<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 20, 1996
REGISTRATION NO. 333-17675
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CONSECO, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
INDIANA 6719 35-1468632
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
</TABLE>
11825 N. PENNSYLVANIA ST., CARMEL, INDIANA 46032, (317) 817-6100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
LAWRENCE W. INLOW
CONSECO, INC.
11825 N. PENNSYLVANIA ST.
CARMEL, INDIANA 46032
(317) 817-6163
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
Copies to:
<TABLE>
<S> <C>
T. GARY COLE THOMAS A. ROBERTS
TRANSPORT HOLDINGS INC. DAVID A. BRYSON
714 MAIN STREET WEIL, GOTSHAL & MANGES LLP
FORT WORTH, TEXAS 76102 100 CRESCENT COURT, SUITE 1300
(817) 390-8000 DALLAS, TEXAS 75201-6950
(214) 746-7700
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the Registration Statement becomes
effective and all other conditions to the exchange offer described in the
enclosed Prospectus have been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
CONSECO HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL CONSECO SHALL FILE A FURTHER
AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
OFFER TO PURCHASE AND CONSENT SOLICITATION STATEMENT
CONSECO, INC.
OFFER TO PURCHASE FOR COMMON STOCK AND CASH
AND SOLICITATION OF CONSENTS FOR
AMENDMENT OF THE LOAN AGREEMENT WITH RESPECT TO ALL OF THE OUTSTANDING
8.5% SERIES A SUBORDINATED CONVERTIBLE NOTES DUE 2005 AND
8.5% SERIES B SUBORDINATED CONVERTIBLE NOTES DUE 2005 OF
TRANSPORT HOLDINGS INC.
THIS OFFER WILL EXPIRE AT MIDNIGHT, NEW YORK CITY TIME, ON JANUARY 20, 1997,
UNLESS EXTENDED. THIS OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE
CONSUMMATION OF THE MERGER OF TRANSPORT HOLDINGS INC. WITH AND INTO CONSECO,
INC. SEE "THE EXCHANGE OFFER AND SOLICITATION -- CONDITIONS TO THE EXCHANGE
OFFER." EXCEPT UNDER CERTAIN LIMITED CIRCUMSTANCES, NOTES, ONCE TENDERED, MAY
NOT BE WITHDRAWN, AND CONSENTS, ONCE DELIVERED, MAY NOT BE REVOKED. SEE "THE
EXCHANGE OFFER AND SOLICITATION -- WITHDRAWAL OF TENDERS AND REVOCATION OF
CONSENTS." UPON THE TERMS AND SUBJECT TO THE CONDITIONS DESCRIBED IN THIS
STATEMENT, NOTES TENDERED IN THE EXCHANGE OFFER AND CONSENTS DELIVERED IN THE
SOLICITATION WILL BE DEEMED ACCEPTED (I) AS OF THE EFFECTIVE TIME, IF TENDERED
ON OR PRIOR TO THE EFFECTIVE TIME, OR (II) UPON RECEIPT BY THE DEPOSITARY OF ALL
REQUIRED TENDER MATERIALS.
Conseco, Inc., an Indiana corporation ("Conseco"), hereby offers (the
"Exchange Offer") to purchase for shares of its Common Stock, no par value
("Conseco Common Stock"), and cash, upon the terms and subject to the conditions
set forth in this Offer to Purchase and Consent Solicitation Statement (as it
may be supplemented from time to time, the "Statement") and in the accompanying
(or any superseding) Consent and Letter of Transmittal (the "Consent and Letter
of Transmittal"), all of the outstanding 8.5% Series A Subordinated Convertible
Notes due 2005 (the "Series A Notes") and 8.5% Series B Subordinated Convertible
Notes due 2005 (the "Series B Notes" and, collectively with the Series A Notes,
the "Notes") of Transport Holdings Inc., a Delaware corporation ("THI"), from
any and all registered holders thereof (each, a "Holder").
This Statement also constitutes the Prospectus of Conseco filed as part of a
Registration Statement on Form S-4 (together with all amendments, supplements,
exhibits and schedules thereto, the "Registration Statement") with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), relating to the shares of Conseco
Common Stock issuable in connection with the Exchange Offer. All information
concerning Conseco and all companies other than THI contained in this Statement
has been furnished by Conseco. All information concerning THI contained in this
Statement has been furnished by THI.
In conjunction with and forming a part of the Exchange Offer, Conseco hereby
solicits (the "Solicitation") consents (the "Consents") for certain proposed
amendments (the "Proposed Amendments") to the Subordinated Convertible Loan
Agreement, dated as of June 12, 1995, among THI, Travelers Group Inc.
("Travelers"), and the other Holders named therein (as amended through the date
hereof, the "Loan Agreement"), pursuant to which the Notes were issued. The
Proposed Amendments would modify or eliminate substantially all of the
restrictive covenants contained in the Loan Agreement.
The Exchange Offer and Solicitation are being made in connection with the
merger (the "Merger") of THI with and into Conseco, with Conseco surviving,
pursuant to the Agreement and Plan of Merger, dated as of September 25, 1996, as
amended by the First Amendment to Agreement and Plan of Merger, dated as of
November 7, 1996 (as so amended, the "Merger Agreement"), between THI and
Conseco. A special meeting of the THI stockholders was held on December 12,
1996, at which meeting the THI stockholders authorized and adopted the Merger
Agreement and the Merger. The Exchange Offer is conditioned upon, among other
things, the consummation of the Merger. See "The Exchange Offer and Solicitation
- -- Conditions to the Exchange Offer."
This Statement and the related form of Consent and Letter of Transmittal are
first being sent or given to Holders on or about December 20, 1996.
PRIOR TO MAKING A DECISION WITH RESPECT TO TENDERING NOTES IN THE EXCHANGE
OFFER AND DELIVERING CONSENTS IN THE SOLICITATION, HOLDERS SHOULD
CONSIDER CAREFULLY THE INFORMATION SET FORTH UNDER "SPECIAL
CONSIDERATIONS."
------------------------
THE SHARES OF CONSECO COMMON STOCK ISSUABLE IN THE EXCHANGE OFFER 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 STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS STATEMENT IS DECEMBER 20, 1996.
<PAGE> 3
AVAILABLE INFORMATION
Conseco and THI are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file periodic reports, proxy statements and other
information with the Commission. The periodic reports, proxy statements and
other information filed by Conseco and THI with the Commission may be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission at 7 World Trade Center, Suite 1300, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material also can be obtained, at prescribed
rates, from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549. In addition, the Commission maintains a Web site
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants, including Conseco and THI, that
file electronically with the Commission. The Conseco Common Stock is listed on
the New York Stock Exchange (the "NYSE") and such reports and other information
may also be inspected at the offices of the NYSE, 20 Broad Street, New York, New
York 10005.
Conseco has filed the Registration Statement with the Commission with
respect to the Conseco Common Stock to be issued pursuant to or as contemplated
by the Exchange Offer. This Statement does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. The Registration
Statement and any amendments thereto, including exhibits filed as a part
thereof, are available for inspection and copying as set forth above.
ii
<PAGE> 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS, OTHER THAN EXHIBITS
TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE THEREIN,
ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO
WHOM THIS STATEMENT IS DELIVERED, UPON WRITTEN OR ORAL REQUEST. WRITTEN REQUESTS
FOR SUCH DOCUMENTS RELATING TO CONSECO, AMERICAN TRAVELLERS CORPORATION, CAPITOL
AMERICAN FINANCIAL CORPORATION AND LIFE PARTNERS GROUP, INC. SHOULD BE DIRECTED
TO JAMES W. ROSENSTEELE, VICE PRESIDENT, INVESTOR RELATIONS, CONSECO, INC.,
11825 NORTH PENNSYLVANIA STREET, CARMEL, INDIANA 46032, AND TELEPHONE REQUESTS
MAY BE DIRECTED TO MR. ROSENSTEELE AT (317) 817-2893. WRITTEN REQUESTS FOR SUCH
DOCUMENTS RELATING TO THI SHOULD BE DIRECTED TO DEBORAH V. GREER, VICE PRESIDENT
AND CONTROLLER, TRANSPORT HOLDINGS INC., 714 MAIN STREET, FORT WORTH, TEXAS
76102 AND TELEPHONE REQUESTS MAY BE DIRECTED TO MS. GREER AT (817) 390-8000. IN
ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY REQUEST SHOULD BE MADE
BEFORE JANUARY 13, 1997.
The following documents previously filed with the Commission pursuant to
the Exchange Act are incorporated herein by this reference:
1. Conseco's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 (including those portions of Conseco's proxy statement
for its 1996 annual meeting of shareholders incorporated by reference
therein) ("Conseco's Annual Report"); Conseco's Quarterly Reports on Form
10-Q for the quarters ended March 31, 1996, June 30, 1996 and September 30,
1996; Conseco's Current Reports on Form 8-K dated January 17, 1996, March
11, 1996, March 14, 1996, April 10, 1996, August 2, 1996, August 25, 1996,
September 25, 1996, November 15, 1996, November 19, 1996, November 27,
1996, December 15, 1996 and December 17, 1996; and the description of
Conseco Common Stock in Conseco's Registration Statements filed pursuant to
Section 12 of the Exchange Act, and any amendment or report filed for the
purpose of updating any such description.
2. THI's Annual Report on Form 10-K for the fiscal year ended December
31, 1995 (including those portions of THI's proxy statement for its 1996
annual meeting of stockholders incorporated by reference therein) ("THI's
Annual Report"); THI's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1996, June 30, 1996 and September 30, 1996; THI's Current
Report on Form 8-K dated September 25, 1996; and the description of THI's
Common Stock, par value $0.01 per share ("THI Common Stock"), in THI's
Registration Statement filed pursuant to Section 12 of the Exchange Act,
and any amendment or report filed for the purpose of updating such
description.
3. Annual Report on Form 10-K of American Travellers Corporation
("ATC") for the fiscal year ended December 31, 1995 (including those
portions of ATC's proxy statement for its annual meeting of shareholders
incorporated by reference therein) ("ATC's Annual Report"); ATC's Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1996, June 30, 1996
and September 30, 1996; and ATC's Current Report on Form 8-K dated August
25, 1996.
4. Annual Report on Form 10-K of Capitol American Financial
Corporation ("CAF") for the fiscal year ended December 31, 1995 (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 Annual Report"); CAF's Quarterly Reports on Form
10-Q for the quarters ended March 31, 1996, June 30, 1996 and September 30,
1996; and CAF's Current Report on Form 8-K dated August 25, 1996.
5. Annual Report on Form 10-K of Life Partners Group, Inc. ("LPG") for
the fiscal year ended December 31, 1995 ("LPG's Annual Report"); and LPG's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 and
June 30, 1996.
iii
<PAGE> 5
All documents filed by Conseco, THI, ATC or CAF pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior
to the Expiration Date (as hereinafter defined) 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 Statement is qualified in its entirety
by the information and financial statements (including notes thereto) appearing
in the documents incorporated herein by reference, except to the extent set
forth in the immediately preceding statement.
State insurance holding company laws and regulations applicable to Conseco
and THI generally provide that no person may acquire control of Conseco or THI,
and thus indirect control of their respective insurance subsidiaries, unless
such person has provided certain required information to, and such acquisition
is approved (or not disapproved) by, the appropriate insurance regulatory
authorities. Generally, any person acquiring beneficial ownership of ten percent
or more of the total outstanding shares of Conseco Common Stock or THI Common
Stock, as the case may be, would be presumed to have acquired such control,
unless the appropriate insurance regulatory authorities upon advance application
determine otherwise.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS STATEMENT OTHER
THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS INCORPORATED BY REFERENCE
HEREIN. ANY INFORMATION OR REPRESENTATIONS WITH RESPECT TO SUCH MATTERS NOT
CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
CONSECO OR THI. THIS STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS STATEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF CONSECO OR THI SINCE THE DATE HEREOF OR THAT THE INFORMATION IN THIS
STATEMENT OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THEREOF.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSIONER
OF INSURANCE FOR THE STATE OF NORTH CAROLINA, NOR HAS SUCH COMMISSIONER OF
INSURANCE RULED UPON THE ACCURACY OR ADEQUACY OF THIS DOCUMENT.
iv
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION................................................................. ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... iii
TABLE OF CONTENTS..................................................................... v
SUMMARY............................................................................... 1
General............................................................................. 1
The Companies....................................................................... 1
The Notes........................................................................... 2
The Exchange Offer and Solicitation................................................. 3
The Merger; The Merger Agreement.................................................... 8
Selected Historical Financial Information of Conseco................................ 14
Selected Historical Financial Information of THI.................................... 16
Selected Historical Financial Information of ATC.................................... 18
Selected Historical Financial Information of CAF.................................... 20
Summary Unaudited Pro Forma Consolidated Financial Information of Conseco........... 22
Comparative Unaudited Per Share Data of Conseco and THI............................. 25
Market Price Information............................................................ 26
SPECIAL CONSIDERATIONS................................................................ 27
Absence of Withdrawal Rights........................................................ 27
Loss of Interest Payments........................................................... 27
Effects of the Proposed Amendments.................................................. 27
Requisite Consents.................................................................. 27
Optional Note Repurchase............................................................ 27
Absence of Trading Market........................................................... 27
INFORMATION CONCERNING CONSECO........................................................ 28
Background.......................................................................... 28
Insurance Operations................................................................ 28
Fee-Based Operations................................................................ 29
Other Pending Acquisitions by Conseco............................................... 30
General Information Concerning Conseco.............................................. 30
INFORMATION CONCERNING THI............................................................ 31
THE NOTES............................................................................. 32
THE EXCHANGE OFFER AND SOLICITATION................................................... 32
Background of the Exchange Offer and Solicitation................................... 32
Terms of the Exchange Offer and Solicitation........................................ 34
Proposed Amendments to the Loan Agreement........................................... 36
Conditions to the Exchange Offer.................................................... 37
Source and Amount of Funds.......................................................... 37
Certain Federal Income Tax Consequences to Holders.................................. 37
Optional Note Repurchase............................................................ 39
Acceptance for Payment and Payment for Notes; Acceptance of Consents................ 39
Procedures for Tendering Notes and Delivering Consents.............................. 40
Withdrawal of Tenders and Revocation of Consents.................................... 42
</TABLE>
v
<PAGE> 7
<TABLE>
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PAGE
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<S> <C>
MERGER..........................42Background of the Merger.......................... 42
Conseco's Reasons for the Merger.................................................... 44
THI's Reasons for the Merger; Recommendation of the THI Board of Directors.......... 45
Opinion of THI's Financial Advisor.................................................. 45
Certain Consequences of the Merger.................................................. 53
Conduct of the Business of Conseco after the Merger................................. 53
Interests of Certain Persons in the Merger.......................................... 53
Accounting Treatment................................................................ 55
Regulatory Approvals................................................................ 55
NYSE Listing of Conseco Common Stock................................................ 56
Absence of Appraisal Rights......................................................... 56
THE MERGER AGREEMENT.................................................................. 57
The Merger.......................................................................... 57
Effective Time...................................................................... 57
Conversion of Shares; Exchange of Stock Certificates; No Fractional Amounts......... 57
Treatment of THI Stock Options and THI Warrants..................................... 58
Redemption of THI Preferred Stock................................................... 59
THI Employee Matters................................................................ 59
Representations and Warranties...................................................... 59
Certain Covenants................................................................... 59
Conditions to the Merger............................................................ 61
Termination......................................................................... 62
Right of THI Board of Directors to Withdraw Its Recommendation...................... 63
Breakup Fee......................................................................... 63
Expenses............................................................................ 63
Modification or Amendment........................................................... 63
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF CONSECO...................... 64
COMPARISON OF SHAREHOLDERS' RIGHTS.................................................... 83
Amendment of By-laws................................................................ 83
Certain Provisions Relating to Acquisitions......................................... 83
Right to Bring Business Before a Special Meeting of Shareholders.................... 85
Shareholder Action by Written Consent............................................... 85
Removal of Directors................................................................ 85
Director Liability.................................................................. 85
Indemnification..................................................................... 85
Dividends and Repurchases........................................................... 86
Dissenters' Rights.................................................................. 87
Director and Officer Discretion..................................................... 87
MANAGEMENT OF CONSECO UPON CONSUMMATION OF THE MERGER................................. 88
LEGAL MATTERS......................................................................... 88
EXPERTS............................................................................... 88
Appendix A -- Provisions of the Loan Agreement to be Deleted or Amended by the
Proposed Amendments..................................................... A-1
</TABLE>
vi
<PAGE> 8
SUMMARY
The following is a summary of certain information contained elsewhere in
this Statement. This summary is not intended to be complete and is qualified in
its entirety by reference to the more detailed information and financial
statements, including the notes thereto, contained elsewhere, or incorporated by
reference, in this Statement, Appendix A hereto and the Consent and Letter of
Transmittal. All share and per share information in this Statement concerning
Conseco has been adjusted to reflect a two-for-one stock split of the Conseco
Common Stock effected April 1, 1996, unless otherwise stated. Except as
otherwise indicated, all financial information in this Statement is presented in
accordance with generally accepted accounting principles ("GAAP"). Holders are
urged to read this Statement, Appendix A hereto, the Consent and Letter of
Transmittal and the documents incorporated herein by reference in their
entirety. Unless otherwise defined herein, capitalized terms used in this
summary have the respective meanings ascribed to them elsewhere in this
Statement.
GENERAL
This Statement relates to Conseco's offer to exchange shares of Conseco
Common Stock and cash for outstanding Notes and solicitation of Consents to
adopt the Proposed Amendments to the Loan Agreement governing the Notes. See
"The Exchange Offer and Solicitation."
THE COMPANIES
CONSECO, INC. ................ Conseco is a financial services holding company
engaged primarily in the development, marketing
and administration of annuity, individual
health insurance and individual life insurance
products. Conseco's earnings result primarily
from operating life insurance companies and
providing investment management, administrative
and other fee-based services to affiliated and
non-affiliated businesses. Conseco's operating
strategy is to consolidate and streamline
management and administrative functions, to
realize superior investment returns through
active asset management, and to focus resources
on the development and expansion of profitable
products and strong distribution channels.
On August 2, 1996, Conseco completed its
acquisition of LPG. Conseco and LPG collected
an aggregate of approximately $3.6 billion of
total premiums and annuity deposits in 1995
from a diverse portfolio of products. On
September 30, 1996, Conseco acquired the shares
of ALH (of which Conseco previously owned 37
percent) that Conseco or its affiliates did not
previously own for approximately $165 million
in cash. On December 17, 1996, Conseco
completed its acquisition of ATC (the "ATC
Merger").
On August 25, 1996, Conseco entered into an
Agreement and Plan of Merger (the "CAF Merger
Agreement") with CAF pursuant to which CAF will
become a wholly owned subsidiary of Conseco
(the "CAF Merger"), with each share of common
stock of CAF to be converted into the right to
receive $30.25 in cash (subject to adjustment)
and a fraction of a share of Conseco Common
Stock having a value of $6.50. Conseco has also
announced that it intends to acquire the shares
of Bankers Life Holding Corporation ("BLH") (of
which Conseco currently owns approximately 90.4
percent) that Conseco does not currently own in
a merger in which each share of common stock of
BLH would be converted into the right to
receive a fraction of a share of Conseco Common
Stock having a value of $25.00 per share. On
December 15, 1996, Conseco
1
<PAGE> 9
entered into an Agreement and Plan of Merger
(the "PFS Merger Agreement") with Pioneer
Financial Services, Inc. ("PFS") pursuant to
which PFS will become a wholly owned subsidiary
of Conseco (the "PFS Merger"), with each share
of common stock of PFS to be converted into the
right to receive a fraction of a share of
Conseco Common Stock having a value between
$25.00 and $28.00 per share. Consummation of
Conseco's Merger with THI is not conditioned
upon consummation by Conseco of any of the
other pending acquisitions.
See "Incorporation of Certain Documents by
Reference," "-- Selected Historical Financial
Information of Conseco," "-- Selected
Historical Financial Information of ATC," "--
Selected Historical Financial Information of
CAF," "Information Concerning Conseco" and
"Unaudited Pro Forma Consolidated Financial
Statements of Conseco" for additional
information concerning Conseco, LPG, ATC and
CAF. Conseco's executive offices are located at
11825 North Pennsylvania Street, Carmel,
Indiana 46032 and the telephone number for
Conseco is (317) 817-6100.
TRANSPORT HOLDINGS INC........ THI, through its insurance subsidiaries, is
principally engaged in the underwriting and
distribution of supplemental health insurance.
For the nine months ended September 30, 1996,
THI's earned premiums were $82.4 million, of
which approximately 63 percent was from cancer
insurance, 19 percent was from heart/stroke
insurance, and the remaining 18 percent was
from other supplemental health and discontinued
life insurance products. See "Information
Concerning THI" and "-- Selected Historical
Financial Information of THI" for additional
information concerning THI. THI's executive
offices are located at 714 Main Street, Fort
Worth, Texas 76102 and its telephone number is
(817) 390-8000.
THE NOTES
THE NOTES..................... In connection with the spin-off of THI by
Travelers in September 1995, THI issued $42
million aggregate principal amount of Series A
Notes and $8 million aggregate principal amount
of Series B Notes. Insurance Partners, L.P. and
Insurance Partners Offshore (Bermuda), L.P.
(collectively, "IP"), together hold $35 million
aggregate principal amount of Series A Notes,
certain officers, directors and key producers
of THI and its subsidiaries hold the remaining
$7 million aggregate principal amount of Series
A Notes, and Associated Madison Companies, Inc.
("AMAD"), a wholly owned subsidiary of
Travelers, holds the entire $8 million
aggregate principal amount of Series B Notes.
The Notes bear interest at the rate of 8.5% per
annum, are not redeemable at the option of THI
until September 30, 2002, and are convertible,
under specified circumstances, at the option of
the Holder thereof, into shares of THI Common
Stock. In addition, the Loan Agreement
governing the Notes contains a number of
restrictions on the ability of THI to engage in
certain activities and on the ability of the
Holders to convert or transfer the Notes.
Substantially all of such restrictive covenants
will be eliminated if the Proposed Amendments
are adopted. Upon consummation of the Merger,
each outstanding Note will, by operation of
law,
2
<PAGE> 10
become an obligation of Conseco, as successor
in interest to THI, and become convertible into
shares of Conseco Common Stock. See "Special
Considerations," "The Notes," "The Exchange
Offer and Solicitation -- Proposed Amendments
to the Loan Agreement" and Appendix A.
THE EXCHANGE OFFER AND SOLICITATION
THE EXCHANGE OFFER............ As required by the Merger Agreement, Conseco is
offering to purchase all of the outstanding
Notes pursuant to the Exchange Offer.
EXCHANGE OFFER
CONSIDERATION................. The consideration for each Note tendered
pursuant to the Exchange Offer (the "Exchange
Offer Consideration") will consist of shares of
Conseco Common Stock and cash. The number of
shares of Conseco Common Stock offered in
exchange for each $1,000 in principal amount of
Notes will be equal to the product of (i) the
quotient (rounded to the nearest
ten-thousandth) of (A) $1,000 divided by (B)
the conversion price of the Series A Notes or
Series B Notes, as applicable, multiplied by
(ii) the Exchange Ratio (as hereinafter
defined). The conversion prices for the Series
A Notes and Series B Notes are approximately
$31.44 and $44.00, respectively.
Notwithstanding the foregoing, no fractional
shares of Conseco Common Stock will be issued
pursuant to the Exchange Offer, and Conseco
will pay cash in lieu of any such fractional
shares. The amount of cash payable by Conseco
(in addition to amounts payable in lieu of
fractional shares of Conseco Common Stock) in
respect of each $1,000 principal amount of
Notes shall be equal to the sum of (i) the
Conversion Payment (as hereinafter defined)
plus (ii) an amount equal to the accrued and
unpaid interest on such $1,000 principal amount
of Notes through and including the closing date
of the Merger (the "Closing Date"). Conseco
will apply to have the shares of Conseco Common
Stock to be issued in the Exchange Offer listed
on the NYSE.
The term "Exchange Ratio" shall be equal to the
quotient (rounded to the nearest
ten-thousandth) of (A) $70.00 divided by (B)
the Conseco Share Price. The "Conseco Share
Price" shall be equal to the Trading Average
(as defined below); provided, however, that if
the Trading Average is less than $38.25, then
the Conseco Share Price shall be $38.25, and if
the Trading Average is greater than $50.00,
then the Conseco Share Price shall be $50.00.
The "Trading Average" shall be equal to the
average of the closing prices of the Conseco
Common Stock on the NYSE Composite Transactions
Reporting System for the ten consecutive
trading days immediately preceding the second
trading day prior to the effective time of the
Merger. The effective time of the Merger is
currently anticipated to occur on or before
December 31, 1996. The "Conversion Payment" in
respect of each $1,000 in principal amount of
Notes shall be an amount equal to the net
present value of the interest that would have
accrued thereon at the rate of 6% per annum
from and after the Effective Time and through
and including the fourth anniversary of the
Effective Time, based on a discount rate of
7.5% per annum and assuming semi-annual
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<PAGE> 11
interest payments on January 31 and July 31 of
each year and that the remainder of interest
would be paid on such fourth anniversary. IT IS
CURRENTLY ANTICIPATED THAT THE CONVERSION
PAYMENT WILL BE APPROXIMATELY $205 PER $1,000
IN PRINCIPAL AMOUNT OF NOTES. SUCH CONVERSION
PAYMENT IS SIGNIFICANTLY LESS THAN THE PRESENT
VALUE (DETERMINED USING A DISCOUNT RATE OF
7.5%) OF THE INTEREST THAT WOULD BE PAYABLE ON
THE NOTES IF THE HOLDER THEREOF HELD SUCH NOTES
UNTIL SEPTEMBER 30, 2002 (THE DATE ON WHICH
SUCH NOTES FIRST BECOME REDEEMABLE AT THE
OPTION OF THI). SEE "SPECIAL CONSIDERATIONS."
The term "Tender Payments" shall mean the
Exchange Offer Consideration paid to Holders
pursuant to the Exchange Offer.
EXPIRATION DATE............... The Exchange Offer will expire at midnight, New
York City time, on January 20, 1997 (the
"Expiration Date"), unless Conseco shall have
extended the period of time for which the
Exchange Offer is to remain open, in accordance
with the terms and conditions set forth herein,
in which event the term "Expiration Date" shall
mean the latest date and time to which the
Exchange Offer shall have been so extended by
Conseco.
PROCEDURES FOR TENDERING
NOTES......................... For a Holder to validly tender Notes, a
properly completed and validly executed Consent
and Letter of Transmittal, or a facsimile
thereof, must be received by the Depositary (as
hereinafter defined), together with
certificates evidencing the tendered Notes,
prior to the Expiration Date. See "The Exchange
Offer and Solicitation -- Procedures for
Tendering Notes and Delivering Consents."
ACCEPTANCE FOR PAYMENT AND
PAYMENT FOR NOTES............. Every Note that is validly tendered (and not
withdrawn) in accordance with the procedures
set forth under "The Exchange Offer and
Solicitation -- Procedures for Tendering Notes
and Delivering Consents" on or prior to the
Effective Time will, upon the terms and subject
to the conditions hereof, be deemed to be
accepted for payment by Conseco as of the
Effective Time. Every Holder who validly
tenders such Holder's Notes on or prior to the
Effective Time will receive the Tender Payments
therefor immediately after the Effective Time.
Every Note that is validly tendered in
accordance with the procedures set forth under
"The Exchange Offer and Solicitation --
Procedures for Tendering Notes and Delivering
Consents" after the Effective Time will, upon
the terms and subject to the conditions hereof,
be deemed to be accepted upon receipt by the
Depositary of all required Tender Materials (as
hereinafter defined) relating to such Note.
Every Holder who validly tenders such Holder's
Note(s) after the Effective Time (but on or
prior to the Expiration Date) will receive the
Tender Payment therefor promptly after receipt
by the Depositary of all required Tender
Materials relating to such Note(s).
4
<PAGE> 12
Immediately upon acceptance for payment of
validly tendered Notes, Conseco will become
irrevocably bound to pay the Tender Payments
therefor. See "The Exchange Offer and
Solicitation -- Acceptance for Payment and
Payment for Notes; Acceptance of Consents."
WITHDRAWAL OF TENDERS AND
REVOCATION OF CONSENTS...... EXCEPT UNDER CERTAIN LIMITED CIRCUMSTANCES,
TENDERS OF NOTES, ONCE MADE, MAY NOT BE
WITHDRAWN, AND CONSENTS, ONCE DELIVERED, MAY
NOT BE REVOKED. Notwithstanding the foregoing,
Notes may be withdrawn, and Consents revoked,
at any time prior to the Effective Time. See
"The Exchange Offer and Solicitation --
Withdrawal of Tenders and Revocation of
Consents."
CONDITIONS TO THE EXCHANGE
OFFER......................... Conseco's obligation to accept for purchase and
pay for Notes validly tendered in the Exchange
Offer is subject to and conditioned upon, among
other things, the consummation of the Merger.
There is no minimum principal amount of Notes
or number of Consents that must be obtained as
a condition to the consummation of the Exchange
Offer and Solicitation. See "The Exchange Offer
and Solicitation -- Conditions to the Exchange
Offer."
Conseco's obligation to effect the Merger is
conditioned upon, among other things, holders
of at least 90 percent of the Notes having
accepted the offer made by Conseco to purchase
such Notes in the Exchange Offer. Although
there can be no assurance thereof, Conseco
anticipates that IP, AMAD, Garland M. Lasater,
Jr., a Director and the President and Chief
Executive Officer of THI, and John T. Sharpe,
Chairman of the Board of Directors of THI, will
tender their Notes in the Exchange Offer.
Assuming that all of such Holders tender their
Notes in the Exchange Offer, this condition to
the Merger will be satisfied. See "The Merger
Agreement -- Conditions to the Merger."
OPTIONAL NOTE REPURCHASE...... As a result of the Merger, the Loan Agreement
will require Conseco, as successor-in-interest
to THI, to offer to repurchase all or any part
of each Holder's outstanding Notes at a
purchase price equal to 100% of the aggregate
principal amount thereof, together with accrued
and unpaid interest thereon to the date of such
repurchase. Such repurchase must occur as of a
date between 50 and 80 days following the
Effective Time. Notes tendered and accepted for
payment in the Exchange offer will not be
eligible for such repurchase offer.
THE SOLICITATION.............. Conseco is also seeking Consents from the
Holders to the Proposed Amendments to the Loan
Agreement.
REQUISITE CONSENTS............ The Proposed Amendments to the Loan Agreement
require the consents (the "Requisite Consents")
of (i) IP, which owns $35 million aggregate
principal amount of Series A Notes, (ii)
Travelers, the owner of all outstanding shares
of capital stock of AMAD, which in turn owns
all $8 million aggregate principal amount of
Series B Notes, (iii) Conseco, as successor to
THI as a result of the Merger, (iv) Holders of
a majority in principal amount of the Notes
then outstanding (including, without limita-
5
<PAGE> 13
tion, the Notes held by IP and AMAD) and (v)
Individual Holders (as defined in the Loan
Agreement) holding at least a majority of the
aggregate principal amount of Notes held by all
Individual Holders.
Although there can be no assurance thereof,
Conseco anticipates that IP (which holds more
than a majority of the outstanding Notes),
Travelers, AMAD, and Individual Holders of at
least a majority of the aggregate principal
amount of Notes held by Individual Holders will
deliver Consents to the Proposed Amendments.
Assuming that all of such Holders deliver
Consents to the Proposed Amendments, the
Requisite Consents will have been obtained.
ACCEPTANCE OF CONSENTS........ The tender of Notes by a Holder thereof in the
Exchange Offer will be deemed to constitute a
Consent to the Proposed Amendments with respect
to the Notes tendered. Consents will be deemed
to have been accepted when the Notes to which
such Consents relate have been accepted for
payment by Conseco (and Conseco has thereby
become irrevocably bound to pay the Tender
Payments therefor). See "The Exchange Offer and
Solicitation -- Acceptance for Payment and
Payment for Notes; Acceptance of Consents."
PROPOSED AMENDMENTS........... The Proposed Amendments to the Loan Agreement
require the receipt of the Requisite Consents.
Effective immediately upon acceptance of the
Requisite Consents (which may occur as early as
the Effective Time), the Loan Agreement will be
amended by means of an amendment (the "Loan
Agreement Amendment") to give effect to the
Proposed Amendments.
The Proposed Amendments would: (i) delete the
covenants in the Loan Agreement entitled
"Limitation on Restricted Payments by the
Company and Its Subsidiaries," "Limitation on
Incurrences of Additional Indebtedness,"
"Limitation on Payment Restrictions Affecting
Subsidiaries," "Sale of Assets," "Limitation on
Guaranties by Subsidiaries," "Limitation on
Issuance and/or Sale of Capital Stock,"
"Limitation on Major Acquisitions," "Limitation
on Certain Amendments of Certificate of
Incorporation," "Determination as to Bona Fide
Takeover Proposal," "Limitation on Acquisition
of Capital Stock," "Limitation on Sale," "Form
A Filing," "Pledge Agreement," and "When
Company May Merge, Etc.," (ii) modify the
covenant in the Loan Agreement entitled
"Reports" to eliminate the requirement that THI
file reports with the Commission and make them
available to the Holders, even if THI is no
longer required to do so pursuant to Section 13
or 15(d) of the Exchange Act (iii) modify the
covenant in the Loan Agreement entitled
"Appointment of Successor Director; Agreements
Regarding the Designation of Directors; Notice"
to remove the ability of certain Holders to
designate directors of THI, and (iv) modify
certain other provisions to account for changes
to the various other provisions of the Loan
Agreement. See "The Exchange Offer and
Solicitation -- Proposed Amendments to the Loan
Agreement" and Appendix A.
6
<PAGE> 14
If the Proposed Amendments become operative,
all persons who continue to hold Notes
thereafter will be subject to the provisions of
the Loan Agreement as amended by the Proposed
Amendments. Adoption of the Proposed Amendments
may have adverse consequences for Holders of
Notes who do not tender their Notes in the
Exchange Offer. See "Special Considerations --
Effects of the Proposed Amendments" and "--
Requisite Consents."
SPECIAL CONSIDERATIONS........ SEE "SPECIAL CONSIDERATIONS" FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN
EVALUATING THE EXCHANGE OFFER AND SOLICITATION.
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES TO HOLDERS..... The Merger is expected to qualify as a
reorganization within the meaning of Section
368(a)(1) of the Internal Revenue Code of 1986,
as amended (the "Code"). The obligation of THI
to consummate the Merger, in fact, is subject
to the condition that it shall have received an
opinion of counsel, based upon certain
representations and assumptions, that the
Merger will be treated for federal income tax
purposes as a reorganization within the meaning
of Section 368(a)(1) of the Code. See "The
Exchange Offer and Solicitation -- Certain
Federal Income Tax Consequences to Holders."
Assuming the Merger qualifies as a
reorganization within the meaning of Section
368(a)(1) of the Code, any gain realized by
Holders upon their exchange of Notes for
Conseco Common Stock and cash will be
recognized and taken into income up to the
amount of cash received. No loss will be
recognized by such Holders. For a discussion of
the federal income tax consequences of the
adoption of the Proposed Amendments for Holders
who do not accept the Exchange Offer, see "The
Exchange Offer and Solicitation -- Certain
Federal Income Tax Consequences to Holders."
DEPOSITARY.................... First Union National Bank of North Carolina is
serving as Depositary (the "Depositary") in
connection with the Exchange Offer and
Solicitation. Its telephone number is (800)
829-8432.
BACKGROUND OF THE EXCHANGE
OFFER AND SOLICITATION........ In connection with the negotiation of the terms
of the Merger, Conseco made a proposal to
acquire THI pursuant to a merger in which the
outstanding shares of THI Common Stock would be
converted into shares of Conseco Common Stock.
Such proposal also required that the Notes be
converted into shares of Conseco Common Stock.
Absent a conversion of the Notes, the surviving
corporation in any merger with THI would be
bound by the obligations of THI under the Notes
(including the restrictive covenants relating
thereto). Conseco stated it was not willing to
be bound by such restrictive covenants and was
not willing to assume convertible debt
obligations bearing interest at the rate of
8.5% per annum.
Furthermore, pursuant to the Conseco proposal,
the number of shares of Conseco Common Stock
issuable upon the conversion of the Notes was
equal to the number of shares of Conseco Common
7
<PAGE> 15
Stock that would be received if the Notes had
been converted prior to the merger. Prior to
September 30, 2002, THI cannot force the
conversion of the Notes. After reviewing the
Conseco proposal, the primary Holders of the
Notes indicated they were not willing to
convert their Notes into shares of Conseco
Common Stock on the terms proposed by Conseco.
Such Holders believed among other things that
(i) this proposal did not adequately compensate
them for the value of the Notes and (ii) the
value of the Notes exceeded the value of the
shares of THI Common Stock into which such
notes were convertible, primarily because the
Notes bear interest at the rate of 8.5% per
annum, while allowing the Holders to receive
the benefit of any increase in the value of the
underlying THI Common Stock.
After additional negotiations, in order to
facilitate the successful conclusion of the
negotiations, the primary Holders of Notes
ultimately agreed to certain concessions
regarding the conversion of their Notes.
Pursuant to the Merger Agreement, Conseco is
hereby offering to exchange, by means of the
Exchange Offer, shares of Conseco Common Stock
and cash for the outstanding Notes. The number
of shares of Conseco Common Stock offered in
respect of each Note will be equal to the
number of shares of Conseco Common Stock that
would have been received in the Merger by the
Holder of such Note if such Note had been
converted into THI Common Stock prior to the
Merger. The cash amount payable by Conseco in
the Exchange Offer will be equal to the accrued
and unpaid interest on the Notes plus an amount
equal to approximately $205 per $1,000 in
principal amount of Notes. In this regard, the
present value (determined using a discount rate
of 7.5%) of the interest that would be payable
on the Notes in respect of the period from
December 31, 1996 through September 30, 2002
(the date on which such notes first become
redeemable at the option of THI) would be
approximately $393 per $1,000 principal amount
of Notes. As part of the Exchange Offer,
Conseco is also soliciting the consent of the
Holders of the Notes to the removal of
substantially all of the restrictive covenants
from the documents governing the Notes. See
"Special Considerations -- Loss of Interest
Payments," "-- Effects of the Proposed
Amendments" and "-- Exchange Agreements;
Requisite Consents," "The Exchange Offer and
Solicitation" and "The Merger -- Background of
the Merger."
THE MERGER; THE MERGER AGREEMENT
REASONS FOR THE MERGER;
RECOMMENDATION OF THE THI
BOARD OF DIRECTORS.......... Conseco. The Conseco Board of Directors
approved the Merger Agreement and the Merger
based on a number of factors, including its
belief that: (1) the addition of THI's cancer
insurance, heart/stroke insurance and other
supplemental health insurance business would
enable Conseco to offer a more complete
portfolio of insurance products to its
customers; (2) the addition of THI's
distribution channels would further diversify
Conseco's current distribution system and
provide Conseco additional opportunities to
8
<PAGE> 16
cross-market its current products; (3) the
Merger offers Conseco and THI the opportunity
to improve their profitability through the
achievements of economies of scale, the
elimination of redundancies and the enhancement
of market position; and (4) the Merger and
other pending acquisitions would further
strengthen Conseco's position in its targeted
markets. See "The Merger -- Conseco's Reasons
for the Merger."
THI. In voting to approve the Merger Agreement
and the Merger, the THI Board of Directors
considered many different factors, including:
(1) the premium over the then current market
price of the THI Common Stock offered by
Conseco; (2) the length of time that would be
required if the Merger were not consummated to
achieve the stockholder value to be received by
the THI stockholders through the Merger; (3)
the financial condition and results of
operations of Conseco and the THI Board of
Directors' perception of the more favorable
overall business prospects of Conseco and THI
on a combined basis as compared to THI's
prospects as a separate entity; (4) the
tax-deferred nature of the transaction; (5) the
potential increase in value of the Conseco
Common Stock after the Merger based on
Conseco's financial strength and competitive
position; (6) the highly competitive nature of
the life and health insurance business; (7) the
difficulty of maintaining financial and
claims-paying ratings issued by rating
agencies; (8) the current trend of
consolidation within the insurance industry;
(9) the broader, more active trading market for
Conseco Common Stock; and (10) the opinion
rendered to the THI Board of Directors by
Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") with regard to the fairness
to the stockholders of THI, from a financial
point of view, of the Exchange Ratio to be
received by the stockholders of THI pursuant to
the Merger Agreement. The THI Board of
Directors has recommended that stockholders of
THI authorize and adopt the Merger and the
Merger Agreement.
OPINION OF THI'S FINANCIAL
ADVISOR....................... DLJ has delivered its written opinion to the
THI Board of Directors that, as of September
24, 1996, and based upon and subject to the
assumptions, limitations and qualifications set
forth in such opinion, the Exchange Ratio is
fair, from a financial point of view, to the
holders of THI Common Stock. See "The Merger --
Opinion of THI's Financial Advisor."
EFFECT OF MERGER ON THI COMMON
STOCK AND THE NOTES......... Upon consummation of the Merger: (1) THI will
be merged with and into Conseco, with Conseco
being the surviving corporation; and (2) each
outstanding share of THI Common Stock (other
than shares of THI Common Stock held as
treasury shares by THI) will be converted into
the right to receive the Merger Consideration
(as defined below) and (3) each outstanding
Note will, by operation of law, become an
obligation of Conseco, as successor in interest
to THI, and become convertible into shares of
Conseco Common Stock. Fractional shares of
Conseco Common Stock will not be issuable in
connection with the Merger. THI stockholders
otherwise entitled to fractional shares of
Conseco
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<PAGE> 17
Common Stock will receive the value of such
fractional shares in cash, determined as
described herein under "The Merger Agreement --
Conversion of Shares; Exchange of Stock
Certificates; No Fractional Amounts."
