitive
registered form without coupons, in authorized denominations, and in an
aggregate principal amount equal to the principal amount of the Global Debenture
in exchange for such Global Debenture. In addition, the Issuer, in its sole
discretion, may at any time determine that the Debentures shall no longer be
represented by a Global Debenture. In such event the Issuer will execute, and
subject to Article 3 of the Indenture, the Trustee, upon receipt of an Officers'
Certificate evidencing such determination by the Issuer, will authenticate and
deliver the Debentures in definitive registered form without coupons, in
authorized denominations, and in an aggregate principal amount equal to the
principal amount of the Global Debenture in exchange for such Global Debenture.
Upon the exchange of the Global Debenture for such Debentures in definitive
registered form without coupons, in authorized denominations, the Global
Debenture shall be canceled by the Trustee. Such Debentures in definitive
registered form issued in exchange for the Global Debenture shall be registered
in such names and in such authorized denominations as the Depository, pursuant
to instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee in writing. The Trustee shall deliver such registered
certificated Debentures in definitive form in exchange for the Global Debenture
to the Depository for delivery to the Persons in whose names such Debentures are
so registered.
SECTION 2.5. Interest.
(a) The Debentures will bear interest at the fixed rate of ____% per
annum (the "Coupon Rate") from the original date of issuance or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for until the principal thereof becomes due and payable, and on any overdue
principal and (to the extent that payment of such interest is enforceable under
applicable law) on any overdue installment of interest at the Coupon Rate,
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compounded quarterly, payable (subject to the provisions of Article IV)
quarterly in arrears on March 31, June 30, September 30 and December 31 of
each year (each, an "Interest Payment Date"), commencing on December 31, 1996.
Interest on the Debentures (except defaulted interest) shall be paid to the
Persons in whose name the Debentures are registered, at the close of business on
the regular Record Date for such interest installment (including Debentures that
are cancelled after the Record Date and before the Interest Payment Date),
which, with respect to any Debentures of which the Property Trustee is the
Holder or with respect to a Global Debenture, shall be the close of business on
the Business Day next preceding that Interest Payment Date. Notwithstanding the
foregoing sentence, if the Preferred Securities are no longer in book-entry only
form or if, pursuant to the Indenture and this First Supplemental Indenture
the Debentures are not represented by a Global Debenture, the Issuer may select
a regular Record Date for such interest installment which shall conform to the
rules of any securities exchange, interdealer quotation system or other
organization on which the Debentures are listed and which shall be at least one
Business Day but less than 60 Business Days before the applicable Interest
Payment Date. Notwithstanding the foregoing, any interest that is payable at
maturity shall be payable to the Person to whom principal payable at maturity
shall be payable.
(b) The amount of interest payable for any period will be computed on
the basis of a 360-day year of twelve 30-day months, and for any period shorter
than a full quarter on the basis of the actual number of days elapsed in such
90-day quarter. In the event that any date on which interest is payable on the
Debentures is not a Business Day, then payment of the interest payable on such
date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, notwithstanding any provision of the Indenture to the contrary, if such
Business Day is in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day, in each case with the same force and
effect as if made on such date.
(c) If, at any time while the Property Trustee is the Holder of any
Debentures, the Trust or the Property Trustee is required to pay any taxes,
duties, assessment or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States, or any other taxing authority,
then, in any case, the Company will pay as additional interest ("Additional
Interest") on the Debentures held by the Property Trustee, such additional
amounts as shall be required so that the net amounts received and retained by
the Trust and the Property Trustee after paying such taxes, duties, assessments
or other governmental charges will be equal to the amounts the Trust and the
Property Trustee would have received had no such taxes, duties, assessments or
other government charges been imposed.
SECTION 2.6. Authorized Denominations.
The Debentures shall be issuable in denominations of $25 and integral
multiples of $25 in excess thereof.
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SECTION 2.7. Redemption.
The Debentures are not subject to conversion at the option of the
Holder. The Debentures are not subject to redemption at the option of the Holder
and are subject to redemption at the option of the Issuer or otherwise as
provided in Article III hereof.
SECTION 2.8 Defeasance.
The Debentures shall not be subject to the provisions of Article 4 of
the Indenture concerning the satisfaction and discharge of the Issuer's
indebtedness and obligations under the Indenture and the termination of certain
covenants of the Issuer under the Indenture.
SECTION 2.9 No Sinking Fund.
The Debentures shall not be entitled to the benefit of any sinking fund
or analogous provision.
SECTION 2.10 Depository.
The Depository Trust Company (or its nominee) shall act as the initial
Depository for any Global Debenture which may be issued pursuant to this First
Supplemental Indenture.
ARTICLE III
REDEMPTION OF THE DEBENTURES
SECTION 3.1. Special Event Redemption.
If a Special Event has occurred and is continuing then, notwithstanding
Section 3.2 but subject to the provisions of Article 10 of the Indenture, the
Issuer shall have the right, upon not less than 30 days' nor more than 60 days'
notice to the Holders of the Debentures, to redeem the Debentures, in whole (but
not in part), for cash within 90 days following the occurrence of such Special
Event at a redemption price equal to 100% of the principal amount to be redeemed
plus any accrued and unpaid interest thereon (including Compounded Interest, if
any) to the date of such redemption (the "Redemption Price"). The Redemption
Price shall be paid prior to 12:00 noon, New York time, on the date of such
redemption or at such earlier time as the Issuer determines and specifies in the
notice of redemption, provided the Issuer shall deposit with the Trustee an
amount sufficient to pay the Redemption Price at least one hour prior to the
time such Redemption Price is to be paid.
SECTION 3.2. Optional Redemption.
Subject to the provisions of Section 3.3 and Article 10 of the
Indenture, the Issuer shall have the right to redeem the Debentures, in whole or
in part, at any time or from time to time, on or after _________, 2001, at a
redemption price equal to 100% of the principal amount to be redeemed plus any
accrued and unpaid interest thereon, (including Compounded Interest, if
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any), to the date of such redemption (the "Optional Redemption Price"). Any
redemption pursuant to this paragraph will be made upon not less than 30 days
nor more than 60 days notice to the Holder of the Debentures, at the Optional
Redemption Price. The Optional Redemption Price shall be paid prior to 12:00
noon, New York time, on the date of such redemption or at such earlier time as
the Issuer determines and specifies in the notice of redemption, provided that
the Issuer shall deposit with the Trustee an amount sufficient to pay the
Optional Redemption Price at least one hour prior to the time, on the date such
Optional Redemption Price is to be paid.
SECTION 3.3. Partial Redemption.
(a) If a partial redemption of the Debentures would result in the
delisting of the Preferred Securities issued by the Trust from any national
securities exchange, interdealer quotation system or other organization on which
the Preferred Securities are then listed, the Issuer shall not be permitted to
effect such partial redemption and may only redeem the Debentures in whole.
(b) The Issuer may not redeem fewer than all of the Outstanding
Debentures unless all accrued and unpaid interest on the Debentures has been
paid as of the Interest Payment Date next preceding the Redemption Date.
(c) If the Debentures are only partially redeemed pursuant to Section
3.2, the Debentures will be redeemed pro rata or by lot or by any other method
utilized by the Trustee; provided that if at the time of redemption the
Debentures are registered as a Global Debenture, the Depository shall determine,
in accordance with its procedures, the principal amount of such Debentures
credited to each of its participant accounts to be redeemed.
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.1. Extension of Interest Payment Period.
The Issuer shall have the right, at any time and from time to time
during the term of the Debentures, to defer payments of interest on the
Debentures by extending the interest payment period of the Debentures for a
period not exceeding 20 consecutive quarters (the "Extended Interest Payment
Period"), during which Extended Interest Payment Period no interest shall be due
and payable; provided that no Extended Interest Payment Period may extend beyond
the Maturity Date. To the extent permitted by applicable law, interest, the
payment of which has been deferred because of the extension of the interest
payment period pursuant to this Section 4.1, will bear interest thereon at the
Coupon Rate compounded quarterly for each quarter of the Extended Interest
Payment Period ("Compounded Interest"). At the end of the Extended Interest
Payment Period, the Issuer shall pay all interest accrued and unpaid on the
Debentures, including any Compounded Interest (all such interest the "Deferred
Interest") that shall be payable to the Holders of the Debentures in whose names
the Subordinated Debentures are registered in the Register as of the Record Date
relating to the Interest Payment Date that corresponds to the end of such
Extended Interest Payment Period. Before the termination of any Extended
Interest
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Payment Period, the Issuer may further extend such period, provided that such
period together with all such previous and further extensions thereof shall not
exceed 20 consecutive quarters or extend beyond the Maturity Date. Upon the
termination of any Extended Interest Payment Period and upon the payment of all
Deferred Interest then due, the Issuer may commence a new Extended Interest
Payment Period, subject to the foregoing requirements. No interest shall be due
and payable during an Extended Interest Payment Period, except at the end
thereof, but the Issuer may prepay at any time all or any portion of the
Deferred Interest accrued during an Extended Interest Payment Period.
SECTION 4.2. Notice of Extension.
(a) If the Property Trustee is the only registered Holder of the
Debentures at the time the Issuer selects an Extended Interest Payment Period,
the Issuer shall give written notice to the Regular Trustees and the Property
Trustee of its selection of such Extended Interest Payment Period one Business
Day before the earlier of (i) the next succeeding date on which Distributions on
the Trust Securities are payable, or (ii) the date the Regular Trustees, on
behalf of the Trust, are required to give notice of the record date, or the date
such Distributions are payable, to the New York Stock Exchange or other
applicable self-regulatory organization or to holders of the Preferred
Securities.
(b) If the Property Trustee is not the only Holder of the Debentures at
the time the Issuer selects an Extended Interest Payment Period, the Issuer
shall give the Property Trustee and the Holders of the Debentures written
notice of its selection of such Extended Interest Payment Period 10 Business
Days before the earlier of (i) the next succeeding Interest Payment Date,
or (ii) the date the Issuer is required to give notice of the record or payment
date of such interest payment to the New York Stock Exchange or other
applicable self-regulatory organization or to Holders of the Debentures.
(c) The quarter in which any notice is given pursuant to paragraphs (a)
or (b) of this Section 4.2 shall be counted as one of the 20 quarters permitted
in the maximum Extended Interest Payment Period permitted under Section 4.1.
SECTION 4.3. Limitation of Transactions.
If the Issuer shall exercise its right to defer payment of interest as
provided in Section 4.1, during any Extended Interest Payment Period (a) the
Issuer shall not declare or pay any dividends on, make any distributions with
respect to, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its capital stock, (b) the Issuer shall not make any payment
of interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by the Issuer that rank pari passu with or junior to the
Debentures and (c) the Issuer shall not make guarantee payments with respect to
the foregoing (other than pursuant to the Securities Guarantees); provided,
however, that notwithstanding the restriction in clause (a) above, the Issuer
may (i) declare and pay a stock dividend where the stock dividend is the same
stock as that on which the dividend is being paid and (ii) purchase or acquire
shares of its common stock in connection with the satisfaction by the Issuer of
its obligations under any employee benefit plans.
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ARTICLE V
EXPENSES
SECTION 5.1. Payment of Expenses.
In connection with the offering, sale and issuance of the Debentures to
the Property Trustee in connection with the sale of the Trust Securities by the
Trust and during the existence of the Trust, the Issuer, in its capacity as
borrower with respect to the Debentures, shall:
(a) pay all costs and expenses relating to the offering, sale and
issuance of the Debentures, including commissions to the underwriters payable
pursuant to the Underwriting Agreement and compensation of the Trustee under the
Indenture in accordance with the provisions of Section 6.9 of the Indenture;
(b) pay other debts and obligations of the Trust (other than with
respect to the Trust Securities) and all costs and expenses of the Trust
(including, but not limited to, costs and expenses relating to the organization,
maintenance and dissolution of the Trust, the offering, sale and issuance of the
Trust Securities (including commissions to the underwriters payable pursuant to
the Pricing Agreement), the retention of the Regular Trustees, reimbursement of
the Regular Trustees as provided in the Declaration, the fees and expenses of
the Property Trustee and the Delaware Trustee, the trustee under the Preferred
Securities Guarantee and the Common Securities Guarantee, the costs and expenses
relating to the operation of the Trust, including without limitation, costs and
expenses of accountants, attorneys, statistical or bookkeeping services,
expenses for printing and engraving and computing or accounting equipment,
paying agent(s), registrar(s), transfer agent(s), duplicating, travel and
telephone and other telecommunications expenses and costs and expenses incurred
in connection with the acquisition, financing and disposition of Trust assets,
and the fees and expenses related to the enforcement by the Property Trustee of
the rights of the holders of the Preferred Securities) and all other amounts
payable by the Issuer pursuant to the Declaration;
(c) be primarily liable for any indemnification obligations arising
with respect to the Declaration; and
(d) pay any and all taxes, duties, assessments or governmental charges
of whatever nature (other than withholding taxes) imposed on the Trust or its
assets and all liabilities, costs and expenses of the Trust with respect to such
taxes, duties, assessments or governmental charges.
SECTION 5.2. Payment Upon Resignation or Removal.
Upon termination of this First Supplemental Indenture or the
Indenture or the removal or resignation of the Trustee pursuant to Section 6.10
of the Indenture, the Issuer shall pay to the Trustee all amounts due to the
Trustee accrued to the date of such termination, removal or resignation. Upon
termination of the Declaration or the removal or resignation of the Delaware
Trustee or the Property Trustee, as the case may be, pursuant to Section 5.7 of
the Declaration,
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the Issuer shall pay to the Delaware Trustee or the Property Trustee, as the
case may be, all amounts due to such trustee accrued to the date of such
termination, removal or resignation.
ARTICLE VI
COVENANT TO LIST ON EXCHANGE
SECTION 6.1. Listing on an Exchange.
If the Debentures are to be distributed to the holders of the Preferred
Securities as described in Section 2.4(a), the Issuer will, if the Debentures
are not already so listed, use its best efforts to list such Subordinated
Debentures on the New York Stock Exchange, Inc. or on such other exchange or
other organization as the Preferred Securities are then listed.
ARTICLE VII
FORM OF DEBENTURE
SECTION 7.1. Form of Debenture.
The Debentures and the Trustee's Certificate of Authentication to be
endorsed thereon are to be substantially in the following forms:
(IF THE DEBENTURE IS TO BE IN A GLOBAL DEBENTURE, INSERT - This
Debenture is in Global form within the meaning of the Indenture hereinafter
referred to and is registered in the name of a Depository or a nominee of a
Depository. Unless and until it is exchanged in whole or in part for securities
in certificated form in the limited circumstances described in the indenture,
this security may not be transferred except as a whole by the depository to a
nominee of the Depository or by a nominee of the Depository to the Depository or
another nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
Unless this Debenture is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to the issuer or
its agent for registration of transfer, exchange or payment, and any Debenture
issued is registered in the name of Cede & Co. or such other name as requested
by an authorized representative of DTC (and any payment hereon is made to Cede &
Co. or to such other entity as is requested by an authorized representative of
DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an
interest herein.)
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CONSECO, INC.
% SUBORDINATED DEFERRABLE INTEREST DEBENTURE
No. _____ DUE _______ 2026 REGISTERED $ _________
Conseco ______, Inc., an Indiana corporation (the "Company", which term
includes any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to ______, or registered assigns, the
principal sum of _____ Dollars on ________, 2026 (or on such date that is no
earlier than ________, 2001 or such date that is no later than the earlier of:
(i) _______, 2045, or (ii) the Interest Deduction Date, if the Company elects to
shorten or extend the Maturity Date as further described herein), and to pay
interest on said principal sum from ________, 1996, or from the most recent
interest payment date (each such date, an "Interest Payment Date") to which
interest has been paid or duly provided for, quarterly (subject to deferral as
set forth herein) in arrears on March 31, June 30, September 30 and December 31
of each year commencing December 31, 1996, at the rate of _____% per annum until
the principal hereof shall have become due and payable, and on any overdue
principal and (without duplication and to the extent that payment of such
interest is enforceable under applicable law) on any overdue installment of
interest at the same rate per annum compounded quarterly. The amount of interest
payable on any Interest Payment Date shall be computed on the basis of a 360-day
year of twelve 30-day months, and for any period shorter than a full quarter on
the basis of the actual number of days elapsed in such 90-day quarter. In the
event that any date on which interest is payable on this Debenture is not a
Business Day, then payment of interest payable on such date will be made on the
next succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date. The interest installment so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Indenture,
be paid to the person in whose name this Debenture is registered at the close of
business on the regular record date for such interest installment, which shall
be the close of business on the Business Day next preceding such Interest
Payment Date. Notwithstanding the foregoing, any interest that is
payable on the Maturity Date shall be payable to the Person to whom principal
payable at the Maturity Date shall be payable. Any such interest installment not
punctually paid or duly provided for shall forthwith cease to be payable to the
registered Holders on such regular record date and may be paid to the Person in
whose name this Debenture (or one or more Predecessor Security) is registered at
the close of business on a special record date to be fixed in accordance with
the provisions of Section 3.7(b) of the Indenture. The principal of and the
interest on this Debenture shall be payable at the office or agency of the
Trustee maintained for that purpose in any coin or currency of the United States
of America that at the time of payment is legal tender for payment of public and
private debts; provided, however, that payment of interest may be made at the
option of the Company by
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<PAGE> 18
check mailed to the registered Holder at such address as shall appear in the
Register. Notwithstanding the foregoing, so long as the Holder of this Debenture
is the Property Trustee, the payment of the principal of and interest on this
Debenture will be made by wire transfer in immediately available funds at such
place and to such account as may be designated by the Property Trustee. Payment
of principal of the Debentures will only be made upon surrender of the
Debentures to the Trustee or Paying Agent.
The indebtedness evidenced by this Debenture is, to the extent provided
in the Indenture, subordinate and junior in right of payment to the prior
payment in full of all Senior Indebtedness, and this Debenture is issued subject
to the provisions of the Indenture with respect thereto. Each Holder of this
Debenture, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his or her behalf to take
such action as may be necessary or appropriate to acknowledge or effectuate the
subordination so provided and (c) appoints the Trustee his or her
attorney-in-fact for any and all such purposes. Each Holder hereof, by his or
her acceptance hereof, hereby waives all notice of the acceptance of the
subordination provisions contained herein and in the Indenture by each holder of
Senior Indebtedness, whether now outstanding or hereafter incurred, and waives
reliance by each such holder upon said provisions.
This Debenture shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until the
Certificate of Authentication hereon shall have been signed by or on behalf of
the Trustee.
The provisions of this Debenture are continued on the reverse side
hereof and such continued provisions shall for all purposes have the same effect
as though fully set forth at this place.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: _________________, 1996.
CONSECO, INC.
By: _________________________________
By: _________________________________
SEAL
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(FORM OF CERTIFICATE OF AUTHENTICATION)
CERTIFICATE OF AUTHENTICATION
This is one of the Debentures referred to in the within-mentioned
Indenture.
FLEET NATIONAL BANK, as Trustee
By: ______________________________
Authorized Signatory
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<PAGE> 20
(FORM OF REVERSE OF DEBENTURE)
This Debenture is one of a duly authorized series of Debentures of the
Company (herein sometimes referred to as the "Debentures"), specified in the
Indenture, all issued or to be issued in one or more series under and pursuant
to an Indenture dated as of November , 1996, duly executed and delivered
between the Company and Fleet National Bank, as Trustee (the "Trustee"), as
supplemented by the First Supplemental Indenture dated as of November , 1996,
between the Company and the Trustee (the Indenture as so supplemented, the
"Indenture"), to which a description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Trustee, the Company and
the Holders of the Debentures, and to all of which provisions the Holder of this
Debenture by acceptance hereof, assents and agrees. By the terms of the
Indenture, the Debentures are issuable in series that may vary as to amount,
date of maturity, rate of interest and in other respects as provided in the
Indenture. This series of Debentures is limited in aggregate principal amount as
specified in said Supplemental Indenture.
Except as provided in the next paragraph with respect to the occurrence
of a Special Event, the Debentures may not be redeemed by the Company prior
__________, 2001. The Company shall have the right to redeem this Debenture at
the option of the Company, without premium or penalty, in whole or in part at
any time and from time to time on or after __________, 2001 (an "Optional
Redemption"), at a redemption price equal to 100% of the principal amount plus
any accrued and unpaid interest, including any Compounded Interest, if any, to
the date of such redemption (the "Optional Redemption Price"). Any redemption
pursuant to this paragraph will be made upon not less than 30 nor more than 60
days' notice at the Optional Redemption Price.
If, at any time, a Tax Event or an Investment Company Event (each, as
defined below, a "Special Event") shall occur and be continuing, the Company
shall have the right, upon not less than 30 nor more than 60 days' notice, to
redeem the Debentures in whole (but not in part) for cash at the Optional
Redemption Price within 90 days following the occurrence of such Special Event.
"Tax Event" means that the Regular Trustees shall have received an
opinion of independent tax counsel experienced in such matters to the effect
that, as a result of (a) any amendment to, or change (including any announced
prospective change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or therein, or
(b) any official administrative pronouncement or judicial decision interpreting
or applying such laws or regulations, which amendment, or change is effective or
such pronouncement or decision is announced on or after the date of original
issuance of the Preferred Securities, there is more than an insubstantial risk
that (i) the Trust is, or will be within 90 days after the date thereof, subject
to United States federal income tax with respect to interest accrued or received
on the Debentures, (ii) the Trust is, or will be within 90 days after the date
thereof, subject to more than a de minimis amount of taxes, duties or other
governmental charges, or (iii) interest payable to the Trust on the Debentures
is not, or within 90 days of the date thereof, will not be deductible, in whole
or in part, by the Company for United States federal income tax purposes.
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<PAGE> 21
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of independent counsel experienced in practice under the
Investment Company Act of 1940, as amended (the "1940 Act"), to the effect that,
as a result of the occurrence of a change in law or regulation or a change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act Law"),
there is more than an insubstantial risk that the Trust is or will be considered
an "investment company" which is required to be registered under the 1940 Act,
which Change in 1940 Act Law becomes effective on or after the date of original
issuance of the Preferred Securities.
If the Debentures are only partially redeemed by the Company pursuant
to an Optional Redemption, the Debentures will be redeemed pro rata or by lot or
in some other equitable manner determined by the Trustee. Notwithstanding the
foregoing, if a partial redemption of the Debentures would result in the
delisting of the Preferred Securities by any national securities exchange or
other organization on which the Preferred Securities are then listed, the
Company shall not be permitted to effect such partial redemption and will only
redeem the Debentures in whole.
In the event of redemption of this Debenture in part only, a new
Debenture or Debentures of this series (for the unredeemed portion hereof) will
be issued in the name of the Holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Debentures may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions and limitations provided
in the Indenture.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the Holders of not less than a majority in
aggregate principal amount of the Debentures of each series affected at the time
outstanding, as defined in the Indenture, to execute supplemental indentures for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the Indenture or of any supplemental indenture or of
modifying in any manner the rights of the Holders of the Debentures; provided,
however, that no such supplemental indentures shall (i) change the Stated
Maturity of the principal or any installment of principal or any installment of
interest (other than as contemplated herein), or reduce the amount or principal
or interest thereon or any premium payable upon redemption or repayment thereof,
or change the Place of Payment or currency in which principal or any interest is
payable, or impair the right to institute suit for the enforcement of any
payment of the principal and any premium and interest without the consent of the
Holder of each Debenture so affected; (ii) reduce the aforesaid percentage of
Debentures, the Holders of which are required to consent to any such
supplemental indenture, without the consent of the Holders of each Debenture
then outstanding and affected thereby; (iii) change any obligation of the
Company to maintain an office or agency in the Place of Payment; or (iv) modify
any of the above provisions. The Indenture also contains provisions permitting
the Holders of a majority in aggregate principal amount of the Debentures of any
series at the time outstanding affected thereby, on behalf of all of the Holders
of the Debentures of such series, to waive any past default in the performance
of any of the covenants contained in the Indenture, or established
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<PAGE> 22
pursuant to the Indenture with respect to such series, and its consequences,
except a default in the payment of the principal or interest on the Debentures
or a default in respect of a covenant or provision of the Indenture or the
Debentures of such series which cannot be modified or amended without the
consent of each Holder of Debentures of such series. Any such consent or waiver
by the registered Holder of this Debenture (unless revoked as provided in the
Indenture) shall be conclusive and binding upon such Holder and upon all future
Holders and owners of this Debenture and of any Debentures issued in exchange
herefor or in place hereof (whether by registration of transfer or otherwise),
irrespective of whether or not any notation of such consent or waiver is made
upon this Debenture.
No reference herein to the Indenture and no provision of this Debenture
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of and interest on this
Debenture at the time and place and at the rate and in the money herein
prescribed.
The Company shall have the right at any time during the term of the
Debentures from time to time to extend the interest payment period of such
Debentures for up to 20 consecutive quarters not to extend beyond the Maturity
Date of the Debentures (an "Extended Interest Payment Period"), at the end of
which period the Company shall pay all interest then accrued and unpaid
(together with interest thereon at the rate specified for the Debentures to the
extent that payment of such interest is enforceable under applicable law). In
the event that the Company exercises the right to defer interest payments, then,
prior to the payment of all accrued interest on outstanding Debentures, (a) the
Company shall not declare or pay dividends on, or make a distribution with
respect to, or redeem, purchase or acquire, or make a liquidation payment with
respect to, any of its capital stock, (b) the Company shall not make any payment
of interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by the Company that rank pari passu with or junior to the
Debentures and (c) the Company shall not make any guarantee payments with
respect to the foregoing (other than pursuant to the Securities Guarantees);
provided, however, that restriction (a) above does not apply to any stock
dividends paid by the Company where the stock dividend is the same stock as that
on which the dividend is being paid. Before the termination of any such Extended
Interest Payment Period, the Company may further extend such Extended Interest
Payment Period, provided that such Extended Interest Payment Period together
with all such previous and further extensions thereof shall not exceed 20
consecutive quarters and shall not extend beyond the Maturity Date of the
Debentures. At the termination of any such Extended Interest Payment Period and
upon the payment of all accrued and unpaid interest and any additional amounts
then due, the Company may commence a new Extended Interest Payment Period.
At any time the Company will have the right to dissolve the Trust and
cause the Debentures to be distributed to the holders of the Trust Securities in
liquidation of the Trust. If the Company elects to dissolve the Trust and
thereby causes the Debentures to be distributed to the holders of the Trust
Securities, the Company shall have the right to (a) shorten the Maturity Date to
any date that is not earlier than _________, 2001 and (b) to extend the Maturity
Date to a date no later than the earlier of (i) _________, 2045, or (ii) the
Interest Deduction Date, provided the conditions in clauses (i) through (vi)
below are met on the date the Company exercises such right and on the Maturity
Date in effect prior to such proposed extension (the "Preceding Maturity Date").
In addition, the Company shall have the right,
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which must be exercised at least 90 days prior to the Maturity Date then in
effect, to extend the Maturity Date for one or more periods, but in no event to
a date later than the earlier of (i) __________, 2045, or (ii) the Interest
Deduction Date, provided that the Company must satisfy the following conditions
on the date it exercises such right and on the Preceding Maturity Date: (i) the
Company is not in bankruptcy or otherwise insolvent, (ii) the Company is not in
default on any Debentures issued to the Trust or any trustee of the Trust in
connection with the issuance of Trust Securities by the Trust, (iii) the Company
has made timely payments on the Debentures for the immediately preceding six
quarters without deferrals, (iv) the Trust is not in arrears on payment of
distributions on the Trust Securities, (v) the Debentures or the Preferred
Securities are rated investment grade by a nationally recognized statistical
rating organization, and (vi) the final maturity of the Debentures is no later
than the forty-ninth anniversary of the issuance of the Preferred Securities. In
the event the conditions specified in clauses (i) through (vi) above are not
satisfied on the date of exercise of the right to extend the Maturity Date and
on the Preceding Maturity Date, then the Maturity Date of the Debentures shall
be the Preceding Maturity Date. In no event shall an extended Maturity Date be
later than the Interest Deduction Date even if the Maturity Date has previously
been extended to a date beyond the Interest Deduction Date.
As provided in the Indenture and subject to certain limitations therein
set forth, this Debenture is transferable by the registered Holder hereof on the
Register of the Company, upon surrender of this Debenture for registration of
transfer at the Corporate Trust Office of the Trustee accompanied by a written
instrument or instruments of transfer in form satisfactory to the Company or the
Trustee duly executed by the registered Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Debentures of authorized
denominations and for the same aggregate principal amount and series will be
issued to the designated transferee or transferees. No service charge will be
made for any such transfer, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in relation
thereto.
Prior to due presentment for registration of transfer of this
Debenture, the Company, the Trustee, any paying agent and any Registrar may deem
and treat the registered holder hereof as the absolute owner hereof (whether or
not this Debenture shall be overdue and notwithstanding any notice of ownership
or writing hereon made by anyone other than the Registrar) for the purpose of
receiving payment of or on account of the principal hereof and interest due
hereon and for all other purposes, and neither the Company nor the Trustee nor
any paying agent nor any Registrar shall be affected by any notice to the
contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Debenture or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture, against any
incorporator, stockholder, officer or director, past, present of future, as
such, of the Company or of any predecessor or successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issuance hereof, expressly
waived and released.
[The Debentures of this series are issuable only in registered form
without coupons in denominations of $25 and any integral multiple thereof,
provided that this Global Debenture is
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exchangeable for Debentures in definitive form only under certain limited
circumstances set forth in the Indenture.] As provided in the Indenture and
subject to certain limitations herein and therein set forth, Debentures of this
series so issued are exchangeable for a like aggregate principal amount of
Debentures of this series of a different authorized denomination, as requested
by the Holder surrendering the same. All terms used in this Debenture that are
defined in the Indenture shall have the meanings assigned to them in the
Indenture.
ARTICLE VIII
ORIGINAL ISSUE OF DEBENTURES
SECTION 8.1. Original Issue of Debentures.
Debentures in the aggregate principal amount of $___________ may, upon
execution of this First Supplemental Indenture, be executed by the Issuer and
delivered to the Trustee for authentication, and the Trustee shall thereupon
authenticate and deliver such Debentures to or upon the written order of the
Issuer, signed by its Chairman, its President, or any Vice President and its
Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary,
without any further action by the Issuer.
SECTION 8.2. Reports by the Trustee.
Up until and including the Maturity Date, the Trustee shall, in respect
of each applicable date, make such reports within such time periods as are
required to be made by the Trustee under the Trust Indenture Act and the
Indenture.
ARTICLE IX
COVENANTS
SECTION 9.1. Covenants as to Trust.
In the event Debentures are issued and sold to the Property Trustee in
connection with the issuance of Trust Securities by the Trust, for so long as
the Trust Securities remain outstanding, the Issuer will (i) maintain 100%
direct or indirect ownership of the Common Securities of the Trust; provided,
however, that any permitted successor of the Issuer under the Indenture may
succeed to the Issuer's ownership of the Common Securities, (ii) not voluntary
dissolve, windup or terminate the Trust, except in connection with the
distribution of Debentures upon a Dissolution Event or otherwise, and in
connection with certain mergers, consolidations or amalgamations permitted by
the Declaration, (iii) timely perform its duties as sponsor of the Trust, (iv)
use its reasonable efforts to cause the Trust (a) to remain a business trust,
except in connection with the distribution of Debentures as provided in the
Declaration, the redemption of the Trust Securities or in connection with
certain mergers, consolidations or amalgamations as permitted by the
Declaration, and (b) otherwise continue not to be treated as an association
taxable as a corporation or partnership for United States federal income tax
purposes, and
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(v) use its reasonable efforts to cause each holder of Trust Securities to be
treated as owning an individual beneficial interest in the Debentures. This
covenant is intended solely for the benefit of the Holders of the Debentures
issued pursuant to this First Supplemental Indenture and shall not be applicable
to the Securities of any other series issued pursuant to the Indenture.
ARTICLE X
DEFAULT
SECTION 10.1. Additional Event of Default.
There is hereby established as an additional Event of Default (as
contemplated by Section 5.1(i) of the Indenture) the following:
In the event the Debentures are issued and sold to
the Property Trustee in connection with the issuance of Trust
Securities by the Trust, the Trust shall have voluntarily or
involuntarily dissolved, wound-up its business or otherwise
terminated its existence except in connection with (i) the
distribution of the Debentures to holders of Trust Securities
in liquidation or redemption of their interests in the Trust,
(ii) the redemption of all or part of the outstanding Trust
Securities of the Trust or (iii) certain mergers,
consolidations or amalgamations of the Trust, each as
permitted by the Declaration of the Trust.
The foregoing Event of Default is intended solely for the benefit of
the Holders of the Debentures issued pursuant to this First Supplemental
Indenture and shall not be applicable to any other series of Securities
heretofore or hereafter issued pursuant to the Indenture.
SECTION 10.2. Limitations on Waivers and Consents.
(a) Notwithstanding anything to the contrary contained in Section 5.7
of the Indenture, if the Debentures are held by the Trust or by the Property
Trustee, a waiver of a past default or any modification to a waiver of a past
default shall not be effective until the holders of a majority in liquidation
preference of Trust Securities shall have consented to such waiver or
modification; provided, however, that if the consent of the Holder of each
Outstanding Debenture is required in connection with such waiver or
modification, such waiver or modification shall not be effective until each
holder of the Trust Securities shall have consented to such waiver or
modification.
(b) Notwithstanding anything to the contrary contained in Section 3.8
of the Indenture, if the Debentures are held by the Trust or by the Property
Trustee, a supplemental indenture shall not be effective until the holders of a
majority in liquidation preference of Trust Securities shall have consented to
such supplemental indenture; provided, however, that if the consent of the
Holder of each Outstanding Debenture is required in connection with a
supplemental indenture, such supplemental indenture shall not be effective until
each holder of the Trust Securities shall have consented to such supplemental
indenture.
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<PAGE> 26
SECTION 10.3. Acknowledgment of Rights.
The Issuer acknowledges that, with respect to any Debentures held
either by the Trust or by the Property Trustee, if the Property Trustee fails to
enforce its rights under the Indenture, this First Supplemental Indenture or the
Debentures as the Holder of the Debentures held as the assets of the Trust, any
record holder of Preferred Securities may institute legal proceedings directly
against the Issuer to enforce the Property Trustee's rights under the Indenture,
this First Supplemental Indenture or the Debentures without first instituting
any legal proceedings against such Property Trustee or any other person or
entity. Notwithstanding the foregoing, if an Event of Default under the
Declaration has occurred and is continuing and such event is attributable to the
failure of the Issuer to pay interest or principal on the Debentures on the date
such interest or principal is otherwise payable (or in the case of redemption,
on the applicable redemption date), the Issuer acknowledges that a record holder
of Preferred Securities may institute a proceeding directly against the Issuer
for enforcement of payment to the record holder of the Preferred Securities of
the principal of or interest on the Debentures on or after the respective due
date specified in the Debentures, and the amount of payment will be based on the
holder's pro rata share of the amount due and owing on all the Preferred
Securities.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Ratification of Indenture.