MERGER CONSIDERATION.......... Upon the consummation of the Merger, each share
of THI Common Stock issued and outstanding
immediately prior to the Effective Time (other
than shares of THI Common Stock held as
treasury shares by THI) will be converted into
the right to receive the whole number and
fraction (rounded to the nearest ten-
thousandth) of a share of Conseco Common Stock
equal to the Exchange Ratio. Assuming that the
Effective Time for the Merger were to occur on
December 20, 1996, the date of this Statement,
the Trading Average would be $61.15 and, based
on the foregoing, the Conseco Share Price would
be $50.00. The Conseco Common Stock to be
issued to holders of shares of THI Common Stock
in accordance with the Merger Agreement and any
cash to be paid in lieu of fractional shares of
Conseco Common Stock are referred to
collectively as the "Merger Consideration." No
fractional shares of Conseco Common Stock will
be issued in the Merger. Each THI stockholder
who otherwise would have been entitled to a
fraction of a share of Conseco Common Stock
will receive in lieu thereof cash in accordance
with the terms of the Merger Agreement. Conseco
will apply to have the additional shares of
Conseco Common Stock issued pursuant to the
Merger Agreement listed on the NYSE. See "The
Merger Agreement -- Conversion of Shares;
Exchange of Stock Certificates; No Fractional
Amounts."
EFFECTIVE TIME OF THE
MERGER........................ The Merger will become effective on the date
that a Certificate of Merger is filed with the
Secretary of State of Delaware (the
"Certificate of Merger") and Articles of Merger
are filed with the Secretary of State of
Indiana (the "Articles of Merger") or at such
time thereafter as is provided in the
Certificate of Merger and the Articles of
Merger (the "Effective Time"). See "The Merger
Agreement -- Effective Time."
TREATMENT OF THI STOCK OPTIONS
AND THI WARRANTS.............. From and after the Effective Time, (1) each
outstanding
unexpired option to purchase shares of THI
Common Stock (a "THI Stock Option") which has
been granted pursuant to THI's 1995 Stock Plan,
as amended (the "1995 Stock Plan"), shall be
fully vested and shall be exercisable, for the
same aggregate consideration payable to
exercise such THI Stock Option immediately
prior to the Effective Time, for the number of
shares of Conseco Common Stock which the holder
would have been entitled to receive at the
Effective Time if such THI Stock Option had
been fully vested and exercised for THI Common
Stock immediately prior to the Effective Time
and (2) each outstanding warrant to purchase
shares of THI Common Stock (a "THI Warrant")
shall be exercisable, for the same aggregate
consideration payable to exercise such THI
Warrant immediately prior to the Effective
Time, for the number of shares of Conseco
Common Stock which the holder would have been
entitled to receive at the
10
<PAGE> 18
Effective Time if such THI Warrant had been
exercised in full for shares of THI Common
Stock immediately prior to the Effective Time.
See "The Merger Agreement -- Treatment of THI
Stock Options and THI Warrants."
CERTAIN CONSEQUENCES OF THE
MERGER........................ Upon consummation of the Merger, holders of THI
Common Stock will become shareholders of
Conseco, and each share of THI Common Stock
issued and outstanding immediately prior to the
consummation of the Merger will be converted
into the right to receive the Merger
Consideration. In addition, holders of THI
Stock Options and THI Warrants will be entitled
to receive, upon the exercise of their
respective THI Stock Options and THI Warrants,
a number of shares of Conseco Common Stock
determined as described under "The Merger
Agreement -- Conversion of Shares; Exchange of
Stock Certificates; No Fractional Amounts" and
"-- Treatment of THI Stock Options and THI
Warrants."
After consummation of the Merger and the
Exchange Offer (assuming that all Holders
exchange their Notes in the Exchange Offer) and
without giving effect to the proposed
acquisitions of BLH, CAF and PFS, the current
Conseco shareholders would own between 93
percent and 95 percent of the shares of Conseco
Common Stock then outstanding, and the current
holders of THI Common Stock and Notes would own
between five percent and seven percent of such
shares. See "The Merger -- Certain Consequences
of the Merger."
CONDITIONS TO THE MERGER;
REGULATORY APPROVALS;
TERMINATION OF THE MERGER
AGREEMENT................... The obligations of Conseco and THI to
consummate the Merger are subject to the
satisfaction of certain conditions, including
the receipt of requisite THI stockholder
approval and of certain governmental consents
and approvals including, without limitation,
the approval of the Commissioner of the Texas
Department of Insurance (Texas is the
jurisdiction in which the insurance companies
owned by THI are domiciled), and the expiration
(or earlier termination) of the relevant
waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended
(the "HSR Act"). Early termination of such
waiting period was obtained on November 15,
1996. A special meeting of the THI stockholders
(the "Special Meeting") was held on December
12, 1996, at which meeting the THI stockholders
authorized and adopted the Merger Agreement and
the Merger. In addition, the obligation of
Conseco to consummate the Merger is subject to
the condition that Holders holding at least 90
percent of the Notes accept Conseco's offer to
exchange such Notes in the Exchange Offer. See
"The Merger -- Regulatory Approvals" and "The
Merger Agreement -- Conditions to the Merger."
The Merger Agreement is subject to termination
by Conseco or THI (provided that such party is
not in breach of the Merger Agreement) if the
Merger is not consummated by January 31, 1997
(or March 31, 1997 under certain
circumstances), and prior
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<PAGE> 19
to such time upon the occurrence of certain
events. See "The Merger Agreement --
Termination."
RIGHT OF THI BOARD OF
DIRECTORS TO WITHDRAW ITS
RECOMMENDATION; FEES........ Under the Merger Agreement, the THI Board of
Directors shall not (1) withdraw or modify, in
a manner materially adverse to Conseco, the
approval or recommendation by the Board of
Directors of the Merger Agreement or the Merger
or (2) enter into any agreement (other than a
confidentiality agreement as contemplated by
the Merger Agreement) with respect to any
Acquisition Proposal (as hereinafter defined),
unless THI receives an Acquisition Proposal and
the THI Board of Directors determines in good
faith, following consultation with outside
counsel, that in order to comply with its
fiduciary duties to its stockholders under
applicable law it is necessary for the THI
Board of Directors to withdraw or modify, in a
manner materially adverse to Conseco, its
approval or recommendation of the Merger
Agreement or the Merger, enter into an
agreement with respect to such Acquisition
Proposal or terminate the Merger Agreement. In
the event the THI Board of Directors takes any
of the foregoing actions, THI is required to,
concurrently with the taking of any such
action, pay to Conseco upon demand $7.5
million. In addition, THI has agreed that,
subject to the exercise of its fiduciary
duties, it shall not, nor shall it permit any
of its subsidiaries to, nor shall it authorize
or permit any officer, director or employee of,
or any investment banker, attorney or other
advisor or representative of, THI or any of its
subsidiaries to, directly or indirectly, (i)
solicit, initiate or encourage the submission
of any Acquisition Proposal or (ii) participate
in any discussions or negotiations regarding,
or furnish to any person any information with
respect to, or take any other action to
facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal.
See "The Merger Agreement -- Certain Covenants
-- No Solicitation," "-- Right of THI Board of
Directors to Withdraw its Recommendation" and
"-- Breakup Fee."
CONDUCT OF THE BUSINESS OF
CONSECO AFTER THE MERGER...... The Merger Agreement provides that the members
of the Conseco Board of Directors and the
officers of Conseco immediately prior to the
consummation of the Merger shall continue as
the directors and officers of Conseco following
the consummation of the Merger. See "Management
of Conseco Upon Consummation of the Merger."
Conseco plans to consolidate the operations of
THI with Conseco's operations after
consummation of the Merger. See "The Merger --
Conduct of the Business of Conseco After the
Merger."
INTERESTS OF CERTAIN PERSONS
IN THE MERGER................. Certain directors and officers of THI and its
subsidiaries will receive benefits from the
Merger in the form of an enhanced severance
program, the acceleration of stock options, the
amendment of certain warrants and other
benefits. See "The Merger -- Interests of
Certain Persons in the Merger."
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<PAGE> 20
INDEMNIFICATION OF DIRECTORS
AND OFFICERS; INSURANCE....... Conseco has agreed to maintain the existing
indemnification provisions in the certificates
of incorporation and bylaws of the subsidiaries
of THI. In addition, for a period of three
years after the Effective Time, Conseco has
agreed to maintain officers' and directors'
liability insurance. See "The Merger --
Interests of Certain Persons in the Merger --
Indemnification" and "The Merger Agreement --
Certain Covenants -- Indemnification of
Officers and Directors; Insurance."
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES TO THI
STOCKHOLDERS................ The Merger is expected to qualify as a
reorganization within the meaning of Section
368(a)(1) of the Code. The obligation of THI to
consummate the Merger, in fact, is subject to
the condition that it shall have received an
opinion of counsel, based upon certain
representations and assumptions, that the
Merger will be treated for tax purposes as a
reorganization with the meaning of Section
368(a)(1) of the Code.
Assuming the Merger qualifies as a
reorganization within the meaning of Section
368(a)(1) of the Code, no gain or loss will be
recognized by THI stockholders upon their
exchange of THI Common Stock for Conseco Common
Stock, except that any THI stockholder who
receives cash proceeds in lieu of a fractional
share interest in Conseco Common Stock will
recognize gain or loss equal to the difference
between such cash proceeds and the tax basis in
the fractional share interest, and such gain or
loss will constitute capital gain or loss if
such stockholder's THI Common Stock is held as
a capital asset at the Effective Time.
ACCOUNTING TREATMENT.......... The Merger will be accounted as a "purchase"
under GAAP. See "The Merger -- Accounting
Treatment."
COMPARISON OF SHAREHOLDERS'
RIGHTS........................ The Notes are convertible, under specified
circumstances, into shares of THI Common Stock
(or, after the Effective Time, into shares of
Conseco Common Stock). Holders who tender their
Notes in the Exchange Offer will become holders
of Conseco Common Stock. See "Comparison of
Shareholders' Rights" for a summary of the
material differences between the rights of
holders of Conseco Common Stock and THI Common
Stock. These differences arise from the
distinctions between the laws of the
jurisdictions in which Conseco and THI are
incorporated (Indiana and Delaware,
respectively) and the distinctions between the
respective charters and bylaws of Conseco and
THI.
REDEMPTION OF THI PREFERRED
STOCK......................... The Merger Agreement provides that all of the
outstanding shares of THI's Series A Cumulative
Exchangeable Preferred Stock, par value $.01
per share ("THI Preferred Stock"), will be
redeemed before the Effective Time. See "The
Merger Agreement -- Redemption of THI Preferred
Stock."
13
<PAGE> 21
SELECTED HISTORICAL FINANCIAL INFORMATION OF CONSECO
The selected historical financial information set forth below was derived
from the consolidated financial statements of Conseco. Conseco's consolidated
balance sheets at December 31, 1994 and 1995, and the consolidated statements of
operations, shareholders' equity and cash flows for the years ended December 31,
1993, 1994 and 1995 and notes thereto were audited by Coopers & Lybrand L.L.P.,
independent accountants, and are included in Conseco's Annual Report which is
incorporated by reference herein. The selected historical financial information
is qualified in its entirety by, and should be read in conjunction with,
Conseco's Annual Report. The selected historical financial information set forth
for the nine months ended September 30, 1995 and 1996, is unaudited; however, in
the opinion of Conseco'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 nine months ended September 30, 1996 may not be indicative of the results of
operations to be expected for a full year.
The comparison of selected historical financial information in the table
below is significantly affected by: (i) the acquisitions consummated by Conseco
Capital Partners, L.P. ("Partnership I") and Conseco Capital Partners II, L.P.
("Partnership II"); (ii) the sale of Western National Corporation ("WNC"); (iii)
the transactions affecting Conseco's ownership interest in BLH and CCP
Insurance, Inc. ("CCP"); and (iv) the LPG Merger. For periods beginning with
their acquisitions by Partnership I and ending June 30, 1992, Partnership I and
its subsidiaries were consolidated with the financial statements of Conseco.
Following the completion of the initial public offering by CCP in July 1992, the
Company did not have unilateral control to direct all of CCP's activities and,
therefore, did not consolidate the financial statements of CCP with the
financial statements of Conseco. As a result of the purchase by Conseco of all
the shares of common stock of CCP it did not already own on August 31, 1995 (the
"CCP Merger"), the financial statements of CCP's subsidiaries are consolidated
with the financial statements of Conseco, effective January 1, 1995. Conseco has
included BLH in its financial statements since November 1, 1992. Through
December 31, 1993, the financial statements of WNC were consolidated with the
financial statements of Conseco. Following the completion of the initial public
offering of WNC (and subsequent disposition of Conseco's remaining equity
interest in WNC), the financial statements of WNC were no longer consolidated
with the financial statements of Conseco. As of September 29, 1994, Conseco
began to include in its financial statements the newly acquired Partnership II
subsidiary, ALH. As of July 1, 1996, Conseco began to include in its financial
statements its newly acquired subsidiary, LPG. A description of such business
combinations are described in the notes to the consolidated financial statements
included in: (i) Conseco's Annual Report; and (ii) Conseco's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996, both of which are
incorporated by reference herein.
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 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 $ 1,103.3 $ 1,193.2
Investment activity:
Net investment income......................... 921.4 888.6 896.2 385.7 1,142.6 850.5 926.7
Net trading income (losses)................... 50.7 35.9 93.1 (4.9) 2.5 2.8 (6.5)
Net realized gains (losses)................... 123.3 124.3 149.5 (25.6) 186.4 77.8 16.3
Total revenues.................................. 1,391.8 1,523.9 2,636.0 1,862.0 2,855.3 2,066.1 2,198.6
Interest expense on notes payable............... 69.9 46.2 58.0 59.3 119.4 83.9 84.6
Total benefits and expenses..................... 1,168.6 1,193.9 2,025.8 1,537.6 2,436.8 1,780.2 1,845.6
Income before income taxes, minority interest
and extraordinary charge...................... 223.2 330.0 610.2 324.4 418.5 285.9 353.0
Extraordinary charge on extinguishment of debt,
net of tax.................................... 5.0 5.3 11.9 4.0 2.1 -- 18.6
Net income...................................... 116.0 169.5 297.0 150.4 220.4 167.8 174.5
Preferred dividends............................. 6.8 5.5 20.6 18.6 18.4 13.8 22.7
Net income applicable to common stock........... 109.2 164.0 276.4 131.8 202.0 154.0 151.8
PER SHARE DATA(A)
Net income, primary............................. $ 2.05 $ 2.71 $ 4.73 $ 2.50 $ 4.69 $ 3.58 $ 2.84
Net income, fully diluted....................... 2.01 2.70 4.39 2.44 4.22 3.22 2.59
Dividends declared per common share............. .035 .043 .150 .250 .093 .083 .103
Book value per common share outstanding at
period end.................................... 7.73 10.93 16.89 10.45 20.44 17.84 25.22
Shares outstanding at period end................ 49.4 49.8 50.6 44.4 40.5 40.5 67.0
Average fully diluted shares outstanding........ 50.8 59.2 67.0 61.7 52.2 52.1 67.4
BALANCE SHEET DATA -- PERIOD END
Total assets.................................... $11,832.4 $11,772.7 $13,749.3 $10,811.9 $17,297.5 $17,009.1 $23,176.0
Notes payable for which Conseco is directly
liable........................................ 177.6 163.2 413.0 191.8 871.4 920.8 1,169.0
Notes payable of BLH, not direct obligations of
Conseco....................................... -- 392.0 290.3 280.0 301.5 272.6 418.1
Notes payable of ALH, not direct obligations of
Conseco....................................... 319.3 -- -- 331.1 283.2 308.5 13.0
Total liabilities............................... 11,321.3 11,154.4 12,382.9 9,743.2 15,782.5 15,646.7 21,072.3
Minority interest............................... 79.5 24.0 223.8 321.7 403.3 356.7 147.8
Shareholders' equity............................ 431.6 594.3 1,142.6 747.0 1,111.7 1,005.7 1,955.9
</TABLE>
14
<PAGE> 22
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 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 $ 2,390.2 $ 2,353.7
Operating earnings(d)........................... 61.5 114.8 162.0 151.7 131.3 89.3 181.8
Operating earnings per fully diluted common
share(a)(d)................................... 1.05 1.80 2.39 2.46 2.52 1.71 2.70
Shareholders' equity excluding unrealized
appreciation (depreciation) of fixed maturity
securities(e)................................. 431.6 560.3 1,055.2 884.7 999.1 945.4 2,002.6
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 16.35 25.92
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 .48X .36X
Excluding unrealized appreciation
(depreciation)(e)........................... .29X .23X .28X .18X .47X .49X .36X
Adjusted statutory capital (at period end)(g)... $ 617.1 $ 603.1 $ 1,135.5 $ 509.0 $ 1,021.0 $ 928.2 $ 1,582.3
Adjusted statutory earnings(h).................. 90.0 153.4 273.8 248.6 321.7 223.6 283.6
Ratio of adjusted statutory earnings to cash
interest(i)................................... 2.62X 5.75X 4.94X 5.06X 3.79X 3.86X 4.32X
</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
Conseco's financial position and results of operations. Such amounts are
not intended to, and do not, represent insurance policy income, net income,
net income per share, shareholders' equity or book value per share prepared
in accordance with GAAP.
(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 Conseco began
to do in 1992. Such adjustments are in accordance with Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115"), as described in the notes to
the consolidated financial statements included in Conseco's Annual Report
which is incorporated herein by reference.
(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 Conseco. Such
statutory data reflect the combined data derived from the annual statements
of Conseco's and BLH's wholly owned life insurance companies as filed with
insurance regulatory agencies and prepared in accordance with statutory
accounting practices.
(h) Represents gains from operations before interest expense (except interest on
annuities and financial products) and income taxes of Conseco's and BLH's
wholly owned life insurance companies as reported for statutory accounting
purposes plus income before interest expense and income taxes of all
non-life companies.
(i) Represents the ratio of adjusted statutory earnings to cash interest. Cash
interest includes interest, except interest on annuities and financial
products, of Conseco and BLH and their wholly owned subsidiaries that is
required to be paid in cash, 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 $57.9 million and
$65.7 million for the nine months ended September 30, 1995 and 1996,
respectively.
15
<PAGE> 23
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 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
of THI 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, incorporated by reference herein.
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 selected
historical financial information set forth below is qualified in its entirety
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 nine months ended September
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 nine months ended September 30, 1996
may not be indicative of the results of operations to be expected for a full
year.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 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 $160.1 $ 82.4
Investment activity:
Net investment income.......................... 42.1 43.7 44.0 46.6 49.7 39.7 29.6
Net realized gains (losses).................... 2.8 19.7 26.8 (3.4) 6.7 (.1) .3
Total revenues................................... 399.6 368.1 331.0 270.9 246.6 199.7 113.7
Interest expense................................. -- -- -- -- 2.3 -- 6.8
Expenses of spin-off and related transactions.... -- -- -- -- 2.2 2.2 --
Loss on sale of long term care business.......... -- -- -- -- 68.5 -- --
Total benefits and expenses...................... 356.5 305.3 281.0 234.9 287.7 171.4 91.5
Income (loss) before income taxes and cumulative
effect of change in accounting principle....... 43.1 62.8 50.0 36.0 (41.1) 28.3 22.2
Cumulative effect of change in accounting
principle...................................... -- -- (.3) -- -- -- --
Net income (loss)................................ 30.3 42.7 32.6 23.0 (26.8) 18.2 14.4
PER SHARE DATA
Net income (loss), primary(a).................... $(17.75) $11.42 $ 6.73
Net income (loss), fully diluted(a).............. (17.75) 5.84 4.06
Book value per fully diluted common share(b)..... 66.59 77.50 62.03
Shares outstanding at period end................. 1.6 1.6 1.6
Average fully diluted shares outstanding......... 2.0 3.1 3.2
BALANCE SHEET DATA -- PERIOD END
Total assets..................................... $740.0 $813.3 $890.7 $885.2 $ 950.5 $972.4 $941.9
Notes payable (including Notes).................. -- -- -- -- 110.3 112.0 108.3
Total liabilities................................ 502.1 548.3 587.6 595.8 746.4 736.0 767.7
Shareholders' equity............................. 237.9 265.0 303.1 289.4 204.1 236.4 174.2
</TABLE>
16
<PAGE> 24
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------- ------ ------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA(C)
Operating earnings(d)............................ $ 28.5 $ 29.7 $ 15.5 $ 25.2 $ 15.4 $ 20.3 $ 14.2
Operating earnings per fully diluted common
share(a), (d).................................. 7.50 6.53 3.99
Shareholders' equity excluding unrealized
appreciation (depreciation) of fixed maturity
securities(e).................................. 237.9 265.0 303.1 312.2 180.9 225.4 170.1
Book value per common share outstanding excluding
unrealized appreciation of fixed maturity
securities(b), (e)............................. 59.14 73.96 60.75
Adjusted statutory capital (at period end)(f).... $ 96.9 $122.2 $132.0 $130.7 $ 163.5 $127.6 $154.2
Adjusted statutory earnings (loss)(g)............ 28.0 39.3 8.1 24.5 51.8 16.2 34.9
</TABLE>
- -------------------------
(a) Per share data for the nine months ended September 30, 1995, and 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
periods. Operating earnings per fully diluted share data for the nine months
ended September 30, 1996 and the year ended December 31, 1995 also include
the dilutive effect of the issuance of the 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
Notes were converted to THI Common Stock and outstanding THI Stock Options
were exercised.
(c) Amounts under this heading are included to assist the reader in analyzing
THI's financial position and results of operations. Such amounts are not
intended to, and do not, represent net income, net income per share,
shareholders' equity or book value per share prepared in accordance with
GAAP.
(d) Represents income before cumulative effect of change in accounting
principle, excluding: (i) net realized gains (losses), net of income taxes;
(ii) the loss on the sale of long term care business, net of income taxes;
and (iii) expenses related to THI's September 29, 1995 spin-off and related
transactions, net of income taxes.
(e) Excludes the effects of reporting fixed maturities at fair value and
recording the unrealized gain or loss on such securities as a component of
shareholders' equity, net of tax and other adjustments, which THI began to
do effective January 1, 1994. Such adjustments are in accordance with SFAS
115, as described in the notes to the consolidated financial statements
included in THI's Annual Report, which is incorporated herein by reference.
(f) 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 purposes plus income before interest expense, expenses related to
THI's September 29, 1995 spin-off, and income taxes of all non-life
companies.
17
<PAGE> 25
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 selected historical financial information set
forth for the nine months ended September 30, 1995 and 1996, is unaudited;
however, in the opinion of ATC's management, the accompanying financial
information contains all adjustments, consisting only of normal recurring items,
necessary to present fairly the financial information for such periods. The
results of operations for the nine months ended September 30, 1996 may not be
indicative of the results of operations to be expected for a full year.
The comparison of the selected historical 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,
which is incorporated by reference herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 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 $186.2 $283.3
Investment activity:
Net investment income................... 8.1 8.7 9.4 11.0 23.2 12.7 33.2
Net realized gains...................... (.1) .4 .2 -- .1 .2 1.3
Total revenues............................ 125.0 147.4 176.0 212.9 297.3 199.1 317.8
Interest expense.......................... .2 .2 -- 1.0 3.3 1.5 5.8
Total benefits and expenses............... 108.3 131.2 152.7 185.9 262.6 175.1 278.8
Income before income taxes................ 16.7 16.2 23.3 27.0 34.7 24.0 39.0
Net income................................ 11.0 10.7 14.6 18.4 23.7 16.5 26.0
PER SHARE DATA(A)
Net income, primary....................... $ .71 $ .68 $ .92 $ 1.14 $ 1.45 $ 1.01 $ 1.55
Net income, fully diluted................. .71 .68 .92 1.14 1.36 1.01 1.24
Book value per common share outstanding at
period end.............................. 5.95 6.66 7.51 8.65 10.77 9.68 11.11
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 16.5 23.8
BALANCE SHEET DATA -- PERIOD END
Total assets.............................. $219.7 $240.9 $299.0 $400.8 $836.1 $538.3 $907.6
Notes payable (including convertible
subordinated debentures)................ 8.4 -- 12.0 20.0 103.5 103.5 102.9
Total liabilities......................... 129.3 139.7 182.8 264.5 665.3 384.8 726.3
Shareholders' equity...................... 90.4 101.2 116.2 136.3 170.8 153.5 181.3
OTHER FINANCIAL DATA(B)
Operating earnings(c)..................... $ 11.1 $ 10.4 $ 14.5 $ 18.4 $ 23.6 $ 16.3 $ 25.2
Operating earnings per fully diluted
common share(a),(c)..................... .71 .67 .91 1.14 1.35 1.00 1.20
Shareholders' equity excluding unrealized
appreciation (depreciation) of fixed
maturity securities(d).................. 90.4 101.2 116.2 136.3 160.6 153.5 191.7
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 9.68 11.74
Adjusted statutory capital (at period
end)(e)................................. $ 29.9 $ 30.5 $ 47.0 $ 58.0 $ 74.3 $118.9 $ 85.3
Adjusted statutory earnings (loss)(f)..... (3.3) (1.1) 4.3 11.3 (29.6) 11.2 9.2
</TABLE>
(See footnotes on following page)
18
<PAGE> 26
- -------------------------
(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.
19
<PAGE> 27
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 selected historical financial information set forth below for
the nine months ended September 30, 1995 and 1996, is unaudited; however, in the
opinion of CAF's management, the accompanying financial information contains all
adjustments, consisting only of normal recurring items, necessary to present
fairly the financial information for such periods. The results of operations for
the nine months ended September 30, 1996 may not be indicative of the results of
operations to be expected for a full year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Insurance policy income.................... $188.4 $219.5 $244.8 $263.3 $282.1 $209.6 $ 219.9
Investment activity:
Net investment income.................... 17.5 22.8 33.5 41.0 48.6 35.8 41.7
Net realized gains....................... -- -- .6 -- -- -- .3
Total revenues............................. 206.4 242.8 279.4 304.4 330.8 245.4 261.9
Interest expense........................... 1.2 1.6 1.5 2.3 2.4 1.9 1.6
Total benefits and expenses................ 162.2 189.8 210.8 235.7 259.2 192.0 202.2
Income before income taxes and cumulative
effect of change in accounting for income
taxes.................................... 44.2 53.0 68.6 68.7 71.6 53.4 59.7
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 34.2 38.8
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 $ 1.96 $ 2.22
Net income, primary and fully diluted...... 2.00 2.19 2.36 2.50 2.64 1.96 2.22
Dividends declared per common share........ .050 .255 .280 .320 .360 .270 .300
Book value per common share outstanding at
period end............................... 5.68 9.61 11.58 13.34 16.71 15.04 17.41
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 $888.7 $1,017.9
Notes payable.............................. 21.0 20.0 22.0 24.0 24.0 30.0 29.0
Total liabilities.......................... 307.0 379.1 457.2 559.5 656.6 626.2 713.3
Shareholders' equity....................... 90.7 177.7 211.3 233.6 291.7 262.5 304.6
OTHER FINANCIAL DATA(A)
Operating earnings(b)...................... $ 28.9 $ 35.0 $ 43.1 $ 44.8 $ 46.0 $ 34.2 $ 38.6
Operating earnings per primary and fully
diluted common share(b).................. 1.77 2.19 2.33 2.50 2.64 1.96 2.21
Shareholders' equity excluding unrealized
appreciation of fixed maturity
securities(c)............................ 90.7 177.7 211.3 233.6 272.9 262.5 307.7
Book value per common share outstanding,
excluding unrealized appreciation of
fixed maturity securities(c)............. 5.68 9.61 11.58 13.34 15.63 15.04 17.59
Adjusted statutory capital (at period
end)(d).................................. $ 48.3 $108.7 $108.0 $ 93.9 $ 88.5 $ 94.6 $ 97.9
Adjusted statutory earnings(e)............. 20.1 25.6 33.5 29.4 30.9 21.9 29.9
</TABLE>
(See footnotes on following page)
20
<PAGE> 28
- -------------------------
(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.
21
<PAGE> 29
SUMMARY UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION OF CONSECO
The summary unaudited pro forma consolidated financial information of
Conseco set forth below was derived from the unaudited pro forma consolidated
financial statements of Conseco included elsewhere in this Statement. See
"Unaudited Pro Forma Consolidated Financial Statements of Conseco." The summary
unaudited pro forma consolidated financial information is based upon the
historical and pro forma consolidated financial statements and related notes
thereto of Conseco, LPG, THI, CAF and ATC incorporated by reference in this
Statement. 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 Statement.
The summary unaudited pro forma consolidated statement of operations
information for the year ended December 31, 1995, and the nine months ended
September 30, 1996, in the columns headed "Pro forma Conseco before the Merger"
reflects the following transactions, all of which have already occurred, as if
such transactions had occurred on January 1, 1995: (1) the issuance of $275.0
million of Trust Originated Preferred Securities ("TOPrS") having a distribution
rate of 9.16 percent (the "TOPrS Offering"); (2) the issuance of $325.0 million
of Capital Trust Pass-through Securities ("TruPS") having a distribution rate of
8.70 percent (the "TruPS Offering"); (3) the call for redemption of Conseco's
Series D Convertible Preferred Stock (the "Series D Call") completed September
26, 1996; (4) the acquisition of all of the outstanding common stock of ALH, not
previously owned by Conseco or its affiliates, and related transactions (the
"ALH Transaction") completed September 30, 1996; (5) the acquisition and merger
of LPG completed effective July 1, 1996 (the "LPG Merger"); (6) the acquisition
of all of the outstanding common stock of CCP not previously owned by Conseco
and related transactions (including the repayment of borrowings under Conseco's
existing $250.0 million revolving credit agreement); (7) the increase of
Conseco's ownership in BLH to 90.4 percent, as a result of purchases of common
shares of BLH by Conseco and BLH during 1995 and the first three months of 1996;
(8) the issuance of 4.37 million shares of Conseco PRIDES in January 1996; (9)
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 (10) 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 nine months
ended September 30, 1996, in the columns headed "Pro forma for the Merger"
reflects further adjustments to the consolidated operating results of Conseco as
if the Merger had occurred on January 1, 1995. The summary unaudited pro forma
consolidated statement of operations information for the year ended December 31,
1995, and the nine months ended September 30, 1996, in the columns headed "Pro
forma for the Merger and other planned transactions" reflects further
adjustments to the consolidated operating results of Conseco as if the following
additional transactions had occurred on January 1, 1995: (1) the CAF Merger; (2)
the acquisition of all of the outstanding common stock of BLH not previously
owned by Conseco and related transactions (the "BLH Transaction"); and (3) the
ATC Merger (completed December 17, 1996).
The summary unaudited pro forma consolidated balance sheet information at
September 30, 1996, in the column headed "Pro forma Conseco before the Merger"
reflects the application of certain pro forma adjustments for the TOPrS Offering
and the TruPS Offering, which have already occurred. The summary unaudited pro
forma consolidated balance sheet information at September 30, 1996, in the
columns headed "Pro forma for the Merger" reflects further adjustments to the
financial position of Conseco as if the Merger had occurred on September 30,
1996. The summary unaudited pro forma consolidated balance sheet information at
September 30, 1996, in the columns headed "Pro forma for the Merger and other
planned transactions" reflects further adjustments to the financial position of
Conseco as if the following additional transactions had occurred on September
30, 1996: (1) the CAF Merger; (2) the BLH Transaction; and (3) the ATC Merger
(completed December 17, 1996).
The summary unaudited pro forma consolidated financial information for the
year ended December 31, 1995, and as of and for the nine months ended September
30, 1996, is provided for informational purposes only and is not necessarily
indicative of the results of operations or financial condition that would have
been achieved had the transactions set forth above actually occurred as of the
dates indicated or of future results of operations or financial condition of
Conseco. Conseco anticipates cost savings and additional benefits as a result of
completing the transactions set forth above. Such benefits and any other changes
that might have resulted from
22
<PAGE> 30
management of the combined companies have not been included as adjustments to
the pro forma consolidated financial information. The Merger, the CAF Merger and
the ATC 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 NINE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------- -------------------------------------
PRO FORMA PRO FORMA FOR PRO FORMA PRO FORMA FOR
CONSECO THE MERGER CONSECO THE MERGER
BEFORE PRO FORMA AND OTHER BEFORE PRO FORMA AND OTHER
THE FOR THE PLANNED THE FOR THE PLANNED
MERGER MERGER TRANSACTIONS MERGER MERGER TRANSACTIONS
--------- --------- ------------- --------- --------- -------------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Insurance policy income............................ $1,752.8 $1,943.0 $ 2,498.7 $ 1,349.0 $ 1,431.4 $ 1,934.6
Investment activity:
Net investment income............................ 1,461.1 1,503.9 1,574.0 1,084.4 1,109.0 1,182.4
Net trading income (losses)...................... 2.5 2.5 2.5 (6.5) (6.5) (6.5)
Net realized gains............................... 220.3 220.3 222.0 23.0 23.0 26.4
Total revenues..................................... 3,498.4 3,731.4 4,358.9 2,521.4 2,629.8 3,209.8
Interest expense on notes payable.................. 105.3 106.5 145.5 72.2 73.1 104.7
Total benefits and expenses........................ 2,963.5 3,170.8 3,755.5 2,104.8 2,194.5 2,722.0
Income before income taxes, minority interest and
extraordinary charge............................. 534.9 560.6 603.4 416.6 435.3 487.8
Income before extraordinary charge................. 273.1 290.4 324.4 212.4 224.5 267.8
PER SHARE DATA
Income before extraordinary charge, primary........ $ 3.61 $ 3.62 $ 3.42 $ 2.75 $ 2.75 $ 2.78
Income before extraordinary charge, fully
diluted.......................................... 3.59 3.61 3.27 2.70 2.70 2.64
Book value per common share outstanding at period
end.............................................. 25.01 26.62 32.14
Shares outstanding at period end................... 65.5 70.0 84.7 67.0 71.5 86.2
Average fully diluted shares outstanding........... 76.0 80.5 99.2 78.7 83.2 101.9
BALANCE SHEET DATA -- PERIOD END
Total assets....................................... $23,176.0 $23,804.3 $26,901.5
Notes payable for which Conseco is directly
liable........................................... 582.2 600.7 1,880.8
Notes payable of BLH, not direct obligations of
Conseco.......................................... 418.1 418.1 --
Notes payable of ALH, not direct obligations of
Conseco.......................................... 13.0 13.0 13.0
Total liabilities.................................. 20,485.5 20,885.9 23,171.4
Minority interest in consolidated subsidiaries:
Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts...... 600.0 600.0 600.0
Preferred stock.................................. 92.5 92.5 92.5
Common stock..................................... 55.3 55.3 --
Shareholders' equity............................... 1,942.7 2,170.6 3,037.6
OTHER FINANCIAL DATA(A)
Premiums collected(b).............................. $3,671.8 $3,862.0 $ 4,418.1 $ 2,633.8 $ 2,716.2 $ 3,219.4
Operating earnings(c).............................. 221.0 238.3 271.0 200.5 212.6 252.6
Operating earnings per fully diluted common
share(c)......................................... 2.91 2.96 2.73 2.55 2.56 2.49
Shareholders' equity excluding unrealized
appreciation (depreciation) of fixed maturity
securities(d).................................... 1,989.4 2,217.3 3,084.3
Book value per common share outstanding, excluding
unrealized appreciation (depreciation) of fixed
maturity securities(d)........................... 25.71 27.28 32.68
Ratio of debt for which Conseco is directly liable
to total capital of Conseco only(e):
As reported...................................... .18X .17X .34X
Excluding unrealized appreciation
(depreciation)(d).............................. .18X .17X .33X
Excluding unrealized appreciation (depreciation)
and assuming conversion of ATC's Convertible
Subordinated Debentures into Conseco Common
Stock(d), (f).................................. .29X
Ratio of debt for which Conseco is directly liable
and Company--obligated mandatorily redeemable
preferred securities of subsidiary trusts to
total capital of Conseco only(g):
As reported...................................... .37X .35X .44X
Excluding unrealized appreciation
(depreciation)(d).............................. .36X .34X .44X
Excluding unrealized appreciation (depreciation)
and assuming conversion of ATC's Convertible
Subordinated Debentures into Conseco Common
Stock(d), (f).................................. .40X
Adjusted statutory capital (at period end)(h)...... $1,508.6 $1,672.0 $ 1,834.9 $ 1,582.3 $ 1,736.5 $ 1,919.7
Adjusted statutory earnings(i)..................... 480.7 532.5 533.8 409.4 444.3 483.4
Ratio of adjusted statutory earnings to cash
interest(j)...................................... 4.59X 5.08X 3.63X 5.53X 5.94X 4.39X
Ratio of adjusted statutory earnings to cash
interest and dividends on Company-obligated
mandatorily redeemable preferred securities of
subsidiary trusts(k)............................. 3.04X 3.37X 2.66X 3.59X 3.87X 3.22X
</TABLE>
23
<PAGE> 31
- -------------------------
(a) Amounts under this heading are included to assist the reader in analyzing
Conseco's pro forma financial position and pro forma results of operations.
Such amounts are not intended to, and do not, represent pro forma insurance
policy income, pro forma net income, pro forma net income per share, pro
forma shareholders' equity or pro forma book value per share prepared in
accordance with GAAP.
(b) Includes premiums received from annuities and universal life policies, which
are not reported as revenues under GAAP.
(c) Represents pro forma income before extraordinary charge, excluding net
trading income (net of income taxes), net realized gains (less that portion
of change in future policy benefits, amortization of cost of policies
purchased and cost of policies produced and income taxes relating to such
gains) and restructuring activities (net of income taxes).
(d) Excludes the effect of reporting fixed maturities at fair value and
recording the unrealized gain or loss on such securities as a component of
shareholders' equity, net of tax and other adjustments, which Conseco began
to do in 1992. Such adjustments are in accordance with SFAS 115, as
described in the notes to the consolidated financial statements included in
Conseco's Annual Report which is incorporated herein by reference.
(e) Represents the ratio of pro forma notes payable for which Conseco is
directly liable to the sum of pro forma shareholders' equity, pro forma
notes payable for which Conseco is directly liable, minority interest
related to preferred stock issued by a subsidiary of ALH and
Company-obligated mandatorily redeemable preferred securities of subsidiary
trusts.
(f) Assumes ATC's Convertible Subordinated Debentures, which will be convertible
into an assumed 5.0 million shares of Conseco Common Stock with a value of
$238.6 million, are converted. ATC's Convertible Subordinated Debentures are
callable on October 1, 1998.
(g) Represents the ratio of pro forma notes payable for which Conseco is
directly liable and the Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts to the sum of pro forma shareholders'
equity, pro forma notes payable for which Conseco is directly liable,
minority interest related to preferred stock issued by a subsidiary of ALH
and the Company-obligated mandatorily redeemable preferred securities of
subsidiary trusts.
(h) Includes: (1) statutory capital and surplus; (2) AVR and IMR; and (3) the
portion of surplus debentures carried by the life companies as a liability
to Conseco. Such statutory data reflect the combined data derived from the
annual statements of Conseco's pro forma life insurance subsidiaries as
filed with insurance regulatory agencies and prepared in accordance with
statutory accounting practices.
(i) Represents gains from operations before interest expense (except interest on
annuities and financial products) and income taxes of Conseco's pro forma
life insurance subsidiaries as reported for statutory accounting purposes
plus income before interest expense and income taxes of Conseco's pro forma
non-life subsidiaries.
(j) Represents the pro forma ratio of adjusted statutory earnings to cash
interest. Cash interest includes interest, except interest on annuities and
financial products, of Conseco and its pro forma subsidiaries that is
required to be paid in cash.
(k) Represents the pro forma ratio of adjusted statutory earnings to the sum of
cash interest and dividends on the Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts. Cash interest includes interest,
except interest on annuities and financial products, of Conseco and its pro
forma subsidiaries that is required to be paid in cash.
24
<PAGE> 32
COMPARATIVE UNAUDITED PER SHARE DATA OF CONSECO AND THI
The following table sets forth selected historical per share data of
Conseco, THI, CAF and ATC and corresponding pro forma and pro forma equivalent
per share amounts for the year ended December 31, 1995, and as of and for the
nine months ended September 30, 1996, giving effect to the LPG Merger, the
Series D Call, the ALH Transaction, the TOPrS Offering, the TRUPS Offering, the
Merger, the CAF Merger, the BLH Transaction and the ATC Merger. Pro forma
equivalent amounts are presented assuming that the Conseco Share Price will be
$55.00, so that each share of THI Common Stock is exchanged for 1.4 shares of
Conseco Common Stock in the Merger. Assuming that the Effective Time for the
Merger were to occur on December 20, 1996, the date of this Statement, the
Trading Average would be $61.15, the Conseco Share Price would be $50.00, and
1.4 shares of Conseco Common Stock would be issuable in the Merger with respect
to each share of THI Common Stock. The information presented is derived from the
consolidated financial statements and related notes thereto included in
Conseco's Annual Report, THI's Annual Report, CAF's Annual Report, ATC's Annual
Report (all of which are incorporated by reference herein) and the unaudited pro
forma consolidated financial statements of Conseco included elsewhere in this
Statement. The information is qualified in its entirety by, and should be read
in conjunction with, such materials. See "Unaudited Pro Forma Consolidated
Financial Statements of Conseco." The pro forma financial information is
provided for informational purposes only and is not necessarily indicative of
the actual results that would have been achieved had the above transactions been
consummated at the beginning of the periods presented, or of future results.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -----------------
<S> <C> <C>
NET INCOME (LOSS) BEFORE EXTRAORDINARY CHARGE PER FULLY DILUTED COMMON
SHARE:
Historical:
Conseco................................................................. $ 4.26 $ 2.87
THI..................................................................... (17.75)(a) 4.06
CAF..................................................................... 2.64 2.22
ATC..................................................................... 1.36 1.24
Pro forma:
Conseco before the Merger............................................... $ 3.59 $ 2.70
Adjusted for the Merger................................................. 3.61 2.70
Further adjusted for the CAF Merger, the BLH Transaction and the ATC
Merger................................................................. 3.27 2.64
Equivalent for one share of THI Common Stock............................ 4.58 3.70
DIVIDENDS PER COMMON SHARE:
Historical:
Conseco................................................................. $ .093 $ .103
THI..................................................................... -- --
CAF..................................................................... .360 .300
ATC..................................................................... -- --
Pro forma:
Conseco before the Merger............................................... $ .093 $ .103
Adjusted for the Merger................................................. .093 .103
Further adjusted for the CAF Merger, the BLH Transaction and the ATC
Merger................................................................. .093 .103
Equivalent for one share of THI Common Stock............................ .130 .144
BOOK VALUE PER COMMON SHARE:
Historical:
Conseco................................................................. $ 25.22
THI..................................................................... 62.03(b)
CAF..................................................................... 17.41
ATC..................................................................... 11.11
Pro forma:
Conseco before the Merger............................................... 25.01
Adjusted for the Merger................................................. 26.62
Further adjusted for the CAF Merger, the BLH Transaction
and the ATC Merger.................................................... 32.14
Equivalent for one share of THI Common Stock............................ 45.00
</TABLE>
- -------------------------
(a) Per share data for the year ended December 31, 1995 is presented as if the
1,590,461 shares outstanding after the September 29, 1995 distribution were
outstanding for the entire year.
(b) Book value per common share reflects the dilution which would occur if the
Notes were converted into common stock and outstanding options were
exercised.
25
<PAGE> 33
MARKET PRICE INFORMATION
Market prices for the shares of Conseco Common Stock are reported on the
NYSE, and market prices for the shares of THI Common Stock are reported on the
Nasdaq National Market. The table below sets forth for the periods indicated the
high and low sale prices per share of Conseco Common Stock and THI Common Stock
and the cash dividends paid per share of Conseco Common Stock. No dividends have
been paid on the THI Common Stock. The THI Common Stock has been traded on the
Nasdaq National Market since October 2, 1995. For current price information with
respect to the Conseco Common Stock and THI Common Stock, stockholders are urged
to consult publicly available sources.
<TABLE>
<CAPTION>
CONSECO COMMON STOCK THI COMMON STOCK
---------------------------------------------- -------------------------------
HIGH LOW DIVIDENDS HIGH LOW
--------------- ---------------- --------- -------------- --------------
<S> <C> <C> <C> <C> <C>
1994
First Quarter................................. $ 32 1/8 $ 26 9/16 $ 0.0625 -- --
Second Quarter................................ 29 1/16 23 3/16 0.0625 -- --
Third Quarter................................. 26 3/16 21 5/8 0.0625 -- --
Fourth Quarter................................ 23 1/8 17 15/16 0.0625 -- --
1995
First Quarter................................. 24 5/16 16 1/4 0.0625 -- --
Second Quarter................................ 23 5/16 19 9/16 0.0625 -- --
Third Quarter................................. 26 5/8 22 3/4 0.01 -- --
Fourth Quarter................................ 31 9/16 25 7/16 0.01 $ 44 $ 32 1/4
1996
First Quarter................................. 36 5/16 29 7/8 0.01 45 3/4 39 1/2
Second Quarter................................ 39 7/8 36 1/2 0.02 48 1/4 41 1/2
Third Quarter................................. 49 3/8 35 1/4 0.02 70 1/2 44 1/2
Fourth Quarter (through December 19, 1996).... 65 3/8 48 3/4 0.0625 90 1/8 68 1/2
</TABLE>
The information set forth in the table below presents: (1) the closing
price for shares of Conseco Common Stock and THI Common Stock on September 25,
1996, the last day on which trading occurred prior to the public announcement of
the Merger Agreement, and on December 19, 1996, the last full trading day for
which information was available prior to the mailing of the Statement and (2)
the "Equivalent Per Share Price" (as hereinafter defined) of THI Common Stock on
September 25, 1996 and December 19, 1996. The "Equivalent Per Share Price" of
THI Common Stock represents the closing price per share of Conseco Common Stock
reported on the NYSE, multiplied by $70.00 and divided by the Conseco Share
Price ($45.31 and $50.00 assuming consummation of the Merger had occurred on
September 25, 1996 and December 19, 1996, respectively). The Equivalent Per
Share Price is not the same as the Merger Consideration. The amount and value of
the Merger Consideration to be received by holders of the THI Common Stock can
be determined only at the date the Merger is consummated. See "The Merger
Agreement -- Conversion of Shares; Exchange of Stock Certificates; No Fractional
Amounts."
<TABLE>
<CAPTION>
THI
COMMON STOCK
CONSECO THI EQUIVALENT
COMMON COMMON PER
PER SHARE PRICE STOCK STOCK SHARE PRICE
- ------------------------------------------------------------- ------- ------ ------------
<S> <C> <C> <C>
September 25, 1996........................................... $ 46.50 $51.75 $ 71.84
December 19, 1996............................................ $ 63.375 $87.50 $ 88.725
</TABLE>
Listing on the NYSE of the shares of Conseco Common Stock issuable in
connection with the Merger is a condition to consummation of the Merger. See
"The Merger Agreement -- Conditions to the Merger."
HOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE CONSECO
COMMON STOCK AND THE THI COMMON STOCK. NO ASSURANCE CAN BE GIVEN AS TO THE
FUTURE PRICES OF, OR MARKETS FOR, CONSECO COMMON STOCK OR THI COMMON STOCK.
26
<PAGE> 34
SPECIAL CONSIDERATIONS
Absence of Withdrawal Rights. EXCEPT UNDER CERTAIN LIMITED CIRCUMSTANCES,
NOTES, ONCE TENDERED, MAY NOT BE WITHDRAWN, AND CONSENTS, ONCE DELIVERED, MAY
NOT BE REVOKED. Notwithstanding the foregoing, Notes may be withdrawn, and
Consents revoked, at any time prior to the Effective Time. See "The Exchange
Offer and Solicitation -- Withdrawal of Tenders and Revocation of Consents."
Loss of Interest Payments. The consideration for each Note tendered
pursuant to the Exchange Offer will consist of (i) shares of Conseco Common
Stock, (ii) cash representing accrued and unpaid interest through the Closing
Date and (iii) cash representing the Conversion Payment. As to any Note, the
Conversion Payment is equal to the net present value of the interest that would
have accrued thereon at the rate of 6% per annum from and after the Effective
Time and through and including the fourth anniversary of the Effective Time,
based on a discount rate of 7.5% per annum and assuming semi-annual interest
payments on January 31 and July 31 of each year and assuming that the remainder
of interest would be paid on such fourth anniversary. IT IS CURRENTLY
ANTICIPATED THAT THE CONVERSION PAYMENT WILL BE APPROXIMATELY $205 PER $1,000 IN
PRINCIPAL AMOUNT OF NOTES. SUCH CONVERSION PAYMENT IS SIGNIFICANTLY LESS THAN
THE PRESENT VALUE (DETERMINED USING A DISCOUNT RATE OF 7.5%) OF THE INTEREST
THAT WOULD BE PAYABLE ON THE NOTES IF THE HOLDER THEREOF, HELD SUCH NOTES UNTIL
SEPTEMBER 30, 2002 (THE DATE ON WHICH SUCH NOTES FIRST BECOME REDEEMABLE AT THE
OPTION OF THI). See "The Exchange Offer and Solicitation -- Terms of the
Exchange Offer and Solicitation."
Effects of the Proposed Amendments. Any Notes not tendered pursuant to the
Exchange Offer will remain outstanding, will become obligations of Conseco as a
result of the Merger and will continue to be governed by the terms of the Loan
Agreement. If the Proposed Amendments become effective, substantially all of the
restrictive covenants contained in the Loan Agreement will be eliminated. With
respect to any Notes that remain outstanding after the consummation of such
Exchange Offer, such nontendering Holders thereof will no longer be entitled to
the benefit of such covenants. See "The Exchange Offer and Solicitation --
Proposed Amendments to the Loan Agreement." THE PROPOSED AMENDMENTS BECOME
EFFECTIVE IMMEDIATELY UPON ACCEPTANCE OF THE REQUISITE CONSENTS, WHICH MAY OCCUR
AS EARLY AS THE EFFECTIVE TIME. Consents will be deemed to have been accepted
when the Notes to which such Consents relate have been accepted for payment by
Conseco (and Conseco has thereby become irrevocably bound to pay the Tender
Payments therefor). Although there can be no assurance thereof, Conseco
anticipates that the Requisite Consents will be obtained as of the Effective
Time. See "-- Requisite Consents" below.
Requisite Consents. Although there can be no assurance thereof, Conseco
anticipates that IP (which holds more than a majority of the outstanding Notes),
Travelers, AMAD, and Individual Holders of at least a majority of the aggregate
principal amount of Notes held by Individual Holders will deliver Consents to
the Proposed Amendments. Assuming that all of such Holders deliver Consents to
the Proposed Amendments, the Requisite Consents will have been obtained.
Optional Note Repurchase. As a result of the Merger, the Loan Agreement
will require Conseco, as successor-in-interest to THI, to offer to repurchase
all or any part of each Holder's outstanding Notes at a purchase price equal to
100% of the aggregate principal amount thereof, together with accrued and unpaid
interest thereon to the date of such repurchase. Such repurchase must occur as
of a date between 50 and 80 days following the Effective Time. Notes tendered
and accepted for payment in the Exchange Offer will not be eligible for such
repurchase offer.
Absence of Trading Market. There is currently no public market for the
Notes, and Conseco anticipates that no public market for the Notes will exist
after the Expiration Date. Conseco does not intend to apply for listing of the
Notes on any securities exchange or for listing on any interdealer quotation
system. Therefore, no assurances can be given as to the market for, liquidity
of, or price that may be obtained for, the Notes. The Notes were originally
issued in a private placement transaction, and may only be sold in accordance
with the registration requirements imposed by the Securities Act or under a
valid exemption therefrom, including the exemption afforded by Rule 144 under
the Securities Act. Rule 144 contains significant restrictions on sales of
securities, including the imposition of a holding period.
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INFORMATION CONCERNING CONSECO
BACKGROUND
Conseco is a financial services holding company engaged primarily in the
development, marketing and administration of annuity, individual health
insurance and individual life insurance products. Conseco's earnings result
primarily from operating life insurance companies and providing investment
management, administrative and other fee-based services to affiliated and
non-affiliated businesses. Conseco's operating strategy is to consolidate and
streamline management and administrative functions, to realize superior
investment returns through active asset management and to focus resources on the
development and expansion of profitable products and strong distribution
channels.
On August 2, 1996, the Company completed the LPG Merger and LPG became a
wholly-owned subsidiary of Conseco. A total of 16.1 million shares of the
Conseco Common Stock were issued in connection with the LPG Merger, and Conseco
assumed notes payable of LPG of $249.5 million. The subsidiaries of LPG sell a
diverse portfolio of universal life insurance and, to a lesser extent, annuity
products to individuals.
On September 30, 1996, Conseco completed the acquisition of the common
shares of ALH not already owned by Conseco or its affiliates for approximately
$165 million in cash. ALH is a provider of retirement savings annuities. ALH has
been included in Conseco's consolidated financial statements since September
1994, when it was acquired by Partnership II. Conseco now holds 59.2 percent of
the outstanding common shares of ALH and BLH holds the remaining 40.8 percent of
such shares.
Conseco currently holds major ownership interests in the following life
insurance businesses: (1) BLH, a NYSE-listed company in which Conseco currently
holds a 90.4 percent ownership interest (and which is the parent company of
Bankers Life and Casualty Company ("Bankers Life")); (2) ALH, formerly The
Statesman Group, Inc.; (3) Great American Reserve Insurance Company ("Great
American Reserve") and Beneficial Standard Life Insurance Company ("Beneficial
Standard"), in which Conseco has had an ownership interest since their
acquisition by Partnership I in 1990 and 1991, respectively, and which became
wholly owned subsidiaries of Conseco in August 1995; (4) the subsidiaries of
LPG, which are now wholly owned subsidiaries of Conseco, including Philadelphia
Life Insurance Company ("Philadelphia Life"), Massachusetts General Life
Insurance Company ("Massachusetts General Life") and Lamar Life Insurance
Company ("Lamar Life"); and (5) Bankers National Life Insurance Company
("Bankers National"), National Fidelity Life Insurance Company ("National
Fidelity") and Lincoln American Life Insurance Company ("Lincoln American"), all
of which are wholly owned by Conseco and which have profitable blocks of
in-force business, although new product sales are currently not being pursued.
BLH and its subsidiaries are collectively referred to hereinafter as BLH.
INSURANCE OPERATIONS
Conseco's insurance operations are conducted through three segments: (1)
senior market operations, consisting of the activities of BLH; (2) annuity
operations, consisting of the activities of Great American Reserve, Beneficial
Standard and ALH; and (3) life insurance operations, consisting of the
activities of Philadelphia Life, Massachusetts General Life and Lamar Life, as
well as National Fidelity, Bankers National and Lincoln American.
SENIOR MARKET OPERATIONS. BLH, with total assets of approximately $5.0
billion at September 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 58 percent of the
$1,136.5 million of total premiums and annuity deposits collected in the first
nine 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
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automated claims processing system is designed to complement its personalized
marketing strategy by stressing prompt payment of claims and rapid response to
policyholder inquiries.
ANNUITY OPERATIONS. The annuity companies (Great American Reserve and
Beneficial Standard), with total assets of approximately $5.6 billion at
September 30, 1996, market, issue and administer annuity, life and employee
benefit-related insurance products through two cost-effective distribution
channels: (1) approximately 3,000 educator market specialists, who sell
tax-qualified annuities and certain employee benefit-related insurance products
primarily to school teachers and administrators; and (2) approximately 9,000
professional independent producers, who sell various annuity and life insurance
products aimed primarily at the retirement market. Approximately 87 percent of
the $709.8 million of total premiums and annuity deposits collected by the
annuity companies in 1995 (and approximately 88 percent of the $490.8 million of
total premiums and annuity deposits collected in the first nine 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 $6.2 billion at September 30, 1996, is engaged primarily in the
development, marketing, underwriting, issuance and administration of annuity and
life insurance products. ALH markets those products through a general agency and
insurance brokerage system comprised of approximately 25,000 independent
licensed agents. Approximately 91 percent of the $825.6 million of total
premiums and annuity deposits collected by ALH in 1995 (and approximately 92
percent of the $537.9 million of total premiums and annuity deposits collected
in the first nine months of 1996) was from the sale of deferred annuities.
LIFE INSURANCE OPERATIONS. Life insurance operations include the activities
of Philadelphia Life, Massachusetts General Life and Lamar Life, beginning with
their acquisition in the third quarter of 1996. These companies distribute
universal life insurance products using two primary marketing systems, the
client company system and the regional director system, comprising a total of
approximately 25,000 professional independent producers. Approximately 69
percent of the $533.6 million of total insurance premiums and annuity deposits
collected by LPG in 1995 (and approximately 66 percent of the $453.6 million of
total insurance premiums and annuity deposits collected in the first nine months
of 1996) was from the sale of life insurance products, primarily universal life
insurance. Segment activities also include Conseco's other wholly owned life
insurance subsidiaries -- Bankers National Life, National Fidelity Life and
Lincoln American Life -- which have profitable in-force blocks of annuity and
life insurance products, but do not currently market their products to new
customers.
FEE-BASED OPERATIONS
Conseco's subsidiaries provide various services to affiliated and
unaffiliated clients. Conseco Capital Management, Inc. managed approximately $29
billion of invested assets at September 30, 1996, including $16.8 billion of
assets of affiliated companies. Marketing Distribution Systems Consulting Group,
Inc. provides marketing services to financial institutions related to the
distribution of insurance and investment products. Conseco Risk Management, Inc.
distributes property and casualty insurance products as an independent agency.
Conseco Mortgage Capital, Inc. originates and services mortgages. Total fees
from affiliated and nonaffiliated clients were $69.2 million and $86.8 million
for 1995 and the first nine 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 Conseco adds new clients
(either affiliated or unaffiliated) and when Conseco increases the fee-producing
activities conducted for clients. Effective January 1, 1996, Conseco's
subsidiaries entered into new service agreements with Conseco's service
subsidiaries. Such new agreements had the effect of increasing revenues from
fee-based operations by $34.4 million in the first nine months of 1996, but had
no effect on consolidated net income.
In addition to Conseco's fee-based operations, Conseco Private Capital
Group, Inc. makes direct strategic investments in growing companies, providing
these firms with the capital or financing they need to continue their growth,
make acquisitions or realize the potential of their businesses.
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AMERICAN TRAVELLERS CORPORATION
On December 17, 1996, Conseco completed its acquisition of ATC pursuant to
an Agreement and Plan of Merger dated August 25, 1996 (the "ATC Merger
Agreement"). Under the ATC Merger Agreement each of the 18 million issued and
outstanding shares of ATC Common Stock was converted into the right to receive
.5836 of a share of Conseco Common Stock. For additional information concerning
ATC, see ATC's Annual Report and other documents filed with the Commission and
listed under "Incorporation of Certain Documents by Reference" and "Summary --
Selected Historical Financial Information of ATC."
OTHER PENDING ACQUISITIONS BY CONSECO
CAF. On August 25, 1996, Conseco and CAF entered into the CAF Merger
Agreement pursuant to which CAF will be merged with and become a wholly owned
subsidiary of Conseco. Under the CAF Merger Agreement, each of the approximately
17.8 million issued and outstanding shares of common stock of CAF would be
converted into the right to receive (1) $30.00 in cash plus the Time Factor (as
defined below), if any, and (2) the fraction (rounded to the nearest
ten-thousandth) of a share of Conseco Common Stock determined by dividing $6.50
by the Trading Value (as hereinafter defined). The "Trading Value" shall be
equal to the average of the closing prices of the Conseco Common Stock on the
NYSE Composite Transactions Reporting System for the 20 consecutive trading days
immediately preceding the second trading day prior to the date of the CAF
Merger. The "Time Factor" will be equal to $0.25 if the CAF Merger does not
occur by December 10, 1996, which amount will increase by an additional $0.25 on
the tenth day of each month thereafter until the CAF Merger is consummated. For
additional information concerning CAF, see CAF's Annual Report and other
documents filed with the Commission and listed under "Incorporation of Certain
Documents by Reference" and "Summary -- Selected Historical Financial
Information of CAF."
BLH. Conseco announced on August 26, 1996 that it intends to merge with BLH
in a transaction in which each of the 4.7 million shares of BLH Common Stock not
already owned by Conseco would be converted into the right to receive $25.00 in
Conseco Common Stock.
PFS. On December 15, 1996, Conseco and PFS entered into the PFS Merger
Agreement pursuant to which PFS will be merged with and become a wholly owned
subsidiary of Conseco. Under the PFS Merger Agreement, each of the approximately
16.7 million shares of common stock of PFS and common stock equivalents would be
converted into the right to receive a fraction of a share of Conseco Common
Stock having a value between $25.00 and $28.00, calculated as follows: (1) if
the Conseco/PFS Share Price (as defined below) is greater than or equal to
$56.00 per share and less than or equal to $62.72 per share, .4464 of a share of
Conseco Common Stock, (2) if the Conseco/PFS Share Price is less than $56.00 per
share, the fraction (rounded to the nearest ten-thousandth) of a share of
Conseco Common Stock determined by dividing $25.00 by the Conseco/PFS Share
Price or (3) if the Conseco/PFS Share Price is greater than $62.72 per share,
the fraction (rounded to the nearest ten-thousandth) of a share of Conseco
Common Stock determined by dividing $28.00 by the Conseco/PFS Share Price. The
"Conseco/PFS Share Price" shall be equal to the average of the closing prices of
the Conseco Common Stock on the NYSE Composite Transactions Reporting System for
the ten trading days immediately preceding the second trading day prior to the
date of the PFS Merger. PFS underwrites and markets health insurance, life
insurance and annuities. Shares of PFS common stock are listed on the NYSE under
the symbol "PFS."
Consummation of the Merger is not conditioned upon consummation by Conseco
of any of the other pending acquisitions. See "Unaudited Pro Forma Consolidated
Financial Statements of Conseco."
GENERAL INFORMATION CONCERNING CONSECO
Conseco's executive offices are located at 11825 North Pennsylvania Street,
Carmel, Indiana 46032 and the telephone number for Conseco is (317) 817-6100.
For additional information concerning Conseco, including information
concerning ALH and BLH, see Conseco's Annual Report and other documents filed
with the Commission and listed under "Incorporation of Certain Documents by
Reference" and "Summary -- Selected Historical Financial Information of
Conseco." For additional information concerning LPG, see LPG's Annual Report and
other documents filed with the Commission and listed under "Incorporation of
Certain Documents by Reference."
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INFORMATION CONCERNING THI
In 1982, Transport Life Insurance Company ("Transport Life"), a Texas life
insurance company organized in 1958 and in continuous operation since that time,
was acquired by American Can Company, a predecessor of Travelers. THI was
incorporated in 1990 under the laws of the State of Delaware. In a series of
transactions that culminated on September 29, 1995, THI became the sole
stockholder of Intermediate Holdings Inc., a Delaware corporation. Intermediate
Holdings Inc. is the sole stockholder of THD Inc. a Delaware corporation. THD
Inc. is the sole shareholder of TLIC Life Insurance Company ("TLIC Life"), a
Texas life insurance company. TLIC Life is the sole shareholder of Transport
Life. Transport Life in turn owns all of the common stock of Continental Life
Insurance Company ("Continental Life"), a Texas life insurance company formed
and in continuous operation since 1969, and a wholly owned subsidiary of
Transport Life since 1971. On September 29, 1995, all of the outstanding THI
Common Stock was distributed to the stockholders of Travelers.
THI, through its life insurance subsidiaries, is principally engaged in the
underwriting and distribution of supplemental health insurance and, until late
1995, was engaged in long-term care insurance. THI has several lines of business
with policies in force that it no longer actively offers, including life
insurance, major/catastrophic hospital insurance and credit insurance. In
addition, THI administers a discontinued line of life insurance business for a
subsidiary of Travelers and manages and administers certain discontinued lines
of credit insurance business for other subsidiaries of Travelers. THI provides
administrative and management services for a line of personal accident insurance
and personal effects coverage sold through auto rental agencies for a subsidiary
of Travelers. THI provides premium processing, claims adjudication and payment,
and actuarial and accounting services related to these businesses, and receives
monthly fee payments pursuant to contracts which expire in September 1998.
THI's supplemental health insurance products include cancer insurance and
heart/stroke insurance, and generally provide fixed or limited benefits to the
insureds. These supplemental health products are primarily sold by two
independent general agencies and accounted for approximately 43 percent of 1995
premium income. These general agencies market THI's insurance products through
what THI believes are such agencies' exclusive full time agents.
Until late 1995, THI marketed long-term care insurance products including
nursing home and home health care insurance to the senior age market. THI's
long-term care insurance products were marketed primarily by an independent
marketing organization that relies on non-exclusive insurance brokers for sales
to prospective insureds. Long-term care products accounted for approximately 46
percent of 1995 premium income. This business was sold to ATC in the fourth
quarter of 1995. THI continues to administer (for a fee) the long-term care
business for ATC through 1996.
The remaining approximately 11 percent of 1995 premium income was derived
primarily from insurance products that are no longer actively marketed.
Transport Life is licensed to conduct insurance business in the District of
Columbia and all states except New York. THI's net premium income in 1995 and
the nine months ended September 30, 1996 was $190.2 million and $82.4 million,
respectively. At September 30, 1996, THI had total assets of $941.9 million and
stockholders' equity of $174.2 million. Its operating results for the year ended
December 31, 1995 and the nine months ended September 30, 1996 were a loss of
$26.8 million and income of $14.4 million, respectively.
For additional information concerning THI, see THI's Annual Report and
other documents filed with the Commission and listed under "Incorporation of
Certain Documents by Reference" and "Summary -- Selected Historical Financial
Information of THI."
THI's executive offices are located at 714 Main Street, Fort Worth, Texas
76102 and its telephone number is (817) 390-8000.
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THE NOTES
In connection with the spin-off of THI by Travelers in September 1995, THI
issued $42 million aggregate principal amount of Series A Notes and $8 million
aggregate principal amount of Series B Notes. The Notes bear interest at the
rate of 8.5% per annum, are not redeemable at the option of THI until September
30, 2002, and are convertible, under specified circumstances, at the option of
the holders thereof into shares of THI Common Stock. In addition, the Loan
Agreement currently contains a number of covenants restricting the ability of
THI and its subsidiaries to engage in certain activities, including limitations
on restricted payments, indebtedness, subsidiary guarantees, payment
restrictions affecting subsidiaries, sales of assets, issuances or sales of
capital stock, major acquisitions, charter amendments, and mergers and
consolidations. Many of such restrictive covenants will be eliminated if the
Proposed Amendments are adopted. See "The Exchange Offer and Solicitation --
Proposed Amendments to the Loan Agreement" and Appendix A. The Notes also
contain a number of restrictions on conversion and transfer by the holders
thereof. As of the date of this Statement, none of Conseco or any of its
affiliates owns any Notes. Upon consummation of the Merger, each outstanding
Note will, by operation of law, become an obligation of Conseco, as successor in
interest to THI, and become convertible into shares of Conseco Common Stock.
THE EXCHANGE OFFER AND SOLICITATION
BACKGROUND OF THE EXCHANGE OFFER AND SOLICITATION
In connection with the negotiation of the terms of the Merger, Conseco made
a proposal to acquire THI pursuant to a merger in which the outstanding shares
of THI Common Stock would be converted into shares of Conseco Common Stock. Such
proposal also required that the Notes be converted into shares of Conseco Common
Stock. Absent a conversion of the Notes, the surviving corporation in any merger
with THI would be bound by the obligations of THI under the Notes (including the
restrictive covenants relating thereto) and, if securities of the surviving
corporation were issued to the holder of THI Common Stock in such merger, the
Notes would become convertible into the same securities of the surviving
corporation. Conseco stated it was not willing to be bound by such restrictive
covenants and was not willing to assume convertible debt obligations bearing
interest at the rate of 8.5% per annum.
Furthermore, pursuant to the Conseco proposal, the number of shares of
Conseco Common Stock issuable upon the conversion of the Notes was equal to the
number of shares of Conseco Common Stock that would be received if the Notes had
been converted prior to the merger. Prior to September 30, 2002, THI cannot
force the conversion of the Notes. After reviewing the Conseco proposal, the
primary Holders of the Notes indicated they were not willing to convert their
Notes into shares of Conseco Common Stock on the terms proposed by Conseco. Such
Holders believed among other things that (i) this proposal did not adequately
compensate them for the value of the Notes and (ii) the value of the Notes
exceeded the value of the shares of THI Common Stock into which such notes were
convertible, primarily because the Notes bear interest at the rate of 8.5% per
annum, while allowing the Holders to receive the benefit of any increase in the
value of the underlying THI Common Stock.
After additional negotiations involving all parties, in order to facilitate
the successful conclusion of the negotiations, the primary Holders of Notes
agreed to exchange (by means of a registered exchange offer) such notes for
convertible notes of Conseco. Accordingly, the Merger Agreement as originally
executed provided that Conseco was to offer to exchange, in a registered
exchange offer, $50 million aggregate principal amount of 6% Convertible
Debentures due 2005 of Conseco (the "Conseco Convertible Notes") for the $50
million aggregate principal amount of Notes issued and outstanding. In
connection with such exchange, Conseco would pay to the holders of the Notes all
accrued and unpaid interest thereon. The Conseco Convertible Notes were to bear
interest at a rate of 6% per annum and contain few restrictive covenants. In
addition, although the Conseco Convertible Notes would not be redeemable by
Conseco, under certain circumstances Conseco would be permitted to cause the
Conseco Convertible Notes to be converted into Conseco Common Stock (in which
event Conseco would be required to pay to each holder of Conseco Convertible
Notes, in cash, the Conversion Payment). Each $1,000 principal amount of Conseco
Convertible Notes issued in exchange for Notes would be initially convertible
into the number of shares of Conseco Common Stock that would have
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been received in the Merger by the holder of such Notes if such Notes had been
converted into THI Common Stock prior to the Merger.
IP holds $35 million aggregate principal amount of Series A Notes, certain
executive officers, directors, and key producers of THI hold the remaining $7
million aggregate principal amount of Series A Notes, and AMAD, a wholly owned
subsidiary of Travelers, holds the entire $8 million aggregate principal amount
of Series B Notes. In connection with the execution and delivery of the Merger
Agreement, IP, Garland M. Lasater, Jr., a Director and the President and Chief
Executive Officer of THI, and John T. Sharpe, Chairman of the Board of Directors
of THI, entered into agreements ("Exchange Agreements") pursuant to which such
holders agreed to exchange their Series A Notes for Conseco Convertible Notes in
the exchange offer and to consent to the amendment of the documents governing
the Series A Notes to remove substantially all of the restrictive covenants
therefrom. All Exchange Agreements have subsequently been terminated, and are no
longer of any force or effect. Based on discussions with representatives of
Travelers, Conseco and THI believed that the terms of such exchange offer, when
made, would be acceptable to Travelers. Neither Travelers nor AMAD executed an
Exchange Agreement.
In November 1996, Conseco informed THI that, as promptly as practicable
after the Effective Time, Conseco intended to exercise its mandatory conversion
rights under the Conseco Convertible Notes and thereby convert such notes into
Conseco Common Stock. In such event, pursuant to the terms of the Conseco
Convertible Notes, Conseco would be required to pay Conversion Payments of
approximately $205 per each $1,000 in principal amount of Conseco Convertible
Notes to the holders of such notes in connection with such conversion. Based on
Conseco's expressed intent, the Merger Agreement was amended to permit Conseco
to offer Conseco Common Stock in exchange for the Notes on the same economic
basis as the proposed offer to exchange Conseco Convertible Notes for the Notes.
Accordingly, Conseco hereby offers to exchange, by means of the Exchange Offer,
shares of Conseco Common Stock and cash for the outstanding Notes. The number of
shares of Conseco Common Stock offered in respect of each Note will be equal to
the number of shares of Conseco Common Stock that would have been received in
the Merger by the Holder thereof if such Note had been converted into THI Common
Stock prior to the Merger. The cash amount payable by Conseco in the Exchange
Offer will be equal to the accrued and unpaid interest on the Notes plus an
amount equal to approximately $205 per $1,000 in principal amount of Notes. In
this regard, the present value (determined using a discount rate of 7.5%) of the
interest that would be payable on the Notes in respect of the period from
December 31, 1996 through September 30, 2002 (the date on which such notes first
become redeemable at the option of THI) would be approximately $393 per $1,000
principal amount of Notes. As noted above, IP, AMAD and certain officers,
directors and key producers of THI own Notes and, accordingly, such persons will
receive shares of Conseco Common Stock and cash in the Exchange Offer. As part
of the Exchange Offer, Conseco is soliciting the consent of the holders of the
Notes to the removal of substantially all of the restrictive covenants from the
documents governing the Notes.
In connection with the foregoing amendment to the Merger Agreement, the
Exchange Agreements of IP, Garland Lasater and John Sharpe were amended to
provide for the exchange of Conseco Common Stock in lieu of Conseco Convertible
Notes. As previously described, all Exchange Agreements have subsequently been
terminated, and are no longer of any force or effect. Conseco's obligation to
consummate the Merger is conditioned upon, among other things, holders of at
least 90% of the aggregate principal amount of Notes accepting the Exchange
Offer. Although there can be no assurance thereof, Conseco anticipates that IP,
AMAD, and Messrs. Lasater and Sharpe will tender their Notes in the Exchange
Offer. Assuming that all of such Holders tender their Notes in the Exchange
Offer, this condition to the Merger will be satisfied.
Pursuant to the Merger Agreement, Conseco is required to take such action
as is necessary for the making and consummation of the Exchange Offer and the
issuance by it of Conseco Common Stock upon the consummation thereof, including
the filing of a registration statement with the Commission with respect to the
shares of Conseco Common Stock to be issued in exchange for the Notes. In
addition, Conseco agreed that, if any of the shares of Conseco Common Stock
issued in exchange for Notes shall not be immediately freely tradeable by the
holder thereof, then, at the request of the holder, Conseco shall, as promptly
as practicable, at Conseco's option, either (i) acquire such shares directly
from such holder at the then current market price, or (ii) file and have
declared effective a registration statement on Form S-3 (or other appropriate
form) with the
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Commission to register such shares for resale by such holder and use
commercially reasonable efforts to keep such registration statement effective
until such time as such shares become freely tradeable. For purposes of the
preceding sentence, shares which may be sold at such time pursuant to Rule 144
(as promulgated by the Commission) shall be considered "freely tradeable." As
the shares of Conseco Common Stock to be issued in connection with the Exchange
Offer will be registered by the Registration Statement and none of the Holders
is an affiliate of Conseco, Conseco anticipates that all shares of Conseco
Common Stock issued in the Exchange Offer will be "freely tradeable." In
addition, because the shares of Conseco Common Stock to be issued in the
Exchange Offer are issued pursuant to a registered offering, the certificates
representing such shares will not bear a Securities Act or similar legend
restricting the transfer thereof.
TERMS OF THE EXCHANGE OFFER AND SOLICITATION
Upon the terms and subject to the conditions of the Exchange Offer
(including, if the Exchange Offer is extended or amended, the terms and
conditions of any such extension or amendment), Conseco is offering to purchase
for shares of Conseco Common Stock and cash all of the outstanding Notes.
The consideration for each Note tendered pursuant to the Exchange Offer
will consist of shares of Conseco Common Stock and cash. The number of shares of
Conseco Common Stock offered in exchange for each $1,000 in principal amount of
Notes is equal to the product of (i) the quotient (rounded to the nearest
ten-thousandth) of (A) $1,000 divided by (B) the conversion price of the Series
A Notes or Series B Notes, as applicable, multiplied by (ii) the Exchange Ratio.
The conversion prices for the Series A Notes and Series B Notes are
approximately $31.44 and $44.00, respectively. Notwithstanding the foregoing, no
fractional shares of Conseco Common Stock will be issued pursuant to the
Exchange Offer, and Conseco will pay cash in lieu of any such fractional shares.
The amount of cash payable by Conseco (in addition to amounts payable in lieu of
fractional shares of Conseco Common Stock) in respect of each $1,000 principal
amount of Notes shall be equal to the sum of (i) the Conversion Payment plus
(ii) an amount equal to the accrued and unpaid interest on such $1,000 principal
amount of Notes through and including the Closing Date.
Every Note that is validly tendered (and not withdrawn) in accordance with
the procedures set forth under "-- Procedures for Tendering Notes and Delivering
Consents" on or prior to the Effective Time will, upon the terms and subject to
the conditions hereof, be deemed to be accepted for payment by Conseco as of the
Effective Time. Every Holder who validly tenders such Holder's Note(s) on or
prior to the Effective Time will receive the Tender Payments therefor
immediately after the Effective Time.
Every Note that is validly tendered in accordance with the procedures set
forth under "-- Procedures for Tendering Notes and Delivering Consents" after
the Effective Time will, upon the terms and subject to the conditions hereof, be
deemed to be accepted upon receipt by the Depositary of all required Tender
Materials relating to such Note. Every Holder who validly tenders such Holder's
Note(s) after the Effective Time (but on or prior to the Expiration Date) will
receive the Tender Payment therefor promptly after receipt by the Depositary of
all required Tender Materials relating to such Note(s).
Immediately upon acceptance for payment of validly tendered Notes, Conseco
will become irrevocably bound to pay the Tender Payments therefor. All Notes
validly tendered and purchased in the Exchange Offer will, immediately following
acceptance for payment thereof by Conseco, be canceled by Conseco.
Each tendering Holder of Series A Notes whose Series A Notes are accepted
for payment pursuant to the Exchange Offer will receive the same consideration
therefor, per $1,000 principal amount thereof, as all other Holders of such
Series A Notes whose tenders thereof are so accepted. Each tendering Holder of
Series B Notes whose Series B Notes are accepted for payment pursuant to the
Exchange Offer will receive the same consideration therefor, per $1,000
principal amount thereof, as all other Holders of such Series B Notes whose
tenders thereof are so accepted. If and to the extent that Conseco, by amendment
of the Exchange Offer or otherwise, increases the Merger Consideration offered
thereunder, all Holders who tender Notes in the Exchange Offer, including,
without limitation, any Holders whose Notes may have already been accepted for
payment and who may have already received Tender Payments therefor, shall
receive such increased Merger Consideration.
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Upon the terms and subject to the conditions of the Solicitation
(including, if the Solicitation is extended or amended, the terms and conditions
of any such extension or amendment), Conseco is also soliciting Consents from
Holders with respect to the Proposed Amendments.
Holders will not be entitled to receive any Tender Payments unless they
BOTH tender their Notes pursuant to the Exchange Offer AND deliver Consents to
the Proposed Amendments with respect to such Notes. The proper tender by a
Holder of Notes pursuant to the Exchange Offer will be deemed to constitute the
giving of a Consent by such Holder to the Proposed Amendments with respect to
such Notes.
The Proposed Amendments to the Loan Agreement require the receipt of the
Requisite Consents. EFFECTIVE IMMEDIATELY UPON ACCEPTANCE OF THE REQUISITE
CONSENTS (WHICH MAY OCCUR AS EARLY AS THE EFFECTIVE TIME), THE LOAN AGREEMENT
WILL BE AMENDED BY MEANS OF THE LOAN AGREEMENT AMENDMENT TO GIVE EFFECT TO THE
PROPOSED AMENDMENTS.
ASSUMING THAT THE REQUISITE CONSENTS ARE RECEIVED AND THE PROPOSED
AMENDMENTS HAVE BECOME EFFECTIVE, THE PROPOSED AMENDMENTS WILL BE BINDING ON ALL
NON-TENDERING HOLDERS OF NOTES. THEREFORE, ADOPTION OF THE PROPOSED AMENDMENTS
MAY HAVE ADVERSE CONSEQUENCES FOR HOLDERS WHO DO NOT TENDER IN THE EXCHANGE
OFFER. SEE "SPECIAL CONSIDERATIONS -- EFFECTS OF THE PROPOSED AMENDMENTS," "--
REQUISITE CONSENTS" AND APPENDIX A.
The Exchange Offer is conditioned upon, among other things, the
satisfaction of the Merger Condition. See "-- Conditions to the Exchange Offer"
which describes the foregoing condition and sets forth all conditions to the
Exchange Offer. If any condition to Conseco's obligation to purchase Notes under
the Exchange Offer is not satisfied prior to the Expiration Date, Conseco
reserves the right (but shall not be obligated) to (i) waive such unsatisfied
condition and purchase all Notes validly tendered, (ii) extend the Exchange
Offer for a period not to exceed 20 days and retain the Notes which have been
tendered during the period or periods for which the Exchange Offer is extended
(subject to the withdrawal rights described in this Statement) or (iii) amend
the Exchange Offer. NOTWITHSTANDING ANY PROVISION CONTAINED IN THIS STATEMENT,
CONSECO WILL NOT EXTEND OR AMEND THE EXCHANGE OFFER WITHOUT THE PRIOR WRITTEN
CONSENT OF HOLDERS OF NOTES REPRESENTING A MAJORITY OF THE AGGREGATE PRINCIPAL
AMOUNT OF ALL NOTES OUTSTANDING AS OF THE DATE OF THIS STATEMENT.
Conseco expressly reserves the right, at any time or from time to time,
regardless of whether or not any of the events set forth in "-- Conditions to
the Exchange Offer" shall have occurred or shall have been determined by Conseco
to have occurred, (i) to extend the period of time during which the Exchange
Offer is open and thereby delay acceptance for payment of, and the making of
Tender Payments for, any Notes, by giving oral or written notice of such
extension to the Depositary or (ii) to amend the Exchange Offer in any respect
by giving oral or written notice of such amendment to the Depositary. The rights
reserved by Conseco in this paragraph are in addition to Conseco's rights to
terminate the Exchange Offer described in "-- Conditions to the Exchange Offer."
Any extension, amendment or termination will be followed as promptly as
practicable by announcement thereof, the announcement in the case of an
extension to be issued no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. NOTWITHSTANDING ANY
PROVISION CONTAINED IN THIS STATEMENT, CONSECO WILL NOT EXTEND OR AMEND THE
EXCHANGE OFFER WITHOUT THE PRIOR WRITTEN CONSENT OF HOLDERS OF NOTES
REPRESENTING A MAJORITY OF THE AGGREGATE PRINCIPAL AMOUNT OF ALL NOTES
OUTSTANDING AS OF THE DATE OF THIS STATEMENT.