The Indenture, as supplemented by this First Supplemental Indenture, is
in all respects ratified and confirmed, and this First Supplemental Indenture
shall be deemed part of the Indenture in the manner and to the extent herein and
therein provided.
SECTION 11.2. Trustee Not Responsible for Recitals.
The recitals contained herein and in the Debentures, except for the
Trustee's certificate of authentication, shall be taken as the statements of the
Issuer and not of the Trustee, and the Trustee assumes no responsibility for the
correctness of the same. The Trustee makes no representation as to the validity
or sufficiency of this First Supplemental Indenture or of the Debentures.
SECTION 11.3. Governing Law.
This First Supplemental Indenture and each Debenture shall be deemed to
be a contract made under the laws of the State of New York, and for all purposes
shall be construed in accordance with the laws of said State, except as may
otherwise be required by mandatory provisions of law.
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<PAGE> 27
SECTION 11.4. Separability.
In case any one or more of the provisions contained in this First
Supplemental Indenture or in the Debentures shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this First
Supplemental Indenture or of the Debentures, but this First Supplemental
Indenture and the Debentures shall be construed as if such invalid or illegal or
unenforceable provision had never been contained herein or therein.
SECTION 11.5. Counterparts.
This First Supplemental Indenture may be executed in any number of
counterparts each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
SECTION 11.6. Effect of Headings.
The Article and Section headings herein and the Table of Contents
hereto are for convenience only and shall not affect the construction hereof.
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<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed as of the day and year first above
written.
CONSECO, INC.
By _________________________________________
Name: ______________________________________
Title: _______________________________________
FLEET NATIONAL BANK, as Trustee
By _________________________________________
Name: ______________________________________
Title: _______________________________________
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<PAGE> 1
EXHIBIT 4.17
FORM OF ___% SUBORDINATED DEFERRABLE INTEREST DEBENTURE
(IF THE DEBENTURE IS TO BE IN A GLOBAL DEBENTURE, INSERT - This
Debenture is in Global form within the meaning of the Indenture hereinafter
referred to and is registered in the name of a Depository or a nominee of a
Depository. Unless and until it is exchanged in whole or in part for securities
in certificated form in the limited circumstances described in the indenture,
this security may not be transferred except as a whole by the depository to a
nominee of the Depository or by a nominee of the Depository to the Depository or
another nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
Unless this Debenture is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to the issuer or
its agent for registration of transfer, exchange or payment, and any Debenture
issued is registered in the name of Cede & Co. or such other name as requested
by an authorized representative of DTC (and any payment hereon is made to Cede &
Co. or to such other entity as is requested by an authorized representative of
DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an
interest herein.)
1
<PAGE> 2
CONSECO, INC.
% SUBORDINATED DEFERRABLE INTEREST DEBENTURE
No. _____ DUE _______ 2026 REGISTERED $ _________
Conseco ______, Inc., an Indiana corporation (the "Company", which term
includes any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to ______, or registered assigns, the
principal sum of _____ Dollars on ________, 2026 (or on such date that is no
earlier than ________, 2001 or such date that is no later than the earlier of:
(i) _______, 2045, or (ii) the Interest Deduction Date, if the Company elects to
shorten or extend the Maturity Date as further described herein), and to pay
interest on said principal sum from ________, 1996, or from the most recent
interest payment date (each such date, an "Interest Payment Date") to which
interest has been paid or duly provided for, quarterly (subject to deferral as
set forth herein) in arrears on March 31, June 30, September 30 and December 31
of each year commencing December 31, 1996, at the rate of _____% per annum until
the principal hereof shall have become due and payable, and on any overdue
principal and (without duplication and to the extent that payment of such
interest is enforceable under applicable law) on any overdue installment of
interest at the same rate per annum compounded quarterly. The amount of interest
payable on any Interest Payment Date shall be computed on the basis of a 360-day
year of twelve 30-day months, and for any period shorter than a full quarter on
the basis of the actual number of days elapsed in such 90-day quarter. In the
event that any date on which interest is payable on this Debenture is not a
Business Day, then payment of interest payable on such date will be made on the
next succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date. The interest installment so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Indenture,
be paid to the person in whose name this Debenture is registered at the close of
business on the regular record date for such interest installment, which shall
be the close of business on the Business Day next preceding such Interest
Payment Date. Notwithstanding the foregoing, any interest that is
payable on the Maturity Date shall be payable to the Person to whom principal
payable at the Maturity Date shall be payable. Any such interest installment not
punctually paid or duly provided for shall forthwith cease to be payable to the
registered Holders on such regular record date and may be paid to the Person in
whose name this Debenture (or one or more Predecessor Security) is registered at
the close of business on a special record date to be fixed in accordance with
the provisions of Section 3.7(b) of the Indenture. The principal of and the
interest on this Debenture shall be payable at the office or agency of the
Trustee maintained for that purpose in any coin or currency of the United States
of America that at the time of payment is legal tender for payment of public and
private debts; provided, however, that payment of interest may be made at the
option of the Company by
2
<PAGE> 3
check mailed to the registered Holder at such address as shall appear in the
Register. Notwithstanding the foregoing, so long as the Holder of this Debenture
is the Property Trustee, the payment of the principal of and interest on this
Debenture will be made by wire transfer in immediately available funds at such
place and to such account as may be designated by the Property Trustee. Payment
of principal of the Debentures will only be made upon surrender of the
Debentures to the Trustee or Paying Agent.
The indebtedness evidenced by this Debenture is, to the extent provided
in the Indenture, subordinate and junior in right of payment to the prior
payment in full of all Senior Indebtedness, and this Debenture is issued subject
to the provisions of the Indenture with respect thereto. Each Holder of this
Debenture, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his or her behalf to take
such action as may be necessary or appropriate to acknowledge or effectuate the
subordination so provided and (c) appoints the Trustee his or her
attorney-in-fact for any and all such purposes. Each Holder hereof, by his or
her acceptance hereof, hereby waives all notice of the acceptance of the
subordination provisions contained herein and in the Indenture by each holder of
Senior Indebtedness, whether now outstanding or hereafter incurred, and waives
reliance by each such holder upon said provisions.
This Debenture shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until the
Certificate of Authentication hereon shall have been signed by or on behalf of
the Trustee.
The provisions of this Debenture are continued on the reverse side
hereof and such continued provisions shall for all purposes have the same effect
as though fully set forth at this place.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: _________________, 1996.
CONSECO, INC.
By: _________________________________
By: _________________________________
SEAL
3
<PAGE> 4
(FORM OF CERTIFICATE OF AUTHENTICATION)
CERTIFICATE OF AUTHENTICATION
This is one of the Debentures referred to in the within-mentioned
Indenture.
FLEET NATIONAL BANK, as Trustee
By: ______________________________
Authorized Signatory
4
<PAGE> 5
(FORM OF REVERSE OF DEBENTURE)
This Debenture is one of a duly authorized series of Debentures of the
Company (herein sometimes referred to as the "Debentures"), specified in the
Indenture, all issued or to be issued in one or more series under and pursuant
to an Indenture dated as of November , 1996, duly executed and delivered
between the Company and Fleet National Bank, as Trustee (the "Trustee"), as
supplemented by the First Supplemental Indenture dated as of November , 1996,
between the Company and the Trustee (the Indenture as so supplemented, the
"Indenture"), to which a description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Trustee, the Company and
the Holders of the Debentures, and to all of which provisions the Holder of this
Debenture by acceptance hereof, assents and agrees. By the terms of the
Indenture, the Debentures are issuable in series that may vary as to amount,
date of maturity, rate of interest and in other respects as provided in the
Indenture. This series of Debentures is limited in aggregate principal amount as
specified in said Supplemental Indenture.
Except as provided in the next paragraph with respect to the occurrence
of a Special Event, the Debentures may not be redeemed by the Company prior
__________, 2001. The Company shall have the right to redeem this Debenture at
the option of the Company, without premium or penalty, in whole or in part at
any time and from time to time on or after __________, 2001 (an "Optional
Redemption"), at a redemption price equal to 100% of the principal amount plus
any accrued and unpaid interest, including any Compounded Interest, if any, to
the date of such redemption (the "Optional Redemption Price"). Any redemption
pursuant to this paragraph will be made upon not less than 30 nor more than 60
days' notice at the Optional Redemption Price.
If, at any time, a Tax Event or an Investment Company Event (each, as
defined below, a "Special Event") shall occur and be continuing, the Company
shall have the right, upon not less than 30 nor more than 60 days' notice, to
redeem the Debentures in whole (but not in part) for cash at the Optional
Redemption Price within 90 days following the occurrence of such Special Event.
"Tax Event" means that the Regular Trustees shall have received an
opinion of independent tax counsel experienced in such matters to the effect
that, as a result of (a) any amendment to, or change (including any announced
prospective change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or therein, or
(b) any official administrative pronouncement or judicial decision interpreting
or applying such laws or regulations, which amendment, or change is effective or
such pronouncement or decision is announced on or after the date of original
issuance of the Preferred Securities, there is more than an insubstantial risk
that (i) the Trust is, or will be within 90 days after the date thereof, subject
to United States federal income tax with respect to interest accrued or received
on the Debentures, (ii) the Trust is, or will be within 90 days after the date
thereof, subject to more than a de minimis amount of taxes, duties or other
governmental charges, or (iii) interest payable to the Trust on the Debentures
is not, or within 90 days of the date thereof, will not be deductible, in whole
or in part, by the Company for United States federal income tax purposes.
5
<PAGE> 6
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of independent counsel experienced in practice under the
Investment Company Act of 1940, as amended (the "1940 Act"), to the effect that,
as a result of the occurrence of a change in law or regulation or a change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act Law"),
there is more than an insubstantial risk that the Trust is or will be considered
an "investment company" which is required to be registered under the 1940 Act,
which Change in 1940 Act Law becomes effective on or after the date of original
issuance of the Preferred Securities.
If the Debentures are only partially redeemed by the Company pursuant
to an Optional Redemption, the Debentures will be redeemed pro rata or by lot or
in some other equitable manner determined by the Trustee. Notwithstanding the
foregoing, if a partial redemption of the Debentures would result in the
delisting of the Preferred Securities by any national securities exchange or
other organization on which the Preferred Securities are then listed, the
Company shall not be permitted to effect such partial redemption and will only
redeem the Debentures in whole.
In the event of redemption of this Debenture in part only, a new
Debenture or Debentures of this series (for the unredeemed portion hereof) will
be issued in the name of the Holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Debentures may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions and limitations provided
in the Indenture.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the Holders of not less than a majority in
aggregate principal amount of the Debentures of each series affected at the time
outstanding, as defined in the Indenture, to execute supplemental indentures for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the Indenture or of any supplemental indenture or of
modifying in any manner the rights of the Holders of the Debentures; provided,
however, that no such supplemental indentures shall (i) change the Stated
Maturity of the principal or any installment of principal or any installment of
interest (other than as contemplated herein), or reduce the amount or principal
or interest thereon or any premium payable upon redemption or repayment thereof,
or change the Place of Payment or currency in which principal or any interest is
payable, or impair the right to institute suit for the enforcement of any
payment of the principal and any premium and interest without the consent of the
Holder of each Debenture so affected; (ii) reduce the aforesaid percentage of
Debentures, the Holders of which are required to consent to any such
supplemental indenture, without the consent of the Holders of each Debenture
then outstanding and affected thereby; (iii) change any obligation of the
Company to maintain an office or agency in the Place of Payment; or (iv) modify
any of the above provisions. The Indenture also contains provisions permitting
the Holders of a majority in aggregate principal amount of the Debentures of any
series at the time outstanding affected thereby, on behalf of all of the Holders
of the Debentures of such series, to waive any past default in the performance
of any of the covenants contained in the Indenture, or established
6
<PAGE> 7
pursuant to the Indenture with respect to such series, and its consequences,
except a default in the payment of the principal or interest on the Debentures
or a default in respect of a covenant or provision of the Indenture or the
Debentures of such series which cannot be modified or amended without the
consent of each Holder of Debentures of such series. Any such consent or waiver
by the registered Holder of this Debenture (unless revoked as provided in the
Indenture) shall be conclusive and binding upon such Holder and upon all future
Holders and owners of this Debenture and of any Debentures issued in exchange
herefor or in place hereof (whether by registration of transfer or otherwise),
irrespective of whether or not any notation of such consent or waiver is made
upon this Debenture.
No reference herein to the Indenture and no provision of this Debenture
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of and interest on this
Debenture at the time and place and at the rate and in the money herein
prescribed.
The Company shall have the right at any time during the term of the
Debentures from time to time to extend the interest payment period of such
Debentures for up to 20 consecutive quarters not to extend beyond the Maturity
Date of the Debentures (an "Extended Interest Payment Period"), at the end of
which period the Company shall pay all interest then accrued and unpaid
(together with interest thereon at the rate specified for the Debentures to the
extent that payment of such interest is enforceable under applicable law). In
the event that the Company exercises the right to defer interest payments, then,
prior to the payment of all accrued interest on outstanding Debentures, (a) the
Company shall not declare or pay dividends on, or make a distribution with
respect to, or redeem, purchase or acquire, or make a liquidation payment with
respect to, any of its capital stock, (b) the Company shall not make any payment
of interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by the Company that rank pari passu with or junior to the
Debentures and (c) the Company shall not make any guarantee payments with
respect to the foregoing (other than pursuant to the Securities Guarantees);
provided, however, that restriction (a) above does not apply to any stock
dividends paid by the Company where the stock dividend is the same stock as that
on which the dividend is being paid. Before the termination of any such Extended
Interest Payment Period, the Company may further extend such Extended Interest
Payment Period, provided that such Extended Interest Payment Period together
with all such previous and further extensions thereof shall not exceed 20
consecutive quarters and shall not extend beyond the Maturity Date of the
Debentures. At the termination of any such Extended Interest Payment Period and
upon the payment of all accrued and unpaid interest and any additional amounts
then due, the Company may commence a new Extended Interest Payment Period.
At any time the Company will have the right to dissolve the Trust and
cause the Debentures to be distributed to the holders of the Trust Securities in
liquidation of the Trust. If the Company elects to dissolve the Trust and
thereby causes the Debentures to be distributed to the holders of the Trust
Securities, the Company shall have the right to (a) shorten the Maturity Date to
any date that is not earlier than _________, 2001 and (b) to extend the Maturity
Date to a date no later than the earlier of (i) _________, 2045, or (ii) the
Interest Deduction Date, provided the conditions in clauses (i) through (vi)
below are met on the date the Company exercises such right and on the Maturity
Date in effect prior to such proposed extension (the "Preceding Maturity Date").
In addition, the Company shall have the right,
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<PAGE> 8
which must be exercised at least 90 days prior to the Maturity Date then in
effect, to extend the Maturity Date for one or more periods, but in no event to
a date later than the earlier of (i) __________, 2045, or (ii) the Interest
Deduction Date, provided that the Company must satisfy the following conditions
on the date it exercises such right and on the Preceding Maturity Date: (i) the
Company is not in bankruptcy or otherwise insolvent, (ii) the Company is not in
default on any Debentures issued to the Trust or any trustee of the Trust in
connection with the issuance of Trust Securities by the Trust, (iii) the Company
has made timely payments on the Debentures for the immediately preceding six
quarters without deferrals, (iv) the Trust is not in arrears on payment of
distributions on the Trust Securities, (v) the Debentures or the Preferred
Securities are rated investment grade by a nationally recognized statistical
rating organization, and (vi) the final maturity of the Debentures is no later
than the forty-ninth anniversary of the issuance of the Preferred Securities. In
the event the conditions specified in clauses (i) through (vi) above are not
satisfied on the date of exercise of the right to extend the Maturity Date and
on the Preceding Maturity Date, then the Maturity Date of the Debentures shall
be the Preceding Maturity Date. In no event shall an extended Maturity Date be
later than the Interest Deduction Date even if the Maturity Date has previously
been extended to a date beyond the Interest Deduction Date.
As provided in the Indenture and subject to certain limitations therein
set forth, this Debenture is transferable by the registered Holder hereof on the
Register of the Company, upon surrender of this Debenture for registration of
transfer at the Corporate Trust Office of the Trustee accompanied by a written
instrument or instruments of transfer in form satisfactory to the Company or the
Trustee duly executed by the registered Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Debentures of authorized
denominations and for the same aggregate principal amount and series will be
issued to the designated transferee or transferees. No service charge will be
made for any such transfer, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in relation
thereto.
Prior to due presentment for registration of transfer of this
Debenture, the Company, the Trustee, any paying agent and any Registrar may deem
and treat the registered holder hereof as the absolute owner hereof (whether or
not this Debenture shall be overdue and notwithstanding any notice of ownership
or writing hereon made by anyone other than the Registrar) for the purpose of
receiving payment of or on account of the principal hereof and interest due
hereon and for all other purposes, and neither the Company nor the Trustee nor
any paying agent nor any Registrar shall be affected by any notice to the
contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Debenture or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture, against any
incorporator, stockholder, officer or director, past, present of future, as
such, of the Company or of any predecessor or successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issuance hereof, expressly
waived and released.
[The Debentures of this series are issuable only in registered form
without coupons in denominations of $25 and any integral multiple thereof,
provided that this Global Debenture is
8
<PAGE> 9
exchangeable for Debentures in definitive form only under certain limited
circumstances set forth in the Indenture.] As provided in the Indenture and
subject to certain limitations herein and therein set forth, Debentures of this
series so issued are exchangeable for a like aggregate principal amount of
Debentures of this series of a different authorized denomination, as requested
by the Holder surrendering the same. All terms used in this Debenture that are
defined in the Indenture shall have the meanings assigned to them in the
Indenture.