If Conseco extends the Exchange Offer, or if, for any reason, the
acceptance for payment of, or the making of Tender Payments for, Notes is
delayed or if Conseco is unable to accept for payment or make Tender Payments
for Notes pursuant to the Exchange Offer, then, without prejudice to Conseco's
rights under the Exchange Offer, the Depositary may retain tendered Notes on
behalf of Conseco, and such Notes may not be withdrawn except to the extent
tendering Holders are entitled to withdrawal rights as described in "--
Withdrawal of Tenders and Revocation of Consents" below. However, the ability of
Conseco to delay the payment for Notes which Conseco has accepted for payment is
limited by Rule 14e-1(c) under the Exchange Act (which requires that a bidder
pay the consideration offered or return the securities deposited by or on behalf
of holders of securities promptly after the termination or withdrawal of a
tender offer). If Conseco
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waives a material condition of the Exchange Offer, Conseco will disseminate
additional offering materials and extend the Exchange Offer to the extent
required by law.
PROPOSED AMENDMENTS TO THE LOAN AGREEMENT
Set forth below is a brief description of the Proposed Amendments to the
Loan Agreement for which Consents are being sought pursuant to the Solicitation.
The Proposed Amendments constitute a single proposal, and a tendering Holder
must deliver a Consent to the Proposed Amendments as an entirety and may not
deliver a Consent selectively with respect to certain of the Proposed
Amendments.
EFFECTIVE IMMEDIATELY UPON ACCEPTANCE OF THE REQUISITE CONSENTS (WHICH MAY
OCCUR AS EARLY AS THE EFFECTIVE TIME), THE LOAN AGREEMENT WILL BE AMENDED BY
MEANS OF THE LOAN AGREEMENT AMENDMENT TO GIVE EFFECT TO THE PROPOSED AMENDMENTS.
THEREAFTER, THE PROPOSED AMENDMENTS WILL BE BINDING ON ALL HOLDERS. A Consent to
the Proposed Amendments may not be revoked except under certain limited
circumstances. See "-- Withdrawal of Tenders and Revocation of Consents" below.
The Proposed Amendments to the Loan Agreement require the receipt of the
Requisite Consents. Although there can be no assurance thereof, Conseco
anticipates that IP (which holds more than a majority of the outstanding Notes),
Travelers, AMAD, and Individual Holders of at least a majority of the aggregate
principal amount of Notes held by Individual Holders will deliver Consents to
the Proposed Amendments. Assuming that all of such Holders deliver Consents to
the Proposed Amendments, the Requisite Consents will have been obtained.
THE PROPER TENDER BY A HOLDER OF NOTES PURSUANT TO THE EXCHANGE OFFER WILL
BE DEEMED TO CONSTITUTE THE GIVING OF A CONSENT BY SUCH HOLDER TO THE PROPOSED
AMENDMENTS WITH RESPECT TO SUCH NOTES.
The Proposed Amendments to the Loan Agreement are as follows:
Restrictive Covenants to Be Deleted. The Proposed Amendments would delete
in their entirety the following restrictive covenants and any references thereto
from the Loan Agreement:
Section 7.3 Limitation on Restricted Payments by the Company and its
Subsidiaries
Section 7.7 Limitation on Incurrences of Additional Indebtedness
Section 7.8 Limitation on Payment Restrictions Affecting Subsidiaries
Section 7.9 Sale of Assets
Section 7.10 Limitation on Guaranties by Subsidiaries
Section 7.11 Limitation on Issuance and/or Sale of Capital Stock
Section 7.12 Limitation on Major Acquisitions
Section 7.14 Limitation on Certain Amendments of Certificate of
Incorporation
Section 7.15 Determination as to Bona Fide Takeover Proposal
Section 8.1 Limitation on Acquisition of Capital Stock
Section 8.2 Limitation on Sale
Section 8.3 Form A Filing
Section 8.4 Pledge Agreement
Section 9.1 When Company May Merger, Etc.
Sections to Be Amended. The Proposed Amendments would amend the following
sections of the Loan Agreement:
Section 1.1 Definitions
Section 7.5 Reports
Section 9.2 Successor Corporation Substituted
Section 10.1 Right of Conversion
Section 16.4 Survival of Provisions; Limitation of Liability
Section 16.16 Appointment of Successor Director; Agreements Regarding the
Designation of Directors; Notice
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Restrictive Covenants to Be Retained. The Proposed Amendments would retain
the following restrictive covenants:
Section 7.1 Payment of Securities
Section 7.2 Maintenance of Office or Agency
Section 7.4 Corporate Existence
Section 7.6 Notice of Default
Section 7.13 Change of Control
Definitions. The Proposed Amendments would delete certain definitions
identified in Appendix A from the Loan Agreement because any references to such
defined terms would be eliminated by the Proposed Amendments or because they
otherwise would not be used.
See Appendix A for the full text of the provisions of the Loan Agreement to
be amended or eliminated by the Proposed Amendments. Holders are urged to read
Appendix A in its entirety. Appendix A is qualified in its entirety by reference
to the full and complete terms contained in the Loan Agreement. Holders may
obtain copies of the Loan Agreement and the proposed forms of Loan Agreement
Amendment without charge from the Depositary.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, Conseco shall
not be required to accept for payment or make Tender Payments for, and may delay
the acceptance for payment of, any tendered Notes, in each event subject to Rule
14e-1(c) under the Exchange Act, if either the Merger Condition or the General
Condition (each as defined below) shall not yet have been satisfied. In
addition, Conseco may terminate the Exchange Offer if either the Merger
Condition or the General Condition shall not have been satisfied as of the
Expiration Date. There is no minimum principal amount of Notes or number of
Consents that must be obtained as a condition to the consummation of the
Exchange Offer and Solicitation.
The "Merger Condition" shall mean the consummation of the Merger on or
prior to the Expiration Date. The "General Condition" shall mean, as to any
tender of a Note pursuant to the Exchange Offer or any delivery of a Consent
pursuant to the Solicitation, the absence, as of the time of deemed acceptance
of such Note, of an order, statute, rule, regulation, executive order, stay
decree, judgment or injunction that shall have been enacted, entered, issued,
promulgated, enforced, or deemed applicable by any court or governmental,
regulatory or administrative agency or instrumentality having jurisdiction over
such tender or delivery on or after the date of this Statement that prohibits or
prevents the acceptance of such tender or delivery.
The foregoing conditions are for the sole benefit of Conseco and may be
asserted by Conseco regardless of the circumstances giving rise to any such
condition and may be waived by Conseco, in whole or in part, at any time and
from time to time, in the sole discretion of Conseco. The failure by Conseco at
any time to exercise any of the foregoing rights will not be deemed a waiver of
any other right and each right will be deemed an ongoing right which may be
asserted at any time and from time to time.
SOURCE AND AMOUNT OF FUNDS
Assuming that 100% of the outstanding principal amount of Notes are
tendered and accepted for payment, the total amount of consideration required by
Conseco to purchase all of the Notes pursuant to the Exchange Offer is estimated
to be (i) approximately 2.1 million shares of Conseco Common Stock, (ii)
approximately $1.7 million in cash (representing accrued and unpaid interest on
the Notes), and (iii) approximately $10.2 million in cash (representing
Conversion Payments on the Notes). Such shares of Conseco Common Stock will be
newly issued by Conseco, and Conseco expects to finance such cash amounts with
cash on hand or borrowings under its revolving credit facility.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS
The following is a summary description of the material United States
federal income tax consequences to the Holders of the Exchange Offer, the
adoption of the Proposed Amendments and the Merger. This summary
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is not a complete description of all of the tax consequences of these
transactions and, in particular, does not address tax considerations which may
affect the treatment of certain special status taxpayers such as financial
institutions, broker-dealers, life insurance companies, tax-exempt
organizations, investment companies and foreign taxpayers. In addition, no
information is provided herein with respect to the tax consequences of the
Exchange Offer, the adoption of the Proposed Amendments or the Merger under
applicable foreign, state or local laws.
The following discussion is based on the Code, as in effect on the date of
this Statement, without consideration of the particular facts or circumstances
of any particular Holder. Conseco has not sought and will not seek any rulings
from the Internal Revenue Service with respect to any of the matters discussed
herein.
The obligation of THI to effect the Merger is conditioned on delivery to
THI of an opinion dated the Closing Date from Weil, Gotshal & Manges LLP,
counsel to THI, or other legal counsel reasonably acceptable to THI and Conseco,
based on certain representations to be made by THI, Conseco and certain
significant stockholders and security holders and on assumptions set forth in
the opinion, that for federal income tax purposes the Merger will constitute a
reorganization within the meaning of Section 368(a)(1) of the Code. Such
opinion, however, will not be binding on the Internal Revenue Service.
The following discussion is based on the assumption that the Notes are
securities for federal income tax purposes.
Assuming that the Merger qualifies for federal income tax purposes as a
reorganization within the meaning of Section 368(a)(1) of the Code, the material
federal income tax consequences of the Merger for the Holders who tender Notes
pursuant to the Exchange Offer will be as follows:
(i) Any gain realized by Holders upon their exchange of Notes for
Conseco Common Stock and cash will be recognized and taken into income up
to the amount of cash received. For this purpose, the amount of gain
realized, if any, would equal the excess of (i) the sum of the fair market
value of the Conseco Common Stock and cash received by a Holder over (ii)
such Holder's basis in Notes exchanged therefor. No loss will be recognized
by Holders upon their exchange of Notes for Conseco Common Stock and cash.
Any gain that is recognized should constitute a capital gain if such
Holder's Notes are held as capital assets at the time of the exchange,
long-term if held for more than one year.
(ii) The tax basis in the Conseco Common Stock received by a Holder in
exchange for Notes will be the same as such Holder's tax basis in the Notes
surrendered in exchange therefor, decreased by the amount of cash received,
and increased by the amount of gain recognized in the exchange; and
(iii) The holding period of the Conseco Common Stock received by a
Holder will include the period during which the Notes surrendered in
exchange therefor were held (provided that such Notes were held by such
Holder as a capital asset at the time of the exchange).
Assuming that the Merger qualifies for federal income tax purposes as a
reorganization within the meaning of Section 368(a)(1) of the Code, the material
federal income tax consequences of the Merger for the Holders who do not tender
Notes pursuant to the Exchange Offer will be as follows:
(i) If the Proposed Amendments are not "significant" modifications for
federal income tax purposes, then neither the adoption of the Proposed
Amendments nor the Merger should be treated as resulting in a taxable
exchange for such Holders. Consequently, such Holders after the Merger and
Conseco's assumption of the Notes in the Merger would continue to have the
same basis and holding period with respect to the Notes as they had before
the Merger.
(ii) If the Proposed Amendments are "significant" modifications for
federal income tax purposes, then the adoption of the Proposed Amendments
in conjunction with the Merger may constitute a sale or exchange of old
Series A Notes and old Series B Notes ("Old Notes") for new Series A Notes
and new Series B Notes ("New Notes"). In such case, gain would be
recognized by Holders of Old Notes to the extent that the "principal
amount" of the New Notes exceeds the "principal amount" of the Old Notes.
The meaning of the term "principal amount" under current law is unclear. In
the event that the term
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means the stated principal amount of the New Notes or if neither the Old
Notes nor the New Notes are publicly traded during the period beginning
thirty days before and ending thirty days after the effective date of the
Proposed Amendments, then no gain should be recognized by Holders. If the
term "principal amount" of the New Notes means the "issue price" of the New
Notes and either the Old Notes or the New Notes are publicly traded, then
the issue price of the New Notes will be the fair market value of the New
Notes on the effective date of the Proposed Amendments (if the New Notes
are publicly traded) or the fair market value of the Old Notes (if the Old
Notes but not the New Notes are publicly traded) on the effective date of
the Proposed Amendments. In such case, gain will be realized by Holders to
the extent that the issue price of the New Notes exceeds the Holder's
adjusted basis in the Old Notes, and such gain apparently would be
recognized to the extent that the issue price of the New Notes exceeds the
adjusted issue price of the Old Notes. In both of the above cases, a
Holder's basis in the New Notes should equal such Holder's basis in the Old
Notes, increased by the gain recognized in the exchange, if any. A Holder's
holding period for the New Notes should include the period during which the
Old Notes surrendered in exchange therefor were held (provided that such
Old Notes were held by such Holder as a capital asset at the effective date
of the Proposed Amendments).
THE FOREGOING IS A GENERAL DISCUSSION OF CERTAIN MATERIAL FEDERAL INCOME
TAX CONSEQUENCES OF THE EXCHANGE OFFER, THE ADOPTION OF THE PROPOSED AMENDMENTS
AND THE MERGER FOR HOLDERS AND IS INCLUDED FOR GENERAL INFORMATION ONLY. THE
FOREGOING DISCUSSION DOES NOT TAKE INTO ACCOUNT THE PARTICULAR FACTS AND
CIRCUMSTANCES OF EACH HOLDER'S STATUS AND ATTRIBUTES. ACCORDINGLY, EACH HOLDER
SHOULD CONSULT HIS OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF
THE EXCHANGE OFFER, THE ADOPTION OF THE PROPOSED AMENDMENTS AND THE MERGER,
INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN SUCH TAX LAWS.
OPTIONAL NOTE REPURCHASE
As a result of the Merger, the Loan Agreement will require Conseco, as
successor-in-interest to THI, to offer to repurchase all or any part of each
Holder's outstanding Notes at a purchase price equal to 100% of the aggregate
principal amount thereof, together with accrued and unpaid interest thereon to
the date of such repurchase. Such repurchase must occur as of a date between 50
and 80 days following the Effective Time. Notes tendered and accepted for
payment in the Exchange Offer will not be eligible for such repurchase offer.
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR NOTES; ACCEPTANCE OF CONSENTS
Every Note that is validly tendered (or defectively tendered and as to
which Conseco has waived, or caused to be waived, such defect) (and not
withdrawn) in accordance with the procedures set forth under "-- Procedures for
Tendering Notes and Delivering Consents" on or prior to the Effective Time will,
upon the terms and subject to the conditions hereof, be deemed to be accepted
for payment by Conseco as of the Effective Time. Every Holder who validly
tenders such Holder's Note(s) on or prior to the Effective Time will receive the
Tender Payments therefor immediately after the Effective Time.
Every Note that is validly tendered (or defectively tendered and as to
which Conseco has waived, or caused to be waived, such defect) in accordance
with the procedures set forth under "-- Procedures for Tendering Notes and
Delivering Consents" after the Effective Time will, upon the terms and subject
to the conditions hereof, be deemed to be accepted upon receipt by the
Depositary of all required Tender Materials relating to such Note. Every Holder
who validly tenders such Holder's Note(s) after the Effective Time (but on or
prior to the Expiration Date) will receive the Tender Payment therefor promptly
after receipt by the Depositary of all required Tender Materials relating to
such Note(s).
Immediately upon acceptance for payment of validly tendered Notes, Conseco
will become irrevocably bound to pay the Tender Payments therefor. Conseco
expressly reserves the right, in Conseco's sole discretion, to delay acceptance
for payment of, or the making of Tender Payments for, Notes, subject to Rule
14e-1(c)
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under the Exchange Act (which requires that a bidder pay the consideration
offered or return the securities deposited by or on behalf of holders of
securities promptly after the termination or withdrawal of a tender offer), if
any of the conditions of the Exchange Offer shall not have been satisfied or
validly waived or in order to comply, in whole or in part, with any applicable
law. In all cases, Tender Payments for Notes purchased pursuant to the Exchange
Offer will be made only after timely receipt by the Depositary of (i)
certificates representing such Notes pursuant to the procedures set forth herein
and in the Consent and Letter of Transmittal, (ii) a properly completed and duly
executed Consent and Letter of Transmittal (or a facsimile thereof) and (iii)
any other documents required by the Consent and Letter of Transmittal (the items
in clauses (i) through (iii) are referred to herein as "Tender Materials").
Conseco will promptly pay for Notes accepted as described above by
depositing the aggregate applicable Tender Payments in immediately available
funds and shares of Conseco Common Stock with the Depositary, which will act as
agent for tendering Holders for the purpose of receiving Tender Payments from
Conseco and transmitting such Tender Payments to tendering Holders. Tenders of
Notes will be accepted only in principal amounts equal to $1,000 or integral
multiples thereof. Under no circumstances will interest on any Tender Payments
be paid by Conseco by reason of any delay in making such Tender Payments. If any
tendered Notes are not purchased pursuant to the Exchange Offer for any reason,
such Notes not purchased will be returned, without expense, to the tendering
Holder promptly after the expiration or termination of the Exchange Offer.
Holders who tender will not be obligated to pay brokerage fees or commissions or
transfer taxes on the purchase of Notes pursuant to the Exchange Offer.
The tender of Notes by a Holder thereof in the Exchange Offer will be
deemed to constitute a Consent to the Proposed Amendments with respect to the
Notes tendered. Consents will be deemed to have been accepted when the Notes to
which such Consents relate have been accepted for payment by Conseco (and
Conseco has thereby become irrevocably bound to pay the Tender Payments
therefor).
PROCEDURES FOR TENDERING NOTES AND DELIVERING CONSENTS
Holders will not be entitled to receive Tender Payments unless they BOTH
tender their Notes pursuant to the Exchange Offer AND deliver Consents to the
Proposed Amendments with respect to such Notes. The proper tender by a Holder of
Notes pursuant to the Exchange Offer in accordance with the procedures described
below will be deemed to constitute the giving of a Consent by such Holder with
respect to the full principal amount of the Notes tendered.
Tender of Notes and Delivery of Consents. The tender by a Holder of Notes
(and subsequent acceptance of such tender by Conseco) pursuant to one of the
procedures set forth below will constitute an agreement between such Holder and
Conseco in accordance with the terms and subject to the conditions set forth in
this Statement and the Consent and Letter of Transmittal. The procedures by
which Notes may be tendered and Consents may be given by beneficial owners that
are not Holders will depend upon the manner in which the Notes are held.
Tender of Notes Held in Physical Form. To validly tender Notes held in
physical form pursuant to the Exchange Offer, a Holder should complete and sign
the applicable Consent and Letter of Transmittal (or a facsimile thereof) in
accordance with the Instructions to such Consent and Letter of Transmittal, have
the signature thereon guaranteed if required by Instruction 1 of the Consent and
Letter of Transmittal and deliver it, together with any other documents required
by the Instructions to the applicable Consent and Letter of Transmittal, to the
Depositary at its address set forth on the back cover page of this Statement and
deliver certificates representing such Notes to the Depositary at such address
prior to the Expiration Date. Consents and Letters of Transmittal and any
certificates evidencing Notes tendered pursuant to the Exchange Offer should be
sent only to the Depositary, not to Conseco.
The proper completion, execution and delivery of the applicable Consent and
Letter of Transmittal by a Holder with respect to Notes will constitute the
giving of a Consent by such Holder to the Proposed Amendments with respect to
such Notes, and no separate Consent or proxy will be required.
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If the Notes are registered in the name of a person other than the signer
of a Consent and Letter of Transmittal, then, in order to validly tender such
Notes pursuant to the Exchange Offer, the Notes must be endorsed or accompanied
by an appropriate written instrument or instruments of transfer signed exactly
as the name or names of such Holder or Holders appear on the Notes, with the
signature(s) on the Notes or instruments of transfer guaranteed as provided
below. In addition, such tender of Notes must be accompanied by a valid Consent
or proxy of such Holder or Holders, since Notes may not be tendered without also
delivering a Consent to the Proposed Amendments with respect to such Notes, and
only Holders are entitled to deliver Consents to the Proposed Amendments.
Tender of Notes Held Through a Custodian. Any beneficial owner whose Notes
are registered in the name of a broker, dealer, commercial bank, trust company
or other nominee and who wishes to tender Notes and deliver Consents and Letters
of Transmittal should (i) contact such Holder promptly and instruct such Holder
to tender Notes and deliver applicable Consents and Letters of Transmittal on
such beneficial owner's behalf or (ii) effect a valid transfer of registered
ownership of the Notes to itself prior to executing and delivering the Consent
and Letter of Transmittal on its own behalf.
Signature Guarantees. Signatures on all Consents and Letters of Transmittal
must be guaranteed by a financial institution that is a member of the Notes
Transfer Agents Medallion Program, the Stock Exchange Medallion Program or the
New York Stock Exchange, Inc. Medallion Signature Program (each of the foregoing
being referred to as "Eligible Institution"), unless the Notes tendered thereby
are tendered (i) by a Holder of the Notes who has not completed either the box
entitled "Special Delivery Instructions" or the box entitled "Special Payment or
Issuance Instructions" on the Consent and Letter of Transmittal, or (ii) for the
account of an Eligible Institution. See Instruction 1 of the Consent and Letter
of Transmittal. If the Notes are registered in the name of a person other than
the signer of the Consent and Letter of Transmittal or if Notes not accepted for
payment or not tendered are to be returned to a person other than the Holder,
then the signatures on the Consents and Letters of Transmittal accompanying the
tendered Notes must be guaranteed by an Eligible Institution as described above.
See Instructions 1 and 5 of the Consent and Letter of Transmittal.
In all cases, Tender Payments for Notes purchased pursuant to the Exchange
Offer will be made only after timely receipt by the Depositary of (i)
certificates representing such Notes pursuant to the procedures set forth herein
and in the Consent and Letter of Transmittal, (ii) a properly completed and duly
executed Consent and Letter of Transmittal (or a facsimile thereof) and (iii)
any other documents required by the Consent and Letter of Transmittal.
THE METHOD OF DELIVERY OF NOTES AND CONSENTS AND LETTERS OF TRANSMITTAL,
ANY REQUIRED SIGNATURE GUARANTEES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDER TENDERING NOTES AND DELIVERING CONSENTS AND
LETTERS OF TRANSMITTAL AND, EXCEPT AS OTHERWISE PROVIDED IN THE CONSENTS AND
LETTERS OF TRANSMITTAL, DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED
BY THE DEPOSITARY. IF SUCH DELIVERY IS BY MAIL, IT IS SUGGESTED THAT THE HOLDER
USE PROPERLY INSURED, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, AND THAT
THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE APPLICABLE EXPIRATION DATE TO
PERMIT DELIVERY TO THE DEPOSITARY PRIOR TO SUCH DATE.
Backup Federal Income Tax Withholding. To prevent backup federal income tax
withholding, each tendering Holder of Notes must provide the Depositary with
such Holder's correct taxpayer identification number and certify that such
Holder is not subject to backup federal income tax withholding by completing the
Substitute Form W-9 included in the Consents and Letters of Transmittal.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of any tendered Notes or
delivered Consents pursuant to any of the procedures described above will be
determined by Conseco, in Conseco's sole discretion (whose determination shall
be final and binding). Conseco reserves the absolute right to reject any or all
tenders of any Notes or deliveries of any Consents determined by it not to be in
proper form or, if the acceptance for payment of or payment for such Notes and
Consents may, in the opinion of Conseco's counsel, be unlawful. Conseco also
reserves the absolute right, in its sole discretion, to waive any of the
conditions of the Exchange Offer or any defect or irregularity in any tender
with respect to Notes or delivery with respect to a Consent of any particular
Holder, whether or not
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similar defects or irregularities are waived in the case of other Holders.
Conseco's interpretation of the terms and conditions of the Exchange Offer and
Solicitation (including the Consents and Letters of Transmittal and the
Instructions thereto) will be final and binding. Neither Conseco, the Depositary
nor any other person will be under any duty to give notification of any defects
or irregularities in tenders or will incur any liability for failure to give any
such notification. If Conseco waives its right to reject a defective tender of
Notes, the tendering Holder will be entitled to the applicable Tender Payments.
WITHDRAWAL OF TENDERS AND REVOCATION OF CONSENTS
EXCEPT AS SPECIFIED IN THIS PARAGRAPH, NOTES, ONCE TENDERED, MAY NOT BE
WITHDRAWN, AND CONSENTS, ONCE DELIVERED, MAY NOT BE REVOKED. NOTWITHSTANDING ANY
PROVISION CONTAINED IN THIS STATEMENT, (I) NOTES MAY BE WITHDRAWN, AND CONSENTS
REVOKED, AT ANY TIME PRIOR TO THE EFFECTIVE TIME AND (II) IF THE EXCHANGE OFFER
OR THE SOLICITATION IS EXTENDED OR AMENDED FOR ANY REASON, OR PAYMENT FOR
TENDERED NOTES IS DELAYED FOR MORE THAN FIVE BUSINESS DAYS AFTER THE EXPIRATION
DATE, HOLDERS SHALL BE ENTITLED TO WITHDRAW THEIR NOTES AND REVOKE THEIR
CONSENTS. In the event that the Exchange Offer is terminated without any Notes
being purchased thereunder, (i) any Notes tendered will be promptly returned to
the Holders tendering the same and (ii) the Proposed Amendments, if already
effective, will become void and of no effect.
For a withdrawal of a tender of Notes to be effective, a written or
facsimile transmission notice of withdrawal must be received by the Depositary
at its address set forth in the Consent and Letter of Transmittal prior to the
Effective Time. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number or numbers
and principal amount of such Notes), (iii) be signed by the Holder in the same
manner as the original signature on the Consent and Letter of Transmittal by
which such Notes were tendered (including any required signature guarantees) or
be accompanied by documents of transfer sufficient to register the transfer of
such Notes into the name of the person withdrawing the tender, and (iv) specify
the name in which any such Notes are to be registered, if different from that of
the Depositor. All questions as to the validity, form, and eligibility
(including time of receipt) of such notices will be determined by Conseco, whose
determination shall be final and binding on all parties. Any Notes so withdrawn
will be deemed not to have been validly tendered for purposes of the Exchange
Offer. Properly withdrawn Notes may be retendered by following one of the
procedures described under "-- Procedures for Tendering Notes and Delivering
Consents" above at any time on or prior to midnight, New York City time, on the
Expiration Date.
THE MERGER
BACKGROUND OF THE MERGER
In late August 1996, DLJ indicated to IP that Conseco might be willing to
pay a premium over current market price to the holders of THI Common Stock and
Notes. Subsequently, representatives of DLJ gave a presentation in early
September 1996 to Conseco concerning THI. A few days later, THI's management met
directly with management of Conseco. Based on such conversations, Conseco
entered into a confidentiality agreement with THI, and THI furnished Conseco
with certain non-public information requested by Conseco.
From September 17, 1996 through September 20, 1996, representatives of THI
and Conseco negotiated the terms of a possible acquisition of THI by Conseco.
Among the proposals discussed was a proposal by Conseco to acquire THI by merger
for $71.50 per share of THI Common Stock (payable in Conseco Common Stock). The
proposal included a collar placing high and low limits on the price of Conseco
Common Stock used in calculating the Merger Consideration (the "Collar") (see
"The Merger Agreement -- Conversion of Shares; Exchange of Stock Certificates;
No Fractional Amounts") and required that the Notes be converted into shares of
Conseco Common Stock. Absent a conversion of the Notes, Conseco, as the
surviving corporation in the merger, would be bound by the obligations of THI
under the Notes (including the restrictive covenants relating thereto) and the
Notes would become convertible into shares of Conseco Common Stock. Conseco
stated it was not willing to be bound by such restrictive covenants and was not
willing to assume convertible debt obligations bearing interest at the rate of
8.5% per annum.
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Furthermore, pursuant to the Conseco proposal, the number of shares of
Conseco Common Stock issuable upon the conversion of the Notes was equal to the
number of shares of Conseco Common Stock that would be received if the Notes had
been converted prior to the merger. Prior to September 30, 2002, THI cannot
force the conversion of the Notes. After reviewing the Conseco proposal, the
primary holders of the Notes indicated they were not willing to convert their
Notes into shares of Conseco Common Stock on the terms proposed by Conseco. Such
holders believed among other things that (i) this proposal did not adequately
compensate them for the value of the Notes and (ii) the value of the Notes
exceeded the value of the shares of THI Common Stock into which such Notes would
become convertible, primarily because the Notes bear interest at the rate of
8.5% per annum, while allowing the holders to receive the benefit of any
increase in the value of the underlying THI Common Stock. After additional
negotiations, in order to facilitate the successful conclusion of the
negotiations, the primary holders of Notes agreed to exchange (by means of a
registered exchange offer) such notes for convertible notes of Conseco.
After further negotiations, managements of THI and Conseco and the primary
holders of Notes agreed (subject to approval thereof by the respective Boards of
Directors of THI and Conseco) to the terms described in this Statement,
including (i) $70.00 per share value for THI Common Stock (payable in Conseco
Common Stock), (ii) the Collar, and (iii) the offer to exchange Conseco
convertible notes for Notes.
On September 20, 1996, the outside directors of THI were informed by John
Sharpe, the Chairman of the Board of THI, of the discussions regarding a
possible merger with Conseco. Mr. Sharpe reviewed the background events leading
to the merger discussions, the proposed transaction structure, the proposed
principal terms and conditions of the acquisition, and the probable timing of
the transaction.
The Conseco Board of Directors met on September 20 to consider the proposed
merger. At the meeting, Conseco management reported on the due diligence review
undertaken by Conseco and its advisors and on the results of the discussions to
date with representatives of THI and its legal and financial advisors. The
Conseco Board discussed the potential benefits to Conseco of an acquisition of
THI. Management outlined for the Conseco Board the proposed terms and conditions
of the Merger Agreement. After reviewing and discussing the merger proposal, the
Conseco Board of Directors authorized management of Conseco to execute and
deliver the Merger Agreement as outlined to the Directors at the meeting, with
such further changes as management approved. See "-- Conseco's Reasons for the
Merger."
Conseco provided THI with an initial draft of a form of merger agreement on
September 21, 1996 setting forth the terms of Conseco's offer to acquire THI by
merger in exchange for Conseco Common Stock. From September 21 through September
25, 1996, representatives of THI and its advisors met with representatives of
Conseco and conducted a due diligence review of the business and financial
condition of Conseco.
On September 22, 1996, THI's Board of Directors held a special telephonic
meeting regarding the proposed merger. At this meeting, THI's senior management
and legal and financial advisors reviewed the ongoing discussions and
negotiations between THI and Conseco. It was agreed that management of THI would
continue to pursue a possible sale of THI to Conseco, with the understanding
that final approval of any transaction would be considered at a special meeting
of the THI Board of Directors to be held on September 24, 1996.
From September 23 through September 25, 1996, members of the senior
management of Conseco and THI, together with their legal advisors, negotiated
the provisions of the Merger Agreement and the terms of the exchange of the
Notes. In addition, IP and Messrs. Lasater and Sharpe agreed to execute Exchange
Agreements requiring such holders to exchange their Notes in the contemplated
exchange offer and to consent to the amendment of the documents governing the
Notes to remove substantially all of the restrictive covenants therefrom. Based
on discussions with representatives of Travelers, Conseco and THI believed that
the terms of such exchange offer, when made, would be acceptable to Travelers.
Neither Travelers nor AMAD executed an Exchange Agreement. All Exchange
Agreements have subsequently been terminated, and are no longer of any force or
effect.
The THI Board of Directors held a special meeting on September 24, 1996. At
the meeting, Conseco management delivered a presentation of Conseco's business
and financial performance and plans and
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prospects for the future operation of the combined enterprise and answered
questions posed by the THI Board of Directors. THI's management reported on the
results of the discussions to date with representatives of Conseco, and THI's
advisors reported on the due diligence review undertaken to date. THI's advisors
also summarized the material terms and conditions of the Merger Agreement and
related matters. The THI Board of Directors instructed THI's management and
legal advisors to perform additional due diligence with regard to various
matters and instructed THI's management to take certain positions in the
negotiations with Conseco, including a change in the method of computing the
average price per share of Conseco Common Stock for the purpose of calculating
the Merger Consideration and the addition of a termination event in the event
that the five day trading average of the Conseco Common Stock as of the
scheduled Closing Date is less than $34.875. DLJ then presented its analysis of
the financial terms of the Merger Agreement and discussed various other
financial considerations that it used to reach its opinion on the fairness to
the stockholders of THI, from a financial point of view, of the Exchange Ratio.
Finally, DLJ answered questions of the members of the THI Board of Directors
before orally rendering its opinion that the Merger Consideration to be received
by the stockholders of THI pursuant to the Merger Agreement is fair, from a
financial point of view, to such holders. DLJ delivered its written opinion at
the end of the meeting. See "-- Opinion of THI's Financial Advisor."
The THI Board of Directors held a subsequent telephonic meeting on
September 25, 1996 after the completion of negotiations between the parties and
their respective representatives with regard to the definitive terms of the
Merger. At such meeting, THI's legal advisors discussed the final results of
their due diligence review of Conseco, including the results of the additional
due diligence review requested by the THI Board of Directors at the prior
meeting. THI's advisors also summarized the changes in the terms and conditions
of the Merger Agreement since the last meeting, and answered questions posed by
the directors. After careful consideration by the members of the THI Board of
Directors of the terms of the Merger Agreement and after consultation with its
advisors, the THI Board of Directors voted unanimously to approve the Merger
Agreement in the form presented to it at the meeting, with such changes thereto
as the Executive Committee thereof may approve. See "-- THI's Reasons for the
Merger; Recommendations of the THI Board of Directors."
The terms of the Conseco convertible notes to be offered in exchange for
the Notes as described above would have granted to Conseco the right to cause
such Conseco notes to be converted into shares of Conseco Common Stock. During
November 1996, Conseco informed THI that Conseco intended to exercise such right
as promptly as practicable following the Effective Time. Based on Conseco's
expressed intent, the Merger Agreement was amended to permit Conseco to offer
shares of Conseco Common Stock in exchange for the Notes on the same economic
basis as the proposed offer to exchange Conseco convertible notes for the Notes.
CONSECO'S REASONS FOR THE MERGER
The Conseco Board of Directors approved the Merger Agreement by a unanimous
vote at its September 20 meeting. In reaching its decision, the Conseco Board
considered information provided at the Board meeting, including, among other
things, (1) information concerning the financial performance and condition,
business operations and prospects of THI, including an analysis of possible cost
savings and synergies, and a qualitative overview of the individual business
segments, (2) the potential long-term and short-term effect of the transaction
on Conseco's earnings per share, (3) the structure of the proposed transaction,
(4) the terms of the Merger Agreement and (5) the presentation and
recommendation made by the management of Conseco.
A principal strategic objective of Conseco since it commenced operations in
1982 has been to acquire life and health insurance companies and to increase
their value by implementing management strategies to reduce costs and improve
administrative efficiency, centralize asset management, improve marketing and
distribution, eliminate unprofitable products and focus resources on the
development and expansion of profitable products. In furtherance of this
strategy, Conseco has completed 13 acquisitions of insurance companies and
related businesses since it commenced operations. Conseco believes that the
value and profitability of its existing insurance subsidiaries can be enhanced
as a result of the cross-selling opportunities presented by a company which
complements Conseco's existing product lines and distribution channels.
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Conseco's operating strategy is to target selected markets which provide
significant growth potential and to focus its sales efforts on profitable
products which will provide predictable and diversified earnings regardless of
interest rate changes or other changes in the economic environment. Conseco also
seeks to be a major competitor in each of its targeted markets and to develop
strong, complementary distribution channels. Strategic acquisitions will be made
by Conseco which are consistent with this strategy and which enable Conseco to
maintain its targeted ratio of debt to total capital.
The Conseco Board of Directors believes that the insurance businesses of
Conseco and THI complement each other. THI's cancer insurance, heart/stroke
insurance and other supplemental health products will provide Conseco an
opportunity to expand its product portfolio. Completion of the Merger and
Conseco's other pending acquisitions would enable Conseco to be a major
competitor in its targeted markets, with more than 90,000 agents selling long
term care insurance, Medicare supplement insurance, cancer insurance, other
supplemental health insurance, universal life insurance and retirement annuity
products. The addition of THI's distribution system would also provide Conseco
additional opportunities to cross-market its current products. The Conseco Board
of Directors also believes that the Merger offers Conseco and THI the
opportunity to improve their profitability and capitalization through the
achievement of economies of scale, the elimination of redundancies and the
enhancement of market position. By consolidating certain operations and
eliminating expenses, Conseco expects to achieve, over time, significant savings
of operating costs. See "-- Conduct of the Business of Conseco After the
Merger."
THI'S REASONS FOR THE MERGER; RECOMMENDATION OF THE THI BOARD OF DIRECTORS
After careful consideration by the members of the THI Board of Directors of
the terms of the Merger Agreement and consultation with its advisors, the THI
Board of Directors voted unanimously to approve the Merger Agreement in the form
presented to it at the THI Board of Directors meeting on September 25, 1996,
with such changes thereto as the Executive Committee thereof may approve. In
voting to approve the Merger Agreement and the Merger, the THI Board of
Directors considered many different factors, including: (1) the premium over the
then current market price of the THI Common Stock offered by Conseco; (2) the
length of time that would be required if the Merger were not consummated to
achieve the stockholder value to be received by the THI stockholders through the
Merger; (3) the financial condition and results of operations of Conseco and the
THI Board of Directors' perception of the more favorable overall business
prospects of Conseco and THI on a combined basis as compared to THI's prospects
as a separate entity; (4) the tax-deferred nature of the transaction; (5) the
potential increase in value of the Conseco Common Stock after the Merger based
on Conseco's financial strength and competitive position; (6) the highly
competitive nature of the life and health insurance business; (7) the difficulty
of maintaining financial and claims-paying ratings issued by rating agencies;
(8) the current trend of consolidation within the insurance industry; (9) the
broader, more active trading market for Conseco Common Stock; and (10) the
opinion rendered to the THI Board of Directors by DLJ with regard to the
fairness to the stockholders of THI, from a financial point of view, of the
Exchange Ratio to be received by the stockholders of THI pursuant to the Merger
Agreement. The directors of THI have unanimously approved the terms of the
Merger Agreement and have recommended that the stockholders of THI vote for the
proposal to authorize and adopt the merger agreement.
OPINION OF THI'S FINANCIAL ADVISOR
In its role as financial advisor to THI, DLJ was asked by THI to render its
opinion to the THI Board of Directors as to the fairness, from a financial point
of view, to the holders of THI Common Stock of the consideration to be received
by the holders of THI Common Stock pursuant to the terms of the Merger
Agreement. On September 24, 1996, DLJ delivered its written opinion (the "DLJ
Opinion") to the effect that as of the date of such opinion and based upon and
subject to the assumptions, limitations and qualifications set forth in such
opinion, the Exchange Ratio was fair, from a financial point of view, to the
holders of THI Common Stock.
The DLJ Opinion was prepared for the THI Board of Directors and is directed
only to the fairness, from a financial point of view, to the holders of THI
Common Stock, and did not constitute a recommendation to any shareholder as to
how to vote at the Special Meeting.
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The DLJ Opinion does not constitute an opinion as to the price at which
Conseco Common Stock will actually trade at any time. The Exchange Ratio was
determined in arms' length negotiations between THI and Conseco, in which
negotiations DLJ advised THI. No restrictions or limitations were imposed by the
THI Board of Directors upon DLJ with respect to the investigations made or the
procedures followed by DLJ in rendering its opinion. DLJ was not requested to,
nor did it, solicit the interests of any other party in acquiring THI.
In arriving at its opinion, DLJ reviewed the Merger Agreement and exhibits
thereto. DLJ also reviewed financial and other information that was publicly
available or furnished to it by THI and Conseco, including information provided
during discussions with their respective managements. Included in the
information provided during discussions with the respective managements were
certain financial projections of THI for the years ending December 31, 1996
through December 31, 2000 prepared by the management of THI, and certain pro
forma financial statements of Conseco for the year ended December 31, 1995 and
the six months ended June 30, 1996 and certain financial projections of Conseco
which are pro forma for the Merger and for certain other transactions announced
by Conseco for the years ending December 31, 1996 through December 31, 2005
prepared by the management of Conseco. In addition, DLJ compared certain
financial and securities data of THI and Conseco with various other companies
whose securities are traded in public markets, reviewed the historical stock
prices and trading volumes of THI Common Stock and Conseco Common Stock,
reviewed prices and premiums paid in other business combinations and conducted
such other financial studies, analyses and investigations as DLJ deemed
appropriate for purposes of rendering its opinion.
In rendering its opinion, DLJ relied upon and assumed the accuracy,
completeness and fairness of all of the financial and other information that was
available to it from public sources, that was provided to it by THI and Conseco
or its representatives, or that was otherwise reviewed by it. With respect to
the financial projections of THI supplied to it, DLJ assumed that they have been
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of the management of THI as to the future operating and financial
performance of THI. With respect to the pro forma financial statements and pro
forma financial projections of Conseco supplied to it, DLJ assumed that they
were reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of Conseco as to the pro forma and
future operating and financial performance of THI and Conseco. DLJ did not
assume any responsibility for making an independent evaluation of THI's and
Conseco's assets or liabilities or for making any independent verification of
any of the information reviewed by it. DLJ relied as to all legal matters on
advice of counsel to THI.
The DLJ Opinion is necessarily based on economic, market, financial and
other conditions as they existed on, and on the information made available to it
as of, September 24, 1996. It should be understood that, although subsequent
developments may affect its opinion, DLJ does not have any obligation to update,
revise or reaffirm its opinion.
The following is a summary of the presentation made by DLJ to the THI Board
of Directors at its September 24, 1996 meeting.
DLJ assumed an Exchange Ratio such that each holder of THI Common Stock
would receive $70.00 per share in its analysis, which is based on Conseco's
closing stock price on September 19, 1996 of $45.00. DLJ also assumed an
Exchange Ratio such that each holder of THI Common Stock would receive $63.82
per share in its analysis, which is the lowest per share value the holders of
THI Common Stock could receive without triggering their right to terminate the
Merger. Such assumptions should in no way be viewed by the holders of THI Common
Stock as an opinion as to the value of Conseco Common Stock that may actually be
received in the Merger. Such use is merely for illustrative and analytical
purposes.