9
<PAGE> 1
EXHIBIT 5.1
November 7, 1996
Board of Directors
Conseco, Inc.
11825 North Pennsylvania Street
Carmel, IN 46032
RE: Registration of $1,000,000,000 in Securities of Conseco, Inc.
Ladies and Gentlemen:
I am Executive Vice President and General Counsel of Conseco, Inc. (the
"Corporation"). At your request, I have examined or caused to be examined the
Registration Statement on Form S-3 (Registration No. 333-14991), as amended
(the "Registration Statement"), with respect to unsecured senior debt
securities (the "Senior Debt Securities"), unsecured subordinated debt
securities (the "Subordinated Debt Securities") shares of serial preferred
stock, without par value (the "Preferred Stock"), shares of common stock,
without par value (the "Common Stock") and warrants to purchase Senior Debt
Securities, Subordinated Debt Securities, Preferred Stock or Common Stock or
any combination thereof, as shall be designated by the Company at the time of
the offering (the "Warrants") in amounts, at prices and on terms to be
determined at the time of the offering. The Registration Statement also
relates to the guarantee by the Corporation of preferred securities of Conseco
Financing Trust I, Conseco Financing Trust II and Conseco Financing Trust III,
pursuant to guarantee agreements to be entered into by the Corporation (the
"Preferred Securities Guarantee Agreements"). The Senior Debt Securities will
be issued under a Senior Indenture (the "Senior Indenture") between the
Corporation and LTCB Trust Company as Trustee in the form incorporated as an
exhibit to the Registration Statement. The Subordinated Debt Securities will
be issued under a Subordinated Indenture (the "Subordinated Indenture") between
the Corporation and Fleet National Bank as Trustee in the form incorporated as
an exhibit to the Registration Statement.
In rendering this opinion, I, or attorneys under my supervision
(together referred to herein as "we"), have examined and relied upon a copy of
the Registration Statement. We have also examined originals, or copies of
originals certified to our satisfaction, of such agreements, documents,
certificates and statements of government officials and other instruments, and
have examined such questions of law and have satisfied ourselves as to such
matters of fact, as have considered relevant and necessary as a basis for this
opinion. We have assumed the authenticity of all documents submitted to us as
originals, the genuineness of all signatures, the legal capacity of all natural
persons and the conformity with the original documents of any copies thereof
submitted to us for examination.
Based on the foregoing, and subject to the qualifications and
limitations hereinafter set forth, I am of the opinion that:
1. When (i) the Registration Statement, as finally amended (including any
necessary post-effective amendments), shall have become effective under the
Securities Act of 1933, as amended (the "Securities Act") and the Senior
Indenture, including any necessary supplemental indenture, filed as an exhibit
to the Registration Statement shall have been duly executed and delivered by
the Corporation and the Trustee thereunder and qualified
<PAGE> 2
under the Trust Indenture Act of 1939, as amended; (ii) a prospectus
supplement with respect to such series of Senior Debt Securities shall
have been filed with the Commission in compliance with the Securities
Act and the rules and regulations thereunder; (iii) a Board Resolution
or Officers' Certificate within the meaning of the Senior Indenture
shall have been duly issued, or supplemental indenture entered into, in
accordance with the Senior Indenture detailing the establishment of such
series of Senior Debt Securities; and (iv) such series of Senior Debt
Securities shall have been duly executed and authenticated and shall
have been duly delivered to the purchasers thereof against payment of
the agreed consideration therefor, each series of Senior Debt Securities
will be legally issued and binding obligations of the Corporation
(except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other similar laws
affecting the enforcement of creditors' rights generally and by the
effect of general principles of equity, regardless of whether considered
in a proceeding in equity or at law).
2. When (i) the Registration Statement, as finally amended (including any
necessary post-effective amendments), shall have become effective under
the Securities Act and the Subordinated Indenture, including any
necessary supplemental indenture, filed as an exhibit to the
Registration Statement shall have been duly executed and delivered by
the Corporation and the Trustee thereunder and qualified under the Trust
Indenture Act of 1939, as amended; (ii) a prospectus supplement with
respect to such series of Subordinated Debt Securities shall have been
filed with the Commission in compliance with the Securities Act and the
rules and regulations thereunder; (iii) a Board Resolution or Officers'
Certificate within the meaning of the Subordinated Indenture shall have
been duly issued, or supplemental indenture entered into, in accordance
with the Subordinated Indenture detailing the establishment of such
series of Subordinated Debt Securities; and (iv) such series of
Subordinated Debt Securities shall have been duly executed and
authenticated and shall have been duly delivered to the purchasers
thereof against payment of the agreed consideration therefor, each
series of Subordinated Debt Securities will be legally issued and
binding obligations of the Corporation (except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or other similar laws affecting the enforcement of
creditors' rights generally and by the effect of general principles of
equity, regardless of whether considered in a proceeding in equity or at
law).
3. When the Common Stock has been duly issued and the consideration
therefor has been received by the Corporation, the Common Stock will be
legally issued, fully paid and nonassessable.
4. When (i) the Board of Directors of the Corporation has duly adopted
resolutions specifying the terms and conditions of the applicable series
of Preferred Stock; (ii) the Corporation has filed with the Indiana
Secretary of State articles of amendment with respect to such series of
Preferred Stock; and (iii) such series of Preferred Stock has been duly
issued and the consideration therefor has been received by the
Corporation, each series of Preferred Stock will be legally issued,
fully paid and nonassessable.
5. When (i) the Warrant Agreement relating to the Warrants (the "Warrant
Agreement") has been duly executed and delivered; (ii) the terms of the
Warrants and of their issuance and sale have been duly established in
conformity with the Warrant Agreement relating to such Warrants so as
not to violate any applicable law or result in a default under or breach
of any agreement or instrument binding upon the Corporation and so as to
comply with any requirement or restriction imposed by any court or
governmental or regulatory body having jurisdiction over the
Corporation; and (iii) the Warrants have been duly executed and
countersigned in
<PAGE> 3
accordance with the Warrant Agreement relating to such Warrants, and
issued and sold in the form and manner contemplated in the
Registration Statement and any prospectus supplement relating thereto,
such Warrants will be legally issued and binding obligations of the
Corporation (except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or other
similar laws affecting the enforcement of creditors' rights generally
and by the effect of general principles of equity, regardless of whether
considered in a proceeding in equity or at law).
6. When the Preferred Securities Guarantee has been duly executed and
delivered by the Corporation and the preferred guarantee trustee,
the Preferred Securities Guarantee will constitute the legal and
binding obligation of the Corporation (except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or other similar laws affecting the enforcement of
creditors' rights generally and by the effect of general principles of
equity, regardless of whether considered in a proceeding in equity or at
law).
I do not find it necessary for the purposes of this opinion to cover,
and accordingly I express no opinion as to, the application of the securities
or blue sky laws of the various states to the sale of the securities to be
registered pursuant to the Registration Statement. Without limiting the
generality of the foregoing, I express no opinion in connection with the
matters contemplated by the Registration Statement, and no opinion may be
implied or inferred, except as expressly set forth herein.
This opinion is limited to the laws of the State of Indiana and of the
United States of America to the extent applicable.
I hereby consent to the inclusion of this opinion as Exhibit 5.1 to the
Registration Statement and to all references to me in the Registration
Statement or the Prospectus included therein.
Very truly yours,
/s/ Lawrence W. Inlow
Lawrence W. Inlow
Executive Vice President
and General Counsel
LWI/mhg
<PAGE> 1
EXHIBIT 5.2
[RICHARDS, LAYTON & FINGER LETTERHEAD]
November 7, 1996
Conseco Financing Trust I
Conseco Financing Trust II
Conseco Financing Trust III
c/o Conseco, Inc.
11825 N. Pennsylvania Street
Carmel, Indiana 46032
Re: Conseco Financing Trust I, Conseco Financing Trust II, and
Conseco Financing Trust III
Ladies and Gentlemen:
We have acted as special Delaware counsel for Conseco, Inc., an Indiana
corporation (the "Company"), Conseco Financing Trust I, a Delaware business
trust ("Trust I"), Conseco Financing Trust II, a Delaware business trust
("Trust II"), and Conseco Financing Trust III, a Delaware business trust
("Trust III")(Trust I, Trust II and Trust III are hereinafter collectively
referred to as the "Trusts" and sometimes hereafter individually referred to as
a "Trust"), in connection with the matters set forth herein. At your request,
this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) The Certificate of Trust I, dated October 28, 1996 as filed
with the office of the Secretary of State of the State of Delaware (the
"Secretary of State") on October 28, 1996;
<PAGE> 2
Conseco Financing Trust I
Conseco Financing Trust II
Conseco Financing Trust III
November 7, 1996
Page 2
(b) The Certificate of Trust of Trust II, dated October 28, 1996,
as filed with the Secretary of State on October 28, 1996;
(c) The Certificate of Trust of Trust III, dated October 28, 1996,
as filed with the Secretary of State on October 28, 1996;
(d) The Declaration of Trust of Trust I, dated as of October 28,
1996 between the Company and the trustees of Trust I named therein;
(e) The Declaration of Trust of Trust II, dated as of October 28,
1996 between the Company and the trustees of Trust II named therein;
(f) The Declaration of Trust of Trust III, dated as of October 28,
1996 between the Company and the trustees of Trust III named therein;
(g) The Registration Statement (the "Registration Statement") on
Form S-3, including a preliminary prospectus and a prospectus supplement with
respect to Trust I (the "Prospectus"), relating to the Preferred Securities of
the Trusts representing preferred undivided beneficial interests in the assets
of the Trusts (each, a "Preferred Security" and collectively, the "Preferred
Securities"), filed by the Company and the Trusts with the Securities and
Exchange Commission on October 29, 1996;
(h) A form of Amended and Restated Declaration of Trust for each of
the Trusts, to be entered into between the Company, the trustees of the Trust
named therein, and the holders, from time to time, of the undivided beneficial
interests in the assets of such Trust (including the exhibits and Annex I
thereto) (collectively, the "Declarations" and individually, a "Declaration"),
attached as an exhibit to the Registration Statement; and
(i) A Certificate of Good Standing for each of the Trusts, dated
November 7, 1996, obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise defined are
used as defined in the Declarations.
For purposes of this opinion, we have not reviewed any documents other
than the documents listed in paragraphs (a) through (i) above. In particular,
we have not reviewed any document (other than the documents listed in
paragraphs (a) through (i) above) that is referred to in or incorporated by
reference into the documents reviewed by us. We have assumed that there exists
no provision in any document that we have not reviewed that is inconsistent
with the opinions stated herein. We have conducted no independent factual
investigation of our own but
<PAGE> 3
Conseco Financing Trust I
Conseco Financing Trust II
Conseco Financing Trust III
November 7, 1996
Page 3
rather have relied solely upon the foregoing documents, the statements and
information set forth therein and the additional matters recited or assumed
herein, all of which we have assumed to be true, complete and accurate in all
material respects.
With respect to all documents examined by us, we have assumed (i) the
authenticity of all documents submitted to us as authentic originals, (ii) the
conformity with the originals of all documents submitted to us as copies or
forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that each of the
Declarations constitutes the entire agreement among the parties thereto with
respect to the subject matter thereof, including with respect to the creation,
operation and termination of the applicable Trust, and that the Declarations
and the Certificates of Trust are in full force and effect and have not been
amended, (ii) except to the extent provided in paragraph 1 below, the due
organization or due formation, as the case may be, and valid existence in good
standing of each party to the documents examined by us under the laws of the
jurisdiction governing its organization or formation, (iii) the legal capacity
of natural persons who are parties to the documents examined by us, (iv) that
each of the parties to the documents examined by us has the power and authority
to execute and deliver, and to perform its obligations under, such documents,
(v) the due authorization, execution and delivery by all parties thereto of all
documents examined by us, (vi) the receipt by each Person to whom a Preferred
Security is to be issued by the Trusts (collectively, the "Preferred Security
Holder") of a Preferred Security Certificate for such Preferred Security and
the payment for such Preferred Security, in accordance with the Declarations
and the Registration Statement, and (vii) that the Preferred Securities are
issued and sold to the Preferred Security Holders in accordance with the
Declarations and the Registration Statement. We have not participated in the
preparation of the Registration Statement and assume no responsibility for its
contents.
This opinion is limited to the laws of the State of Delaware (excluding
the securities laws of the State of Delaware), and we have not considered and
express no opinion on the laws of any other jurisdiction, including federal
laws and rules and regulations relating thereto. Our opinions are rendered only
with respect to Delaware laws and rules, regulations and orders thereunder
which are currently in effect.
Based upon the foregoing, and upon our examination of such questions of
law and statutes of the State of Delaware as we have considered necessary or
appropriate, and subject to the assumptions, qualifications, limitations and
exceptions set forth herein, we are of the opinion that:
<PAGE> 4
Conseco Financing Trust I
Conseco Financing Trust II
Conseco Financing Trust III
November 7, 1996
Page 4
1. Each of the Trusts has been duly created and is validly
existing in good standing as a business trust under the Business Trust Act.
2. The Preferred Securities of each Trust will represent valid
and, subject to the qualifications set forth in paragraph 3 below, fully paid
and nonassessable undivided beneficial interests in the assets of the
applicable Trust.
3. The Preferred Security Holders, as beneficial owners of the
applicable Trust, will be entitled to the same limitation of personal liability
extended to stockholders of private corporations for profit organized under the
General Corporation Law of the State of Delaware. We note that the Preferred
Security Holders may be obligated to make payments as set forth in the
Declaration.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. We hereby
consent to the use of our name under the heading "Legal Matters" in the
Prospectus. In giving the foregoing consents, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder. Except as stated above, without
our prior written consent, this opinion may not be furnished or quoted to, or
relied upon by, any other person for any purpose.
Very truly yours,
/s/ Richards, Layton & Finger
CDK
<PAGE> 1
EXHIBIT 8
November 7, 1996
Conseco, Inc.
Conseco Financing Trust I
11825 North Pennsylvania Street
Carmel, Indiana 46032
Ladies and Gentlemen:
We have acted as special tax counsel for Conseco, Inc., ("Conseco"), an
Indiana corporation, and Conseco Financing Trust I (the "Trust"), a Delaware
business trust, in connection with a Registration Statement on Form S-3 filed
with the Securities and Exchange Commission on or about October 29, 1996 (as
amended through the date hereof, the "Registration Statement") which registered
Trust Originated Preferred Securities (the "Preferred Securities") of the Trust
(liquidation amount of $25 per Preferred Security). In connection therewith, we
have participated in the preparation of, and have reviewed, the Registration
Statement, including the prospectus (the "Prospectus") and the form of
prospectus supplement (the "Prospectus Supplement") included therewith.
We have examined and relied upon the Registration Statement and, in
each case as filed with the Registration Statement, (i) the form of indenture
(the "Indenture") between Conseco and Fleet National Bank, as trustee; (ii) the
form of supplemental indenture to be used in connection with the issuance of
the Subordinated Deferrable Interest Debentures of Conseco due 2026 (the
"Subordinated Debentures")(the "Supplemental Indenture"), which Supplemental
Indenture includes the form of the Subordinated Debentures; (iii) the form of
declaration of trust for the Trust (the "Declaration"), which Declaration
includes the form of the Preferred Securities; (iv) the form of guarantee by
Conseco with respect to the Preferred Securities (the "Guarantee"); and (v)
certain other relevant documents used in connection with the issuance of the
Subordinated Debentures, the Preferred Securities and the Guarantee
(collectively the "Operative Documents"). As to certain questions of fact
material or relevant to the opinion expressed herein, we have relied upon a
certificate obtained from an officer of Conseco and have assumed the accuracy
of the facts certified or stated to us and have made no independent
investigation of such facts.
<PAGE> 2
Conseco, Inc.
November 7, 1996
Page 2
Based on the foregoing and assuming that the Operative Documents are
executed and delivered in substantially the form filed as exhibits to the
Registration Statement and that the transactions contemplated to occur under
the Operative Documents in fact occur in accordance with the terms thereof, we
hereby confirm, in all material respects, that the discussion set forth in the
Prospectus Supplement under the heading "United States Federal Income Taxation"
is a fair and accurate summary of the matters addressed therein, based upon
current law and the assumptions stated or referred to therein. There can be no
assurance that contrary positions may not be taken by the Internal Revenue
Service.
We hereby consent to the use of our name in the above-captioned
Registration Statement and to the filing of this opinion as Exhibit 8 to the
Registration Statement. In giving such consent, we do not thereby admit that
we are in the category of persons whose consent is required under Section 7 of
the Securities Act of 1993. This opinion is expressed as of the date hereof,
unless otherwise expressly stated, and we disclaim any undertaking to advise
you of any subsequent changes of the facts stated or assumed herein or any
subsequent changes in applicable law.
Very truly yours,
LOCKE REYNOLDS BOYD & WEISELL
<PAGE> 1
EXHIBIT 10.1
PROMISSORY NOTE
$100,000,000 September 30, 1996
FOR VALUE RECEIVED, CONSECO, INC., an Indiana corporation (the
"Borrower"), hereby promises to pay to the order of NATIONSBANK, N.A. (SOUTH),
a national banking association, its successors or assigns (the "Bank"), at such
place or places as the Bank may designate) the maximum principal amount of ONE
HUNDRED MILLION DOLLARS ($100,000,000) or such lesser principal amount as may
be borrowed and outstanding hereunder, on December 31, 1996 (the "Maturity
Date").
The proceeds of this Note shall be disbursed in one disbursement on
the date hereof.
The outstanding principal balance of this Note shall bear interest at
the option of the Borrower at either the Base Rate or the Offshore Rate
(Reserve Adjusted) plus the Offshore Rate Committed Margin. The Borrower shall
select either of the foregoing rates from time to time by giving at least 3
Business Days' prior written notice to the Bank in the event of the selection
of the foregoing interest rate based upon the Offshore Rate (Reserve Adjusted)
or same Business Day's notice to the Bank in the event of the selection of the
foregoing interest rate based upon the Base Rate. In the case of the selection
by the Borrower of an interest rate based upon the Offshore Rate (Reserve
Adjusted), such notice shall also select an Interest Period which shall be 1, 2
or 3 months. If the Borrower fails to make an interest rate election at the
end of any applicable Interest Period, such failure shall constitute an
election by the Borrower for an interest rate based upon the Base Rate until
the Borrower makes a subsequent election. The terms and provisions of
Sections 5.1, 5.2, 5.3, 5.4, 5.5, 5.6, 5.7 and 5.9 of the Credit Agreement are
incorporated herein by reference; provided, however, (i) all references
contained therein to "any Bank", "such Bank", "each Bank", "the Banks", "a
Bank" or the "Administrative Agent" shall refer to "the Bank", (ii) any
reference contained therein to "no Bank shall" shall refer to "the Bank shall
not", (iii) any reference contained therein to "the Amendment Effective Date"
shall refer to "September 30, 1996", (iv) all references contained therein to
"Defaulting Bank" or "Absolute Rate Loans" shall be deleted, (v) all references
contained therein to "Offshore Rate Loans" shall refer to that portion of the
principal balance of this Note which bears
<PAGE> 2
interest at a interest rate based upon the Offshore Rate (Reserve Adjusted),
(vi) all references contained therein to "this Agreement" shall refer to "this
Note", (vii) all references to Section 15.4 and 15.5 are deleted and (viii) all
other terms defined therein but not defined in this Note shall have their
respective meanings as set forth in the Credit Agreement.
For purposes hereof, the Offshore Rate Committed Margin (the "Offshore
Rate Committed Margin") shall be determined based on the higher of the then
current rating of the Borrower's Senior Notes (as defined in the Credit
Agreement) by Standard & Poor's (as defined in the Credit Agreement) and Duff &
Phelps (as defined in the Credit Agreement) as follows:
<TABLE>
<CAPTION>
Offshore Rate
Committed Margin
----------------
<S> <C>
Standard & Poor's: A
Duff & Phelps: A
or above .225%
Standard & Poor's: A-
Duff & Phelps: A- .275%
Standard & Poor's: BBB+
Duff & Phelps: BBB+ .350%
Standard & Poor's: BBB
Duff & Phelps: BBB .375%
Standard & Poor's: BBB-
Duff & Phelps: BBB- .475%
Standard & Poor's: BB+
Duff & Phelps: BB+
or below .75%
</TABLE>
provided, however, in the event of a split by Standard & Poor's and Duff &
Phelps of more than one rating level, the Offshore Rate Committed Margin will
be based on the level one rating below the highest level. Any adjustment in
the Offshore Rate Committed Margin as a result of a change in the rating of the
Borrower's Senior Notes by Moody's and/or Standard & Poor's shall be effective
as of the effective date of the change in such rating.
- 2 -
<PAGE> 3
Accrued interest hereunder shall be payable on each Interest Payment
Date. Whenever a payment on this Note is stated to be due on a day which is
not a Business Day, such payment shall be made on the next succeeding Business
Day with interest accruing to the date of payment. Interest hereunder with
respect to that portion of the loan which bears interest at the Offshore Rate
(Reserve Adjusted) plus the Offshore Rate Committed Margin shall be computed
for the actual number of days elapsed on the basis of a 360-day year. Interest
hereunder with respect to that portion of the loan which bears interest at the
Base Rate shall be computed for the actual number of days elapsed on the basis
of a 365-day year.
Notwithstanding the provisions contained herein, in the event of the
occurrence of an Event of Default under Section 12.1.3 of the Credit Agreement
or the occurrence of any other Event of Default hereunder, the Borrower hereby
promises to pay, automatically in the case of an Event of Default under Section
12.1.3 of the Credit Agreement or upon demand therefor by the Bank for any
other Event of Default hereunder, interest on the unpaid principal amount of
this Note (and interest thereon to the extent permitted by law) for the period
commencing on the date of such Event of Default under Section 12.1.3 of the
Credit Agreement or such demand by the Bank until such principal amount is paid
in full or such applicable Event of Default is waived by the Bank at a rate per
annum equal to the Base Rate from time to time in effect plus two percent (2%)
per annum.
For purposes hereof the following terms shall have the following
meanings:
(a) "Base Rate" shall have the meaning given to such term in
the Credit Agreement;
(b) "Business Day" shall have the meaning given to such term
in the Credit Agreement;
(c) "Credit Agreement" means that certain Credit Agreement,
dated as of April 12, 1996, among the Borrower, the financial
institutions party thereto, and the agents party thereto, providing
for a revolving line of credit of $500,000,000.00, as modified
pursuant to the terms of that certain letter agreement, dated
September 30, 1996, by and among the Borrower, such financial
institutions and such agents;
- 3 -
<PAGE> 4
(d) "Interest Payment Date" means (i) as to any portion of
this Note which bears interest at the Base Rate, the last Business Day
of each calendar month and the Maturity Date and (ii) as to any
portion of this Note which bears interest at the Offshore Rate
(Reserve Adjusted) plus the Offshore Rate Committed Margin, the last
day of each Interest Period applicable to such portion and the
Maturity Date;
(e) "Interest Period" means with respect to the selection of
an interest rate based upon the Offshore Rate (Reserve Adjusted), the
period commencing on the first date of application of such selection
and ending on the numerically corresponding day (or if there is no
corresponding day, the last day) in the calendar month that is 1, 2 or
3 months thereafter, as the Borrower may elect, and thereafter, each
period commencing on the last day of the next preceding Interest
Period for such interest rate selection and ending on the numerically
corresponding day (or if there is no corresponding day, the last day)
in the calendar month that is 1, 2 or 3 months thereafter, as the
Borrower may elect; provided, however, that each Interest Period which
would otherwise end on a day which is not a Business Day shall end on
the next succeeding Business Day unless the next succeeding Business
Day falls in the next succeeding calendar month, in which case such
Interest Period shall end on the next preceding Business Day; provided
further, the Borrower shall not be entitled to select an Interest
Period which extends beyond the Maturity Date;
(f) "Maturity Date" shall have the meaning given to such term
in the first paragraph of this Note;
(g) "Offshore Rate (Reserve Adjusted)" shall have the meaning
given to such term in the Credit Agreement.
The Borrower shall have the right at any time and from time to time to
prepay, without premium or penalty, amounts outstanding under this Note in
aggregate principal amounts of at least $1,000,000 and an integral multiple of
$250,000 or the balance of such amounts, if less. Amounts prepaid may not be
reborrowed.
- 4 -
<PAGE> 5
The following shall constitute "Events of Default" hereunder: (i) if
any payment of principal, interest, fees or other amounts is not made on the
date required for such payment under this Note (provided that, in the case of a
default in the payment of any interest, fees or other amounts, such default
shall continue unremedied for a period of five days after notice thereof from
the Bank); (ii) the occurrence of any Event of Default under the Credit
Agreement; or (iii) the termination of the Credit Agreement. Upon the
occurrence of any Event of Default, the unpaid principal amount under this
Note, together with all accrued but unpaid interest hereon, may become, or may
be declared to be, immediately due and payable (or in the case of any Event of
Default hereunder arising on account of the occurrence of an Event of Default
under Section 12.1.3 the unpaid principal amount under this Note, together with
all accrued but unpaid interest hereon, shall, in each case, without action on
the part of the Bank, become immediately due and payable), without
presentation, demand, protest or notice of any kind, all of which are hereby
waived by the Borrower.
No delay or omission on the part of the holder of this Note in
exercising any right hereunder shall operate as a waiver of such right or of
any right of such holder nor shall any delay, omission or waiver on any one
occasion be deemed a bar to or waiver of the same or any other right on any
future occasion.
The Borrower shall pay (i) all reasonable out-of-pocket expenses of
the Bank associated with the preparation, execution, delivery and
administration of this Note, including reasonable fees and disbursements of
special counsel for the Bank in connection with the administration of this
Note, any waiver or consent hereunder or any amendment hereof or any Event of
Default or alleged Event of Default hereunder, or (ii) if an Event of Default
occurs, all reasonable out-of-pocket expenses incurred by the Bank, including
reasonable fees and disbursements of counsel, actually incurred in connection
with such Event of Default and collection, bankruptcy, insolvency and other
enforcement proceedings resulting therefrom.
The Borrower shall indemnify and defend the Bank and its respective
directors, officers, agents, employees and affiliates from, and hold each of
them harmless against, any and all losses, liabilities, claims, damages or
expenses incurred by any of them arising out of or by reason of any
investigation, litigation or other proceeding brought or threatened relating to
any loan
- 5 -
<PAGE> 6
extended or proposed to be extended to the Borrower hereunder (including, but
without limitation, any use made or proposed to be made by the Borrower of the
proceeds of such loan, but excluding any such losses, liabilities, claims,
damages or expenses incurred by reason of the gross negligence or willful
misconduct of the indemnitee), or any commitment or proposed commitment of the
Bank under this Note, including, but without limitation, amounts paid in
settlement, court costs, and fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceedings. The
foregoing indemnification shall survive the repayment of the loans hereunder
and the termination of this Note.
This Note shall be governed by and construed in accordance with the
laws of the State of North Carolina. The Borrower hereby submits to the
nonexclusive jurisdiction of the United States District Court of the Western
District of North Carolina and of any North Carolina State court sitting in
Charlotte for purposes of all legal proceedings arising out of or relating to
this Note or the transactions contemplated hereby. The Borrower irrevocably
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court has
been brought in an inconvenient forum.
In addition to any rights now or hereafter granted under applicable
law or otherwise, upon default in payment hereof or hereunder the Bank is
hereby authorized at any time and from time to time without notice to the
Borrower to set off and apply any and all deposits (general or special) and any
other indebtedness at any time held or owing by the Bank to or for the credit
or account of the Borrower against and on account of the obligation of the
Borrower under this Note, irrespective of whether or not the Bank shall have
made any demand hereunder and although said liabilities or claims, or any of
them, shall be contingent or unmatured.
THE BORROWER WAIVES DEMAND, NOTICE OF INTENT TO DEMAND, PRESENTMENT
FOR PAYMENT, NOTICE OF NONPAYMENT, PROTEST, NOTICE OF PROTEST, GRACE, NOTICE OF
DISHONOR, NOTICE OF INTENT TO ACCELERATE MATURITY, NOTICE OF ACCELERATION OF
MATURITY, AND DILIGENCE IN COLLECTION. THE BORROWER WAIVES AND AGREES TO ONE
OR MORE EXTENSIONS FOR ANY PERIOD OR PERIODS OF TIME, AND ANY PARTIAL PAYMENTS,
BEFORE OR AFTER MATURITY, WITHOUT PREJUDICE TO
- 6 -
<PAGE> 7
THE HOLDER OF THIS NOTE. THE BORROWER WAIVES NOTICE OF ANY AND ALL RENEWALS,
EXTENSIONS, REARRANGEMENTS, AND MODIFICATIONS OF THIS NOTE.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
and delivered by its duly authorized officer as of the date first above
written.
CONSECO, INC.
By: /s/ Rollin M. Dick
-----------------------------------
Name: Rollin M. Dick
---------------------------------
Title: Executive Vice President and CFO
---------------------------------
- 7 -
<PAGE> 1
EXHIBIT 10.2
NATIONSBANK, N.A. (SOUTH)
November 6, 1996
Conseco, Inc.
11825 N. Pennsylvania St.
Carmel, Indiana 46032
Ladies and Gentlemen:
We hereby make reference to that certain Promissory Note, dated September 30,
1996 (the Note ), of Conseco, Inc., (the Borrower ) in favor of NationsBank,
N.A. (South) ( NationsBank ) and that certain Credit Agreement, dated as of
August 31, 1995, as amended and restated as of April 12, 1996 (the "Credit
Agreement"), among the Borrower, the financial institutions party thereto (the
"Banks"), the documentation agents party thereto (collectively, the
"Documentation Agents"), the managing agents party thereto (collectively, the
"Managing Agents") and Bank of America National Trust and Savings Association,
as Administrative Agent for the Banks (the "Administrative Agent").
Capitalized terms used herein and not otherwise defined herein shall have the
meanings provided in the Note.
We understand that:
(a) pursuant to a form of Amended and Restated Declaration of Trust (the
"Declaration"), the Borrower, as sponsor, contemplates creating from time to
time one or more Delaware business trusts (collectively, the "Trusts") to issue
up to $1,000,000,000 of Trust Originated Preferred Securities (collectively,
the "Preferred Securities") pursuant to a registration statement to be filed
with the Securities and Exchange Commission in compliance with the Securities
Act of 1933, as amended, which Preferred Securities when issued will accrue a
maximum cash distribution per annum of up to ten and one-half percent (10-1/2%)
of the liquidation amount of $25 per Preferred Security;
(b) pursuant to the Declaration, the Borrower will acquire all of the
common stock of each of the Trusts (collectively, the "Common Securities" and
together with the Preferred Securities called the "Trust Securities"), for a
purchase price equal to at least 3% of the capital of each of the Trusts on the
date of issuance of the Preferred Securities by such Trust, at the same time as
the Preferred Securities are sold by such Trust;
(c) the Borrower contemplates issuing up to $1,000,000,000 aggregate
principal amount of Subordinated Deferrable Interest Debentures (collectively,
the "Subordinated Debentures") pursuant to supplemental indentures executed
from time to time (collectively, the "Supplemental Indentures") to the
Borrower's
<PAGE> 2
existing form of indenture dated ____________, 1995 whereby the Subordinated
Debentures will be subordinated and junior in right of payment to the prior
payment in full of all senior indebtedness of the Borrower (including, without
limitation, the Liabilities and the Additional Secured Borrower Obligations)
whether now existing or hereafter incurred and the maximum amount of interest
payable on such Subordinated Debentures will not exceed 10-1/2%;
(d) the Trusts, with the Net Proceeds from the issuance of the Preferred
Securities, contemplate purchasing all of the Subordinated Debentures from the
Borrower for the benefit of the holders of the Trust Securities;
(e) concurrently with the issuance of the Trust Securities, the Borrower
contemplates entering into a Preferred Securities Guarantee Agreement (the
"Preferred Securities Guarantee") and a Common Securities Guarantee Agreement
(the "Common Securities Guarantee"), whereby the Borrower will guarantee the
payment of certain amounts to the holders of the Preferred Securities and the
Common Securities, respectively, upon nonpayment of such amounts by the Trusts;
provided that upon the occurrence and during the continuance of an Event of
Default (as defined in the Declaration), the rights of the holders of the
Common Securities to receive any payments under the Common Securities Guarantee
are subordinated to the rights of the holders of Preferred Securities to
receive payments under the Preferred Securities Guarantee; and provided,
further, that the rights of the holders of the Trust Securities to receive any
payments under either the Preferred Securities Guarantee or the Common
Securities Guarantee, as applicable, shall be subordinate to the rights of
NationsBank to receive payments from the Borrower under the Note; and
(f) the Borrower, as sponsor of the Trusts, may elect at any time after
the Closing Date (as defined in the Declaration) to dissolve the Trusts in
accordance with the terms of the Trust Securities.
The Borrower hereby agrees and acknowledges that, but for the waivers granted
by the undersigned set forth below, the foregoing contemplated transactions
would constitute various Events of Default under the Note. As a result, the
Borrower has requested that the undersigned waive such Events of Default and
the undersigned hereby agrees to waive the following:
(a) any Event of Default that would result from any Default under Section
4.3(b) of the Credit Agreement relating to (i) any of the Trusts' failure to
make a mandatory prepayment of the Loans from the Net Proceeds received by any
of the Trusts in connection with the issuance of the Preferred Securities;
provided that the aggregate gross proceeds of the issuance of such Preferred
Securities does not exceed $500,000,000 and the Net Proceeds of such issuance
are used to purchase the Subordinated Debentures and (ii) the Borrower's
failure to make a mandatory prepayment of the Loans from the Net Proceeds
received by the Borrower in connection with the issuance of the Subordinated
Debentures; provided that the aggregate gross proceeds of the issuance of such
Subordinated Debentures shall not exceed $500,000,000;
(b) any Event of Default that would result from any Default under Section
9.1 of the Credit Agreement relating to (i) the issuance of the Subordinated
Debentures to the Trusts; provided that (A) the Indebtedness evidenced by the
Subordinated Debentures shall not exceed an aggregate principal amount of
$500,000,000, (B) the interest rate per annum payable on such Subordinated
Debentures shall not exceed 10-1/2% and (C) the Subordinated Debentures shall
be subordinated to the Liabilities, Additional Secured Borrower Obligations and
the Note on terms satisfactory to the Administrative Agent and the undersigned
and (ii) the Contingent Obligations evidenced by the Preferred Securities
Guarantee and the Common Securities Guarantee; provided that the aggregate
principal amount of such Indebtedness shall not exceed $500,000,000; and
provided, further, that such Contingent Obligations are subordinated to the
payment of the obligations of the Borrower under the Note on terms sat-
<PAGE> 3
isfactory to the undersigned;
(c) any Event of Default that would result from any Default under Section
9.3(c) of the Credit Agreement relating (i) the Borrower's failure to meet the
.35:1 Debt to Total Capitalization ratio in connection with the Acquisition of
the Common Securities of the Trusts and (ii) the Borrower's failure to pledge
the Common Securities to the Administrative Agent, for the benefit of the
Banks, in connection with the Acquisition of the Trusts; and
(d) any Event of Default that would result from any Default under Section
9.10 of the Credit Agreement relating to the Borrower's Investment in the
Common Securities.