TRANSACTION ANALYSIS. DLJ reviewed publicly available information for
selected transactions involving the acquisition of life insurance and accident
and health insurance companies since January 1, 1993 (the "Selected Life and
Health Transactions") and for selected transactions involving the acquisition of
accident and health insurance companies since January 1, 1993 (the "Selected
Health Transactions") (together, the "Selected Transactions"). In reviewing
these transactions, several factors were considered, including: (i) the lack of
publicly available information for subsidiary and private company transactions
which represent a
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significant portion of the merger and acquisition activity; and (ii) the lack of
directly comparable transactions. The Selected Transactions were not intended to
represent the complete list of life insurance and accident and health insurance
company transactions which have occurred. Rather, such transactions included
only selected recent transactions involving life insurance and accident and
health insurance companies. Such transactions were used in this analysis because
the companies involved were deemed by DLJ to operate in similar businesses or
have similar financial characteristics to THI and Conseco.
DLJ reviewed the consideration paid in such transactions in terms of the
price paid for the common stock plus the amount of debt and preferred stock
assumed, repaid or redeemed in such transactions (the "Transaction Value") as a
multiple of statutory operating earnings for the latest twelve months ("LTM") or
latest fiscal year ("LFY") ended prior to announcement of such transactions and
statutory capital and surplus as of the end of the last fiscal quarter ("LFQ")
or LFY ended prior to the announcement of such transactions. In analyzing
acquisitions of life insurance and accident and health insurance companies, the
purchase price paid may be described in terms of multiples of the Transaction
Value to statutory operating earnings and statutory capital and surplus.
Variances in multiples for different transactions may reflect such
considerations as the consistency, quality and growth of earnings and the
company's capitalization, asset quality and return on surplus. Since statutory
operating earnings and statutory capital and surplus do not reflect the cost of
a company's debt or preferred stock financing, which are usually at the holding
company level rather than the insurance company level, analysis of a multiple of
statutory operating earnings and statutory capital and surplus is usually based
on a Transaction Value which includes the cost of assuming, repaying or
redeeming such debt or preferred stock financing. Comparing the multiple of
Transaction Value to be paid for THI by Conseco to the statutory operating
earnings and statutory capital and surplus of THI with the multiples paid in the
Selected Transactions indicates whether the valuation being placed on THI is
within the range of values paid for the Selected Transactions.
The low, average and high multiples of Transaction Value to statutory
operating earnings for the LTM or LFY ended prior to announcement of the
transaction were 7.5x, 16.7x and 36.7x, respectively, for the Selected Life and
Health Transactions and 5.1x, 20.5x and 46.9x, respectively, for the Selected
Health Transactions. Based on an offer price of $70.00 per share, the implied
multiple of Transaction Value to THI's 1995 statutory operating earnings was
16.6x. This multiple is higher than the low multiples of both the Selected Life
and Health Transactions and the Selected Health Transactions. Based on an offer
price of $63.82 per share, the implied multiple of Transaction Value to THI's
1995 statutory operating earnings was 15.5x. This multiple is higher than the
low multiples of both the Selected Life and Health Transactions and the Selected
Health Transactions. The low, average and high multiples of Transaction Value to
statutory capital and surplus as of the end of the LFQ or LFY ended prior to the
announcement of the transaction were 1.2x, 2.7x and 10.5x, respectively, for the
Selected Life and Health Transactions and 1.3x, 3.9x and 10.8x, respectively,
for the Selected Health Transactions. Based on an offer price of $70.00 per
share, the implied multiple of Transaction Value to THI's statutory capital and
surplus as of December 31, 1995 was 2.1x. This multiple is higher than the low
multiples of both the Selected Life and Health Transactions and the Selected
Health Transactions. Based on an offer price of $63.82 per share, the implied
multiple of Transaction Value to THI's statutory capital and surplus as of
December 31, 1995 was 1.9x. This multiple is higher than the low multiples of
both the Selected Life and Health Transactions and the Selected Health
Transactions.
Additionally, DLJ reviewed the consideration paid in the Selected
Transactions in terms of the price paid for the common stock in the Selected
Life and Health Transactions and the Selected Health Transactions as a multiple
of GAAP operating earnings for the LTM ended prior to the announcement of such
transactions and as a multiple of shareholders' equity as of the end of the LFQ
ended prior to the announcement of such transactions. In analyzing acquisitions
of life insurance and accident and health insurance companies, the purchase
price paid may be described in terms of multiples of the price paid for common
stock to GAAP operating earnings and to shareholders' equity. Variances in
multiples for different transactions may reflect such considerations as the
consistency, quality and growth of earnings and the company's capitalization,
asset quality and return on capital. Since GAAP operating earnings and
shareholders' equity already reflect the cost of a company's debt or preferred
stock financing, analyses of multiples of GAAP operating earnings or
shareholders' equity are usually based on the price paid for the company's
common stock, which excludes the
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cost of assuming, repaying or redeeming such debt or preferred stock financing.
Comparing the multiples of the price offered to be paid for THI Common Stock by
Conseco to the GAAP operating earnings and shareholders' equity of THI with
multiples paid by acquirors in other transactions indicates whether the
valuation being placed on THI is within the range of values paid for other life
insurance and accident and health insurance companies.
The low, average and high multiples of price paid for common stock to LTM
GAAP operating earnings were 5.2x, 14.7x and 23.9x, respectively, for the
Selected Life and Health Transactions and 10.8x, 13.1x and 16.9x, respectively,
for the Selected Health Transactions. Based on an offer price of $70.00 per
share, the implied multiple of price paid for common stock to THI's GAAP
operating earnings for the LTM ended June 30, 1996 was 16.4x. This multiple is
higher than the average multiples of both the Selected Life and Health
Transactions and the Selected Health Transactions. Based on an offer price of
$63.82 per share, the implied multiple of price paid for common stock to THI's
GAAP operating earnings for the LTM ended June 30, 1996 was 14.9x. This multiple
is higher than the average multiples of both the Selected Life and Health
Transactions and the Selected Health Transactions. The low, average and high
multiples of price paid for common stock to shareholders' equity as of the end
of the LFQ ended prior to the announcement of the transaction were 0.9x, 1.6x
and 2.8x, respectively, for the Selected Life and Health Transactions and 1.8x,
2.3x and 2.8x, respectively, for the Selected Health Transactions. Based on an
offer price of $70.00 per share, the implied multiple of price paid for common
stock to THI's shareholders' equity as of June 30, 1996 was 1.2x. This multiple
is higher than the low multiple of the Selected Life and Health Transactions and
lower than the low multiple of the Selected Health Transactions. Based on an
offer price of $63.82 per share, the implied multiple of price paid for common
stock to THI's shareholders' equity as of June 30, 1996 was 1.1x. This multiple
is higher than the low multiple of the Selected Life and Health Transactions and
lower than the low multiple of the Selected Health Transactions.
DLJ also determined the percentage premium of the offer prices (represented
by the purchase price per share in cash transactions and the price of the
constituent securities times the exchange ratio in the case of stock-for-stock
mergers) over the public market trading prices one day, one week and one month
prior to the announcement date of selected transactions involving life insurance
and accident and health insurance companies since January 1, 1993 where the
acquired company's stock was publicly traded (the "Selected Public Life and
Health Transactions") and selected transactions involving only accident and
health insurance companies since January 1, 1993 where the acquired company's
stock was publicly traded (the "Selected Public Health Transactions"). The
average premiums of offer prices to public market trading prices one day, one
week and one month prior to the announcement date were 20.7%, 22.0% and 30.4%,
respectively, for the Selected Public Life and Health Transactions and 20.1%,
24.7% and 27.6%, respectively, for the Selected Public Health Transactions. An
offer price of $70.00 per share represents premiums to the trading prices of THI
Common Stock one day, one week and one month prior to September 19, 1996, of
42.1%, 45.8% and 50.1%, respectively. These premiums are higher than the
corresponding average premiums of both the Selected Public Life and Health
Transactions and the Selected Public Health Transactions. An offer price of
$63.82 per share represents premiums to the trading prices of THI Common Stock
one day, one week and one month prior to September 19, 1996 of 29.6%, 32.9% and
36.9%, respectively. These premiums are higher than the corresponding average
premiums of both the Selected Public Life and Health Transactions and the
Selected Public Health Transactions.
PUBLIC COMPANY ANALYSIS. To provide comparative market information, DLJ
compared selected historical and projected operating and financial ratios of THI
to the corresponding data and ratios of selected accident and health insurance
companies whose securities are publicly traded. Such companies included American
Heritage Life Investment Corp., Delphi Financial Group, Inc., Penn Treaty
American Corp. and Pioneer Financial Services, Inc. (the "Selected Small Health
Companies").
Such analysis included, among other things, the ratios of stock price to
GAAP operating earnings per share ("EPS") for the LTM ended June 30, 1996,
estimated GAAP operating EPS for 1997 through 2001 (as estimated by research
analysts and compiled by Institutional Brokers Estimating Service for 1997 for
the Selected Small Health Companies and management's projections for 1997
through 2001 for THI) and shareholders' equity per share as of June 30, 1996, as
well as the ratios of the aggregate equity market
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capitalization plus the amount of debt and preferred stock outstanding
("Enterprise Value") to statutory operating earnings for the LTM or LFY and
statutory capital and surplus as of the end of the LFQ or LFY. The projections
for THI's GAAP operating EPS for 1997 through 2001 provided by THI's management
to DLJ were preliminary in nature and were not made available to the public or
to research analysts. Such projections showed a decline in estimated GAAP
operating EPS when comparing 1997 to 1998 through 2001. Closing prices as of
August 20, 1996 were used in this analysis. The ratios described in this
paragraph have been designed to reflect the value attributable in the public
equity markets to various valuation measures of accident and health insurance
companies. Measures utilized in the public marketplace to value the stock of
publicly traded companies in the accident and health insurance industry are
based on, among other things, a company's historical and projected GAAP
operating earnings, historical statutory operating earnings, shareholders'
equity and statutory capital and surplus. The multiples of stock price to GAAP
operating EPS and Enterprise Value to statutory operating earnings reflect the
value attributed to a company by public equity market investors based on the
company's historical and projected earnings. The multiples of stock price to
shareholders' equity per share and Enterprise Value to statutory capital and
surplus reflect the values attributed to a company by public equity market
investors based on the company's net worth. Variances in multiples for different
companies may reflect such considerations as the consistency, quality and growth
of earnings and the company's capitalization, asset quality and return on
capital. Since GAAP operating earnings and shareholders' equity already reflect
the cost of a company's debt or preferred stock financing, analyses of multiples
of GAAP operating earnings or shareholders' equity are usually based on the
price paid for the company's common stock, which excludes debt or preferred
stock financing. Since statutory operating earnings and statutory capital and
surplus do not reflect the cost of a company's debt or preferred stock
financing, which are usually at the holding company level rather than the
insurance company level, analyses of multiples of statutory operating earnings
and statutory capital and surplus are usually based on Enterprise Value, which
includes debt or preferred stock financing. Comparing the multiples of price
offered to be paid by Conseco to the GAAP operating EPS, shareholders' equity,
statutory operating earnings and statutory capital and surplus of THI with the
multiples at which the Selected Small Health Companies trade indicates whether
the valuation being placed on THI is within the range of values at which the
Selected Small Health Companies trade.
The low, average and high multiples of public stock price to GAAP operating
EPS for the LTM ended June 30, 1996 were 8.1x, 12.2x and 15.6x, respectively,
for the Selected Small Health Companies. Based on an offer price of $70.00 per
share, the implied multiple of offer price to THI's GAAP operating EPS for the
LTM ended June 30, 1996 was 16.4x. This multiple is higher than the high
multiple of the Selected Small Health Companies. Based on an offer price of
$63.82 per share, the implied multiple of offer price to THI's GAAP operating
EPS for the LTM ended June 30, 1996 was 14.9x. This multiple is higher than the
average multiple of the Selected Small Health Companies. The low, average and
high multiples of public stock price to estimated 1997 GAAP operating EPS were
6.8x, 9.4x and 12.3x, respectively, for the Selected Small Health Companies.
Based on an offer price of $70.00 per share, the implied multiple of offer price
to THI's estimated 1997 GAAP operating EPS was 8.8x. This multiple is higher
than the low multiple of the Selected Small Health Companies. Based on an offer
price of $63.82 per share, the implied multiple of offer price to THI's
estimated 1997 GAAP operating EPS was 8.0x. This multiple is higher than the low
multiple of the Selected Small Health Companies. Based on an offer price of
$70.00 per share, the implied multiple of offer price to the simple average of
THI's estimated GAAP operating EPS for 1999 through 2001 (the "Normalized
Estimated GAAP Operating EPS") was 10.3x. This multiple is higher than the
average multiple of public stock price to estimated 1997 GAAP operating EPS of
the Selected Small Health Companies. Based on an offer price of $63.82 per
share, the implied multiple of offer price to THI's Normalized Estimated GAAP
Operating EPS was 9.4x. This multiple is equal to the average multiple of public
stock price to estimated 1997 GAAP operating EPS of the Selected Small Health
Companies. The low, average and high multiples of public stock price to
shareholders' equity per share as of June 30, 1996 were 1.1x, 1.4x and 1.7x,
respectively, for the Selected Small Health Companies. Based on an offer price
of $70.00 per share, the implied multiple of offer price to THI's shareholders'
equity per share as of June 30, 1996 was 1.2x. This multiple is higher than the
low multiple of the Selected Small Health Companies. Based on an offer price of
$63.82 per share, the implied multiple of offer price to THI's shareholders'
equity per share as of June 30, 1996 was 1.1x. This multiple is
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equal to the low multiple of the Selected Small Health Companies. The low,
average and high multiples of Enterprise Value to statutory operating earnings
for the LTM or LFY were 15.1x, 22.8x and 29.8x, respectively, for the Selected
Small Health Companies. Based on an offer price of $70.00 per share, the implied
multiple of Transaction Value to THI's 1995 statutory operating earnings was
16.6x. This multiple is higher than the low multiple of the Selected Small
Health Companies. Based on an offer price of $63.82 per share, the implied
multiple of Transaction Value to THI's 1995 statutory operating earnings was
15.5x. This multiple is higher than the low multiple of the Selected Small
Health Companies. The low, average and high multiples of Enterprise Value to
statutory capital and surplus as of the end of the LFQ or LFY were 2.1x, 3.5x
and 5.2x, respectively, for the Selected Small Health Companies. Based on an
offer price of $70.00 per share, the implied multiple of Transaction Value to
THI's statutory capital and surplus as of December 31, 1995 was 2.1x. This
multiple is equal to the low multiple of the Selected Small Health Companies.
Based on an offer price of $63.82 per share, the implied multiple of Transaction
Value to THI's statutory capital and surplus as of December 31, 1995 was 1.9x.
This multiple is lower than the low multiple of the Selected Small Health
Companies.
Since the Merger Consideration will be in the form of Conseco Common Stock,
to provide comparative market information, DLJ compared selected historical and
projected operating and financial ratios of Conseco to the corresponding data
and ratios of Equitable of Iowa Companies, Liberty Financial Companies, Inc.,
Presidential Life Corp., SunAmerica Inc. and Western National Corp. (the
"Selected Annuity Companies"), of Jefferson-Pilot Corp., Kansas City Life
Insurance Company, Protective Life Corp., ReliaStar Financial Corp., and USLIFE
Corp. (The "Selected Life Companies") and of AFLAC, Inc., PennCorp Financial
Group, Inc., Provident Companies and UNUM Corp. (the "Selected Large Health
Companies") (together, the "Selected Companies").
Such analysis included, among other things, the multiples of stock price to
estimated GAAP operating EPS for 1996 and 1997 (as estimated by research
analysts and compiled by Institutional Brokers Estimating Service for the
Selected Companies and management's projections for Conseco) and shareholders'
equity per share as of June 30, 1996. Closing prices as of September 19, 1996
were used in this analysis. Comparing the multiples of Conseco's stock price to
GAAP operating EPS and shareholders' equity per share with the multiples at
which the Selected Companies trade indicates whether Conseco's stock price is
within the range of values at which the Selected Companies trade. Conseco's GAAP
operating EPS and shareholders' equity per share used in this analysis were
adjusted to give pro forma effect to the LPG Merger, the CAF Merger, the ATC
Merger, the ALH Transaction, the BLH Transaction and certain other matters
(together the "Concurrent Transactions").
The low, average and high multiples of public stock price to estimated 1996
GAAP operating EPS were 9.8x, 11.9x and 17.0x, respectively, for the Selected
Annuity Companies, 8.4x, 10.8x and 13.8x, respectively, for the Selected Life
Companies and 11.4x, 13.6x and 15.4x, respectively, for the Selected Large
Health Companies. The multiple of price to Conseco's estimated 1996 GAAP
operating EPS was 12.5x. This multiple is higher than the average multiple of
both the Selected Annuity Companies and the Selected Life Companies and higher
than the low multiple of the Selected Large Health Companies. The low, average
and high multiples of public stock price to estimated 1997 GAAP operating EPS
were 8.8x, 10.6x and 14.7x, respectively, for the Selected Annuity Companies,
7.7x, 9.7x and 12.4x, respectively, for the Selected Life Companies and 9.8x,
11.5x and 13.1x, respectively, for the Selected Large Health Companies. The
multiple of price to Conseco's estimated 1997 GAAP operating EPS was 10.2x. This
multiple is higher than the low multiple of both the Selected Annuity Companies
and the Selected Large Health Companies and higher than the average multiple of
the Selected Life Companies. The low, average and high multiples of public stock
price to shareholders' equity per share as of June 30, 1996 were 1.0x, 1.4x and
1.8x, respectively, for the Selected Annuity Companies, 0.8x, 1.5x and 2.1x,
respectively, for the Selected Life Companies and 1.2x, 1.9x and 2.8x,
respectively, for the Selected Large Health Companies. The multiple of price to
Conseco's shareholders' equity per share as of June 30, 1996 was 1.4x. This
multiple is equal to the average multiple of the Selected Annuity Companies and
higher than the low multiples of both the Selected Life Companies and the
Selected Large Health Companies.
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No company or transaction used in the Transaction Analysis or the Public
Company Analysis described above was directly comparable to THI, Conseco or the
proposed Merger. Accordingly, an analysis of the results of the foregoing was
not simply mathematical nor necessarily precise; rather, it involved complex
considerations and judgments concerning differences in financial and operating
characteristics of companies and other factors that could affect the transaction
values and trading prices. For example, many qualitative factors are involved in
valuing a company or analyzing a transaction in the life insurance, accident and
health insurance and annuity industries, including assessments of the quality of
management, the attractiveness of the company's target market, the economics of
the products being sold and the company's market position relative to its
competitors. Other factors that could affect the transaction values or trading
prices include differences in distribution, products, geographic or demographic
customer concentration, size, accounting practices, asset portfolio quality,
interest rate sensitivity and other factors. These factors may affect the
transaction values or trading prices in each case by affecting in varying
degrees investors' expectations of such factors as the company's risk and future
operating profitability.
STOCK TRADING HISTORY. To provide contextual data and comparative market
data, DLJ examined the history of the trading prices and their relative
relationships for both THI Common Stock and Conseco Common Stock for various
periods ended prior to September 19, 1996. DLJ also reviewed the daily closing
prices of THI Common Stock and Conseco Common Stock and compared the THI and
Conseco closing stock prices with the S&P 500 Index and indices of selected
publicly traded companies. DLJ reviewed the trading history since the spin-off
from Travelers of the THI Common Stock on October 2, 1995 and since September
17, 1993 of Conseco Common Stock to determine whether trading levels immediately
prior to September 19, 1996 were reflective of longer term trading levels or
were affected by recent unusual or event specific trading activity. In addition,
DLJ reviewed the trading history of THI Common Stock and Conseco Common Stock
relative to indices of selected publicly traded companies in order to assess the
relative stock price performance of THI, Conseco and such indices.
PRO FORMA MERGER ANALYSIS. DLJ analyzed certain pro forma financial effects
resulting from the Merger. In conducting its analysis, DLJ relied upon certain
assumptions described above and financial projections provided by the management
of THI and pro forma financial statements and pro forma financial projections
provided by the management of Conseco. DLJ analyzed the pro forma effect of the
Merger on the EPS, shareholders' equity per share and leverage ratios of the
combined companies, assuming the Concurrent Transactions have been completed.
Conseco's management has indicated that it believes that the Merger will offer
consolidation opportunities which will result in revenue enhancements and
expense savings relative to the stand-alone projected revenues and expenses of
THI and Conseco. DLJ incorporated estimates of such revenue enhancements and
expense savings, determined in conjunction with the managements of THI and
Conseco, in its analysis, although DLJ does not express any opinion as to the
likelihood of such revenue enhancements or expense savings being realized. The
results of the pro forma merger analysis are not necessarily indicative of
future operating results or financial position. Based on this analysis and on an
offer price of $70.00 per share and assuming that the cash portion of the
consideration paid in the Concurrent Transactions is financed with $300 million
of tax-deductible preferred stock and the remainder with debt, Conseco's
shareholders would realize EPS accretion of 3.6%, and 1.5%, respectively, in
1997 and 1998 assuming the Merger and the Concurrent Transactions are completed
versus assuming only the Concurrent Transactions are completed. Based on this
analysis and on an offer price of $70.00 per share and assuming that the cash
portion of the consideration paid in the Concurrent Transactions is financed
with $300 million of tax-deductible preferred stock and the remainder with debt,
Conseco's ratios of debt to total capitalization and debt and preferred stock to
total capitalization as of June 30, 1996 would be 34.2% and 36.4%, respectively,
assuming the Merger and the Concurrent Transactions are completed, versus 34.5%
and 36.6%, respectively, assuming only the Concurrent Transactions are
completed. There can be no assurance as to whether the assumptions regarding
financing sources set forth in this paragraph will occur, and such assumptions
are used only for purposes of illustration.
CONTRIBUTION ANALYSIS. DLJ analyzed THI's and Conseco's relative
contributions to the combined company with respect to GAAP operating revenues,
GAAP operating earnings, shareholders' equity and total assets and compared this
with the relative ownership of THI shareholders in the combined company after
the
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Merger. Such analysis was considered on a percentage contribution basis and was
made, where appropriate, (i) for 1995 and for the LTM ended June 30, 1996 based
on Conseco's and THI's historical and pro forma (in the case of Conseco, pro
forma for the Concurrent Transactions) financial results and (ii) with respect
to estimated GAAP operating earnings for 1997 and 1998, as projected by THI's
and Conseco's managements.
THI's relative contribution to the combined company with respect to
estimated GAAP operating earnings for 1997 and 1998 were 5.5% and 4.2%,
respectively, of the total. THI's relative contribution to the combined company
with respect to total assets was 3.4% of the total. Including the tax-deductible
preferred stock and the PRIDES for Conseco as common equity, THI's relative
contribution to shareholders' equity as of June 30, 1996 was 4.4% of the total.
Based on offer prices of $70.00 per share and $63.82 per share, THI
shareholders would own approximately 4.8% and 5.6%, respectively, of the
combined company after the Merger. The results of these contribution analyses
are not necessarily indicative of the contributions that the respective
businesses may actually make in the future.
The summary set forth above does not purport to be a complete description
of the analyses performed by DLJ in rendering the DLJ Opinion. The preparation
of a fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of these methods
to the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Each of the analyses conducted by DLJ was
carried out in order to provide a different perspective on the Merger and add to
the total mix of information available. DLJ did not form a conclusion as to
whether any individual analysis, considered in isolation, supported or failed to
support an opinion as to fairness, from a financial point of view. Rather, in
reaching its conclusion, DLJ considered the results of the analyses in light of
each other and did not place particular reliance or weight on any individual
analysis and ultimately reached its opinion based on the results of all analyses
taken as a whole. Accordingly, notwithstanding the separate factors summarized
above, DLJ believes that its analyses must be considered as a whole and that
selected portions of its analyses and the factors considered by it, without
considering all analyses and factors, may create an incomplete view of the
evaluation process underlying the DLJ Opinion. In performing its analyses, DLJ
made numerous assumptions with respect to industry performance, business and
economic conditions and other matters. The analyses performed by DLJ are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
The THI Board of Directors selected DLJ as its financial advisor because it
is a nationally recognized investment banking firm that has substantial
experience in transactions similar to the Merger and is familiar with THI, its
business and the life insurance, accident and health insurance and annuity
industries. Pursuant to the terms of an engagement letter dated September 25,
1996 between THI and DLJ, THI paid DLJ a $100,000 retainer fee and an additional
$250,000 upon rendering of the DLJ Opinion. Pursuant to the terms of the
engagement letter, THI will pay DLJ, on the Closing Date, cash compensation
equal to three-quarters of one percent (0.75%) of the Transaction Value, less
the $350,000 paid to date. Based on an assumed Transaction Value, THI will pay
DLJ, on the Closing Date, cash compensation of approximately $2.3 million, less
the $350,000 paid to date. THI also agreed to reimburse DLJ for all
out-of-pocket expenses (including the reasonable fees and out-of-pocket expenses
of counsel) incurred by DLJ in connection with its engagement and to indemnify
DLJ and certain related persons against certain liabilities in connection with
its engagement, including liabilities under the federal securities laws. The
terms of the fee arrangement with DLJ, which DLJ and THI believe are customary
in transactions of this nature, were negotiated at arms' length between THI and
DLJ and the THI Board of Directors was aware of such arrangement, including the
fact that a significant portion of the aggregate fee payable to DLJ is
contingent upon consummation of the Merger.
In the ordinary course of business, DLJ may actively trade the securities
of both THI and Conseco for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities. DLJ, as part of its investment banking services, is regularly
engaged in the valuation of businesses and securities in connection with
mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. DLJ has performed investment banking and other services for
Conseco in the past and has received
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usual and customary compensation for such services. In addition, DLJ acted as
financial advisor to ATC in connection with the purchase of THI's long-term care
insurance business in December 1995 and as financial advisor to LPG, CAF and ATC
in connection with the LPG Merger, the CAF Merger and the ATC Merger,
respectively. DLJ has received or will receive usual and customary compensation
for each of such services.
CERTAIN CONSEQUENCES OF THE MERGER
As a result of the Merger, the holders of THI Common Stock will become
shareholders of Conseco, and thereby will continue to have an interest in THI
through Conseco. See "Comparison of Shareholders' Rights." Upon the consummation
of the Merger, each outstanding share of THI Common Stock (other than shares of
THI Common Stock held as treasury stock by THI) will be converted into the right
to receive the Merger Consideration. Conseco will apply to have the additional
shares of Conseco Common Stock issued pursuant to the Merger listed on the NYSE,
and the approval of such shares for listing on the NYSE (subject to official
notice of issuance) is a condition to the obligation of Conseco and THI to
effect the Merger. See "The Merger Agreement -- Conditions to the Merger." After
consummation of the Merger and the Exchange Offer (assuming that all holders of
Notes exchange such notes in the Exchange Offer) and without giving effect to
the proposed acquisitions of BLH, CAF and PFS, the current Conseco shareholders
would own between 93 percent and 95 percent of the shares of Conseco Common
Stock then outstanding, and the current holders of THI Common Stock and Notes
would own between five percent and seven percent of such shares.
See "The Merger Agreement -- Treatment of THI Stock Options and THI
Warrants" for a description of the treatment of THI Stock Options and THI
Warrants in the Merger. Conseco has agreed to take all corporate action
necessary to reserve for issuance a sufficient number of shares of Conseco
Common Stock for delivery upon exercise of THI Stock Options and THI Warrants
assumed in accordance with the Merger Agreement.
CONDUCT OF THE BUSINESS OF CONSECO AFTER THE MERGER
Conseco's Board of Directors and management will not be affected by the
Merger. See "Management of Conseco Upon Consummation of the Merger."
Conseco intends to consolidate the operations of THI with the operations of
Conseco in Carmel, Indiana in April 1997. Conseco expects to achieve operating
cost savings as a result of such consolidation through the elimination of
redundant expenses, reductions in staff, the closing of THI's office and the
achievement of certain economies of scale. There can be no assurance that such
cost savings will be realized as anticipated by Conseco.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
SEVERANCE BENEFITS. Members of THI's senior management (including Messrs.
Lasater, Sharpe, Nelson, Cole and Ms. Greer) who experience a Severance Event
(as defined below) within 18 months after the Effective Time will be entitled to
receive, in lieu of the severance benefits described under "The Merger Agreement
- -- THI Employee Matters," severance benefits in the form of a lump sum equal to
(i) one and one-half of such senior officer's base salary plus (ii) if such
Severance Event occurs during 1997, 60 percent of the bonus received by such
senior officer for services performed in 1995 and 1996 (pro rated to reflect
when the Severance Event occurred during 1997) less any cash bonus paid to such
senior officer with respect to services performed in calendar year 1997 prior to
such Severance Event. Any such severance payments shall be in addition to
amounts otherwise payable under any employment or other agreement between THI
and any of its officers. The term "Severance Event" means, with respect to any
employee: (i) the material reduction or elimination of such employee's duties,
responsibilities or title (other than the elimination of positions with THI as a
result of the Merger); (ii) the reduction or elimination of such employee's
compensation; (iii) the requirement that such employee relocate or commute an
unreasonable distance in order to effectively perform such employee's duties; or
(iv) with respect to senior officers only, the failure to pay to such senior
officer a bonus with respect to services performed in calendar year 1997 equal
to at least 60 percent of the bonus received by such senior officer for services
performed in 1995 and 1996.
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VESTING OF THI STOCK OPTIONS. In accordance with the terms of the Merger
Agreement and the 1995 Stock Plan, all outstanding THI Stock Options will become
immediately exercisable in full at the Effective Time. As a result of such
acceleration, the following executive officers and directors of THI will be
able, at and after the Effective Time, to exercise their THI Stock Options for
the following number of additional shares of THI Common Stock that would not yet
otherwise be exercisable but for the Merger: A. Foster Nelson (32,000 shares);
T. Gary Cole (20,000 shares); and Deborah V. Greer (6,400 shares).
THI WARRANTS. From and after the Effective Time, each outstanding THI
Warrant shall be exercisable, for the same aggregate consideration payable to
exercise such THI Warrant, for the number of shares of Conseco Common Stock
which the holder of such THI Warrant would have been entitled to receive at the
Effective Time if such THI Warrant had been exercised in full for shares of THI
Common Stock immediately prior to the Effective Time, and otherwise on the same
terms and conditions as were applicable under such THI Warrant. Conseco has also
agreed to amend the outstanding THI Warrants as soon as practicable after the
Effective Time to provide that the holders thereof may, from time to time, sell
all or part of the THI Warrants (subject to a reasonable minimum size limitation
and a reasonable limit on the number of such sales each year) to Conseco for a
price equal to the difference between the "current market price" and the
"current warrant price" (as such terms are defined in the underlying warrant
agreement), each as of the date of the proposed sale. The outstanding THI
Warrants are held by trusts established for the benefit of the children of
Messrs. Lasater and Sharpe. See "The Merger Agreement -- Treatment of THI Stock
Options and THI Warrants."
EXCHANGE OFFER. Certain officers and directors of THI and its subsidiaries,
including Messrs. Lasater, Sharpe, Nelson and Cole and Ms. Greer, own Series A
Notes in the aggregate principal amount of $3,680,000. In addition, IP owns
Series A Notes in the aggregate principal amount of $35,000,000. Mr. Doctoroff
is a vice president and minority stockholder of the ultimate corporate general
partners of IP and, accordingly, may be deemed to share the voting and
dispositive power of any voting securities held by IP. All Holders of Notes are
eligible to participate in the Exchange Offer.
TERMINATION OF RESTRICTIONS ON RESTRICTED STOCK. In accordance with the
terms of the Restricted Stock Plan, the limitations imposed by such plan on the
Restricted Director Shares (including, without limitation, restrictions on
transfer and assignment thereof) will terminate as of the Effective Time.
Certain directors of THI, consisting of Messrs. Doctoroff, Grinstein and King,
each own 529 Restricted Director Shares.
CONSULTING AND EMPLOYMENT ARRANGEMENTS. Conseco has agreed to enter into
agreements with each of Messrs. Lasater, Sharpe and Nelson that will provide
that the noncompetition and related covenants contained in their respective
employment agreements will not apply to any companies that become affiliates of
THI, Transport Life or any of their respective affiliates by reason of the
Merger or subsequent acts or transactions of Conseco or companies under
Conseco's control. Conseco has also agreed to enter into agreements with
Transport Life and certain officers of Transport Life (including Mr. Cole and
Ms. Greer) that will provide that such officers shall be continuously employed
as an employee/consultant of Transport Life through January 31, 1998. In
addition, Conseco has agreed to enter into an agreement with Transport Life and
Ms. Greer that will provide that Ms. Greer shall not be terminated as an
employee of Transport Life prior to February 25, 1997.
PAYMENT OF ACCRUED BONUSES. THI and Transport Life have paid to, or set
aside for payment to, certain officers and employees of Transport Life
(including Messrs. Lasater, Sharpe, Nelson and Cole and Ms. Greer) (the
"Transport Officers and Employees"), an aggregate amount of cash equal to
approximately $3,433,500 (the "Bonus Amount"). The Bonus Amount represents
accrued and unpaid bonuses paid to the Transport Officers and Employees relating
to services provided during calendar years 1995 and 1996. All or part of the
Bonus Amount may be put into one or more trusts, escrow accounts or other
arrangements under terms acceptable to THI and Transport Life, the terms of
which will provide for payment of all or part of the Bonus Amount in calendar
year 1997. THI, Transport Life and IP intend to pay or set aside for payment, or
agree to pay or set aside for payment, an amount of cash equal to approximately
$764,700 under new or existing severance, compensation or "stay-pay"
arrangements and/or Transport Life's 401(k) plan for employees of THI and/or
Transport Life.
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INDEMNIFICATION OF DIRECTORS AND OFFICERS; INSURANCE. The Merger Agreement
provides that the certificate of incorporation and by-laws of each of THI's
subsidiaries shall contain the provisions with respect to indemnification set
forth therein on the date of the Merger Agreement, and such provisions shall not
be amended, repealed or otherwise modified for a period of six years after the
Effective Time in any manner that would adversely affect the rights thereunder
of individuals who at any time prior to the Effective Time were directors or
officers of THI or any of its subsidiaries (the "Indemnified Parties") in
respect of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by the Merger
Agreement), unless such modification is required by law. Conseco has agreed to
indemnify the Indemnified Parties, but only to the extent that THI would have
been obligated to do so had it been the corporation surviving the Merger (the
"Surviving Corporation"). In addition, for a period of three years after the
Effective Time, Conseco has agreed to maintain the current policies of officers'
and directors' liability insurance covering the Indemnified Parties with respect
to claims arising out of facts or events that occurred prior to the Effective
Time. The foregoing provisions are intended to be for the benefit of, and shall
be enforceable by, each Indemnified Party and the heirs and personal
representatives of such Indemnified Party and shall be binding on all successors
and assigns of Conseco.
ACCOUNTING TREATMENT
Conseco intends to account for the Merger under the purchase method of
accounting in accordance with APB Opinion No. 16, "Business Combinations." Under
this method of accounting, the cost of acquiring all outstanding shares of THI
Common Stock and the assumption of all outstanding THI Stock Options and THI
Warrants will be determined by the value at the Effective Time of the Merger
Consideration and the Conseco Common Stock (or cash) to be issued to holders of
THI Stock Options and THI Warrants, plus the direct costs associated with the
Merger. Conseco will allocate such cost in establishing new accounting and
reporting bases for the underlying acquired assets and liabilities based on
their estimated fair values at the Effective Time.
REGULATORY APPROVALS
ANTITRUST. Under the HSR Act and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and specified waiting period requirements have been satisfied.
Conseco and THI filed notification and report forms under the HSR Act with the
FTC and the Antitrust Division on October 30, 1996. Early termination of the
required waiting period under the HSR Act was obtained on November 15, 1996. At
any time before or after the consummation of the Merger, and notwithstanding
that the HSR Act waiting period has been terminated, the Antitrust Division of
the FTC could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the consummation
of the Merger or seeking divestiture of substantial assets of Conseco and THI.
At any time before or after the consummation of the Merger, and notwithstanding
that the HSR Act waiting period has been terminated, any state could take such
action under the antitrust laws as it deems necessary or desirable in the public
interest. Such action could include seeking to enjoin the consummation of the
Merger or seeking divestiture of THI or businesses of Conseco or THI. Private
parties may also seek to take legal action under the antitrust laws under
certain circumstances.
Conseco and THI believe that the Merger can be effected in compliance with
federal and state antitrust laws. However, there can be no assurance that a
challenge to the consummation of the Merger on antitrust grounds will not be
made or that, if such a challenge were made, Conseco and THI would prevail or
would not be required to accept certain conditions, possibly including certain
divestitures, in order to consummate the Merger.
INSURANCE. The consummation of the Merger will require the approval of the
Commissioner of the Texas Department of Insurance (Texas is the jurisdiction in
which the insurance companies owned by THI are domiciled). The Texas Insurance
Code contains provisions applicable to the acquisition of control of a Texas-
domiciled insurer, including a presumption of control that arises from the
ownership of ten percent or more of
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the voting securities of a Texas-domiciled insurer or a person that controls a
Texas-domiciled insurer. Appropriate filings with the Texas Insurance
Commissioner have been made and it is anticipated, although there can be no
assurance, that the approval of the Texas Insurance Commissioner will be
obtained.
NYSE LISTING OF CONSECO COMMON STOCK
Pursuant to the Merger Agreement, Conseco is required to use commercially
reasonable efforts to obtain listing on the NYSE of the shares of Conseco Common
Stock to be issued in connection with the Merger. Approval of the listing on the
NYSE of the shares of Conseco Common Stock to be issued in the Merger is a
condition to the respective obligations of THI and Conseco to consummate the
Merger.
ABSENCE OF APPRAISAL RIGHTS
Holders of THI Common Stock will not be entitled to appraisal rights under
the DGCL in connection with the Merger. Holders of Conseco Common Stock will not
be entitled to appraisal rights under the Indiana Business Corporation Law (the
"IBCL") in connection with the Merger. See "Comparison of Shareholders' Rights
- -- Dissenters' Rights."
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THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement. This summary is qualified in its entirety by reference to the Merger
Agreement. All stockholders are urged to read the Merger Agreement in its
entirety.
THE MERGER
The Merger Agreement provides that, subject to satisfaction or waiver of
the terms and conditions contained in the Merger Agreement, including the
approval of the Merger Agreement and the Merger by the stockholders of THI and
the obtaining of required regulatory approvals, THI will be merged with and into
Conseco, with Conseco being the surviving corporation. See "-- Conditions to the
Merger" and "-- Termination."
EFFECTIVE TIME
The Merger Agreement provides that, subject to the satisfaction or waiver
of certain conditions and the requisite approval of the stockholders of THI, the
Merger will be consummated by and will become effective on the date of the
filing of the Articles of Merger with the Secretary of State of Indiana and the
Certificate of Merger with the Secretary of State of Delaware or at such time
thereafter as is provided in the Articles of Merger and the Certificate of
Merger. The Merger Agreement may be terminated by either Conseco or THI if,
among other reasons, the Merger has not been consummated on or before January
31, 1997 (or March 31, 1997 under certain circumstances). See "-- Conditions to
the Merger" and "-- Termination."
CONVERSION OF SHARES; EXCHANGE OF STOCK CERTIFICATES; NO FRACTIONAL AMOUNTS
At the Effective Time, pursuant to the Merger Agreement, each share of THI
Common Stock issued and outstanding immediately prior to the Effective Time
(other than shares held as treasury shares by THI) will, by virtue of the Merger
and without any action on the part of the holder thereof, be converted into the
right to receive the whole number and fraction (rounded to the nearest
ten-thousandth) of a share of Conseco Common Stock determined by dividing $70.00
by the Conseco Share Price. The "Conseco Share Price" shall be equal to the
Trading Average (as defined below); provided, however, that if the Trading
Average is less than $38.25, then the Conseco Share Price shall be $38.25, and
if the Trading Average is greater than $50.00, then the Conseco Share Price
shall be $50.00. The "Trading Average" shall be equal to the average of the
closing prices of the Conseco Common Stock on the NYSE Composite Transactions
Reporting System, as reported in The Wall Street Journal, for the ten trading
days immediately preceding the second trading day prior to the Effective Time.
As a result of this Exchange Ratio, holders of THI Common Stock will receive,
upon consummation of the Merger, not less than 1.4000 shares and not more than
1.8301 shares of Conseco Common Stock for each share of THI Common Stock held at
the Effective Time. The Conseco Common Stock to be issued to holders of shares
of THI Common Stock in accordance with the Merger and any cash to be paid in
lieu of fractional shares of Conseco Common Stock are referred to collectively
as the "Merger Consideration."
In the event of any change in Conseco Common Stock between the date of the
Merger Agreement and the Effective Time of the Merger by reason of any stock
split, dividend, subdivision, reclassification, recapitalization, combination,
exchange of shares or the like, the number and class of shares of Conseco Common
Stock to be issued and delivered in the Merger in exchange for each outstanding
share of THI Common Stock as provided in the Merger Agreement and the
calculation of all share prices provided for in the Merger Agreement shall be
proportionately adjusted.
On December 19, 1996, the last full trading day for which information was
available prior to the mailing of this Statement, the closing price reported for
shares of Conseco Common Stock on the NYSE was $63.375 per share and the closing
price reported for shares of THI Common Stock on the Nasdaq National Market was
$87.50 per share. There can be no assurance or prediction, and neither Conseco
nor THI hereby make any assurance or prediction, as to the future price of the
Conseco Common Stock or THI Common Stock.
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No fractional shares of Conseco Common Stock will be issued in connection
with the Merger. Each THI stockholder who otherwise would have been entitled to
receive a fraction of a share of Conseco Common Stock (after taking into account
all certificates representing THI Common Stock ("Certificates") delivered by
such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of Conseco Common Stock
multiplied by the Conseco Share Price.
Promptly after the Effective Time, First Union National Bank of North
Carolina (the "Exchange Agent") will mail to each record holder of Certificates,
which prior thereto represented THI Common Stock, a form of letter of
transmittal and instructions for use in surrendering such Certificates and
receiving the consideration to which such holder shall be entitled pursuant to
the Merger Agreement. After receipt of such transmittal form, each holder of
Certificates should surrender such Certificates to the Exchange Agent together
with the letter of transmittal duly executed and completed in accordance with
the instructions thereto, and each such holder will be entitled to receive in
exchange therefor certificates for shares of Conseco Common Stock and a check
for any cash which may be payable in lieu of a fractional share of Conseco
Common Stock.
THI STOCKHOLDERS SHOULD NOT FORWARD THEIR CERTIFICATES TO THE EXCHANGE
AGENT UNTIL THEY HAVE RECEIVED A LETTER OF TRANSMITTAL AND INSTRUCTIONS.
After the Effective Time, each outstanding Certificate (other than
Certificates evidencing shares of THI Common Stock held as treasury shares by
THI), which prior thereto represented THI Common Stock, until so surrendered and
exchanged, will be deemed, for all purposes, to evidence only the right to
receive the Merger Consideration that the holder of such Certificate is entitled
to receive pursuant to the terms of the Merger Agreement.
TREATMENT OF THI STOCK OPTIONS AND THI WARRANTS
From and after the Effective Time, each THI Stock Option shall be
exercisable, for the same aggregate consideration payable to exercise such THI
Stock Option immediately prior to the Effective Time, for the number of shares
of Conseco Common Stock which the holder would have been entitled to receive at
the Effective Time if such THI Stock Option had been fully vested and exercised
for shares of THI Common Stock immediately prior to the Effective Time, and
otherwise on the same terms and conditions as were applicable under the 1995
Stock Plan and the underlying stock option agreement; provided, that each THI
Stock Option, if not then vested, will vest in full at the Effective Time in
accordance with the 1995 Stock Plan.
From and after the Effective Time, each outstanding THI Warrant shall be
exercisable, for the same aggregate consideration payable to exercise such THI
Warrant immediately prior to the Effective Time, for the number of shares of
Conseco Common Stock which the holder of such THI Warrant would have been
entitled to receive at the Effective Time if such THI Warrant had been exercised
in full for shares of THI Common Stock immediately prior to the Effective Time,
and otherwise on the same terms and conditions as were applicable under such THI
Warrant. Conseco has also agreed to amend the outstanding THI Warrants as soon
as practicable after the Effective Time to provide that the holders thereof may,
from time to time, sell all or part of the THI Warrants (subject to a reasonable
minimum size limitation and a reasonable limit on the number of such sales each
year) to Conseco for a price equal to the difference between the "current market
price" and the "current warrant price" (as such terms are defined in the
underlying warrant agreement), each as of the date of the proposed sale. The
outstanding THI Warrants are held by trusts established for the benefit of the
children of Messrs. Lasater and Sharpe.
Conseco has agreed to take all corporate action necessary to reserve for
issuance a sufficient number of shares of Conseco Common Stock for delivery upon
exercise of THI Stock Options assumed in accordance with the Merger Agreement
and to register such shares of Conseco Common Stock with the Commission pursuant
to a Registration Statement on Form S-8.
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REDEMPTION OF THI PREFERRED STOCK
The Merger Agreement provides that all of the outstanding shares of THI
Preferred Stock will be redeemed before the Effective Time. In accordance with
the terms of the THI Certificate of Incorporation, AMAD, as the sole holder of
THI Preferred Stock, will receive, upon redemption of the shares of THI
Preferred Stock held by it, an amount equal to the liquidation preference
therefor ($250 per share), plus accrued and unpaid dividends thereon (whether or
not declared) to but excluding the date of redemption. Such amount is expected
to be approximately $26.4 million. In connection with such redemption, Travelers
and AMAD executed a letter agreement with THI agreeing that (i) the THI
Preferred Stock may be redeemed by THI, in connection with the Merger, without
complying with the notice provisions set forth in the certificate of
designations governing the THI Preferred Stock, (ii) the redemption of the THI
Preferred Stock in connection with the Merger may be effected immediately
following THI's oral notification of Travelers of such redemption and payment of
the redemption price therefor, and otherwise in accordance with, and with the
effect set forth in, the certificate of designations governing the THI Preferred
Stock, and (iii) Travelers will cause the certificates representing the shares
of THI Preferred Stock to be delivered to THI promptly following such
redemption. See "The Merger Agreement -- Redemption of THI Preferred Stock."
THI EMPLOYEE MATTERS
Pursuant to the Merger Agreement, Conseco will provide severance benefits
for certain persons who are eligible employees of THI or any of THI's
subsidiaries immediately prior to the Effective Time. Any such person who
experiences a Severance Event within 18 months after the Effective Time will be
entitled to receive severance benefits in the form of a lump sum equal to (i) up
to twelve months of base salary (based upon employee classification) plus (ii)
two weeks of base salary plus (iii) one week of base salary for every year of
service. In lieu of such severance benefits, THI's senior officers will be
entitled to receive the severance benefits described under "The Merger --
Interests of Certain Persons in the Merger -- Severance Benefits."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain customary representations and
warranties relating to, among other things, (1) each of Conseco's and THI's
organization and similar corporate matters; (2) each of Conseco's and THI's
capital structure; (3) the authorization, execution, delivery, performance and
enforceability of the Merger Agreement with respect to Conseco and THI and
related matters; (4) documents filed by each of Conseco and THI with the
Commission and the accuracy of information contained therein; (5) the absence of
material changes with respect to the business of Conseco and THI; and (6)
compliance with applicable laws.
CERTAIN COVENANTS
The Merger Agreement contains certain customary covenants and agreements,
including, without limitation, the following:
CONDUCT OF BUSINESS. Pursuant to the Merger Agreement, Conseco has agreed
that during the period from the date of the Merger Agreement until the Effective
Time, Conseco shall, and shall cause its subsidiaries to, carry on their
respective businesses in the usual, regular and ordinary course and not, among
other things, (1)(A) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, stock or property) in respect of, any
outstanding capital stock of Conseco (other than its regular quarterly cash
dividend on Conseco Common Stock and regular cash dividends on the Conseco
PRIDES, in each case with usual record and payment dates and in accordance with
Conseco's Articles of Incorporation and its present dividend policy) or (B)
split, combine or reclassify any of its outstanding capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for shares of Conseco's outstanding capital stock; (2) issue, sell,
grant, pledge or otherwise encumber any shares of its capital stock, any other
voting securities or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible
securities, in each case if any such action could
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reasonably be expected to (A) delay materially the date of mailing of this
Statement or, (B) if it were to occur after such date of mailing, require an
amendment of this Statement; or (3) acquire any business or any corporation,
partnership, joint venture, association or other business organization or
division thereof, in each case if any such action could reasonably be expected
to (A) delay materially the date of mailing of this Statement or (B) if it were
to occur after such date of mailing, require an amendment of this Statement.
Pursuant to the Merger Agreement, THI has agreed that, during the period
from the date of the Merger Agreement until the Effective Time, except as
permitted by the Merger Agreement, as set forth on the Disclosure Schedules
thereto or as otherwise consented to in writing by Conseco, THI will, and will
cause its subsidiaries to, act and carry on their respective businesses in the
ordinary course of business and not (without the prior consent of Conseco),
among other things (1)(A) declare, set aside or pay any dividends on, or make
any other distributions (whether in cash, stock or property) in respect of, any
of THI's outstanding capital stock; (B) split, combine or reclassify any of
THI's outstanding capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of THI's
outstanding capital stock; or (C) purchase, redeem or otherwise acquire any
shares of THI's outstanding capital stock or any rights, warrants or options to
acquire such shares; (2) issue, sell, grant, pledge or otherwise encumber any
shares of its capital stock, any other voting securities, or any securities
convertible into, or any rights, warrants, or options to acquire, any such
shares other than upon the exercise of THI Stock Options outstanding on the date
of the Merger Agreement; (3) amend its Certificate of Incorporation or By-laws;
(4) acquire, form, or commence operations of any business; (5) sell, mortgage or
otherwise encumber or otherwise dispose of any of its properties or assets that
are material to THI and its subsidiaries taken as a whole, except in the
ordinary course of business; (6) incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, other than indebtedness owing
to or guarantees of indebtedness owing to THI or any subsidiary of THI, or make
any loans or advances to any other person other than routine advances to agents
and employees; (7) make any tax election or settle or compromise any income tax
liability that would reasonably be expected to be material to THI and its
subsidiaries taken as a whole; (8) pay, discharge, settle or satisfy any claims,
liabilities or obligations other than the payment, discharge or satisfaction, in
the ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements of THI filed
with the Commission or incurred since the date of such financial statements in
the ordinary course of business consistent with past practice; (9) invest its
future cash flow, any cash from matured and maturing investments, any cash
proceeds from the sale of its assets and properties, and any cash funds
currently held by it, in any investments other than cash equivalent assets or in
short-term investments, except (A) as otherwise required by law, (B) as required
to provide cash (in the ordinary course of business and consistent with past
practice) to meet its actual or anticipated obligations or (C) in publicly
traded corporate bonds that are rated investment grade by at least two
nationally recognized statistical rating organizations; (10) except as may be
required by law, (A) make any representation or promise to any employee or
former director, officer, or employee of THI or its subsidiaries that is
inconsistent with the terms of any THI benefit plan, (B) make any change to the
contracts, salaries, wages, or other compensation of any employee or any agent
or consultant of THI or any subsidiary other than changes that are required
under existing contracts, (C) adopt, enter into, amend, alter or terminate any
existing THI benefit plan or any election made pursuant to the provisions of any
existing THI benefit plan, to accelerate any payments, obligations or vesting
schedules under any existing THI benefit plan, or (D) approve any general or
company-wide pay increases for employees; (11) except in the ordinary course of
business, modify, amend or terminate any material agreement, permit, concession,
franchise, license or similar instrument to which THI or any subsidiary is a
party or waive, release or assign any material rights or claims thereunder; or
(12) hold any meeting of the THI Board of Directors or the board of directors of
any subsidiary or any committee of any such board, or take any action by written
consent of any such board or committee, without providing to Conseco (A) notice
of any such meeting no later than the date notice is given to the board of
directors or in advance of the date of any proposed action by written consent
and (B) with such notice, except as provided in the Merger Agreement, an agenda
of the specific matters to be considered at such meeting or a copy of the
proposed written consent.
NO SOLICITATION. Pursuant to the Merger Agreement, THI shall not, nor shall
it permit any of its subsidiaries to, nor shall it authorize or permit any
officer, director or employee of, or any investment banker,
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attorney or other advisor or representative of, THI or any of its subsidiaries
to, directly or indirectly, (1) solicit, initiate or encourage the submission of
any bona fide proposal with respect to a merger, consolidation, share exchange
or similar transaction involving THI or any subsidiary of THI, or any purchase
of all or any significant portion of the assets of THI or any subsidiary of THI,
or any equity interest in THI or any subsidiary of THI, other than the
transactions contemplated by the Merger Agreement (each an "Acquisition
Proposal"), or (2) participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to, or take any other action
to facilitate any inquiries or the making of any proposal that constitutes, or
may reasonably be expected to lead to, any Acquisition Proposal. The foregoing
shall not prohibit the THI Board of Directors from furnishing information to, or
entering into discussions or negotiations with, any person or entity that makes
an unsolicited Acquisition Proposal if, and only to the extent that (1) the THI
Board of Directors, after consultation with and based upon the advice of outside
counsel, determines in good faith that in order for the THI Board of Directors
to comply with its fiduciary duties to THI stockholders under applicable law it
should take such action and (2) prior to taking such action, THI (A) provides
reasonable notice to Conseco to the effect that it is taking such action and (B)
receives from such person or entity an executed confidentiality agreement in
reasonably customary form.
INDEMNIFICATION OF DIRECTORS AND OFFICERS; INSURANCE. Pursuant to the
Merger Agreement, Conseco has agreed that the certificate of incorporation and
by-laws of each of THI's subsidiaries shall contain the provisions with respect
to indemnification set forth therein on the date of the Merger Agreement, and
such provisions shall not be amended, repealed or otherwise modified for a
period of six years after the Effective Time in any manner that would adversely
affect the Indemnified Parties in respect of actions or omissions occurring at
or prior to the Effective Time unless such modification is required by law.
Conseco has agreed to indemnify the Indemnified Parties, but only to the extent
that THI would have been obligated to do so if it had been the Surviving
Corporation in the Merger. In addition, for a period of three years following
the Effective Time, Conseco has agreed to maintain officers' and directors'
liability insurance covering the Indemnified Parties who are currently covered
by THI's existing officers' and directors' liability insurance policies.
CONDITIONS TO THE MERGER
The respective obligations of Conseco and THI to effect the Merger are
subject to the following conditions, among others: (1) the Merger Agreement and
the Merger shall have been approved and adopted by the stockholders of THI; (2)
all required consents, approvals, permits and authorizations to the consummation
of the transactions contemplated hereby by THI and Conseco shall be obtained
from (A) the Commissioner of the Texas Department of Insurance and (B) any other
governmental entity whose consent, approval, permission or authorization is
required by reason of a change in law after the date of the Merger Agreement,
unless the failure to obtain such consent, approval, permission or authorization
would not reasonably be expected to have a material adverse effect on the
business, financial condition or results of operations of THI and its
subsidiaries, taken as a whole, or on the validity or enforceability of the
Merger Agreement; (3) the waiting period (and any extension thereof) applicable
to the Merger under the HSR Act shall have been terminated or shall have
otherwise expired; (4) no temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the Merger shall
be in effect; (5) the shares of Conseco Common Stock issuable to THI's
stockholders pursuant to the Merger shall have been approved for listing on the
NYSE, subject to official notice of issuance; and (6) the Registration Statement
shall have become effective under the Securities Act and shall not be the
subject of any stop order or proceedings seeking a stop order.
The obligation of Conseco to effect the Merger is subject to, among other
things, the following additional conditions: (1) the representations and
warranties of THI contained in the Merger Agreement shall have been true and
correct on the date of the Merger Agreement and on the Closing Date (except to
the extent that they expressly relate only to an earlier time, in which case
they shall have been true and correct as of such earlier time), other than such
breaches of representations and warranties which in the aggregate would not
reasonably be expected to have a material adverse effect on the business,
financial condition or results of operations of THI and its subsidiaries taken
as a whole; (2) THI shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement at or
prior to the Closing Date; and (3) holders of
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at least 90 percent of the aggregate principal amount of Series A and Series B
Notes shall have accepted the offer made by Conseco to exchange such notes in
the Exchange Offer. IP and Messrs. Lasater and Sharpe are parties to Exchange
Agreements that provide that such Holders will tender their Series A Notes in
the Exchange Offer and deliver Consents in the Solicitation. Conseco anticipates
that AMAD will participate in the Exchange Offer. Neither Travelers nor AMAD has
executed an Exchange Agreement. Assuming that IP, Messrs. Lasater and Sharpe,
and AMAD tender their Notes in the Exchange Offer, this condition to the Merger
will be satisfied.
The obligation of THI to effect the Merger is subject to, among other
things, the following additional conditions: (1) the representations and
warranties of Conseco contained in the Merger Agreement shall have been true and
correct on the date of the Merger Agreement and on the Closing Date (except to
the extent that they expressly relate only to an earlier time, in which case
they shall have been true and correct as of such earlier time), other than such
breaches of representations and warranties which in the aggregate would not
reasonably be expected to have a material adverse effect on the business,
financial condition or results of operations of Conseco and its subsidiaries
taken as a whole; and (2) Conseco shall have performed in all material respects
all obligations required to be performed by it under the Merger Agreement at or
prior to the Effective Time; and (3) THI shall have received the opinion dated
the Closing Date of Weil, Gotshal & Manges LLP, counsel to THI, or such other
legal counsel reasonably acceptable to THI and Conseco to the effect that the
Merger will be treated as a reorganization under Section 368(a)(1) of the Code
as a result of which the stockholders of THI will not be subject to federal
income tax on the receipt of shares of Conseco Common Stock in exchange for
shares of THI Common Stock pursuant to the Merger.
TERMINATION
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time, whether before or after approval of the Merger
Agreement and the Merger by THI's stockholders at the Special Meeting: (1) by
the mutual written consent of Conseco and THI; or (2) by Conseco or THI (A) if,
upon a vote at a duly held meeting of the stockholders of THI or any adjournment
thereof, any required approval of the stockholders of THI shall not be obtained;
(B) at any time after January 31, 1997, if the Merger shall not have been
consummated by such date, unless the failure to consummate the Merger is the
result of a willful and material breach of the Merger Agreement by the party
seeking to terminate the Merger Agreement; provided, however, that either party
may by notice to the other party extend such date to March 31, 1997 if the only
conditions to closing not satisfied as of January 31, 1997 are those relating to
stockholder approval, governmental and regulatory consents or the HSR Act; (C)
if any governmental entity shall have issued an order, decree or ruling or taken
any other action permanently enjoining, restraining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall have become final
and nonappealable; (D) if the THI Board of Directors shall have exercised its
rights set forth in Section 4.9 of the Merger Agreement (summarized below under
"-- Right of THI Board of Directors to Withdraw its Recommendation"); or (E) if
on the scheduled Closing Date the average of the closing prices of the Conseco
Common Stock on the NYSE Composite Transactions Reporting System for the five
trading days immediately preceding the second trading day prior to the scheduled
Closing Date is less than $34.875. The failure to satisfy or obtain the waiver
of any condition to the Merger (as described above under "-- Conditions to the
Merger"), including, without limitation, the condition relating to the accuracy
of representations and warranties contained in the Merger Agreement, could
prevent the consummation of the Merger prior to the applicable dates described
under clause 2(B) above and thereby allow either party to unilaterally terminate
the Merger Agreement.
If the Merger Agreement is validly terminated as described above, the
Merger Agreement shall become void and have no effect, except for certain
covenants regarding brokers, confidentiality and, as described below under
"-- Expenses," payment of expenses, and except that no party thereto will be
relieved of any liability for damages that such party may have to the other
party by reason of such party's breach of the Merger Agreement.
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RIGHT OF THI BOARD OF DIRECTORS TO WITHDRAW ITS RECOMMENDATION
Under the Merger Agreement, the THI Board of Directors shall not (1)
withdraw or modify, in a manner materially adverse to Conseco, the approval or
recommendation by the THI Board of Directors of the Merger Agreement or the
Merger or (2) enter into any agreement with respect to any Acquisition Proposal,
unless THI receives an Acquisition Proposal and the THI Board of Directors
determines in good faith, following consultation with outside counsel, that in
order to comply with its fiduciary duties to stockholders under applicable law
the THI Board of Directors should withdraw or modify, in a manner materially
adverse to Conseco, its approval or recommendation of the Merger Agreement or
the Merger, or enter into an agreement with respect to such Acquisition Proposal
or terminate the Merger Agreement. In the event the THI Board of Directors takes
any of the foregoing actions, THI shall, concurrently with the taking of any
such action, pay to Conseco the fee described in "-- Breakup Fee."
BREAKUP FEE
THI has agreed to pay to Conseco upon demand $7.5 million (a "Breakup
Fee"), payable in same-day funds, if a bona fide Acquisition Proposal is
commenced, publicly proposed, publicly disclosed or communicated to THI (or the
willingness of any person to make such an Acquisition Proposal is publicly
disclosed or communicated to THI) and the THI Board of Directors, in accordance
with Section 4.9 of the Merger Agreement (summarized above under "-- Right of
THI Board of Directors to Withdraw its Recommendation"), withdraws or modifies
in a manner materially adverse to Conseco its approval or recommendation of the
Merger Agreement or the Merger, or enters into an agreement with respect to such
Acquisition Proposal (other than a confidentiality agreement as contemplated by
the Merger Agreement), or terminates the Merger Agreement.
EXPENSES
In the absence of a requirement to pay a Breakup Fee and except as provided
in the following paragraph, whether or not the Merger is consummated, each of
THI and Conseco will pay its own costs and expenses incident to preparing for,
entering into and carrying out the Merger Agreement and the consummation of the
transactions contemplated thereby except that the expenses incurred in
connection with the printing, mailing and distribution of this Statement and the
preparation and filing of the Registration Statement shall be borne equally by
Conseco and THI.
In the absence of a requirement to pay a Breakup Fee, unless Conseco is
materially in breach of the Merger Agreement or is unable to satisfy certain
closing conditions in the Merger Agreement, THI has agreed to pay to Conseco
upon demand an amount not to exceed $2 million to reimburse Conseco for its
out-of-pocket fees and expenses in connection with the Merger or the
consummation of the transactions contemplated by the Merger Agreement, payable
in same-day funds, if the requisite approval of THI's stockholders for the
Merger is not obtained and all other closing conditions contained in the Merger
Agreement have been satisfied or waived or, with respect to any condition not
then satisfied, it is substantially likely that such condition will be satisfied
on or before March 31, 1997 through the exercise of commercially reasonable
efforts to procure the satisfaction thereof. See "-- Termination."
MODIFICATION OR AMENDMENT
Subject to the applicable provisions of the IBCL and DGCL, at any time
prior to the Effective Time, THI and Conseco may modify or amend the Merger
Agreement, by written agreement executed and delivered by duly authorized
officers of the respective parties; provided, however, that after approval of
the Merger by the stockholders of THI, no amendment may be made which reduces
the consideration payable in the Merger or adversely affects the rights of the
THI's stockholders under the Merger Agreement without the approval of such
stockholders.
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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF CONSECO
The unaudited pro forma consolidated statements of operations of Conseco
for the year ended December 31, 1995, and for the nine months ended September
30, 1996, present the consolidated operating results of Conseco as if the
following transactions had occurred on January 1, 1995: (i) the TOPrS Offering;
(ii) the TruPS Offering; (iii) the Merger; (iv) the BLH Transaction; (v) the CAF
Merger; and (vi) the ATC Merger.
The pro forma consolidated statement of operations data for Conseco for the
year ended December 31, 1995, set forth in the unaudited pro forma consolidated
statement of operations under the column "Pro forma Conseco before the TOPrS
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: (i) the Series D Call; (ii) the
ALH Transaction; (iii) the LPG Merger; (iv) the acquisition of all of the
outstanding common stock of CCP not previously owned by Conseco and related
transactions (including the repayment of the borrowings under Conseco's existing
$250.0 million revolving credit agreement); (v) the increase of Conseco's
ownership in BLH to 90.4 percent, as a result of purchases of common shares of
BLH by Conseco and BLH during 1995 and the first three months of 1996; (vi) the
issuance of 4.37 million shares of Conseco PRIDES in January 1996; (vii) the BLH
Tender Offer; and (viii) the debt restructuring of ALH in the fourth quarter of
1995. Such pro forma adjustments are set forth in: (i) Exhibit 99.2 included in
Conseco's Current Report on Form 8-K dated September 25, 1996; (ii) Conseco's
Current Report on Form 8-K dated August 2, 1996; and (iii) Exhibit 99.1 included
in Conseco'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."
The pro forma consolidated statement of operations data for Conseco for the
nine months ended September 30, 1996, set forth in the unaudited pro forma
consolidated statement of operations under the column "Pro forma Conseco before
the TOPrS 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: (i) the Series D Call;
(ii) the ALH Transaction; (iii) the LPG Merger; (iv) the issuance of 4.37
million shares of Conseco PRIDES in January 1996; and (v) the BLH Tender Offer.
Such pro forma adjustments are set forth in Exhibit 99.1 included in Conseco's
Form 10-Q for the quarterly period ended September 30, 1996, which is
incorporated herein by reference. See "Incorporation of Certain Documents by
Reference."
The unaudited pro forma consolidated balance sheet of Conseco as of
September 30, 1996, gives effect to the following transactions as if each had
occurred on September 30, 1996: (i) the TOPrS Offering; (ii) the TruPS Offering;
(iii) the Merger; (iv) the BLH Transaction; (v) the CAF Merger; and (vi) the ATC
Merger.
The pro forma consolidated financial statements are based on the historical
financial statements of Conseco, LPG, THI, CAF and ATC 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 Conseco had
these transactions occurred on January 1, 1995, nor the results of future
operations. Conseco anticipates cost savings and additional benefits as a result
of certain of the transactions contemplated in the pro forma financial
statements. Such benefits and any other changes that might have resulted from
management of the combined companies have not been included as adjustments to
the pro forma consolidated financial statements. Certain amounts from the prior
periods have been reclassified to conform to the current presentation.
The unaudited pro forma consolidated financial statements reflect cost
allocations for the LPG Merger, the ALH Transaction, the Merger, the BLH
Transaction, the CAF Merger and the ATC Merger using estimated values of the
assets and liabilities of LPG, ALH, THI, BLH, CAF and ATC as of the assumed
merger dates based on appraisals and other studies, which are not yet complete.
Accordingly, the final allocations will be different than the amounts included
in the accompanying pro forma consolidated financial statements. Although the
final allocations will differ, the pro forma consolidated financial statements
reflect management's best estimate based on currently available information as
if the LPG Merger, the ALH Transaction, the Merger, the BLH Transaction, the CAF
Merger and the ATC Merger had occurred on the assumed merger dates.
64
<PAGE> 72
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA
CONSECO ADJUSTMENTS ADJUSTMENTS PRO FORMA
BEFORE THE RELATING TO THE PRO FORMA RELATING TO CONSECO
TOPRS TOPRS CONSECO THE TRUPS BEFORE THI
OFFERING OFFERING SUBTOTAL OFFERING THE MERGER HISTORICAL
---------- ---------------- ---------- ----------- ---------- ----------
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
RELATING TO THE FOR THE
MERGER MERGER
---------------- ----------
Revenues:
Insurance policy income.................... $1,349.0 $ -- $1,349.0 $ -- $1,349.0 $ 82.4
Investment activity:
Net investment income.................... 1,084.4 1,084.4 1,084.4 29.6
Net trading losses....................... (6.5) (6.5) (6.5)
Net realized gains....................... 23.0 23.0 23.0 .3
Fee revenue................................ 29.7 29.7 29.7
Restructuring income....................... 30.4 30.4 30.4
Other income............................... 11.4 11.4 11.4 1.4
------- ----- ------- ----- ------- ------
Total revenues....................... 2,521.4 -- 2,521.4 -- 2,521.4 113.7
------- ----- ------- ----- ------- ------
Benefits and expenses:
Insurance policy benefits and change in
future policy benefits................... 957.2 957.2 957.2 54.1
Interest expense on annuities and financial
products................................. 549.5 549.5 549.5
Interest expense on notes payable.......... 100.7 (12.9)(1) 87.8 (15.6)(6) 72.2 6.8
Interest expense on investment
borrowings............................... 17.2 17.2 17.2
Amortization related to operations......... 242.9 242.9 242.9 6.2
Amortization related to realized gains..... 22.3 22.3 22.3
Other operating costs and expenses......... 243.5 243.5 243.5 24.4
------- ----- ------- ----- ------- ------
Total benefits and expenses.......... 2,133.3 (12.9) 2,120.4 (15.6) 2,104.8 91.5
------- ----- ------- ----- ------- ------
Income (loss) before income taxes,
minority interest and extraordinary
charge.............................. 388.1 12.9 401.0 15.6 416.6 22.2
Income tax expense (benefit)................ 147.9 4.5(2) 152.4 5.4(7) 157.8 7.8
------- ----- ------- ----- ------- ------
Income (loss) before minority
interest and extraordinary charge... 240.2 8.4 248.6 10.2 258.8 14.4
Minority interest in consolidated
subsidiaries:
Dividends on Company - obligated
mandatorily redeemable preferred
securities of subsidiary trusts.......... -- 12.3(3) 12.3 13.8(8) 26.1
Dividends on preferred stock............... 6.4 6.4 6.4
Equity in earnings......................... 13.9 13.9 13.9
------- ----- ------- ----- ------- ------
Income (loss) before extraordinary
charge.............................. $ 219.9 $ (3.9) $ 216.0 $(3.6) $ 212.4 $ 14.4
======= ===== ======= ===== ======= ======
Earnings per common share and common
equivalent share:
Primary:
Weighted average shares outstanding.... 77.2 77.2 77.2
======= ======= =======
Income before extraordinary charge..... $ 2.85 $ 2.80 $ 2.75
======= ======= =======
Fully diluted:
Weighted average shares outstanding.... 78.7 78.7 78.7
======= ======= =======
Income before extraordinary charge..... $ 2.79 $ 2.74 $ 2.70
======= ======= =======
<CAPTION>
Revenues:
<S> <C> <C>
Insurance policy income.................... $ -- $1,431.4
Investment activity:
Net investment income.................... (5.0)(11) 1,109.0
Net trading losses....................... (6.5)
Net realized gains....................... (.3)(11) 23.0
Fee revenue................................ 29.7
Restructuring income....................... 30.4
Other income............................... 12.8
------ -------
Total revenues....................... (5.3) 2,629.8
------ -------
Benefits and expenses:
Insurance policy benefits and change in
future policy benefits................... 1,011.3
Interest expense on annuities and financial
products................................. 549.5
Interest expense on notes payable.......... (6.8)(12) 73.1
.9(12)
Interest expense on investment
borrowings............................... 17.2
Amortization related to operations......... (6.2)(13) 253.2
10.3(13)
Amortization related to realized gains..... 22.3
Other operating costs and expenses......... 267.9
------ -------
Total benefits and expenses.......... (1.8) 2,194.5
------ -------
Income (loss) before income taxes,
minority interest and extraordinary
charge.............................. (3.5) 435.3
Income tax expense (benefit)................ (1.2)(14) 164.4
------ -------
Income (loss) before minority
interest and extraordinary charge... (2.3) 270.9
Minority interest in consolidated
subsidiaries:
Dividends on Company - obligated
mandatorily redeemable preferred
securities of subsidiary trusts.......... 26.1
Dividends on preferred stock............... 6.4
Equity in earnings......................... 13.9
------ -------
Income (loss) before extraordinary
charge.............................. $ (2.3) $ 224.5
====== =======
Earnings per common share and common
equivalent share:
Primary:
Weighted average shares outstanding.... 4.5(15) 81.7
====== =======
Income before extraordinary charge..... $ 2.75
=======
Fully diluted:
Weighted average shares outstanding.... 4.5(15) 83.2
====== =======
Income before extraordinary charge..... $ 2.70
=======
</TABLE>
(continued on the page which follows)
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
65
<PAGE> 73
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 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 ATC
BLH TRANSACTION SUBTOTAL HISTORICAL CAF MERGER SUBTOTAL HISTORICAL
--------------- --------- ---------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income................. $ -- $1,431.4 $219.9 $ -- $1,651.3 $283.3
Investment activity:
Net investment income................. 1,109.0 41.7 (2.6)(31) 1,148.1 33.2
Net trading losses.................... (6.5) (6.5)
Net realized gains.................... (0.2)(25) 22.8 0.3 (0.3)(31) 22.8 1.3
Fee revenue............................. 29.7 29.7
Restructuring income.................... 30.4 30.4
Other income............................ 12.8 12.8
----- ------- ------ ------ ------- -----
Total revenues.................... (0.2) 2,629.6 261.9 (2.9) 2,888.6 317.8
----- ------- ------ ------ ------- -----
Benefits and expenses:
Insurance policy benefits and change in
future policy benefits................ (1.5)(25) 1,009.8 124.4 (2.3)(32) 1,131.9 192.2
Interest expense on annuities and
financial products.................... 549.5 549.5
Interest expense on notes payable....... 73.1 1.6 (1.6)(33) 101.1 5.8
28.0 (34)
Interest expense on investment
borrowings............................ 17.2 17.2
Amortization related to operations...... 0.4 (25) 253.6 17.5 (17.5)(35) 281.0 16.4
23.0 (35)
4.4 (36)
Amortization related to realized
gains................................. (0.1)(25) 22.2 22.2
Other operating costs and expenses...... 1.6 (25) 269.5 58.7 328.2 64.4
----- ------- ------ ------ ------- -----
Total benefits and expenses....... 0.4 2,194.9 202.2 34.0 2,431.1 278.8
----- ------- ------ ------ ------- -----
Income (loss) before income taxes,
minority interest and
extraordinary charge............. (0.6) 434.7 59.7 (36.9) 457.5 39.0
Income tax expense (benefit)............. (0.1)(26) 164.3 20.9 (11.4)(37) 173.8 13.0
----- ------- ------ ------ ------- -----
Income (loss) before minority
interest and extraordinary
charge........................... (0.5) 270.4 38.8 (25.5) 283.7 26.0
Minority interest in consolidated
subsidiaries:
Dividends on Company - obligated
mandatorily redeemable preferred
securities of subsidiary trusts....... 26.1 26.1
Dividends on preferred stock............ 6.4 6.4
Equity in earnings...................... (13.9)(27) -- --
----- ------- ------ ------ ------- -----
Income (loss) before extraordinary
charge........................... $ 13.4 $ 237.9 $ 38.8 $ (25.5) $ 251.2 $ 26.0
===== ======= ====== ====== ======= =====
Earnings per common share and common
equivalent share:
Primary:
Weighted average shares
outstanding....................... 2.2 (28) 83.9 2.1 (38) 86.0
===== ======= ====== =======
Income before extraordinary
charge............................ $ 2.84 $ 2.92
======= =======
Fully diluted:
Weighted average shares
outstanding....................... 2.2 (28) 85.4 2.1 (38) 87.5
===== ======= ====== =======
Income before extraordinary
charge............................ $ 2.79 $ 2.87
======= =======
<CAPTION>
PRO FORMA
PRO FORMA FOR THE
ADJUSTMENTS MERGER AND
RELATING TO OTHER
THE ATC PLANNED
MERGER TRANSACTIONS
----------- ------------
<S> <C> <C>
Revenues:
Insurance policy income................. $ -- $1,934.6
Investment activity:
Net investment income................. 1.1 (50) 1,182.4
Net trading losses.................... (6.5)
Net realized gains.................... 2.3 (50) 26.4
Fee revenue............................. 29.7
Restructuring income.................... 30.4
Other income............................ 12.8
----- -------
Total revenues.................... 3.4 3,209.8
----- -------
Benefits and expenses:
Insurance policy benefits and change in
future policy benefits................ 1,324.1
Interest expense on annuities and
financial products.................... 549.5
Interest expense on notes payable....... 1.5 (51) 104.7
(3.7)(52)
Interest expense on investment
borrowings............................ 17.2
Amortization related to operations...... (16.4)(53) 311.7
19.9 (53)
10.8 (54)
Amortization related to realized
gains................................. 22.2
Other operating costs and expenses...... 392.6
----- -------
Total benefits and expenses....... 12.1 2,722.0
----- -------
Income (loss) before income taxes,
minority interest and
extraordinary charge............. (8.7) 487.8
Income tax expense (benefit)............. .7 (55) 187.5
----- -------
Income (loss) before minority
interest and extraordinary
charge........................... (9.4) 300.3
Minority interest in consolidated
subsidiaries:
Dividends on Company - obligated
mandatorily redeemable preferred
securities of subsidiary trusts....... 26.1
Dividends on preferred stock............ 6.4
Equity in earnings...................... --
----- -------
Income (loss) before extraordinary
charge........................... $ (9.4) $ 267.8
===== =======
Earnings per common share and common
equivalent share:
Primary:
Weighted average shares
outstanding....................... 10.4 (56) 96.4
===== =======
Income before extraordinary
charge............................ $ 2.78
=======
Fully diluted:
Weighted average shares
outstanding....................... 14.4 (56) 101.9
===== =======
Income before extraordinary
charge............................ $ 2.64
=======
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
66
<PAGE> 74
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
CONSECO PRO FORMA PRO FORMA
BEFORE ADJUSTMENTS ADJUSTMENTS PRO FORMA
THE RELATING TO THE PRO FORMA RELATING TO CONSECO
TOPRS TOPRS CONSECO THE TRUPS BEFORE THI
OFFERING OFFERING SUBTOTAL OFFERING THE MERGER HISTORICAL
--------- --------------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income....................... $1,752.8 $ -- $1,752.8 $ -- $1,752.8 $190.2
Investment activity:
Net investment income....................... 1,461.1 1,461.1 1,461.1 49.7
Net trading income.......................... 2.5 2.5 2.5
Net realized gains.......................... 220.3 220.3 220.3 6.7
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 -- 3,498.4 246.6
------- ------ ------- ------ ------- ------
Benefits and expenses:
Insurance policy benefits and change in future
policy benefits............................. 1,261.4 1,261.4 1,261.4 131.9
Interest expense on annuities and financial
products.................................... 758.5 758.5 758.5
Interest expense on notes payable............. 143.5 (17.3)(1) 126.2 (20.9)(6) 105.3 2.3
Interest expense on investment borrowings..... 30.2 30.2 30.2
Amortization related to operations............ 307.3 307.3 307.3 24.5
Amortization related to realized gains........ 144.4 144.4 144.4
Loss on sale of long-term care business....... -- -- -- 68.5
Expenses of spin-off and related
transactions................................ -- -- -- 2.2
Other operating costs and expenses............ 356.4 356.4 356.4 58.3
------- ------ ------- ------ ------- ------
Total benefits and expenses............... 3,001.7 (17.3) 2,984.4 (20.9) 2,963.5 287.7
------- ------ ------- ------ ------- ------
Income (loss) before income taxes,
minority interest and extraordinary
charge.................................. 496.7 17.3 514.0 20.9 534.9 (41.1)
Income tax expense (benefit)................... 192.3 6.1(2) 198.4 7.3(7) 205.7 (14.3)
------- ------ ------- ------ ------- ------
Income (loss) before minority interest and
extraordinary charge.................... 304.4 11.2 315.6 13.6 329.2 (26.8)
Minority interest in consolidated subsidiaries:
Dividends on Company - obligated mandatorily
redeemable preferred securities of
subsidiary trusts........................... -- 16.4(3) 16.4 18.4(8) 34.8
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 $ (5.2) $ 277.9 $ (4.8) $ 273.1 $(26.8)
======= ====== ======= ====== ======= ======
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 $ 3.67 $ 3.61
======= ======= =======
Fully diluted:
Weighted average shares outstanding....... 76.0 76.0 76.0
======= ======= =======
Income before extraordinary charge........ $ 3.72 $ 3.66 $ 3.59
======= ======= =======
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
RELATING TO FOR THE
THE MERGER MERGER
------------ ---------
<S> <<C> <C>
Revenues:
Insurance policy income....................... $ -- $1,943.0
Investment activity:
Net investment income....................... (6.9)(11) 1,503.9
Net trading income.......................... 2.5
Net realized gains.......................... (6.7)(11) 220.3
Fee revenue................................... 33.9
Restructuring income.......................... 15.2
Other income.................................. 12.6
------ -------
Total revenues............................ (13.6) 3,731.4
------ -------
Benefits and expenses:
Insurance policy benefits and change in future
policy benefits............................. 1,393.3
Interest expense on annuities and financial
products.................................... 758.5
Interest expense on notes payable............. (2.3)(12) 106.5
1.2(12)
Interest expense on investment borrowings..... 30.2
Amortization related to operations............ (24.5)(13) 323.2
15.9(13)
Amortization related to realized gains........ 144.4
Loss on sale of long-term care business....... (68.5)(16) --
Expenses of spin-off and related
transactions................................ (2.2)(16) --
Other operating costs and expenses............ 414.7
------ -------
Total benefits and expenses............... (80.4) 3,170.8
------ -------
Income (loss) before income taxes,
minority interest and extraordinary
charge.................................. 66.8 560.6
Income tax expense (benefit)................... 22.7(14) 214.1
------ -------
Income (loss) before minority interest and
extraordinary charge.................... 44.1 346.5
Minority interest in consolidated subsidiaries:
Dividends on Company - obligated mandatorily
redeemable preferred securities of
subsidiary trusts........................... 34.8
Dividends on preferred stock.................. 8.7
Equity in earnings............................ 12.6
------ -------
Income (loss) before extraordinary
charge.................................. $ 44.1 $ 290.4
====== =======
Earnings per common share and common equivalent
share:
Primary:
Weighted average shares outstanding....... 4.5(15) 80.2
====== =======
Income before extraordinary charge........ $ 3.62
=======
Fully diluted:
Weighted average shares outstanding....... 4.5(15) 80.5
====== =======