In addition to the foregoing, the undersigned agrees that for purposes of
determining the Borrower's compliance with the financial covenants set forth in
Sections 10.2, 10.3 and 10.5 of the Credit Agreement, the Indebtedness
evidenced by the Subordinated Debentures shall be deemed to constitute equity
of the Borrower so long as such Indebtedness is held by the Trusts for the
benefit of the holders of the Trust Securities and the Trust Securities remain
outstanding and the Trusts remain in effect in accordance with the terms of the
Declaration as reviewed to date.
In consideration of the foregoing waivers and agreements by the undersigned,
the Borrower agrees that it will not, and will not permit any of its
Subsidiaries to,
(a) make any payment (whether of principal, interest or otherwise) on any
Subordinated Debentures on any day other than the stated scheduled date for
such payment set forth in the Supplemental Indenture reviewed by the
undersigned to date;
(b) prepay, redeem, purchase, defease or transfer its obligations under
any Subordinated Debentures, or make any deposit for any of the foregoing; or
(c) amend or modify the Declaration, any Supplemental Indenture, the
terms of the Trust Securities, the Preferred Securities Guarantee or the Common
Securities Guarantee if such amendment or modification could have an adverse
effect on the undersigned or any material provision of the Note.
Furthermore, the Borrower agrees, as sponsor under the Declaration, that
notwithstanding anything contained herein or in the Declaration it will not
liquidate, dissolve or otherwise terminate any of the Trusts without the prior
written consent of the undersigned (which consent shall not be unreasonably
withheld).
The waivers granted hereunder will not in any way operate as an amendment or
modification of the Credit Agreement or any other Loan Document or the Note or
a waiver or consent with respect to any existing or future Event of Default not
specifically enumerated above.
If the foregoing is in accordance with your understanding and is acceptable
to you, please so indicate by executing this letter in the space provided below
and returning it to the undersigned.
Very truly yours,
NATIONSBANK, N.A. (SOUTH)
By: /s/ William Herrell
-------------------------
Name: William Herrell
Title: Vice President
Agreed and Accepted this 6th
day of November, 1996:
CONSECO, INC.
By: /s/ Lawrence W. Inlow
-----------------------
Name: Lawrence W. Inlow
Title: Executive Vice President
<PAGE> 1
Exhibit 10.3
November 6, 1996
Conseco, Inc.
11825 N. Pennsylvania Street
Carmel, Indiana 46032
Gentlemen:
We make reference to that certain Credit Agreement, dated as of August
31, 1995, as amended and restated as of April 12, 1996 (the "Credit
Agreement"), among Conseco, Inc. ("the Borrower"), the financial institutions
party thereto (the "Banks"), the documentation agents party thereto
(collectively, the "Documentation Agents"), the managing agents party thereto
(collectively, the "Managing Agents") and Bank of America National Trust and
Savings Association, as Administrative Agent for the Banks (the "Administrative
Agent"). Capitalized terms used herein and not otherwise defined herein shall
have the meanings provided in the Credit Agreement.
We understand that:
(a) pursuant to a form of Amended and Restated Declaration of Trust
(the "Declaration"), the Borrower, as sponsor, contemplates creating from time
to time one or more Delaware business trusts (collectively, the "Trusts") to
issue up to $1,000,000,000 of Trust Originated Preferred Securities
(collectively, the "Preferred Securities") pursuant to a registration statement
to be filed with the Securities and Exchange Commission in compliance with the
Securities Act of 1933, as amended, which Preferred Securities when issued will
accrue a maximum cash distribution per annum of up to ten and one-half percent
(10-1/2%) of the liquidation amount of $25 per Preferred Security;
(b) pursuant to the Declaration, the Borrower will acquire all of the
common stock of each of the Trusts (collectively, the "Common Securities" and
together with the Preferred Securities called the "Trust Securities"), for a
purchase price equal to at least 3% of the capital of each of the Trusts on the
date of issuance of the Preferred Securities by such Trust, at the same time as
the Preferred Securities are sold by such Trust;
<PAGE> 2
(c) the Borrower contemplates issuing up to $1,000,000,000 aggregate
principal amount of Subordinated Deferrable Interest Debentures (collectively,
the "Subordinated Debentures") pursuant to supplemental indentures executed from
time to time (collectively, the "Supplemental Indentures") to the Borrower's
existing form of indenture dated ___________, 1995, whereby the Subordinated
Debentures will be subordinated and junior in right of payment to the prior
payment in full of all senior indebtedness of the Borrower (including, without
limitation, the Liabilities and the Additional Secured Borrower Obligations)
whether now existing or hereafter incurred and the maximum amount of interest
payable on such Subordinated Debentures will not exceed 10-1/2%;
(d) the Trusts, with the Net Proceeds from the issuance of the
Preferred Securities, contemplate purchasing all of the Subordinated Debentures
from the Borrower for the benefit of the holders of the Trust Securities; and
(e) concurrently with the issuance of the Trust Securities, the
Borrower contemplates entering into a Preferred Securities Guarantee Agreement
dated ___________, 1996 (the "Preferred Securities Guarantee") and a Common
Securities Guarantee Agreement dated ___________, 1996 (the "Common Securities
Guarantee"), whereby the Borrower will guarantee the payment of certain amounts
to the holders of the Preferred Securities and the Common Securities,
respectively, upon nonpayment of such amounts by the Trusts; provided that upon
the occurrence and during the continuance of an Event of Default (as defined in
the Declaration), the rights of the holders of the Common Securities to receive
any payments under the Common Securities Guarantee are subordinated to the
rights of the holders of Preferred Securities to receive payments under the
Preferred Securities Guarantee; and provided, further, that the rights of the
holders of the Trust Securities to receive any payments under either the
Preferred Securities Guarantee or the Common Securities Guarantee; as
applicable, shall be subordinate to the rights of Bank of America National Trust
and Savings Association, as administrative agent, to receive payments from the
Borrower under that certain Guaranty, dated as of May 13, 1996 (the "O&D
Guaranty").
(f) the Borrower, as sponsor of the Trusts, may elect at any time after
the Closing Date (as defined in the Declaration) to dissolve the Trusts in
accordance with the terms of the Trust Securities.
-2-
<PAGE> 3
Borrower has requested that the undersigned waive such Events of Default and
each of the undersigned hereby agree to waive the following:
(a) any Default under Section 4.3 (b) of the Credit Agreement
relating to (i) any of the Trusts' failure to make a mandatory prepayment
of the Loans from the Net Proceeds received by any of the Trusts in
connection with the issuance of the Preferred Securities; provided that
the aggregate gross proceeds of the issuance of such Preferred
Securities does not exceed $500,000,000, the Net Proceeds of such
issuance are used to purchase the Subordinated Debentures and the
maximum per annum cash distribution accrued on the Preferred Securities
does not exceed ten and one-half percent (10-1/2%) of the liquidation
amount of $25 per Preferred Security and (ii) the Borrower's failure to
make a mandatory prepayment of the Loans from the Net Proceeds received
by the Borrower in connection with the issuance of the Subordinated
Debentures, provided that the aggregate gross proceeds of the issuance
of such Subordinated Debentures shall not exceed $500,000,000.
(b) any Default under Section 9.1 of the Credit Agreement relating
to (i) the issuance of the Subordinated Debentures to the Trusts;
provided that (A) the Indebtedness evidenced by the Subordinated
Debentures shall not exceed an aggregate principal amount of
$500,000,000, (B) the interest rate per annum payable on such
Subordinated Debentures shall not exceed 10-1/2% and (C) the
Subordinated Debentures shall subordinated to the Liabilities and the
Additional Secured Borrower Obligations on terms satisfactory to the
Administrative Agent and (ii) the Contingent Obligations evidenced by
the Preferred Securities Guarantee and the common Securities Guarantee;
provided that the aggregate principal amount of such indebtedness shall
not exceed $500,000,000; and provided, further, that such Contingent
Obligations are subordinated to the payment of the obligations of the
Borrower under the O & D Guaranty on terms satisfactory to the
administrative agent party thereto;
(c) any Default under Section 9.3(c) of the Credit Agreement
relating (i) the Borrower's failure to meet the .35:1 Debt to Total
Capitalization in connection with the Acquisition of the Common
Securities of the Trusts and (ii) the Borrower's failure to pledge the
Common Securities to the Administrative Agent, for the benefit of the
Banks, in connection with the Acquisition of the Trusts; and
-3-
<PAGE> 4
(d) any Default under Section 9.10 of the Credit
Agreement relating to the Borrower's Investment in the Common
Securities.
In addition to the foregoing, the undersigned agree that the
for purposes of determining the Borrower's compliance with the financial
covenants set forth in Sections 10.2, 10.3 and 10.5 of the Credit Agreement,
the Indebtedness evidenced by the Subordinated Debentures shall be deemed to
constitute equity of the Borrower so long as such Indebtedness is held by the
Trusts for the benefit of the holders of the Trust Securities and the Trust
Securities remain outstanding and the Trusts remain in effect in accordance
with the terms of the Declaration as reviewed to date.
In consideration of the foregoing waivers and agreements by the
undersigned Banks, the Borrower agrees that it will not, and will not permit
any of its Subsidiaries to
(a) make any payment (whether of principal, interest or
otherwise) on any Subordinated Debentures on any day other
than the stated scheduled date for such payment set forth in the
Supplemental Indenture reviewed by the Administrative Agent to date;
(b) prepay, redeem, purchase, defease or transfer its
obligations under any Subordinated Debentures, or make any
deposit for any of the foregoing; or
(c) amend or modify the Declaration, any Supplemental
Indenture, the terms of the Trust Securities, the Preferred
Securities Guarantee or the Common Securities Guarantee if such
amendment or modification could have an adverse effect on the Banks or
any material provision of the Loan Documents.
Furthermore, the Borrower agrees, as sponsor under the
Declaration, the notwithstanding anything contained herein or in the
Declaration it will not liquidate, dissolve or otherwise terminate any of the
Trusts without the prior written consent of the Required Banks (which consent
shall not be unreasonably withheld).
The waivers granted hereunder will not in any way operate as an
amendment or modification of the Credit Agreement or any other Loan Document or
a waiver or consent with respect to any existing or future Default not
specifically enumerated above.
If the foregoing is in accordance with your understanding and
is acceptable to you, please so indicate by
-4-
<PAGE> 5
executing this letter in the space provided below and returning it to the
Administrative Agent for the benefit of the Banks.
Very truly yours,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Administrative Agent
By:__________________________________
Name: /s/____________________________
Title:_______________________________
BANK OF AMERICA ILLINOIS
By: _________________________________
Name: /s/____________________________
Title:_______________________________
BANK OF MONTREAL
By: _________________________________
Name: /s/____________________________
Title:_______________________________
THE BANK OF NEW YORK
By: _________________________________
Name: /s/____________________________
Title:_______________________________
THE BANK OF TOKYO - MITSUBISHI
TRUST COMPANY
By: _________________________________
Name: /s/____________________________
Title:_______________________________
BANK ONE TEXAS, N.A.
By: _________________________________
Name: /s/____________________________
Title:_______________________________
-5-
<PAGE> 6
BANQUE NATIONALE DE PARIS
By: _________________________________
Name: /s/____________________________
Title:_______________________________
By: _________________________________
Name: /s/____________________________
Title:_______________________________
BANQUE PARIBAS
By: _________________________________
Name: /s/____________________________
Title:_______________________________
By: _________________________________
Name: /s/____________________________
Title:_______________________________
THE CHASE MANHATTAN BANK, N.A.
By: _________________________________
Name: /s/____________________________
Title:_______________________________
COMERICA BANK
By: _________________________________
Name: /s/____________________________
Title:_______________________________
CORESTATES BANK, NA
By: _________________________________
Name: /s/____________________________
Title:_______________________________
-6-
<PAGE> 7
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By:______________________________
Name:/s/_________________________
Title:___________________________
DEUTSCHE BANK AG,
NEW YORK AND/OR
CAYMAN ISLANDS BRANCH
By:______________________________
Name:/s/_________________________
Title:___________________________
By:______________________________
Name:/s/_________________________
Title:___________________________
DRESDNER BANK AG, NEW YORK BRANCH
By:______________________________
Name:/s/_________________________
Title:___________________________
By:______________________________
Name:/s/_________________________
Title:___________________________
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By:______________________________
Name:/s/_________________________
Title:___________________________
FLEET NATIONAL BANK
By:______________________________
Name:/s/_________________________
Title:___________________________
-7-
<PAGE> 8
THE FUJI BANK LIMITED
By:________________________________
Name:/s/___________________________
Title:_____________________________
ING CAPITAL CORPORATION
By:________________________________
Name:/s/___________________________
Title:_____________________________
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., CHICAGO BRANCH
By:________________________________
Name:/s/___________________________
Title:_____________________________
THE MITSUBISHI TRUST & BANKING CORP.
By:________________________________
Name:/s/___________________________
Title:_____________________________
NATIONSBANK, N.A. (SOUTH)
By:________________________________
Name:/s/___________________________
Title:_____________________________
ROYAL BANK OF SCOTLAND
By:________________________________
Name:/s/___________________________
Title:_____________________________
THE SANWA BANK LTD., CHICAGO BRANCH
By:________________________________
Name:/s/___________________________
Title:_____________________________
-8-
<PAGE> 9
SOCIETE GENERALE
By:__________________________________
Name:/s/_____________________________
Title:_______________________________
STAR BANK, N.A.
By:__________________________________
Name:/s/_____________________________
Title:_______________________________
THE SUMITOMO BANK, LIMITED
By:__________________________________
Name:/s/_____________________________
Title:_______________________________
By:__________________________________
Name:/s/_____________________________
Title:_______________________________
VAN KAMPEN AMERICAN CAPITAL PRIME RATE
By:__________________________________
Name:/s/_____________________________
Title:_______________________________
THE YASUDA TRUST & BANKING CO., LTD.
By:__________________________________
Name:/s/_____________________________
Title:_______________________________
-9-
<PAGE> 10
Agreed and Accepted this 6th day
November, 1996:
CONSECO, INC.
By: /s/ Rollin M. Dick
-----------------------------
Name: Rollin M. Dick
---------------------------
Title: Executive Vice President
--------------------------
-10-
<PAGE> 1
EXHIBIT 10.4
September 13, 1996
Mr. Rollie M. Dick
Executive Vice President and Chief Financial Officer
Conseco, Inc.
11825 North Pennsylvania Street
Carmel, Indiana 46032
Mr. James S. Adams
Senior Vice President and Treasurer
Conseco, Inc.
11825 North Pennsylvania Street
Carmel, Indiana 46032
Mr. Daniel J. Murphy
Vice President of Finance
Conseco, Inc.
11825 North Pennsylvania Street
Carmel, Indiana 46032
RE: ACQUISITIONS OF AMERICAN TRAVELLERS CORP., CAPITAL AMERICAN FINANCIAL
CORP., BANKERS LIFE HOLDING CORP., AND AMERICAN LIFE HOLDINGS, INC.
Dear Gentlemen:
You have advised us that Conseco, Inc. (the "Borrower" or the "Company") plans
to complete Acquisitions of the above mentioned companies for approximately $2
billion. You have advised us that approximately $1.6 billion in senior debt
financing will be required in order to effect the Acquisitions, to pay the
costs and expenses related to the acquisitions, and to provide for ongoing
general corporate purposes after the completion of the acquisitions. The
balance of funding to consummate the Acquisitions will be comprised of
approximately $1.3 billion of equity, including up to $300 million of preferred
stock.
In connection with the foregoing, NationsBank, N.A. ("NationsBank" or the
"Agent") is pleased to advise you of the following:
- - NationsBank will commit to provide $200 million of the Senior Credit
Facilities and arrange the balance on a "Best Efforts" basis.
- - NationsBanc Capital Markets, Inc. ("NCMI") is pleased to advise you of its
commitment, as Arranger, Administrative Agent, and Syndication Agent for
the Senior Facilities. NCMI, under its role as Syndication Agent, will
form a syndicate of financial institutions (the "Lenders") reasonably
acceptable to you for the Senior Credit Facilities.
<PAGE> 2
Conseco, Inc.
September 13, 1996
Page 2
- - The Fee Letter for this transaction is attached to this Commitment Letter as
Annex III.
The commitments of NationsBank and NCMI hereunder are subject to the
satisfaction of each of the following conditions precedent in a manner
acceptable to NationsBank and NCMI in their sole discretion:
(a) each of the terms and conditions set forth herein;
(b) each of the terms and conditions set forth in the Term Sheet;
(c) execution by the Borrower and other appropriate parties of the
definitive Purchase Agreement and other related documentation relating to
the Acquisitions, in form and substance satisfactory to NationsBank and
NCMI;
(d) execution of a fee letter among the Borrower, NationsBank and NCMI
prior to or concurrently with the acceptance by the Borrower of this
letter;
(e) the negotiation, execution, and delivery of definitive documentation
with respect to the Senior Credit Facilities consistent with the Term
Sheet and otherwise satisfactory to NationsBank and NCMI; and
(f) there not having occurred and being continuing since the date hereof
a material adverse change in the market for syndicated bank credit
facilities or a material disruption of, or material adverse change in,
financial, banking, or capital market conditions, in each case as
determined by NationsBank and NCMI in their sole discretion.
NationsBank will act as Agent for the Senior Credit Facilities and NCMI will
act as Arranger and Syndication Agent for the Senior Credit Facilities. No
additional agents will be appointed without the prior approval of NationsBank
and NCMI.