Income before extraordinary charge........ $ 3.61
=======
</TABLE>
(continued on the page which follows)
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
67
<PAGE> 75
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 ATC
BLH TRANSACTION SUBTOTAL HISTORICAL CAF MERGER SUBTOTAL HISTORICAL
--------------- --------- ---------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income.................. $ (0.3)(25) $1,942.7 $282.1 $ -- $2,224.8 $273.9
Investment activity:
Net investment income.................. (0.1)(25) 1,503.8 48.6 (3.4)(31) 1,549.0 23.2
Net trading income..................... 2.5 2.5
Net realized gains..................... (0.4)(25) 219.9 (0.1)(31) 219.8 .2
Fee revenue.............................. 33.9 33.9
Restructuring income..................... 15.2 15.2
Other income............................. (0.1)(25) 12.5 0.1 12.6
------ ------- ------ ------ ------- ------
Total revenues....................... (0.9) 3,730.5 330.8 (3.5) 4,057.8 297.3
------ ------- ------ ------ ------- ------
Benefits and expenses:
Insurance policy benefits and change in
future policy benefits................. (1.7)(25) 1,391.6 155.3 (3.0)(32) 1,543.9 172.9
Interest expense on annuities and
financial products..................... 0.3 (25) 758.8 758.8
Interest expense on notes payable........ (0.4)(25) 106.1 2.4 (2.4)(33) 143.5 3.3
37.4 (34)
Interest expense on investment
borrowings............................. 30.2 30.2
Amortization related to operations....... (2.8)(25) 320.4 21.5 (21.5)(35) 358.2 22.7
32.0 (35)
5.8 (36)
Amortization related to realized gains... (0.6)(25) 143.8 143.8
Loss on sale of long-term care
business............................... -- --
Expenses of spin-off and related
transactions........................... -- --
Other operating costs and expenses....... 5.9 (25) 420.6 80.0 500.6 63.7
------ ------- ------ ------ ------- ------
Total benefits and expenses.......... 0.7 3,171.5 259.2 48.3 3,479.0 262.6
------ ------- ------ ------ ------- ------
Income (loss) before income taxes,
minority interest and extraordinary
charge............................. (1.6) 559.0 71.6 (51.8) 578.8 34.7
Income tax expense (benefit).............. (0.6)(26) 213.5 25.6 (16.1)(37) 223.0 11.0
------ ------- ------ ------ ------- ------
Income (loss) before minority
interest and extraordinary
charge............................. (1.0) 345.5 46.0 (35.7) 355.8 23.7
Minority interest in consolidated
subsidiaries:
Dividends on Company - obligated
mandatorily redeemable preferred
securities of subsidiary trusts........ 34.8 34.8
Dividends on preferred stock............. 8.7 8.7
Equity in earnings....................... (12.6)(27) -- --
------ ------- ------ ------ ------- ------
Income (loss) before extraordinary
charge............................. $ 11.6 $ 302.0 $ 46.0 $ (35.7) $ 312.3 $ 23.7
====== ======= ====== ====== ======= ======
Earnings per common share and common
equivalent share:
Primary:
Weighted average shares
outstanding........................ 2.2 (28) 82.4 2.1 (38) 84.5
====== ======= ====== =======
Income before extraordinary charge... $ 3.66 $ 3.70
======= =======
Fully diluted:
Weighted average shares
outstanding........................ 2.2 (28) 82.7 2.1 (38) 84.8
====== ======= ====== =======
Income before extraordinary charge... $ 3.65 $ 3.68
======= =======
<CAPTION>
PRO FORMA
PRO FORMA FOR THE
ADJUSTMENTS MERGER
RELATING TO AND OTHER
THE ATC PLANNED
MERGER TRANSACTIONS
----------- ------------
<S> <C> <C>
Revenues:
Insurance policy income.................. $ $2,498.7
Investment activity:
Net investment income.................. 1.8 (50) 1,574.0
Net trading income..................... 2.5
Net realized gains..................... 2.0 (50) 222.0
Fee revenue.............................. 33.9
Restructuring income..................... 15.2
Other income............................. 12.6
------ -------
Total revenues....................... 3.8 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........ 1.9 (51) 145.5
(3.2)(52)
Interest expense on investment
borrowings............................. 30.2
Amortization related to operations....... (22.7)(53) 396.1
23.5 (53)
14.4 (54)
Amortization related to realized gains... 143.8
Loss on sale of long-term care
business............................... --
Expenses of spin-off and related
transactions........................... --
Other operating costs and expenses....... 564.3
------ -------
Total benefits and expenses.......... 13.9 3,755.5
------ -------
Income (loss) before income taxes,
minority interest and extraordinary
charge............................. (10.1) 603.4
Income tax expense (benefit).............. 1.5 (55) 235.5
------ -------
Income (loss) before minority
interest and extraordinary
charge............................. (11.6) 367.9
Minority interest in consolidated
subsidiaries:
Dividends on Company - obligated
mandatorily redeemable preferred
securities of subsidiary trusts........ 34.8
Dividends on preferred stock............. 8.7
Equity in earnings....................... --
------ -------
Income (loss) before extraordinary
charge............................. $ (11.6) $ 324.4
====== =======
Earnings per common share and common
equivalent share:
Primary:
Weighted average shares
outstanding........................ 10.4 (56) 94.9
====== =======
Income before extraordinary charge... $ 3.42
=======
Fully diluted:
Weighted average shares
outstanding........................ 14.4 (56) 99.2
====== =======
Income before extraordinary charge... $ 3.27
=======
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
68
<PAGE> 76
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS PRO FORMA PRO FORMA
RELATING TO THE PRO FORMA RELATING TO CONSECO ADJUSTMENTS
CONSECO TOPRS CONSECO THE TRUPS BEFORE THE THI RELATING TO
AS REPORTED OFFERING SUBTOTAL OFFERING MERGER HISTORICAL THE MERGER
----------- --------------- --------- ----------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments:
Actively managed
fixed maturity
securities at fair
value.............. $ 15,959.8 $ -- $15,959.8 $ -- $ 15,959.8 $483.0 $ (83.9)(17)
Held-to-maturity
fixed maturity
securities......... -- -- --
Equity securities at
fair value......... 104.2 104.2 104.2 1.1
Mortgage loans....... 372.5 372.5 372.5 8.3
Credit-tenant
loans.............. 393.8 393.8 393.8
Policy loans......... 526.0 526.0 526.0 16.9
Other invested
assets............. 211.0 211.0 211.0 6.5
Short-term
investments........ 212.3 265.5(4) 212.3 321.3(9) 212.3 34.6 83.9(17)
(265.5)(4) (321.3)(9) 18.5(18)
(18.5)(18)
(58.3)(18)
(25.6)(18)
Assets held in
separate
accounts........... 300.4 300.4 300.4
--------- ------- --------- ------- --------- ------- -------
Total
investments...... 18,080.0 -- 18,080.0 -- 18,080.0 550.4 (83.9)
Accrued investment
income............... 276.7 276.7 276.7 5.7
Cost of policies
purchased............ 1,847.1 1,847.1 1,847.1 10.8 112.8(19)
(10.8)(19)
Cost of policies
produced............. 541.0 541.0 541.0 28.4 (28.4)(20)
Reinsurance
receivables.......... 400.6 400.6 400.6 328.6 (260.0)(22)
Income taxes........... 138.9 138.9 138.9 (25.8)(21)
(17.5)(21)
Goodwill............... 1,524.7 1,524.7 1,524.7
Property and
equipment............ 105.9 105.9 105.9 .7
Securities segregated
for future redemption
of redeemable
preferred stock of a
subsidiary........... 45.0 45.0 45.0
Other assets........... 216.1 216.1 216.1 17.3
--------- ------- --------- ------- --------- ------- -------
Total assets....... $ 23,176.0 $ -- $23,176.0 $ -- $ 23,176.0 $941.9 $(313.6)
========= ======= ========= ======= ========= ======= =======
<CAPTION>
PRO FORMA
FOR THE
MERGER
---------
<S> <C>
Assets
Investments:
Actively managed
fixed maturity
securities at fair
value.............. $16,358.9
Held-to-maturity
fixed maturity
securities......... --
Equity securities at
fair value......... 105.3
Mortgage loans....... 380.8
Credit-tenant
loans.............. 393.8
Policy loans......... 542.9
Other invested
assets............. 217.5
Short-term
investments........ 246.9
Assets held in
separate
accounts........... 300.4
---------
Total
investments...... 18,546.5
Accrued investment
income............... 282.4
Cost of policies
purchased............ 1,959.9
Cost of policies
produced............. 541.0
Reinsurance
receivables.......... 469.2
Income taxes........... 95.6
Goodwill............... 1,524.7
Property and
equipment............ 106.6
Securities segregated
for future redemption
of redeemable
preferred stock of a
subsidiary........... 45.0
Other assets........... 233.4
---------
Total assets....... $23,804.3
=========
</TABLE>
(continued on the page which follows)
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
69
<PAGE> 77
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
SEPTEMBER 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 ATC
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........ $ -- $16,358.9 $ 308.5 $ 358.3 (39) $17,119.9 $689.7
94.2 (40)
Held-to-maturity fixed maturity
securities...................... -- 358.3 (358.3)(39) --
Equity securities at fair value... 105.3 10.2 115.5
Mortgage loans.................... 380.8 380.8 .4
Credit-tenant loans............... 393.8 393.8
Policy loans...................... 542.9 542.9
Other invested assets............. 217.5 217.5
Short-term investments............ 246.9 29.4 (538.0)(41) 276.3 12.2
(26.0)(41)
(29.0)(41)
593.0 (42)
Assets held in separate
accounts........................ 300.4 300.4
--------- --------- --------- -------- - --------- ---------
Total investments............... -- 18,546.5 706.4 94.2 19,347.1 702.3
Accrued investment income........... 282.4 6.9 289.3 7.7
Cost of policies purchased.......... 65.9 (25) 2,025.8 492.2 (43) 2,518.0 10.9
Cost of policies produced........... (50.7)(25) 490.3 271.3 (271.3)(44) 490.3 168.7
Reinsurance receivables............. 469.2 469.2
Income taxes........................ (5.3)(26) 90.3 (79.3)(45) --
(11.0)(45)
Goodwill............................ 57.3 (25) 1,582.0 227.7 (46) 1,809.7
Property and equipment.............. 106.6 4.4 111.0 3.9
Securities segregated for future
redemption of redeemable preferred
stock of a subsidiary............. 45.0 45.0
Other assets........................ 233.4 28.9 262.3 14.1
--------- --------- --------- -------- - --------- ---------
Total assets.................... $ 67.2 $23,871.5 $ 1,017.9 $ 452.5 $25,341.9 $907.6
========= ========= ========= ========= ========= =========
<CAPTION>
PRO FORMA
FOR THE
PRO FORMA MERGER
ADJUSTMENTS AND OTHER
RELATING TO THE PLANNED
ATC MERGER TRANSACTIONS
--------------- ------------
<S> <C> <C>
Assets
Investments:
Actively managed fixed maturity
securities at fair value........ $ -- $ 17,809.6
Held-to-maturity fixed maturity
securities...................... --
Equity securities at fair value... 115.5
Mortgage loans.................... 381.2
Credit-tenant loans............... 393.8
Policy loans...................... 542.9
Other invested assets............. 217.5
Short-term investments............ (30.4)(57) 288.5
30.4 (58)
Assets held in separate
accounts........................ 300.4
-------- - ---------
Total investments............... -- 20,049.4
Accrued investment income........... 297.0
Cost of policies purchased.......... 268.8 (59) 2,786.8
(10.9)(59)
Cost of policies produced........... (168.7)(60) 490.3
Reinsurance receivables............. 469.2
Income taxes........................ --
Goodwill............................ 562.8 (62) 2,372.5
Property and equipment.............. 114.9
Securities segregated for future
redemption of redeemable preferred
stock of a subsidiary............. 45.0
Other assets........................ 276.4
-------- - ---------
Total assets.................... $ 652.0 $ 26,901.5
========= =========
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
70
<PAGE> 78
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
SEPTEMBER 30, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PRO FORMA ADJUSTMENTS CONSECO
ADJUSTMENTS PRO FORMA RELATING TO BEFORE
CONSECO AS RELATING TO THE CONSECO THE TRUPS THE THI
REPORTED TOPRS OFFERING SUBTOTAL OFFERING MERGER HISTORICAL
----------- --------------- --------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Liabilities:
Insurance liabilities........... $18,150.7 $ -- $18,150.7 $ -- $18,150.7 $623.4
Income tax liabilities.......... -- -- -- 17.5
Investment borrowings........... 539.4 539.4 539.4
Other liabilities............... 482.0 482.0 482.0 18.5
Liabilities related to separate
accounts...................... 300.1 300.1 300.1
Notes payable of Conseco........ 1,169.0 (265.5)(4) 903.5 (321.3)(9) 582.2 108.3
Notes payable of Bankers Life
Holding Corporation, not
direct obligations of
Conseco....................... 418.1 418.1 418.1
Notes payable of American Life
Holdings, Inc., not direct
obligations of Conseco........ 13.0 13.0 13.0
-------- ------- -------- ------- -------- ------
Total liabilities........... 21,072.3 (265.5) 20,806.8 (321.3) 20,485.5 767.7
-------- ------- -------- ------- -------- ------
Minority interest in consolidated
subsidiaries:
Company-obligated mandatorily
redeemable preferred
securities of subsidiary
trusts...................... -- 275.0(5) 275.0 325.0(10) 600.0
Preferred stock............... 92.5 92.5 92.5
Common stock.................. 55.3 55.3 55.3
-------- ------- -------- ------- -------- ------
Shareholders' equity:
Preferred stock................. 267.1 267.1 267.1 22.8
Common stock and additional
paid-in capital............... 1,054.5 (9.5)(5) 1,045.0 (3.7)(10) 1,041.3 169.7
Unrealized appreciation
(depreciation) of
securities.................... (47.0) (47.0) (47.0) 4.7
Retained earnings............... 681.3 681.3 681.3 (23.0)
-------- ------- -------- ------- -------- ------
Total shareholders'
equity.................... 1,955.9 (9.5) 1,946.4 (3.7) 1,942.7 174.2
-------- ------- -------- ------- -------- ------
Total liabilities and
shareholders' equity...... $23,176.0 $ -- $23,176.0 $ -- $23,176.0 $941.9
======== ======= ======== ======= ======== ======
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
RELATING TO FOR THE
THE MERGER MERGER
----------- ---------
<S> <C><C> <C>
Liabilities:
Insurance liabilities........... $(260.0)(22) $18,514.1
Income tax liabilities.......... (17.5)(21) --
Investment borrowings........... 539.4
Other liabilities............... 500.5
Liabilities related to separate
accounts...................... 300.1
Notes payable of Conseco........ (58.3)(23) 600.7
(50.0)(23)
18.5(23)
Notes payable of Bankers Life
Holding Corporation, not
direct obligations of
Conseco....................... 418.1
Notes payable of American Life
Holdings, Inc., not direct
obligations of Conseco........ 13.0
------- --------
Total liabilities........... (367.3) 20,885.9
------- --------
Minority interest in consolidated
subsidiaries:
Company-obligated mandatorily
redeemable preferred
securities of subsidiary
trusts...................... 600.0
Preferred stock............... 92.5
Common stock.................. 55.3
------- --------
Shareholders' equity:
Preferred stock................. (22.8)(24) 267.1
Common stock and additional
paid-in capital............... (169.7)(24) 1,269.2
121.7(24)
106.2
Unrealized appreciation
(depreciation) of
securities.................... (4.7)(24) (47.0)
Retained earnings............... 23.0(24) 681.3
------- --------
Total shareholders'
equity.................... 53.7 2,170.6
------- --------
Total liabilities and
shareholders' equity...... $(313.6) $23,804.3
======= ========
</TABLE>
(continued on the page which follows)
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
71
<PAGE> 79
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
SEPTEMBER 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 ATC
BLH TRANSACTION SUBTOTAL HISTORICAL CAF MERGER SUBTOTAL HISTORICAL
--------------- --------- ---------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Liabilities:
Insurance liabilities............... $ -- $18,514.1 $ 611.4 $ 88.4(47) $19,213.9 $586.3
Income tax liabilities.............. -- 52.2 (11.0)(45) 41.2 26.2
Investment borrowings............... 539.4 539.4
Other liabilities................... 500.5 20.7 521.2 10.9
Liabilities related to separate
accounts.......................... 300.1 300.1
Notes payable of Conseco............ 418.1(29) 1,018.8 29.0 (29.0)(48) 1,611.8 102.9
593.0(42)
Notes payable of Bankers Life
Holding Corporation, not direct
obligations of Conseco............ (418.1)(29) -- --
Notes payable of American Life
Holdings, Inc., not direct
obligations of Conseco............ 13.0 13.0
------- -------- ------ ------- -------- ------
Total liabilities............... -- 20,885.9 713.3 641.4 22,240.6 726.3
------- -------- ------ ------- -------- ------
Minority interest in consolidated
subsidiaries:
Company-obligated mandatorily
redeemable preferred securities
of subsidiary trusts............ 600.0 600.0
Preferred stock................... 92.5 92.5
Common stock...................... (55.3)(27) -- --
------- -------- ------ ------- -------- ------
Shareholders' equity:
Preferred stock..................... 267.1 267.1
Common stock and additional paid-in
capital........................... 122.5(30) 1,391.7 35.5 (35.5)(49) 1,507.4 64.4
115.7(49)
Unrealized appreciation
(depreciation) of securities...... (47.0) (1.8) 1.8(49) (47.0) (10.3)
Retained earnings................... 681.3 270.9 (270.9)(49) 681.3 127.2
------- -------- ------ ------- -------- ------
Total shareholders' equity...... 122.5 2,293.1 304.6 (188.9) 2,408.8 181.3
------- -------- ------ ------- -------- ------
Total liabilities and
shareholders' equity.......... $ 67.2 $23,871.5 $ 1,017.9 $ 452.5 $25,341.9 $907.6
======= ======== ====== ======= ======== ======
<CAPTION>
PRO FORMA
FOR THE
PRO FORMA MERGER AND
ADJUSTMENTS OTHER
RELATING TO THE PLANNED
ATC MERGER TRANSACTIONS
--------------- ------------
<S> <<C> <C>
Liabilities:
Insurance liabilities............... $ -- $19,800.2
Income tax liabilities.............. 27.1(61) 94.5
Investment borrowings............... 539.4
Other liabilities................... 11.3(63) 543.4
Liabilities related to separate
accounts.......................... 300.1
Notes payable of Conseco............ 30.4(58) 1,880.8
135.7(63)
Notes payable of Bankers Life
Holding Corporation, not direct
obligations of Conseco............ --
Notes payable of American Life
Holdings, Inc., not direct
obligations of Conseco............ 13.0
------- --------
Total liabilities............... 204.5 23,171.4
------- --------
Minority interest in consolidated
subsidiaries:
Company-obligated mandatorily
redeemable preferred securities
of subsidiary trusts............ 600.0
Preferred stock................... 92.5
Common stock...................... --
------- --------
Shareholders' equity:
Preferred stock..................... 267.1
Common stock and additional paid-in
capital........................... (64.4)(64) 2,136.2
628.8(64)
Unrealized appreciation
(depreciation) of securities...... 10.3(64) (47.0)
Retained earnings................... (127.2)(64) 681.3
------- --------
Total shareholders' equity...... 447.5 3,037.6
------- --------
Total liabilities and
shareholders' equity.......... $ 652.0 $26,901.5
======= ========
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
72
<PAGE> 80
CONSECO
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
PRO FORMA ADJUSTMENTS
TRANSACTIONS RELATING TO THE COMPLETED TOPRS OFFERING
On November 19, 1996, a subsidiary trust of Conseco issued TOPrS having an
aggregate liquidation amount of $275 million and a distribution rate of 9.16
percent. The subsidiary used the proceeds from the sale of such securities to
purchase subordinated deferrable interest debentures of Conseco in an aggregate
principal amount equivalent to the aggregate liquidation amount of the TOPrS
that were issued. The subordinated deferrable interest debentures bear interest
at a rate of 9.16 percent. Conseco used the proceeds from the sale of the
subordinated deferrable interest debentures to reduce its notes payable.
(1) Interest expense is reduced to reflect the repayment of $265.5 million
aggregate principal amount of Conseco's notes payable.
A change in interest rates of .5 percent on Conseco's notes payable
repaid from the TOPrS Offering would result in: (i) a decrease (or
increase) in pro forma interest expense of $1.3 million and $1.0
million for the year ended December 31, 1995, and the nine months
ended September 30, 1996, respectively; and (ii) an increase (or
decrease) in pro forma net income of $.9 million and $.6 million for
the same respective periods.
(2) The pro forma adjustment is tax affected, based on Conseco's effective
tax rate of 35 percent.
(3) Minority interest is adjusted to reflect the distribution (net of the
related tax benefit) on the TOPrS.
(4) Notes payable are reduced to reflect the repayment of $265.5 million
aggregate principal amount of Conseco's notes payable using the net
proceeds from the TOPrS Offering.
(5) Conseco's minority interest in consolidated subsidiaries is increased
by the aggregate liquidation amount of the TOPrS. Issuance and other
transaction costs related to the TOPrS Offering are charged to paid-in
capital.
TRANSACTIONS RELATING TO THE COMPLETED TRUPS OFFERING
On November 27, 1996, another subsidiary trust of Conseco issued TruPS
having an aggregate liquidation amount of $325 million and a distribution rate
of 8.70 percent. The subsidiary used the proceeds from the sale of such
securities to purchase the subordinated deferrable interest debentures of
Conseco in an aggregate principal amount equivalent to the aggregate liquidation
amount of the TruPS that were issued. The subordinated deferrable interest
debentures bear interest at a rate of 8.70 percent. Conseco used the proceeds
from the sale of the subordinated deferrable interest debentures to reduce its
notes payable.
(6) Interest expense is reduced to reflect the repayment of $321.3 million
aggregate principal amount of Conseco's notes payable.
A change in interest rates of .5 percent on Conseco's notes payable
from the TruPS Offering would result in: (i) a decrease (or increase)
in pro forma interest expense of $1.6 million and $1.2 million for the
year ended December 31, 1995, and the nine months ended September 30,
1996, respectively; and (ii) an increase (or decrease) in pro forma
net income of $1.0 million and $.8 million for the same respective
periods.
(7) The pro forma adjustment is tax affected, based on Conseco's effective
tax rate of 35 percent.
(8) Minority interest is adjusted to reflect the distributions (net of the
related tax benefit) on the TruPS.
73
<PAGE> 81
CONSECO
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(9) Notes payable are reduced to reflect the repayment of $321.3 million
aggregate principal amount of Conseco's notes payable using the net
proceeds from the TruPS Offering.
(10) Conseco's minority interest in consolidated subsidiaries is increased
by the aggregate liquidation amount of the TruPS. Issuance and other
transaction costs related to the TruPS Offering are charged to paid-in
capital.
TRANSACTIONS RELATING TO THE MERGER
The Merger will be accounted for under the purchase method of accounting.
Under this method, the total cost to acquire THI will be allocated to the assets
and liabilities acquired based on their fair values as of the date of the
Merger, with any excess of the total purchase cost over the fair value of the
assets acquired less the fair value of the liabilities assumed recorded as
goodwill. Conseco believes the Merger will not qualify to be accounted for under
the pooling of interests method in accordance with APB No. 16 because THI was a
subsidiary of another corporation within two years of the contemplated
transaction. In the Merger, each outstanding share of THI common stock (or its
equivalent) is assumed to be exchanged for a fraction of a share of Conseco
Common Stock to be determined based on the price of Conseco Common Stock prior
to its closing (it is assumed such average price per share of Conseco Common
Stock will be $55.00, resulting in an exchange ratio of 1.4 shares). Conseco
will issue an assumed 2.4 million shares of Conseco Common Stock with a value of
approximately $121.7 million to acquire the THI Common Stock (or equivalents).
Pursuant to the Exchange Offer, it is assumed all of the Notes will be exchanged
for shares of Conseco Common Stock based on the price of Conseco Common Stock
prior to the Merger (such fully converted value being the same as the Notes)
plus a cash premium. Using the same assumption that each share of THI will be
convertible into 1.4 shares of Conseco Common Stock, in aggregate, the Notes
will be convertible into 2.1 million shares of Conseco Common Stock with a value
of approximately $106.2 million. In addition, Conseco will pay a premium of
approximately $10.0 million in conjunction with the Exchange Offer. Conseco
estimates that it will incur costs related to the 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 Merger
(September 30, 1996)............................................................ $174.2
Notes converted to Conseco 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 Merger:
Cost of policies purchased (related to the Merger)........................... 112.8
Cost of policies produced and cost of policies purchased (historical)........ (39.2)
Income taxes................................................................. (25.8)
Premium paid in conjunction with the Exchange Offer.......................... (10.0)
Premium incurred to retire THI preferred stock............................... (2.8)
-----
Total estimated fair value adjustments..................................... 35.0
-----
Total cost to acquire THI....................................................... $236.4
=====
</TABLE>
Adjustments to the pro forma consolidated statement of operations to give
effect to the Merger as of January 1, 1995, are summarized below.
(11) 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 $83.9 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 $25.6
million.
74
<PAGE> 82
CONSECO
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(12) Interest expense is reduced to reflect the repayment of bank debt of
$58.3 million and the conversion of the Notes into Conseco Common
Stock pursuant to the Exchange Offer. Interest expense is increased to
reflect borrowings by Conseco to: (i) pay the estimated cost of the
Merger; and (ii) pay the $10.0 million premium in conjunction with the
Exchange Offer.
(13) Amortization of the cost of policies produced and the cost of policies
purchased prior to the Merger is replaced with the amortization of the
cost of policies purchased (amortized in relation to estimated
premiums on the policies purchased with interest equal to the
liability rate which averages 5.5 percent).
(14) Reflects the tax adjustment for the pro forma adjustments at the
appropriate rate for the specific item.
(15) Common shares outstanding are increased to reflect the Conseco shares
issued in the Merger and the conversion of the Notes in conjunction
with the Exchange Offer.
(16) Effective October 1, 1995, THI sold its long term care business to
ATC. An adjustment is made to remove the loss on the sale of the long
term care business. However, the revenues, benefits and expenses
related to this business prior to its sale are not eliminated, since
the business is retained within the Conseco consolidated group after
the ATC Merger (and pro forma adjustments for the ATC Merger do not
include adjustments related to THI's long term care business prior to
its purchase by ATC). In addition, expenses related to THI's spin-off
from its parent are eliminated. Such costs include certain legal,
accounting, actuarial and advisory fees.
Adjustments to the pro forma consolidated balance sheet to give effect to
the Merger as of September 30, 1996, are summarized below.
(17) Actively managed fixed maturity securities with a carrying value of
$83.9 million are assumed to be sold at the date of the Merger.
(18) Short-term investments are reduced for: (i) payments made to complete
the Merger; (ii) the repayment of bank debt with a balance of $58.3
million; (iii) the redemption of preferred stock with a redemption
value of $25.6 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 Conseco of $18.5 million to
complete the Merger and related transactions.
(19) THI's historical cost of policies purchased is eliminated and replaced
with the cost of policies purchased recognized in the Merger. Cost of
policies purchased reflects the estimated fair value of THI's business
in force and represents the portion of the cost to acquire THI that is
allocated to the value of the right to receive future cash flows from
the acquired policies.
The 18 percent discount rate used to determine such value is the rate
of return required by Conseco to invest in the business being
acquired. In determining such rate of return, the following factors
are considered:
- The magnitude of the risks associated with each of the actuarial
assumptions used in determining the expected cash flows.
- Cost of capital available to fund the acquisition.
- The perceived likelihood of changes in insurance regulations and tax
laws.
- Complexity of the acquired company.
- Prices paid (i.e., discount rates used in determining valuations) on
similar blocks of business sold recently.
75
<PAGE> 83
CONSECO
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 September
30, 2001, are as follows (dollars in millions):
<TABLE>
<CAPTION>
BEGINNING GROSS ACCRETION OF NET ENDING
YEAR ENDING SEPTEMBER 30, BALANCE AMORTIZATION INTEREST AMORTIZATION BALANCE
---------------------------- --------- ------------ ------------ ------------ -------
<S> <C> <C> <C> <C> <C>
1997........................ $ 112.8 $ 19.2 $ 6.3 $ 12.9 $99.9
1998........................ 99.9 15.9 5.6 10.3 89.6
1999........................ 89.6 14.5 5.0 9.5 80.1
2000........................ 80.1 13.3 4.4 8.9 71.2
2001........................ 71.2 12.8 4.0 8.8 62.4
</TABLE>
(20) THI's cost of policies produced is eliminated since such amounts are
reflected in the determination of the cost of policies purchased.
(21) 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.
(22) Reinsurance receivables and insurance liabilities related to business
of THI ceded to ATC are eliminated in consolidation.
(23) Notes payable are decreased to reflect: (i) the repayment of bank debt
of $58.3 million; and (ii) the conversion of the Notes into Conseco
Common Stock in conjunction with the Exchange Offer. In addition,
notes payable are increased to reflect additional borrowings by
Conseco used to complete the Merger and related transactions.
(24) The prior shareholders' equity of THI is eliminated in conjunction
with the Merger. Common stock and additional paid-in capital is
increased by the value of Conseco Common Stock issued in the Merger.
The value of the Notes represents the value of the Conseco Common
Stock which will be issued in conjunction with the Exchange Offer.
Preferred stock of THI is eliminated to reflect its redemption.
Transactions relating to the BLH Transaction
Conseco 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
Conseco Common Stock to be determined based on the average price of Conseco
Common Stock prior to closing (it is assumed that such price per share of
Conseco Common Stock will be $55.00, resulting in an exchange ratio of .45455
shares valued at $25.00). Conseco will issue an assumed 2.2 million shares of
Conseco Common Stock with a value of approximately $122.5 million.
The pro forma adjustments are applied to the historical consolidated
financial statements of Conseco using the step acquisition method of accounting.
Under this method, the total purchase cost of the common stock of BLH, not
already owned by Conseco, is allocated to the assets and liabilities acquired
based on their relative fair values as of the date of acquisition, with any
excess of the total purchase cost over the fair value of the assets acquired
less the fair value of the liabilities assumed recorded as goodwill. The values
of the assets and liabilities of BLH included in Conseco's pro forma
consolidated financial statements represent the combination of the following
values: (i) the portion of BLH's net assets acquired by Conseco in the initial
acquisition made by Conseco Capital Partners, L.P. on October 31, 1992, is
valued as of that acquisition date; (ii) the portion of BLH's net assets
acquired by Conseco on September 30, 1993, is valued as of that
76
<PAGE> 84
CONSECO
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
acquisition date; (iii) 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
(iv) 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:
(25) 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.
(26) All pro forma adjustments are tax affected based on the appropriate
rate for the specific item.
(27) Minority interest is reduced to eliminate the ownership interest of
the former shareholders of BLH.
(28) Common shares outstanding are increased to reflect the shares of
Conseco Common Stock issued in the acquisition of additional shares of
BLH common stock.
(29) Notes payable of BLH are reclassified as notes payable of Conseco,
since BLH is now wholly owned by Conseco.
(30) Common stock and additional paid-in capital is increased by the value
of Conseco Common Stock issued in the acquisition of additional shares
of BLH common stock.
Transactions relating to the CAF Merger
The CAF Merger will be accounted for under the purchase method of
accounting. Under this method, the total cost to acquire CAF will be allocated
to the assets and liabilities acquired based on their fair values as of the date
of the CAF Merger, with any excess of the total purchase cost over the fair
value of the assets acquired less the fair value of the liabilities assumed
recorded as goodwill. In the CAF Merger, each outstanding share of CAF common
stock is assumed to be exchanged for $30.25 in cash and the right to receive a
fraction of a share of Conseco Common Stock to be determined based on the
average price of Conseco Common Stock prior to its closing (it is assumed that
such average price per share of Conseco Common Stock will be $55.00, resulting
in an exchange ratio of .11818). Conseco will pay approximately $538 million in
cash and issue an assumed 2.1 million shares of Conseco Common Stock with a
value of approximately $115.7 million to acquire the CAF common stock. In
addition, Conseco is expected to assume a note payable of CAF of $29.0 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.
77
<PAGE> 85
CONSECO
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
(September 30, 1996)............................................................ $304.6
Notes payable of CAF assumed by Conseco at the assumed date of the CAF Merger..... 29.0
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................................... 452.5
Held-to-maturity fixed maturity securities................................... (358.3)
Cost of policies purchased (related to the CAF Merger)....................... 492.2
Cost of policies produced.................................................... (271.3)
Goodwill (related to the CAF Merger)......................................... 227.7
Insurance liabilities........................................................ (88.4)
Income taxes................................................................. (79.3)
------
Total estimated fair value adjustments.................................. 375.1
------
Total cost to acquire CAF....................................................... $708.7
======
</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.
(31) 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.
(32) 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.
(33) Interest expense is reduced to reflect the repayment of notes payable
of CAF by Conseco at the assumed date of the CAF Merger.
(34) Interest expense is increased to reflect the increase in borrowings
under Conseco's bank credit facilities used to complete the CAF
Merger.
A change in interest rates of .5 percent on the additional borrowings
under Conseco's bank credit facilities used to complete the CAF Merger
would result in: (i) an increase (or decrease) in pro forma interest
expense of $3.0 million and $2.2 million for the year ended December
31, 1995, and the nine months ended September 30, 1996, respectively;
and (ii) a decrease (or increase) in pro forma net income of $1.9
million and $1.4 million for the same respective periods.
(35) 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.
(36) Amortization of goodwill acquired in the CAF Merger is recognized over
a 40-year period on a straight-line basis.
(37) Reflects the tax adjustment for the pro forma adjustments at the
appropriate rate for the specific item.
78
<PAGE> 86
CONSECO
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(38) Common shares outstanding are increased to reflect the shares issued
in the CAF Merger.
Adjustments to the pro forma consolidated balance sheet to give effect to
the CAF Merger as of September 30, 1996, are summarized below.
(39) 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.
(40) CAF's fixed maturity securities are restated to estimated fair value.
(41) Cash is reduced for payments made to complete the CAF Merger.
(42) Short-term investments and notes payable of Conseco are increased for
additional borrowings by Conseco to complete the CAF Merger.
(43) Cost of policies purchased reflects the estimated fair value of CAF's
business in force and represents the portion of the cost to acquire
CAF that is allocated to the value of the right to receive future cash
flows from the acquired policies.
The 18 percent discount rate used to determine such value is the rate
of return required by Conseco to invest in the business being
acquired. In determining such rate of return, the following factors
are considered:
- The magnitude of the risks associated with each of the actuarial
assumptions used in determining the expected cash flows.
- Cost of capital available to fund the acquisition.
- The perceived likelihood of changes in insurance regulations and tax
laws.
- Complexity of the acquired company.
- Prices paid (i.e., discount rates used in determining valuations) on
similar blocks of business sold recently.
The value allocated to the cost of policies purchased is based on a
preliminary valuation; accordingly, this allocation may be adjusted upon
final determination of such value. Expected gross amortization of such
value using current assumptions and accretion of interest based on an
interest rate equal to the liability rate (such rate averages 5.5
percent) for each of the years in the five-year period ending September
30, 2001, are as follows (dollars in millions):
<TABLE>
<CAPTION>
BEGINNING GROSS ACCRETION OF NET ENDING
YEAR ENDING SEPTEMBER 30, BALANCE AMORTIZATION INTEREST AMORTIZATION BALANCE
---------------------------- --------- ------------ ------------ ------------ -------
<S> <C> <C> <C> <C> <C>
1997........................ $ 492.2 $ 60.4 $ 27.1 $ 33.3 $ 458.9
1998........................ 458.9 55.2 25.2 30.0 428.9
1999........................ 428.9 52.2 23.6 28.6 400.3
2000........................ 400.3 49.5 22.1 27.4 372.9
2001........................ 372.9 46.9 20.5 26.4 346.5
</TABLE>
(44) CAF's cost of policies produced is eliminated since such amounts are
reflected in the determination of the cost of policies purchased.
(45) All of the applicable pro forma balance sheet adjustments are tax
affected at the appropriate rate. In addition, deferred tax
liabilities of CAF are netted against deferred tax assets of Conseco.
(46) Goodwill acquired in the CAF Merger is recognized.
79
<PAGE> 87
CONSECO
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(47) 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.
(48) Notes payable are reduced to reflect the repayment of notes payable of
CAF by Conseco at the assumed date of the CAF Merger.
(49) The prior shareholders' equity of CAF is eliminated in conjunction
with the CAF Merger. Common stock and additional paid-in capital is
increased by the value of Conseco Common Stock issued in the CAF
Merger.
Transactions relating to the ATC Merger
The ATC Merger, completed on December 17, 1996, will be accounted for under
the purchase method of accounting. Under this method, the total cost to acquire
ATC will be allocated to the assets and liabilities acquired based on their fair
values as of the date of the ATC Merger, with any excess of the total purchase
cost over the fair value of the assets acquired less the fair value of the
liabilities assumed recorded as goodwill. Conseco believes the ATC Merger will
not qualify to be accounted for under the pooling of interests method in
accordance with APB No. 16 because an affiliate of ATC intends to sell a portion
of the Conseco Common Stock it receives in the ATC Merger shortly after the ATC
Merger is consummated. In the ATC Merger, each outstanding share of ATC common
stock was converted into the right to receive .5836 shares of Conseco Common
Stock. Conseco will issue 10.4 million shares of Conseco Common Stock with a
value of approximately $628.8 million to acquire the ATC common stock. In
addition, Conseco will assume the ATC convertible subordinated debentures, which
will be convertible into 4.0 million shares of Conseco Common Stock with a value
of approximately $238.6 million. In addition, Conseco 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
(September 30, 1996)............................................................. $ 181.3
Convertible subordinated debentures assumed by Conseco at the assumed date of the
ATC Merger....................................................................... 102.9
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)........................ 268.8
Cost of policies produced and cost of policies purchased (historical)......... (179.6)
Goodwill (related to the ATC Merger).......................................... 562.8
Income taxes.................................................................. (27.1)
Other liabilities............................................................. (11.3)
-------
Total estimated fair value adjustments................................... 613.6
-------
Total cost to acquire ATC........................................................ $ 897.8
=======
</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.
80
<PAGE> 88
CONSECO
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(50) 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.
(51) Interest expense is increased to reflect the increase in borrowings
under Conseco's bank credit facilities used to complete the ATC
Merger.
A change in interest rates of .5 percent on the additional borrowings
under Conseco's bank credit facilities used to complete the ATC Merger
would result in: (i) an increase (or decrease) in pro forma interest
expense of $.2 million and $.1 million for the year ended December 31,
1995, and the nine months ended September 30, 1996, respectively; and
(ii) a decrease (or increase) in pro forma net income of $.1 million
and $.1 million for the same respective periods.
(52) 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 Conseco's Common Stock that such debentures would be convertible
into during the same period.
(53) 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).
(54) Amortization of goodwill acquired in the ATC Merger is recognized over
a 40-year period on a straight-line basis.
(55) Reflects the tax adjustment for the pro forma adjustments at the
appropriate rate for the specific item.
(56) Common shares outstanding are increased to reflect Conseco shares
issued in the ATC Merger. Fully diluted shares also include Conseco
shares which will be issued when ATC's convertible subordinated
debentures are converted.
Adjustments to the pro forma consolidated balance sheet to give effect to
the ATC Merger as of September 30, 1996, are summarized below.
(57) Cash is reduced for payments made to complete the ATC Merger.
(58) Short-term investments and notes payable of Conseco are increased for
additional borrowings by Conseco to complete the ATC Merger.
(59) ATC's historical cost of policies purchased is eliminated and replaced
with the cost of policies purchased recognized in the ATC Merger. Cost
of policies purchased reflects the estimated fair value of ATC's
business in force and represents the portion of the cost to acquire
ATC that is allocated to the value of the right to receive future cash
flows from the acquired policies.
The 18 percent discount rate used to determine such value is the rate
of return required by Conseco to invest in the business being
acquired. In determining such rate of return, the following factors
are considered:
- The magnitude of the risks associated with each of the actuarial
assumptions used in determining the expected cash flows.
- Cost of capital available to fund the acquisition.
81
<PAGE> 89
CONSECO
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- 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 September
30, 2001, are as follows (dollars in millions):
<TABLE>
<CAPTION>
BEGINNING GROSS ACCRETION NET ENDING
YEAR ENDING SEPTEMBER 30, BALANCE AMORTIZATION OF INTEREST AMORTIZATION BALANCE
--------------------------- --------- ------------ ----------- ------------ -------
<S> <C> <C> <C> <C> <C>
1997....................... $ 268.8 $ 35.4 $14.2 $ 21.2 $ 247.6
1998....................... 247.6 32.3 12.9 19.4 228.2
1999....................... 228.2 29.6 12.0 17.6 210.6
2000....................... 210.6 27.3 10.9 16.4 194.2
2001....................... 194.2 25.2 10.1 15.1 179.1
</TABLE>
(60) ATC'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.
(62) Goodwill acquired in the ATC Merger is recognized.
(63) 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 Conseco Common Stock which
ATC's convertible subordinated debentures will be convertible into
after the ATC Merger. It is assumed that the holders of such
debentures do not convert into Conseco Common Stock at the time of the
ATC Merger.
In addition, a liability is established representing the present value
of the interest payable on such debentures to October 1, 1998 (the
earliest call date), less the present value of the dividends that
would be paid on Conseco Common Stock that such debentures would be
convertible into during the same period.
(64) The prior shareholders' equity of ATC is eliminated in conjunction
with the ATC Merger. Common stock and additional paid-in capital is
increased by the value of Conseco Common Stock issued in the ATC
Merger.
82
<PAGE> 90
COMPARISON OF SHAREHOLDERS' RIGHTS
The Notes are convertible, under certain circumstances, into shares of THI
Common Stock (or, after the Effective Time, into shares of Conseco Common
Stock). Holders who tender their Notes in the Exchange Offer will become holders
of Conseco Common Stock. The rights of Conseco shareholders are governed by
Conseco's Amended and Restated Articles of Incorporation (the "Conseco Articles
of Incorporation"), its Amended and Restated Code of By-laws (the "Conseco
By-laws") and the IBCL. The rights of THI stockholders are governed by its
Certificate of Incorporation (the "THI Certificate of Incorporation"), its By-
Laws (the "THI By-laws") and the DGCL. After the Effective Time, the rights of
THI stockholders who become Conseco shareholders will be governed by the Conseco
Articles of Incorporation, the Conseco By-laws and the IBCL. The following is a
summary of the material differences between the rights of Conseco shareholders
and the rights of THI stockholders.