Furthermore, the commitments of NationsBank and NCMI hereunder are based upon
the financial other information regarding the Borrower and its respective
subsidiaries previously provided to NationsBank and NCMI and are subject to the
condition, among others, that there shall not have occurred after the date of
such information, in the opinion of NationsBank and NCMI, any material adverse
change in the business, assets, liabilities (actual or contingent), operations,
condition (financial or otherwise) or prospects of the Borrower and its
subsidiaries taken as a whole. If the continuing review by NationsBank and
NCMI of the Borrower discloses information relating to conditions or events not
previously disclosed to NationsBank and NCMI or relating to new information or
additional developments concerning conditions or events previously disclosed to
NationsBank and NCMI which NationsBank and NCMI in their sole discretion
believe may have a material adverse effect on the condition (financial or
otherwise), assets, properties, business, operations or prospects of the
Borrower, NationsBank and NCMI may, in its sole discretion, suggest alternative
financing amounts or structures that ensure adequate protection for the Lenders
or decline to participate in the proposed financing.
You agree to actively assist NationsBank and NCMI in achieving a syndication of
the Senior Credit Facilities that is satisfactory to NationsBank, NCMI and you.
In the event that such syndication cannot be achieved in a manner satisfactory
to NationsBank and NCMI under the structure outlined in the Term Sheet you
agree to cooperate with NationsBank and NCMI in developing an alternative
structure that will permit a satisfactory syndication of the Senior Credit
Facilities. Syndication of the Senior Credit Facilities will be accomplished
by a variety of means, including direct contact during the syndication between
senior management and advisors of the Borrower and the proposed Lenders. To
assist
<PAGE> 3
Conseco, Inc.
September 13, 1996
Page 3
NationsBank and NCMI in the syndication efforts, you hereby agree to (a)
provide and cause your advisors to provide NationsBank and NCMI and the other
Lenders upon request with all information reasonably deemed necessary by
NationsBank and NCMI to complete syndication, including but not limited to
information and evaluations prepared by the Borrower and its advisors, or on
their behalf, relating to the Acquisitions, (b) assist NationsBank and NCMI
upon their reasonable request in the preparation of an Information Memorandum
to be used in connection with the syndication of the Senior Credit Facilities
and (c) otherwise assist NationsBank and NCMI in their syndication efforts,
including by making available officers and advisors of the Borrower and its
subsidiaries from time to time to attend and make presentations regarding the
business and prospects of the Borrower and its subsidiaries, as appropriate, at
a meeting or meetings of prospective Lenders. You further agree to refrain from
engaging in any additional bank financings for the Company during such
syndication process unless otherwise agreed to by NationsBank and NCMI.
It is understood and agreed that NationsBank and NCMI, after consultation with
you, will manage and control all aspects of the syndication, including
decisions as to the selection of proposed Lenders and any titles offered to
proposed Lenders, when commitments will be accepted and the final allocations
of the commitments among the Lenders. It is understood that no Lender
participating in the Senior Credit Facilities will receive compensation from
you outside the terms contained herein and in the Term Sheet in order to obtain
its commitment, without prior notification to the Agent. It is also understood
and agreed that the amount and distribution of the fees among the Lenders will
be at the sole discretion of NationsBank and NCMI and that any syndication
prior to execution of definitive documentation will reduce the commitment of
NationsBank.
You hereby represent, warrant and covenant that (i) all information, other than
Projections (as defined below), which has been or is hereafter made available
to NationsBank and NCMI or the Lenders by you or any of your representatives in
connection with the transactions contemplated hereby ("Information") is and
will be complete and correct in all material respects and does not and will not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements contained therein not misleading and (ii)
all financial projections concerning the Borrower that have been or are
hereafter made available to NationsBank and NCMI or the Lenders by you or any
of your representatives (the "Projections") have been or will be prepared in
good faith based upon reasonable assumptions. You agree to furnish us with
such Information and Projections as we may reasonably request and to supplement
the Information and the Projections from time to time until the closing date
for the Senior Credit Facilities so that the representation and warranty in the
preceding sentence is correct on the such date. In arranging and syndicating
the Senior Credit Facilities, NationsBank and NCMI will be using and relying on
the Information and the Projections without independent verification thereof.
By executing this letter agreement, you agree to reimburse NationsBank and NCMI
from time to time on demand for all reasonable out-of-pocket fees and expenses
(including, but not limited to, the reasonable fees, disbursements and other
charges of counsel to NationsBank and the other Lenders) incurred in connection
with the Senior Credit Facilities and the preparation of the definitive
documentation for the Senior Credit Facilities and the other transactions
contemplated hereby.
In the event that NationsBank or NCMI becomes involved in any capacity in any
action, proceeding or investigation in connection with any matter contemplated
by this letter, the Company will reimburse NationsBank and NCMI for their legal
and other expenses (including the cost of any investigation and preparation) as
they are incurred by NationsBank or NCMI. The Company also agrees to indemnify
and hold harmless NationsBank, NCMI and their affiliates and their respective
directors, officers, employees and agents (the "Indemnified Parties") from and
against any and all losses, claims, damages and liabilities, joint or several,
related to or arising out of any matters contemplated by this letter unless and
<PAGE> 4
Conseco, Inc.
September 13, 1996
Page 4
only to the extent that it shall be finally judicially determined that such
losses, claims, damages or liabilities resulted primarily from the gross
negligence or willful misconduct of Indemnified Parties.
The provisions of the immediately preceding two paragraphs shall remain in full
force and effect regardless of whether definitive financing documentation shall
be executed and delivered and notwithstanding the termination of this letter
agreement or the commitment of NationsBank and NCMI hereunder.
As described herein and in the Term Sheet, NCMI will act as Arranger and
Syndication Agent for the Senior Credit Facilities. NationsBank reserves the
right to allocate, in whole or in part, to NCMI certain fees payable to
NationsBank in such manner as NationsBank and NCMI agree in their sole
discretion. You acknowledge and agree that NationsBank may share with any of
its affiliates (including specifically NCMI) any information relating to the
Senior Credit Facilities, the Borrower, and its subsidiaries and affiliates.
This letter agreement may not be assigned by the Company without the prior
written consent of NationsBank and NCMI.
If you are in agreement with the foregoing, please execute and return the
enclosed copy of this letter agreement no later than the close of business on
September 16, 1996. This letter agreement will become effective upon your
delivery to us of executed counterparts of this letter agreement and, without
limiting the more specific terms hereof and of the Term Sheet, you agree upon
acceptance of this commitment to pay the fees in the amounts and on the dates
set forth in the attached Fee Letter. This commitment shall terminate if not so
accepted by you prior to that time. Following acceptance by you, this
commitment will terminate on December 31, 1996, unless the Senior Credit
Facilities are closed by such time.
Except as required by applicable law, this letter and the contents hereof shall
not be disclosed by you to any third party without the prior consent of
NationsBank and NCMI, other than to your attorneys, financial advisors and
accountants, in each case to the extent necessary in your reasonable judgment,
except that following your acceptance hereof you may make public disclosure
hereof as required by law.
This letter may be executed in counterparts which, taken together, shall
constitute an original. This letter, together with the Term Sheet, embodies the
entire agreement and understanding among NationsBank, NCMI, and the Borrower
with respect to the specific matters set forth herein and supersedes all prior
agreements and understandings relating to the subject matter hereof. No party
has been authorized by NationsBank or NCMI to make any oral or written
statements inconsistent with this letter. THIS LETTER SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD
TO ITS PRINCIPLES OF CONFLICTS OF LAW.
Very truly yours,
NATIONSBANC CAPITAL MARKETS, INC.
By: ____________________________
Gary L. Kahn
Director
<PAGE> 5
Conseco, Inc.
September 13, 1996
Page 5
NATIONSBANK, N.A. (SOUTH)
By: /s/ Teresa A. Radzinski
-----------------------
Teresa A. Radzinski
Senior Vice President
AGREED TO AND ACCEPTED THIS
16th DAY OF September, 1996.
CONSECO, INC.
By: /s/ Rollin M. Dick
Title: Executive Vice President
<PAGE> 6
CONSECO, INC. CONFIDENTIAL
- --------------------------------------------------------------------------------
CONSECO, INC.
SUMMARY OF INDICATIVE TERMS AND CONDITIONS
$1.8BN SENIOR CREDIT FACILITIES
SEPTEMBER 17, 1996
BORROWER: Conseco, Inc. ("Borrower")
ARRANGER: NationsBanc Capital Markets, Inc. ("NCMI" or
"Arranger").
ADMINISTRATIVE AGENT: NationsBank, N.A. (South) ("NationsBank" or
"Agent").
MANAGING AGENTS: To be determined.
LENDERS: NationsBank and a syndicate of financial
institutions arranged by NCMI acceptable to
Agent and reasonably acceptable to Borrower
("Lenders").
FACILITIES AMOUNT: An aggregate principal amount of $1,800,000,000
split between two tranches (the "Facilities").
FACILITIES: TRANCHE A:
$1,400,000,000 Five Year Revolving Credit
Facility ("Tranche A").
TRANCHE B:
$400,000,000 364-day Revolving Credit Facility
("Tranche B").
SWING LINE FACILITY: The Borrower shall have the ability to borrow,
on a direct basis from the Agent, up to
$50,000,000 under the Swing Line for a period
of up to 7 days. Swing Line borrowings are
available on a same day basis with notice from
the Borrower by 12:00 p.m. Eastern time the day
of the borrowing. All borrowings under the
Swing Line shall bear interest at a
same-day NationsBank cost of funds rate plus
the applicable interest rate margin determined
by reference to the Performance Pricing Grid,
attached as Exhibit A. Under certain
circumstances, each Lender may be required to
purchase a pro rata participation in the
Agent's Swing Line.
USE OF PROCEEDS: The proceeds of the Facilities shall be used
for the acquisition of Capitol American
Financial Corp. and American Travellers Corp.
and the purchasing of the remaining shares of
American Life Holdings, Inc. and Bankers
Life Holding Corp. ("BLHC") (collectively, the
"Acquisitions"), general corporate purposes,
commercial paper backup, stock repurchases,
repayment of existing indebtedness, including
preferred shares and as a bridge to the equity
offering.
NATIONSBANK COMMITMENT: Please see attached Fee Letter.
MATURITY DATE: TRANCHE A:
Five years from Closing.
TRANCHE B:
364-days from Closing.
NATIONSBANC CAPITAL MARKETS, INC. 1
<PAGE> 7
CONSECO, INC. CONFIDENTIAL
- --------------------------------------------------------------------------------
SECURITY: Unsecured. The Lenders shall receive a negative pledge
on all assets, both present and future, excluding a TBD
basket in assets which may be pledged to secure other
indebtedness.
MANDATORY Mandatory prepayments will be required (a) upon sale or
PREPAYMENTS: disposition of substantial assets of any Significant
Subsidiary (to be determined as defined below) of the
Borrower, or any assets of any subsidiary of an such
Significant Subsidiary, in each case other than in the
ordinary course of business (subject to certain
negotiated exceptions) and (b) upon other events as
agreed by the Borrower and the Agent.Significant
Subsidiary shall have the meaning provided in the
existing Conseco, Inc. Amended and Restated Credit
Agreement dated as of April 12, 1996.
MANDATORY A mandatory commitment reduction shall be made in an
COMMITMENT REDUCTION: amount equal to 100% of the net cash proceeds (not to
exceed $400 million) from the anticipated issuance of
equity by the Borrower post closing. This commitment
reduction will apply only to Tranche B.
TERMINATION OR The unused commitments under the Facilities may be
REDUCTION canceled at any time by the Borrower on five business
OF COMMITMENT: days' notice, without penalty, in the minimum amount for
each such reduction of $5,000,000 and integral multiples
of $1,000,000. Borrower shall reimburse Lenders for
funding losses.
PERFORMANCE PRICING: At the Borrower's option (in the absence of any Event
of Default), interest on loans under the Facilities
shall accrue at a rate equal to LIBOR or Reference Rate
plus the Applicable Interest Rate Margin determined by
reference to a Performance Pricing Grid. Please refer
to Exhibit A attached.
LIBOR is defined as the average London Interbank
Offered Rate for 1, 2, 3, or 6 month dollar deposits as
quoted by NationsBank, N.A. (South), rounded upwards to
the nearest 0.01%, and adjusted for maximum cost of
reserves. Interest is to accrue based on a 360 day year
and actual days elapsed and to be paid in arrears at the
earlier of the end of each interest period or quarterly.
Reference Rate is defined as the higher of (i) the
Prime Rate of interest publicly announced from time to
time by NationsBank, N.A. (South), or (ii) the Effective
Federal Funds Rate plus 0.50%. Interest is to accrue
based on a 365 day year and actual days elapsed and is
to be paid in arrears at the earlier of the end of each
Interest Period or quarterly.
Effective immediately following and during the
continuation of the occurrence of an Event of Default
with respect to the nonpayment of principal or interest
or fees, or effective upon notice by the Majority
Lenders with respect to the occurrence of any other
Event of Default, interest shall accrue at the Reference
Rate plus the maximum Applicable Interest Rate Margin
plus 2.00%.
COMMITMENT FEE: The Commitment Fee will be paid on the average unused
Commitment Amount, quarterly in arrears, calculated on
the basis of a 360 day year and the actual days elapsed.
The Commitment Fee will be based on the Performance
Pricing Grid. Please refer to Exhibit A attached.
NATIONSBANC CAPITAL MARKETS, INC. 2
<PAGE> 8
CONSECO, INC. CONFIDENTIAL
- --------------------------------------------------------------------------------
ARRANGEMENT FEE: Please see attached Fee Letter.
UPFRONT FEES: Please see attached Fee Letter.
NATIONSBANC CAPITAL MARKETS, INC. 3
<PAGE> 9
CONSECO, INC. CONFIDENTIAL
- --------------------------------------------------------------------------------
COMPETITIVE BID OPTION: The Borrower may also request the Agent to solicit
competitive bids from the Lenders through an
auction for short term borrowings priced either
(i) at a margin above or below LIBOR or (ii) at an
absolute interest rate ("Absolute Rate"). LIBOR
bids may be requested for 1, 2, or 3 month periods
and Absolute Rate bids may be requested for
periods not less than 14 days up to and including
90 days. Interest on LIBOR and Absolute Rate bids
the will be paid at the end of each interest
period or quarterly, whichever is earlier.
Lenders may bid, at their own discretion, for
amounts up to the total Facility Amount,
regardless of their pro rata commitments.
Competitive bid rate loans will be awarded in
order of effective yield, starting from the lowest
cost and rising to the highest acceptable cost to
the Borrower. The Borrower shall be under no
obligation to accept any of the bids received.
The competitive bid option shall be available for
borrowings of a minimum of $10,000,000 up to a
maximum of the Facility Amount. Competitive bids
require five business days notice for LIBOR bids
and two business days for Absolute Rate bids.
REPRESENTATIONS AND Those customary or appropriate for a financing of
WARRANTIES: this type, including, without limitation, those
relating to the existence, qualification and good
standing of Borrower and its subsidiaries, the
accuracy and fair presentation of financial
statements, the absence of undisclosed
liabilities, the non-contravention of
organizational documents, laws and material
agreements, the absence of litigation, the power
and authority of Borrower to execute, deliver and
perform, and the authorization by Borrower of the
execution, delivery and performance of, the
definitive loan documentation, the payment of
taxes and other obligations, the absence of
material adverse change and ERISA and
environmental matters, in form and substance
satisfactory to the Agent and Lenders.
COVENANTS: Those customary or appropriate for a financing of
this type, including, without limitation, the
delivery of financial statements and other
information, the payment and performance of taxes
and other material obligations, the maintenance of
existence, qualification, good standing,
properties and insurance, compliance with
environmental and other laws and regulations and
material agreements, limitations on debt, liens,
loans, and investments, transactions with
affiliates, mergers, sales of assets, changes in
business, and financial covenants, to include, but
not limited to the following:
1. Leverage Ratio
Maximum Debt/ Total Capitalization of 45%.
2. Statutory Cash Coverage Ratio
As substantially defined in the existing Conseco,
Inc. Amended and Restated Credit Agreement dated
April 12, 1996 of TBD.
NATIONSBANC CAPITAL MARKETS, INC. 4
<PAGE> 10
CONSECO, INC. CONFIDENTIAL
- --------------------------------------------------------------------------------
3. Minimum Shareholders' Equity
Not permit the Total Shareholders' Equity
(excluding the effects of FASB 115) of the Company
to be less than: $1,750 million through 12/31/96;
$2,400 million through 12/31/98; $3,500 million
thereafter.
4. Acquisitions
No limitations on acquisitions providing that the
Company remains in compliance with the covenants
of the Credit prior to and immediately following
the acquisition on a proforma basis.
FINANCIAL REPORTING: Those customary or appropriate for a financing of
this type, with respect to the Borrower and its
Subsidiaries.
CONDITIONS PRECEDENT The initial funding of the Facilities will be
TO CLOSING: subject to satisfaction of the conditions
precedent deemed appropriate by the Agent and the
Lenders for financings generally and for this
transaction in particular, including but not
limited to the following:
(i) The completion of all due diligence
with respect to the Borrower and American
Travellers Corp., Capital American Financial
Corp., Bankers Life Holding Corp., and American
Life Holdings, Inc. (collectively, the "Acquired
Companies") and their respective subsidiaries in
scope and determination satisfactory to the
Managing Agents, NationsBank and NCMI in their
sole discretion.
(ii) The negotiation, execution and
delivery of definitive documentation with respect
to the Facilities satisfactory to NCMI, the Agent
and the Lenders.
(iii) The Managing Agents' and Agent's
satisfactory review of purchase agreement
(including all schedules thereto, exhibits thereto
and related documentation) for the Acquisitions
which shall provide for an aggregate cash purchase
price not in excess of $1,800 million, including
retirement of preferred stock, repayment of
indebtedness and payment of transaction expenses.
The Purchase Agreements shall not be materially
altered, amended or otherwise changed or
supplemented or any condition therein waived,
without the prior written consent of the Managing
Agents and the Agent.
(iv) The corporate capital and ownership
structure (including articles of incorporation and
by-laws), shareholders agreements and management
of the Borrower and its subsidiaries (after giving
effect to the Acquisitions) shall be satisfactory
to the Managing Agents and the Agent.
(v) The Managing Agents and the Agent
shall have received and, in each case, approved
the consolidated financial statements of the
Acquired Companies and their subsidiaries for the
fiscal years 1994 and 1995, including balance
sheets, income and cash flow statements audited by
independent public accountants of recognized
national standing and prepared in conformity with
GAAP, a pro forma balance sheet of the Borrower
and its subsidiaries as of the
NATIONSBANC CAPITAL MARKETS, INC. 5
<PAGE> 11
CONSECO, INC. CONFIDENTIAL
- --------------------------------------------------------------------------------
most recent quarter-end reporting period, for which
statements have been prepared and filed with the
SEC, giving effect to the Acquisitions and the
transactions contemplated hereby and reflecting
estimated purchase price accounting adjustments, and
such other information relating to the Acquisitions as
the Managing Agents and the Agent may require.
(vi) There shall not have occurred a material
adverse change since June 30, 1996 in the business,
assets, liabilities (actual or contingent), operations,
condition (financial or otherwise) or prospects of the
Borrower and its subsidiaries or the Acquired Companies
and their subsidiaries or in the facts and information
regarding such entities as represented to date.
(vii) The Managing Agents and the Agent shall have
received satisfactory opinions of counsel to the
Borrower (which shall cover, among other things,
authority, legality, validity, binding effect and
enforceability of the documents for the Facilities) and
corporate resolutions, certificates and other documents
as the Managing Agent and the Agent shall reasonably
require.
(viii) The absence of any action, suit,
investigation or proceeding pending or threatened in
any court or before any arbitrator or governmental
authority that purports to affect any transaction
contemplated hereby, or that could have a material
adverse effect on the Borrower, the Acquired Companies
or their respective subsidiaries or on the ability of
the Borrower and its subsidiaries to perform their
obligations under the documents to be executed in
connection with the Credit Facilities.
(ix) The Borrower and its subsidiaries (including
the Acquired Companies) shall be in compliance with all
existing financial obligations (after giving effect to
the Acquisitions).
(x) Receipt and review, with results
satisfactory to the Managing Agents and the Agent and
its counsel, of information regarding litigation, tax,
accounting, labor, insurance, pension liabilities
(actual or contingent), real estate leases, material
contracts, debt agreements, property ownership, and
contingent liabilities of the Acquired Companies, the
Borrower, and their respective subsidiaries.
CONDITIONS PRECEDENT In addition to the satisfaction of the Conditions
TO FUNDING OF Precedent to Closing set forth above, prior to the
ACQUISITIONS AND funding of any particular acquisition of an
ACQUISITION OF BLHC Acquired Company the stock of Bankers Life Holding
STOCK: Corp. ("BLHC"), the Managing Agents and the Agent shall
have received satisfactory evidence of the receipt of
all governmental, shareholder and third party consents
(including Hart-Scott Rodino clearance) and approvals
necessary in connection with such purchase of the
Acquired Company, or the stock of BLHC, as the case may
be, and the related financings and other transactions
contemplated hereby and expiration of all applicable
waiting periods without any action being taken by any
authority that could restrain, prevent or impose any
material adverse
NATIONSBANC CAPITAL MARKETS, INC. 6
<PAGE> 12
CONSECO, INC. CONFIDENTIAL
- --------------------------------------------------------------------------------
conditions on the Borrower or the Acquired Company, or
BLHC, as the case may be, or such other transactions
or that could seek or threaten any of the foregoing, and
no law or regulation shall be applicable which in the
judgment of the Managing Agents and the Agent could have
such effect. The funding of the acquisition of any
Acquired Company or the stock of BLHC shall not be
contingent in any way on the proposed acquisition of the
other Acquired Companies or the BLHC stock, as the case
may be.
NATIONSBANC CAPITAL MARKETS, INC. 7
<PAGE> 13
CONSECO, INC. CONFIDENTIAL
------------------------------------------------------------------------------
EVENTS OF DEFAULT: Those customary or appropriate for a
financing of this type, including,
without limitation, the following, in
form and substance satisfactory to the
Agent: failure to make payments when
due; failure to meet any covenant or
agreement, breach of representations and
warranties; bankruptcy/insolvency;
change of control; judgments and
attachments; ERISA matters; and
cross-default to other material
indebtedness and agreements. Default
provisions to also include customary
notice, cure and grace provisions, as
appropriate.
ASSIGNMENTS AND PARTICIPATIONS: Each Lender may assign all or any part
of its advances or commitments with the
prior written consent of the Borrower
and Agent, which consent by the Borrower
shall not be unreasonably withheld;
provided however, that the minimum
amount of any such assignment shall be
the lesser of (i) $10,000,000 or (ii)
the assigning Lender's entire commitment
at such time; each assigning Lender will
pay to the Agent a recordation fee of
$3,000. Upon any such assignment, the
assignee shall become a Lender for all
purposes under the Credit Agreement.
Each Lender may sell participations for
all or any part of its advances or
commitments; provided however, that such
Lender shall not sell any participation
under which the participant would have
rights to approve any amendment or
waiver relating to the Credit Agreement
except to the extent any such amendment
or waiver would (a) extend the final
maturity date or the date for the
payment of any installment of fees,
principal or interest due in respect of
the Facilities, (b) reduce the amount of
any installment of principal due in
respect of the Facilities, or (c) reduce
the interest rates or fees applicable to
the Facilities.
INDEMNIFICATION: The Borrower shall indemnify the Lenders
from and against all losses,
liabilities, claims, damages or expenses
relating to their loans, the Borrower's
use of loan proceeds or the commitments,
including but not limited to reasonable
attorney's fees and settlements costs.
This indemnification shall survive and
continue for the benefit of the Lenders
at all times after the Borrower's
acceptance of the Lenders' commitment
for the Credit Facilities,
notwithstanding any failure of the
Credit Facilities to close.
GOVERNING LAW: State of Illinois.
OTHER: Waiver of trial by jury.
CLOSING DATE: Closing will occur on or before December
31, 1996.
THIS TERM SHEET IS INTENDED AS AN OUTLINE ONLY AND DOES NOT PURPORT TO
SUMMARIZE ALL THE CONDITIONS, COVENANTS, REPRESENTATIONS, WARRANTIES, AND OTHER
PROVISIONS WHICH WOULD BE CONTAINED IN DEFINITIVE LEGAL DOCUMENTATION FOR THE
FACILITY CONTEMPLATED HEREBY.
NATIONSBANC CAPITAL MARKETS, INC. 8
<PAGE> 14
CONSECO, INC. CONFIDENTIAL
- ------------------------------------------------------------------------------
EXHIBIT A
Performance Pricing Grid
The Applicable Margin for any fiscal quarter, shall be the applicable rate per
annum set forth in the tables below:
Five Year
<TABLE>
<CAPTION>
SENIOR
UNSECURED DEBT S&P: A S&P: A- S&P: S&P: BBB S&P: S&P:
RATING DUFF: A DUFF: A- BBB+ DUFF: BBB BBB- BB+
OR ABOVE DUFF: DUFF: DUFF:
BBB+ BBB- BB+
OR BELOW
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commitment Fee 8.00 10.00 12.50 12.50 17.50 25.00
LIBOR+ 22.50 27.50 35.00 37.50 47.50 75.00
Drawn Cost 22.50 27.50 35.00 37.50 47.50 75.00
</TABLE>
364-DAY
<TABLE>
<CAPTION>
SENIOR UNSECURED
DEBT RATING S&P: A S&P: A- S&P: S&P: BBB S&P: S&P:
DUFF: A DUFF: A- BBB+ DUFF: BBB BBB- BB+
OR ABOVE DUFF: DUFF: DUFF:
BBB+ BBB- BB+
OR BELOW
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commitment Fee 6.00 8.00 10.00 12.50 15.00 22.50
LIBOR+ 22.50 27.50 35.00 37.50 47.50 75.00
Drawn Cost 22.50 27.50 35.00 37.50 47.50 75.00
</TABLE>
Each grid is based on the higher Senior Unsecured Debt rating given by S&P or
Duff & Phelps, provided that the ratings are not split by more than one rating
level. In the event of a split of more than one rating level exists, pricing
will be based on the level one rating level below the highest level. If the
Borrower does not achieve a 35% Debt to Capitalization Ratio by 12/31/97, then
the LIBOR Margin in the grid shall increase by 0.125%.
NATIONSBANC CAPITAL MARKETS, INC.
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Conseco, Inc. on Form S-3 (File No. 333-00000), of our reports
dated March 20, 1996 on our audits of the consolidated financial statements
and financial statement schedules of Conseco, Inc. and subsidiaries as of
December 31, 1995 and 1994, and for the years ended December 31, 1995, 1994 and
1993, included in the Annual Report on Form 10-K. We also consent to the
reference to our firm under the caption "Experts."
/s/COOPERS & LYBRAND L.L.P.
----------------------------
COOPERS & LYBRAND L.L.P.
Indianapolis, Indiana
November 7, 1996
<PAGE> 1
Exhibit 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Conseco, Inc. on Form S-3 (File No. 333-00000), of our reports
dated March 27, 1996 on our audits of the consolidated financial statements
and financial statement schedules of Life Partners Group, Inc. and subsidiaries
as of December 31, 1995 and 1994, and for the years ended December 31, 1995,
1994 and 1993 included in the Annual Report on Form 10-K. We also consent to
the reference to our firm under the caption "Experts."
/s/COOPERS & LYBRAND L.L.P.
----------------------------
COOPERS & LYBRAND L.L.P.
Denver, Colorado
November 7, 1996
<PAGE> 1
Exhibit 23.6
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 Prospectus Supplement.
/s/KPMG PEAT MARWICK LLP
------------------------
KPMG PEAT MARWICK LLP
Columbus, Ohio
November 7, 1996
<PAGE> 1
EXHIBIT 23.7
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement of our report dated March 4,
1996 included in American Travellers Corporation Form 10-K for the year
ended December 31, 1995 and to all references to our Firm included
in this Registration Statement.
/s/ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Philadelphia, PA
November 7, 1996
<PAGE> 1
EXHIBIT 23.8
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 Prospectus Supplement.
/s/KPMG PEAT MARWICK LLP
------------------------
KPMG PEAT MARWICK LLP
Dallas, Texas
November 7, 1996
<PAGE> 1
EXHIBIT 24.2
POWER OF ATTORNEY
The undersigned hereby appoints Lawrence W. Inlow, Karl W. Kindig and
Kathleen S. Kiefer, and each of them, any of whom may act without the joinder
of the others, as his attorney-in-fact to sign on his behalf, in any and all
capacities, the Registration Statement to which this Power of Attorney is an
exhibit and to file the Registration Statement and all amendments and
post-effective amendments to the Registration Statement and to file the same
with the Securities and Exchange Commission, hereby ratifying and confirming
all that each said attorney-in-fact lawfully does or causes to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 6th day of November, 1996.
/s/ M. Phil Hathaway
----------------------
M. Phil Hathaway
<PAGE> 2
POWER OF ATTORNEY
The undersigned hereby appoints Lawrence W. Inlow, Karl W. Kindig and
Kathleen S. Kiefer, and each of them, any of whom may act without the joinder
of the others, as his attorney-in-fact to sign on his behalf, in any and all
capacities, the Registration Statement to which this Power of Attorney is an
exhibit and to file the Registration Statement and all amendments and
post-effective amendments to the Registration Statement and to file the same
with the Securities and Exchange Commission, hereby ratifying and confirming
all that each said attorney-in-fact lawfully does or causes to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 6th day of November, 1996.
/s/ Stephen C. Hilbert
----------------------
Stephen C. Hilbert
<PAGE> 3
POWER OF ATTORNEY
The undersigned hereby appoints Lawrence W. Inlow, Karl W. Kindig and
Kathleen S. Kiefer, and each of them, any of whom may act without the joinder
of the others, as his attorney-in-fact to sign on his behalf, in any and all
capacities, the Registration Statement to which this Power of Attorney is an
exhibit and to file the Registration Statement and all amendments and
post-effective amendments to the Registration Statement and to file the same
with the Securities and Exchange Commission, hereby ratifying and confirming
all that each said attorney-in-fact lawfully does or causes to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 6th day of November, 1996.
/s/ Rollin M. Dick
----------------------
Rollin M. Dick
<PAGE> 4
EXHIBIT 24.2
POWER OF ATTORNEY
The undersigned hereby appoints Lawrence W. Inlow, Karl W. Kindig and
Kathleen S. Kiefer, and each of them, any of whom may act without the joinder
of the others, as his attorney-in-fact to sign on his behalf, in any and all
capacities, the Registration Statement to which this Power of Attorney is an
exhibit and to file the Registration Statement and all amendments and
post-effective amendments to the Registration Statement and to file the same
with the Securities and Exchange Commission, hereby ratifying and confirming
all that each said attorney-in-fact lawfully does or causes to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 6th day of November, 1996.
/s/ Donald F. Gongaware
----------------------
Donald F. Gongaware
<PAGE> 5
POWER OF ATTORNEY
The undersigned hereby appoints Lawrence W. Inlow, Karl W. Kindig and
Kathleen S. Kiefer, and each of them, any of whom may act without the joinder
of the others, as his attorney-in-fact to sign on his behalf, in any and all
capacities, the Registration Statement to which this Power of Attorney is an
exhibit and to file the Registration Statement and all amendments and
post-effective amendments to the Registration Statement and to file the same
with the Securities and Exchange Commission, hereby ratifying and confirming
all that each said attorney-in-fact lawfully does or causes to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 6th day of November, 1996.
/s/ David R. Decatur
----------------------
David R. Decatur
<PAGE> 6
POWER OF ATTORNEY
The undersigned hereby appoints Lawrence W. Inlow, Karl W. Kindig and
Kathleen S. Kiefer, and each of them, any of whom may act without the joinder
of the others, as his attorney-in-fact to sign on his behalf, in any and all
capacities, the Registration Statement to which this Power of Attorney is an
exhibit and to file the Registration Statement and all amendments and
post-effective amendments to the Registration Statement and to file the same
with the Securities and Exchange Commission, hereby ratifying and confirming
all that each said attorney-in-fact lawfully does or causes to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 6th day of November, 1996.
/s/ Ngaire E. Cuneo
----------------------
Ngaire E. Cuneo
<PAGE> 1
EXHIBIT 25.2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM T-1
----------
STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE
TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
----------
/ / CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)
FLEET NATIONAL BANK
-----------------------------------
(Exact name of trustee as specified in its charter)
Not applicable 04-317415
---------------------- -----------------------
(State of incorporation (I.R.S. Employer
if not a national bank) Identification No.)
One Monarch Place, Springfield, MA 01102
- --------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Pat Beaudry, 777 Main Street, Hartford, CT 06223 (303) 728-2065
-----------------------------------------------
(Name, address and telephone number of agent for service)
Conseco, Inc.
-----------------------------------
(Exact name of obligor as specified in its charter)
Indiana 35-1469632
- -------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11625 N. Pennsylvania Street
Carmel, Indiana 46032
- ---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Debt Securities
--------------------------------------------------
(Title of the indenture securities)
<PAGE> 1
EXHIBIT 25.3
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM T-1
----------
STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE
TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
----------
/ / CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)
FLEET NATIONAL BANK
---------------------------------------------------
(Exact name of trustee as specified in its charter)
Not applicable 04-317415
---------------------- -----------------------
(State of incorporation (I.R.S. Employer
if not a national bank) Identification No.)
One Monarch Place, Springfield, MA 01102
- --------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Pat Beaudry, 777 Main Street, Hartford, CT 06115 (203) 726-2065
-----------------------------------------------
(Name, address and telephone number of agent for service)
Conseco, Financing Trust I
Conseco, Financing Trust II
Conseco, Financing Trust III
-----------------------------------
(Exact name of obligor as specified in its charter)
Delaware Applied For
Delaware Applied For
Delaware Applied For
- -------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11825 N. Pennsylvania Street
Carmel, Indiana 46032
- ---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Preferred Securities
--------------------------------------------------
(Title of the indenture securities)
<PAGE> 1
EXHIBIT 25.4
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM T-1
----------
STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE
TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
----------
/ / CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)
FLEET NATIONAL BANK
-----------------------------------
(Exact name of trustee as specified in its charter)
Not applicable 04-317415
---------------------- -----------------------
(State of incorporation (I.R.S. Employer
if not a national bank) Identification No.)
One Monarch Place, Springfield, MA 01102
- --------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Pat Beaudry, 777 Main Street, Hartford, CT 06115 (303) 728-2065
---------------------------------------------------------------
(Name, address and telephone number of agent for service)
Conseco, Inc.
---------------------------------------------------
(Exact name of obligor as specified in its charter)
Indiana 35-1469632
- -------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11625 N. Pennsylvania Street
Carmel, Indiana 46032
- ---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Guarantee of Preferred Securities of
Conseco Financing Trust I,
Conseco Financing Trust II and
Conseco Financing Trust III
--------------------------------------------------
(Title of the indenture securities)
`