AMENDMENT OF BY-LAWS
Both the Conseco By-laws and the THI By-laws may be amended by majority
vote of their respective boards of directors. The stockholders of THI may amend
the By-laws of THI by majority vote, and the stockholders may prescribe that any
By-law made by them may not be altered, amended or repealed by the THI Board of
Directors.
CERTAIN PROVISIONS RELATING TO ACQUISITIONS
The IBCL and the DGCL contain certain provisions, including the ones
described below, which purport to apply to certain types of share acquisitions
or corporate transactions.
BUSINESS COMBINATIONS. The Conseco Articles of Incorporation provide that
Conseco may not enter into a "Special Business Combination Transaction" (defined
as a merger or other business combination transaction with or involving a
beneficial owner of more than ten percent of Conseco Common Stock (a "Related
Person")) unless (1) the consideration to be received per share by holders of
Conseco Common Stock in such transaction is at least equal to the highest per
share price paid in order to acquire any shares of Conseco Common Stock
beneficially owned by the Related Person or (2) the transaction shall have been
approved by two-thirds of the Continuing Directors (defined to include the
directors of Conseco in office prior to the date on which a Related Person
became such).
THI is governed by Section 203 of the DGCL. Section 203 of the DGCL
provides that a corporation shall not engage in any "business combination" with
any "interested stockholder" for a period of three years following the time that
such stockholder became an interested stockholder, unless (i) prior to such
time, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder, (ii) upon consummation of the transaction which resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85 percent of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (a) by persons
who are directors and also officers and (b) employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer,
or (iii) at or subsequent to such time, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
two-thirds (2/3) of the outstanding voting stock which is not owned by the
interested stockholder. A "business combination" under the DGCL is generally
defined as any of the following transactions involving the corporation and an
interested stockholder thereof: (i) a merger or consolidation, (ii) a sale,
lease, exchange, mortgage, pledge, transfer or other disposition of ten percent
or more of the corporation's assets, (iii) an issuance or transfer of the
corporation's stock, (iv) a transaction having the effect of directly or
indirectly increasing the proportionate share of the corporation's stock held by
such interested stockholder or (v) any receipt by such interested stockholder of
the benefit of any loans, guarantees, pledges or other financial benefits. An
"interested stockholder" under the DGCL is generally defined as any person
owning 15 percent or more of the corporation's outstanding voting stock.
83
<PAGE> 91
Section 23-1-43-18 of the IBCL provides that a corporation may not engage
in any "business combination" with any "interested shareholder" for a period of
five years following the interested shareholder's share acquisition date unless
the business combination or the purchase of shares made by the interested
shareholder is approved by the board of directors of the corporation before the
interested shareholder's share acquisition date. A "business combination" under
the IBCL is generally defined as any of the following transactions involving the
corporation and an interested stockholder thereof: (i) a merger or
consolidation, (ii) a sale, lease, exchange, mortgage, pledge, transfer, or
other disposition of ten percent or more of corporation's assets or representing
10% or more of the earning power or net income of the corporation, (iii) an
issuance or transfer of shares of the corporation's stock representing 5% or
more of the aggregate market value of all of such corporation's outstanding
stock, (iv) the adoption of a plan of liquidation or dissolution proposed by or
under agreement with such interested shareholder, (v) a transaction having the
effect of directly or indirectly increasing the proportionate share of the
corporation's stock held by such interested stockholder, or (vi) any receipt by
such interested stockholder of the benefit of any loans, advances, guarantees,
pledges, or other financial assistance or any tax credits or other tax
advantages. An "interested shareholder" under the IBCL is generally defined as
any person owning 10 percent or more of the voting power of the outstanding
voting shares of the corporation.
CONTROL SHARE ACQUISITIONS. Chapter 23-1-42 of the IBCL requires that,
unless the articles or by-laws of a corporation exempt the corporation therefrom
(which Conseco's Articles of Incorporation and By-laws do not), any person who
proposes to acquire or has acquired (a "control share acquisition") ownership of
(or the power to direct the voting of) shares representing one-fifth, one-third,
or a majority of the voting power of an issuing public corporation in the
election of directors must provide the corporation with a statement describing
such acquisition (an "acquiring person statement"). If the acquiring person so
requests at the time of delivery of such statement (and undertakes to pay the
expenses relating thereto), the corporation shall cause a special meeting of its
shareholders to be called for the purpose of considering the voting rights to be
accorded the shares acquired in the control share acquisition. The shares so
acquired shall be accorded the same voting rights as were accorded such shares
before the control share acquisition only to the extent granted by resolution of
the shareholders of such corporation. Shares acquired in a control share
acquisition as to which no acquiring person statement has been filed may be
redeemed by the corporation at the fair value thereof under certain
circumstances. In the event that shares acquired in a control share acquisition
are accorded full voting rights and the acquiring person has acquired shares
representing a majority or more of all voting power, the other shareholders will
be entitled to appraisal rights. The DGCL does not contain a comparable
provision.
TAKEOVER OFFERS. Chapter 23-2-3.1 of the IBCL provides that a person shall
not make a takeover offer unless the following conditions are satisfied: (1) a
statement which consists of each document required to be filed with the
Commission is filed with the Indiana securities commissioner and delivered to
the president of the target company before making the takeover offer; (2) a
consent to service of process and the requisite filing fee accompanies the
statement filed with the Indiana securities commissioner; (3) the takeover offer
is made to all offerees holding the same class of equity securities on
substantially equivalent terms; (4) a hearing is held within 20 business days
after the statement described in clause (1) above is filed; and (5) the Indiana
securities commissioner shall have approved the takeover offer. In addition,
such section provides that no offeror may acquire any equity security of any
class of a target company within two years following the conclusion of a
takeover offer with respect to that class, unless the holder of such equity
security is afforded, at the time of that acquisition, a reasonable opportunity
to dispose of such securities to the offeror upon substantially equivalent
terms. A "takeover offer" means an offer to acquire or an acquisition of any
equity security of a target company pursuant to a tender offer or request or
invitation for tenders if, after the acquisition, the offeror is directly or
indirectly a record or beneficial owner of more than ten percent of any class of
the outstanding equity securities of the target company. A "target company"
means an issuer of securities which is organized under the laws of Indiana, has
its principal place of business in Indiana and has substantial assets in
Indiana. The DGCL does not contain a comparable provision.
84
<PAGE> 92
RIGHT TO BRING BUSINESS BEFORE A SPECIAL MEETING OF SHAREHOLDERS
The Conseco Articles of Incorporation and the Conseco By-laws do not
contain any restriction on the ability of shareholders to bring business before
a special meeting of shareholders.
Holders of the THI Common Stock representing a majority of the voting power
of all issued and outstanding shares of THI Common Stock may call a special
meeting of stockholders. Notice of such meeting must be mailed or delivered to
each stockholder not less than 10 nor more than 60 days prior to such meeting.
The notice must state the purpose or purposes for which the meeting is to be
held, and only such matters as are specified in such notice may be acted upon at
such special meeting.
SHAREHOLDER ACTION BY WRITTEN CONSENT
The Conseco By-laws and THI By-laws specifically authorize stockholder
action by written consent of all the stockholders entitled to vote on such
action.
REMOVAL OF DIRECTORS
The Conseco Articles of Incorporation provides for the board of directors
to be divided into three classes. Under the Conseco By-laws, a director may be
removed, either for or without cause, at any special meeting of shareholders
called for that purpose, by the affirmative vote of a majority in number of
shares of the shareholders present in person or by proxy and entitled to vote
for the election of such director. The THI Certificate of Incorporation also
provides for the board of directors to be divided into three classes. Under the
THI By-laws, a director may be removed, with cause only, by the affirmative vote
of a majority of the outstanding shares of each class of capital stock entitled
to vote at an election of such director.
DIRECTOR LIABILITY
The Conseco Articles of Incorporation and the Conseco By-laws do not
contain a specific exculpatory provision regarding director liability. The IBCL,
however, provides that a director is not liable for any action taken as a
director, or any failure to take any action, unless (1) the director has
breached or failed to perform the duties of the director's office in compliance
with Section 23-1-35-1 of the IBCL (which requires, among other things, that a
director discharge his or her duties as a director in good faith, with the care
an ordinarily prudent person in a like position would exercise under similar
circumstances and in a manner the director reasonably believes to be in the best
interests of the corporation), and (2) the breach or failure to perform
constitutes willful misconduct or recklessness.
The THI Certificate of Incorporation provides that a director of THI shall
not be personally liable to THI or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to THI or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) under Section 174 of the DGCL (unlawful payment of
dividends), or (iv) for any transaction from which the director derived an
improper personal benefit.
INDEMNIFICATION
The IBCL grants authorization to Indiana corporations to indemnify officers
and directors made a party to a proceeding against liability incurred in the
proceeding if: (A) the individual's conduct was in good faith; (B) the
individual reasonably believed: (i) in the case of conduct in the individual's
official capacity with the corporation, that the individual's conduct was in the
corporation's best interests; and (ii) in all other cases, that the individual's
conduct was at least not opposed to the corporation's best interests; and (C) in
the case of any criminal proceeding, the individual either: (i) had reasonable
cause to believe that the individual's conduct was lawful; or (ii) had no
reasonable cause to believe that the individual's conduct was unlawful.
The Conseco By-laws provide for the indemnification of any person made a
party to any action, suit or proceeding by reason of the fact that he or she is
a director, officer or employee of Conseco, unless it is adjudged in such
action, suit or proceeding that such person is liable for negligence or
misconduct in the
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performance of his or her duties. Such indemnification shall be against the
reasonable expenses, including attorneys' fees, incurred by such person in
connection with the defense of such action, suit or proceeding. In some
circumstances, Conseco may reimburse any such person for the reasonable costs of
settlement of any such action, suit or proceeding if a majority of the members
of the Board of Directors not involved in the controversy shall determine that
it was in the interests of Conseco that such settlement be made and that such
person was not guilty of negligence or misconduct.
The THI Certificate of Incorporation provides that THI shall indemnify any
person who was, is, or is threatened to be made a party to a proceeding by
reason of the fact that he or she (i) is or was a director or officer of THI or
(ii) while a director or officer of THI, is or was serving at the request of THI
as a director, officer, partner, venturer, proprietor, trustee, employee, agent,
or similar functionary of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan, or other
enterprise, to the fullest extent permitted under the DGCL. Such right shall
include the right to be paid by THI expenses incurred in defending any such
proceeding in advance of its final disposition to the maximum extent permitted
under the DGCL. If a claim for indemnification or advancement of expenses is not
paid in full by THI within 60 days after a written claim has been received by
THI, the claimant may at any time thereafter bring suit against THI to recover
the unpaid amount of the claim, and if successful in whole or in part, the
claimant shall also be entitled to be paid the expenses of prosecuting such
claim. It shall be a defense to any such action that such indemnification or
advancement of costs of defense are not permitted under the DGCL, but the burden
of proving such defense shall be on THI. Neither the failure of THI (including
its board of directors or any committee thereof, independent legal counsel, or
stockholders) to have made its determination prior to the commencement of such
action that indemnification of, or advancement of costs of defense to, the
claimant is permissible in the circumstances nor an actual determination by THI
(including its board of directors or any committee thereof, independent legal
counsel, or stockholders) that such indemnification or advancement is not
permissible shall be a defense to the action or create a presumption that such
indemnification or advancement is not permissible. In the event of the death of
any person having a right of indemnification, such right shall inure to the
benefit of his or her heirs, executors, administrators, and personal
representatives. The rights conferred above shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute, by-law,
resolution of stockholders or directors, agreement, or otherwise. THI may
additionally indemnify any employee or agent of the corporation to the fullest
extent permitted by law.
The Conseco Articles of Incorporation and Conseco By-laws do not provide
for the advancement of expenses. However, under the IBCL a corporation may
advance expenses if (1) the director furnishes the corporation a written
affirmation of the director's good faith belief that the director has met the
standard of conduct called for by Section 23-1-37-8 of the IBCL (which states
that a corporation may indemnify an individual made a party to a proceeding
against liability incurred in the proceeding if: (A) the individual's conduct
was in good faith; and (B) the individual reasonably believed: (i) in the case
of conduct in the individual's official capacity with the corporation, that the
individual's conduct was in its best interests; and (ii) in all other cases,
that the individual's conduct was at least not opposed to its best interests;
and (C) in the case of any criminal proceeding, the individual either: (i) had
reasonable cause to believe the individual's conduct was lawful; or (ii) had no
reasonable cause to believe the individual's conduct was unlawful), (2) the
director furnishes a written undertaking to repay the advance if it is
ultimately determined that he or she did not meet such standard of conduct and
(3) a determination is made that the facts then known would not preclude
indemnification under Indiana laws.
DIVIDENDS AND REPURCHASES
Under the IBCL, a corporation may make distributions to its shareholders as
long as the corporation's debts may be paid as they come due, the corporation's
total assets exceed the sum of its liabilities plus the amount that would be
needed if the corporation were to be dissolved and the payment of these
distributions is consistent with the corporation's articles of incorporation.
Under the DGCL, a corporation may pay dividends and repurchase stock out of
surplus or, if there is no surplus, out of any net profits for the fiscal year
in which
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the dividend was declared and/or for the preceding fiscal year as long as no
payment reduces capital below the amount of capital represented by all classes
of shares having a preference upon the distribution of assets.
DISSENTERS' RIGHTS
The DGCL provides that a stockholder is entitled, under certain
circumstances, to receive payment of the fair value of the stockholder's common
stock if the stockholder dissents from a merger or consolidation. The DGCL also
permits a corporation to grant (by inclusion of a provision in its certificate
of incorporation) appraisal rights in connection with certain other corporate
transactions. THI's Certificate of Incorporation currently contains no such
provision.
Under the DGCL, dissenters' rights are not available if the shares of the
Delaware corporation are (i) listed on a national securities exchange (such as
the NYSE) or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc. (e.g.,
quoted on the Nasdaq National Market) or (ii) held of record by more than 2,000
holders. Notwithstanding the foregoing, dissenters' rights under the DGCL are
available if the stockholders of the Delaware corporation are to receive in the
merger or consolidation anything other than (i) shares of stock of the surviving
or resulting corporation, (ii) shares of stock of any other corporation which
are listed on a national securities exchange or are designated as a national
market system security on an interdealer quotation system (as described above)
or held of record by more than 2,000 holders, and/or (iii) cash in lieu of
fractional shares. Based on the foregoing, dissenters' rights will not be
available to THI stockholders in connection with the Merger.
The IBCL provides that a shareholder is entitled, under certain
circumstances, to receive payment of the fair value of the shareholder's common
stock if the shareholder dissents from a merger, share exchange, sale or
exchange of all or substantially all of the corporation's property and certain
control share acquisitions (as described under "-- Certain Provisions Relating
to Acquisitions -- Control Share Acquisitions"). The IBCL also permits a
corporation to grant (by inclusion of a provision in its articles of
incorporation, bylaws or resolution of the board of directors) appraisal rights
in connection with other corporate actions. Conseco's Articles of Incorporation,
By-laws and resolutions currently contain no such provision.
Under the IBCL, dissenters' rights are not available if the shares of the
Indiana corporation are (i) registered on a United States securities exchange
registered under the Exchange Act (such as the NYSE) or (ii) traded on the
National Association of Securities Dealers, Inc. Automated Quotations System
Over-the-Counter Markets -- National Market Issues (such as the Nasdaq National
Market) or a similar market.
DIRECTOR AND OFFICER DISCRETION
Under Sections 23-1-35-1(d), (f), and (g) of the IBCL, in discharging his
or her duties to the corporation and in determining what he or she believes to
be in the best interests of the corporation, a director or officer may, in
addition to considering the effects of any action on shareholders, consider the
effects of the action on employees, suppliers, customers, the communities in
which the corporation operates and any other factors that the director or
officer considers pertinent. The DGCL does not contain a comparable provision,
and, under Delaware law, the consideration that a board may give to
nonstockholder constituencies is less clear. In considering the best interests
of a corporation, under Delaware law, directors and officers can generally take
into consideration the interest of nonstockholders. However, the Delaware
Supreme Court has held that the consideration of nonstockholder constituencies
is inappropriate when an active "auction" is in process to sell a company.
The foregoing discussion of certain similarities and material differences
between the rights of Conseco shareholders and the rights of THI stockholders is
only a summary of certain provisions and does not purport to be a complete
description of such similarities and differences, and is qualified in its
entirety by reference to the IBCL and the common law thereunder, the DGCL and
the common law thereunder, and the full text of the Conseco Articles of
Incorporation, the Conseco By-laws, the THI Certificate of Incorporation and the
THI By-laws.
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MANAGEMENT OF CONSECO
UPON CONSUMMATION OF THE MERGER
The directors and executive officers of Conseco will continue as the
directors and executive officers of Conseco upon consummation of the Merger. In
addition, concurrently with the consummation of the Merger, Conseco intends to
replace the current directors and executive officers of Transport Life with
persons designated by Conseco. For information with respect to the directors and
executive officers of Conseco, see Items 10-13 of Conseco's Annual Report (which
incorporates portions of Conseco's proxy statement dated April 24, 1996), which
is incorporated herein by reference.
LEGAL MATTERS
The validity of the Conseco Common Stock to be issued in connection with
the Exchange Offer will be passed upon for Conseco by Lawrence W. Inlow,
Executive Vice President, General Counsel and Secretary of Conseco. Mr. Inlow is
a full-time employee and officer of Conseco and owns 808,174 shares of Conseco
Common Stock and holds options to purchase 1,406,900 shares of Conseco Common
Stock. Certain matters in connection with the Exchange Offer will be passed upon
for THI by Weil, Gotshal & Manges LLP, 100 Crescent Court, Suite 1300, Dallas,
Texas 75201-6950.
EXPERTS
The consolidated financial statements of Conseco at December 31, 1995 and
1994, and for each of the three years in the period ended December 31, 1995,
incorporated by reference in this Statement, have been audited by Coopers &
Lybrand L.L.P., independent auditors, as set forth in their report thereon
incorporated by reference herein, and are incorporated by reference in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The consolidated financial statements of THI at December 31, 1995 and 1994,
and for each of the three years in the period ended December 31, 1995,
incorporated by reference in this Statement, have been audited by KPMG Peat
Marwick LLP, independent auditors, as set forth in their report thereon
incorporated by reference herein, and are incorporated by reference in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The consolidated financial statements of ATC at December 31, 1995 and 1994,
and for each of the three years in the period ended December 31, 1995,
incorporated by reference in this Statement, 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 Statement, have been audited by KPMG Peat
Marwick LLP, independent auditors, as set forth in their report thereon
incorporated by reference herein, and are incorporated by reference in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The consolidated financial statements of LPG at December 31, 1995 and 1994,
and for each of the three years in the period ended December 31, 1995,
incorporated by reference in this Statement, have been audited by Coopers &
Lybrand L.L.P., independent auditors, as set forth in their report thereon
incorporated by reference herein, and are incorporated by reference in reliance
upon such report, given upon authority of such firm as experts in accounting and
auditing.
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APPENDIX A
PROVISIONS OF THE LOAN AGREEMENT
TO BE DELETED OR AMENDED
BY THE PROPOSED AMENDMENTS
Set forth below are the covenant provisions of the Loan Agreement that
would be deleted or amended by the Proposed Amendments, as well as certain
definitions used in such provisions, some of which will also be deleted or
amended by the Proposed Amendments. The following is qualified in its entirety
by reference to the Loan Agreement Amendment, a copy of which can be obtained
without charge from the Depositary. Capitalized terms not otherwise defined in
this Appendix A have the meanings assigned thereto in the Loan Agreement.
IF THE PROPOSED AMENDMENTS ARE ADOPTED, EACH OF THE FOLLOWING SECTIONS WILL
BE DELETED IN ITS ENTIRETY:
SECTION 7.3 LIMITATION ON RESTRICTED PAYMENTS BY THE COMPANY AND ITS
SUBSIDIARIES.
(a) Except as otherwise provided in this Section 7.3, the Company will not,
and will cause each of its Subsidiaries not to, directly or indirectly:
(i) declare or pay any dividends or distributions (in cash, property
or securities) on Capital Stock of the Company or any Subsidiary of the
Company (excluding dividends, other than dividends of Redeemable Stock,
payable to the Company or a Wholly Owned Subsidiary);
(ii) purchase, redeem or otherwise acquire or retire for value Capital
Stock of the Company or any Subsidiary of the Company (other than a
Wholly-Owned Subsidiary); or
(iii) redeem, repurchase, defease (including, without limitation, in
substance or legal defeasance), or otherwise acquire or retire for value
(collectively, a "prepayment"), directly or indirectly (including by way of
amendment of the terms of any Indebtedness in connection with any
retirement or acquisition of such Indebtedness), prior to the Maturity Date
of the Securities, Indebtedness of the Company which does not constitute
Senior Indebtedness (other than (A) the Securities and (B) the payment of
intercompany Indebtedness subordinated pursuant to the terms of Section
7.7.2(ii));
(any such transaction described in clauses (i) through (iii) above being
hereinafter referred to as a "Restricted Payment"); if, at the time of any
Restricted Payment, or after giving effect thereto, any of the following exist:
(x) a Default or an Event of Default shall have occurred and be
continuing,
(y) the aggregate amount expended by the Company and its Subsidiaries
for all Restricted Payments (the amount of any Restricted Payment if other
than cash, to be the Fair Market Value of such payment) from and after the
Closing Date, shall exceed the sum of (a) 50% of the Consolidated Net
Income (or if such Consolidated Net Income is a loss, minus 100% of such
loss) of the Company and its Subsidiaries earned subsequent to the
beginning of the first full fiscal quarter immediately after the Closing
Date and prior to the end of the fiscal quarter immediately preceding the
fiscal quarter in which the Restricted Payment occurs (taken as a single
accounting period) (the "Reference Date"), plus (b) 100% of the aggregate
Net Proceeds received by the Company from any Person other than a
Subsidiary of the Company from the issuance and sale (including upon
conversion or exercise of or exchange for any other securities of the
Company) subsequent to the Closing Date, and on or prior to the Reference
Date, of Capital Stock of the Company (excluding any Redeemable Stock),
plus (c) $5 million (provided that such limit shall be increased to $10
million effective as of the first anniversary of the Closing Date), or
(z) the Company is not able to incur at least one dollar ($1.00) of
additional Indebtedness pursuant to the terms of Section 7.7.1(a) hereof.
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(b) Neither clause (y) or (z) of Section 7.3(a) shall prevent:
(1) dividends or distributions payable solely in Capital Stock (other
than Redeemable Stock);
(2) the payment of any dividend within 60 days after the date of its
declaration if the dividend would have been permitted on the date of its
declaration;
(3) the acquisition of any of the Capital Stock of the Company or a
Subsidiary of the Company or the prepayment of Indebtedness of the Company
or a Subsidiary of the Company which is subordinated in right of payment to
the Securities by any exchange for, or out of the proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company)
of, Capital Stock (other than Redeemable Stock) or (solely in the case of
such Indebtedness) subordinated Indebtedness which qualifies as Refinancing
Indebtedness, and neither such acquisition nor the proceeds of any such
sale or exchange shall be included in any computation under this Section
7.3;
(4) the issuance of Capital Stock upon the conversion or exchange of
convertible or exchangeable securities of the Company at the option of the
holders thereof in accordance with the terms thereof and the instruments
under which said securities are outstanding;
(5) direct or indirect payments by the Company or a Subsidiary of the
Company of the purchase price of Capital Stock of the Company or Securities
acquired from the management holders thereof who are members of management
of the Company or any Subsidiary of the Company or who are producers or
other contractors of the Company or any Subsidiary of the Company, provided
that the amount expended pursuant to this clause (5) shall not exceed
$2,000,000 in the aggregate; and
(6) dividends on the Class A Common Stock and Class B Common Stock,
not to exceed an aggregate of $500,000 per Fiscal Year for all such
classes, increased by $10,000 for each $1,000,000 in principal amount of
Securities which has been converted into Common Stock as of the last
Business Day of the immediately preceding Fiscal Year (the "Permitted
Dividend Amount"), provided that any dividend which, at the time such
dividend was declared, when aggregated with all other dividends during a
Fiscal Year, did not exceed the Permitted Dividend Amount applicable to
such dividend may be paid during such Fiscal Year, notwithstanding the fact
that, due to the conversion of Securities into Common Stock, the actual
dividend paid may exceed the Permitted Dividend Amount, and further
provided, that in such event the Permitted Dividend Amount for the
immediately succeeding Fiscal Year will be reduced by the amount, if any,
by which the dividends paid on the Class A Common Stock and Class B Common
Stock in the immediately prior Fiscal Year exceeded the Permitted Dividend
Amount for such prior Fiscal Year.
(c) Notwithstanding the foregoing provisions of this Section 7.3, the
Company may:
(i) pay dividends on the Preferred Stock in accordance with the
Preferred Stock Certificate of Designations (so long as no Default or Event
of Default shall have occurred and be continuing);
(ii) repurchase shares of Preferred Stock pursuant to the "change of
control" covenant contained in Section 3(b) of the Preferred Stock
Certificate of Designations, providedthat such repurchases shall be
permitted only if the Company has repurchased all Securities that Holders
have elected to require the Company to repurchase pursuant to the terms and
conditions of Section 7.13 of this Loan Agreement prior to such repurchase
of any shares of Preferred Stock, and provided, further, that if a "change
of control" as set forth in clause (iv) of the definition of such term
contained in the Preferred Stock Certificate of Designations shall have
occurred, such repurchases shall be permitted if the Company repurchases
such shares of Preferred Stock which the holders thereof have elected to
require the Company to repurchase pursuant to such covenant in the
Preferred Stock Certificate of Designations, and the Securities that
Holders have elected to require the Company to repurchase pursuant to the
terms and conditions of Section 7.13, pro rata based on the relative
amounts of the aggregate outstanding principal of such Securities and the
aggregate liquidation preference (including accumulated dividends) of such
shares of Preferred Stock;
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(iii) repurchase shares of Preferred Stock pursuant to the mandatory
redemption provisions set forth in Section 3(a) of the Preferred Stock
Certificate of Designations;
(iv) exchange the Exchange Subordinated Debt for the outstanding
shares of Preferred Stock pursuant to the Preferred Stock Certificate of
Designations;
(v) repurchase Exchange Subordinated Debt pursuant to the "change of
control" covenant contained in Section 3.9 of the Exchange Subordinated
Debt Indenture, provided that such repurchases shall be permitted only if
the Company has repurchased all Securities that Holders have elected to
require the Company to repurchase pursuant to the terms and conditions of
Section 7.13 of this Loan Agreement prior to the repurchase of any Exchange
Subordinated Debt, and provided, further, that if a "change of control" as
defined in clause (iv) of the definition of such term contained in the
Exchange Subordinated Debt Indenture shall have occurred, such repurchases
shall be permitted if the Company repurchases such Exchange Subordinated
Debt which the holders thereof have elected to require the Company to
repurchase pursuant to such covenant in Exchange Subordinated Debt
Indenture, and the Securities that Holders have elected to require the
Company to repurchase pursuant to the terms and conditions of Section 7.13,
pro rata based on the relative amounts of the aggregate principal of such
Securities and such Exchange Subordinated Debt;
(vi) pay the Exchange Subordinated Debt (A) at maturity in accordance
with the terms of the Exchange Subordinated Debt Indenture or (B) at any
time following the acceleration of such Exchange Subordinated Debt as a
result of a default in the payment of principal thereof or interest
thereon, where such acceleration is effected after the 180th day following
such payment default and otherwise in accordance with the Exchange
Subordinated Debenture Indenture; and
(vii) pay Indebtedness incurred in connection with portfolio
investments made in the ordinary course of business.
SECTION 7.7 LIMITATION ON INCURRENCES OF ADDITIONAL INDEBTEDNESS.
7.7.1 LIMITATION ON DEBT INCURRENCE. Except as otherwise provided in this
Section 7.7, the Company shall not, and shall not permit any of its Subsidiaries
(including, without limitation, upon the creation or acquisition of such
Subsidiary) to, directly or indirectly, create, incur, issue, assume, Guarantee
or otherwise become liable, contingently or otherwise, including through merger,
business combination, consolidation, assumption, assignment, extension of
maturity or otherwise, with respect to (collectively "Incur") any Indebtedness,
except that the Company and its Subsidiaries may Incur Indebtedness if:
(a) the Company's Consolidated Interest Expense Coverage Ratio after
giving effect on a pro forma basis to the Consolidated Interest Expense in
respect of such additional Indebtedness and the application of the proceeds
of such additional Indebtedness (including to refinance other Indebtedness
as if such Indebtedness was issued and the application of such proceeds
occurred at the beginning of the period) for the four fiscal quarters
(treated as one accounting period) immediately preceding the date on which
such additional Indebtedness is Incurred (the "Incurrence Date") would have
been at least 4.00 to 1.00; and
(b) no Default or Event of Default shall have occurred and be
continuing at the time or would occur as a consequence of the Incurrence of
such Indebtedness.
7.7.2 PERMITTED INCURRENCES. In addition to Indebtedness that may be
incurred pursuant to Section 7.7.1 hereof, the Company and its Subsidiaries may
Incur the following Indebtedness (it being expressly understood that, except as
may otherwise be provided, the following clauses are independent of each other):
(i) Indebtedness of any type in an aggregate principal amount not in
excess of $10 million at any one time outstanding, reduced by any amounts
outstanding under clause (viii)(b) of this Section 7.7.2;
(ii) Indebtedness (A) of the Company owing to a Wholly-Owned
Subsidiary for which fair value has been received or (B) of a Wholly-Owned
Subsidiary owing to the Company or to a Wholly-Owned Subsidiary of the
Company, provided that any such Indebtedness owing by the Company to a
Wholly-Owned Subsidiary shall be subordinated in right of payment to the
Securities at least to the extent that the Securities are subordinated in
right of payment to Senior Indebtedness pursuant to Article 6 hereof;
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(iii) Indebtedness under Hedging Transactions,provided that such
Hedging Transactions are related to payment obligations on the Securities
or Indebtedness of the Company or any Subsidiary permitted to be Incurred
pursuant to Section 7.7.1 hereof or another clause of this Section 7.7.2;
(iv) Indebtedness of the Company pursuant to a Guaranty of
Indebtedness of a Wholly-Owned Subsidiary which Subsidiary Indebtedness was
Incurred in accordance with Section 7.7.1 hereof or any clause of this
Section 7.7.2, provided that the principal amount of any such Guaranty
shall not exceed the principal amount outstanding under such Subsidiary
Indebtedness;
(v) Indebtedness represented by trade payables incurred in the
ordinary course of business and payable substantially in accordance with
terms customary for such trade payables;
(vi) Indebtedness of the Company or any Subsidiary of the Company
issued in exchange for or 100% of the net proceeds of which are used to
substantially concurrently repay, redeem, refund, refinance, discharge or
otherwise retire for value outstanding Indebtedness which when Incurred was
permitted under Section 7.7.1 or under clauses (ii), (iii), (iv), (vii),
(viii), (ix) or (x) of this Section 7.7.2 ("Refinancing Indebtedness") in a
principal amount not to exceed the outstanding principal amount of the
Indebtedness so refinanced, plus any prepayment penalties and premiums,
plus customary fees, expenses and costs related to the incurrence of such
Refinancing Indebtedness; provided that (a) Refinancing Indebtedness of any
Subsidiary of the Company shall not be used to repay, redeem, refund,
refinance, discharge or otherwise retire for value any Indebtedness of the
Company (other than the Obligations of the Company under the Credit
Agreement or under clause (i) of this Section 7.7.2) and (b) with respect
to any Refinancing Indebtedness which refinances Indebtedness of the
Company which ranks pari passu or junior in right of payment to the
Securities, (1) Refinancing Indebtedness that is to refinance Indebtedness
of the Company which ranks pari passu in right of payment to the Securities
shall not rank senior in right of payment to the Securities, (2)
Refinancing Indebtedness that refinanced Indebtedness of the Company which
ranks junior in right of payment to the Securities shall be subordinated in
right of payment to the Securities to at least the same extent as the
Indebtedness that is refinanced, (3) such Refinancing Indebtedness has (at
the time such Refinancing Indebtedness is Incurred) a Weighted Average Life
to Maturity which is equal to or longer than, and a stated maturity which
is equal to or later than, the Indebtedness to be refinanced, and does not
require any principal payments prior to the dates of principal payments
under the corresponding Indebtedness to be refinanced, and (4) such
Refinancing Indebtedness bears interest at a rate that is no more than 2%
per annum higher than the Indebtedness to be refinanced; provided further
that, Refinancing Indebtedness that refinances all of the outstanding
Securities need not comply with any of the foregoing restrictions. For the
purposes of this clause (vi), the principal amount of Indebtedness
outstanding shall include the principal amount then outstanding of any
Indebtedness originally incurred and, after any refinancing or refunding of
such Indebtedness, any outstanding Indebtedness Incurred pursuant to this
clause (vi) to refinance or refund such Indebtedness and any subsequent
refinancings or refundings thereof.
(vii) Indebtedness evidenced by the Securities or other Obligations
with respect to such Indebtedness set forth in this Loan Agreement;
(viii) Indebtedness of Intermediate No. 1 and its Subsidiaries (or,
following the merger of Intermediate No. 1 with and into the Company,
Indebtedness of the Company and its Subsidiaries) Incurred pursuant to the
Credit Agreement in an aggregate principal amount at any one time
outstanding not to exceed the sum of (a) $62.0 million in the aggregate,
less all principal payments made from and after the Closing Date with
respect thereto (whether by prepayments, scheduled payments, required
payments, upon maturity or otherwise) (or, in the case of any revolving
credit facility, less permanent reductions to such facility to the extent
that the related principal payments, if any, are actually made), provided
that the amount of Indebtedness permitted by this clause (a) shall not be
reduced by any principal payments or permanent reductions that are effected
under the Credit Agreement as a result of any refinancing of the Credit
Agreement, (b) additional Indebtedness Incurred under the Credit
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Agreement in an aggregate principal amount not in excess of $10 million at
any one time outstanding, reduced by any amounts outstanding under clause
(i) of this Section 7.7.2 and (c) $10 million of additional Indebtedness
under the Credit Agreement;
(ix) Indebtedness represented by Exchange Subordinated Debt in an
aggregate principal amount not in excess of (A) the sum of (1) principal
amount of Exchange Subordinated Debt originally issued upon exchange of the
Preferred Stock, plus (2) the aggregate principal amount of additional
Exchange Subordinated Debt issued pursuant to the terms of the indenture
relating to the Exchange Subordinated Debt in the form described in the
Company's certificate of incorporation as in effect on the Closing Date
(without giving any effect to any modifications of, or amendments to, the
terms of such indenture as so described), less (B) all principal payments
made in respect of such Exchange Subordinated Debt;
(x) Indebtedness existing on the date of this Loan Agreement listed on
Schedule 7.7 hereto;
(xi) Indebtedness incurred in connection with portfolio investments
made in the ordinary course of business; and
(xii) Capitalized Lease Obligations in an aggregate amount not in
excess of $2.5 million at any one time outstanding.
7.7.3 SUBSIDIARY GUARANTY. Notwithstanding the provisions of this Section
7.7, any Subsidiary of the Company may Incur Indebtedness pursuant to a Guaranty
of Indebtedness of the Company or any other Subsidiary of the Company, provided
that such Indebtedness of the Company or such other Subsidiary is permitted
under Section 7.7.1 or Section 7.7.2 and such Guaranty complies with the
requirements of Section 7.10 hereof.
SECTION 7.8 LIMITATION ON PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.
Except as otherwise provided in this Section 7.8, the Company shall not,
and shall not permit any of its Subsidiaries to, directly or indirectly, create
or suffer to exist or allow to become effective any consensual encumbrance or
restriction on the ability of (i) any of its Subsidiaries to (a) pay dividends
or make other distributions on its Capital Stock or pay any obligation,
liability or any Indebtedness owed to the Company or any of its Subsidiaries,
(b) make loans or advances to the Company or any of its Subsidiaries or (c)
transfer any of its properties or assets to the Company or any of its
Subsidiaries, or (ii) the Company or any of its Subsidiaries to receive or
retain any such amounts set forth in clauses (i) (a), (i) (b) or (i) (c) above,
except for:
7.8.1 LEGAL ENCUMBRANCES. Encumbrances or restrictions existing under or by
reason of applicable law;
7.8.2 EXISTING ACQUISITION ENCUMBRANCES. Any restrictions under any
agreement creating or evidencing any Indebtedness of a Person acquired by the
Company or a Subsidiary of the Company, which encumbrance or restriction existed
at the time of acquisition, was not put in place in connection with, or in
anticipation of, such acquisition and is not applicable to any Person, other
than the Person or Property of the Person so acquired;
7.8.3 EXISTING REFINANCING ENCUMBRANCES. Any restrictions existing under
any agreement pursuant to which Refinancing Indebtedness is incurred in
accordance with Section 7.7.2(vi) hereof; provided that the restrictions of any
such agreement are not more restrictive as to the Company or such Subsidiary
than those under the agreement creating or evidencing the Indebtedness being
refinanced;
7.8.4 RESTRICTIONS IN CREDIT AGREEMENT; LOAN AGREEMENT. Restrictions
contained in (i) the Credit Agreement as in effect as of the Closing Date, or as
amended, provided that such restrictions in any such amendment are not more
onerous than those contained in the Credit Agreement as in effect as of the
Closing Date, or (ii) the Loan Agreement; and
7.8.5 CUSTOMARY CONTRACTUAL RESTRICTIONS. Customary provisions restricting
subletting or assignment of any lease, installment purchase contracts,
requirements contracts, or other agreements of the Company or any Subsidiary of
the Company.
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SECTION 7.9 SALE OF ASSETS.
The Company shall not, and shall not permit any of its Subsidiaries to sell
or dispose or agree to sell or dispose of any asset pursuant to an Asset Sale
during any of the Company's Fiscal Years which cause the Sales Proceeds for all
such Asset Sales during such Fiscal Year to exceed $10 million, unless (i) the
Company or such Subsidiary receives consideration at the time of such Asset Sale
at least equal to the Fair Market Value of the assets sold or disposed of, and
(ii) at least 75% of the consideration received therefor, and the consideration
received for all subsequent Asset Sales during such Fiscal Year, by the Company
or such Subsidiary, as the case may be, is in the form of cash; provided,
however, that the amount of (x) any liabilities of the Company or any Subsidiary
of the Company (as shown on the Company's or such Subsidiary's most recent
balance sheet or in the notes thereto) that are assumed by the transferee in any
Asset Sale (other than liabilities that are incurred in connection with or in
anticipation of such Asset Sale), (y) any notes or other obligations received by
the Company, or any Subsidiary of the Company from such transferee that are
immediately converted by the Company or such Subsidiary into cash, and (z) cash
deposited into an escrow arrangement, the receipt of which by the Company or any
Subsidiary of the Company is not subject to any material contingency, other than
the passage of time (for these purposes a holdback of purchase price for the
purpose of funding indemnities shall be deemed to be subject to a material
contingency other than the passage of time), shall be deemed to be cash for
purposes of this Section 7.9. In the event that the provisions of this Section
7.9 shall be violated as a result of the foreclosure on or sale of any of the
assets of Intermediate No. 1 or any of its Subsidiaries by the lenders under the
Credit Agreement in accordance with the terms of the Credit Agreement and
applicable law, the Holders shall have no claim against any of such lenders or
any purchaser of such assets in such sale as a result of such violation of this
Section 7.9.
SECTION 7.10 LIMITATION ON GUARANTIES BY SUBSIDIARIES.
The Company shall not permit any Subsidiary of the Company to, directly or
indirectly, Guarantee any Indebtedness of the Company (other than Senior
Indebtedness).
SECTION 7.11 LIMITATION ON ISSUANCE AND/OR SALE OF CAPITAL STOCK.
The Company shall not issue any Capital Stock other than (a) Class A Common
Stock or Class B Common Stock issued upon conversion of Securities, (b) Class A
Common Stock issued upon conversion of Class B Common Stock, (c) stock options
and shares of restricted stock under the Company Stock Plan and the Warrants, or
(d) shares of Class A Common Stock issued upon the exercise of the Warrants or
upon the exercise of options granted under the Company Stock Plan. No Subsidiary
of the Company shall issue any Capital Stock except to the Company or to a
Wholly-Owned Subsidiary. No Capital Stock of any Subsidiary of the Company shall
be sold to any Person except the Company or a Wholly-Owned Subsidiary of the
Company.
SECTION 7.12 LIMITATION ON MAJOR ACQUISITIONS.
Except as otherwise provided in this Section 7.12, the Company shall not,
and shall not permit any of its Subsidiaries to, make a Major Acquisition (as
defined below), unless (a) immediately after giving effect to such transaction,
no Default or Event of Default shall have occurred and be continuing, and (b)
immediately after giving effect to such transaction (on a pro forma basis, as if
such Major Acquisition and any related financing transaction had occurred at the
beginning of the four fiscal quarter period immediately preceding the date of
the Major Acquisition), the Company and its Subsidiaries could incur at least
One Dollar ($1.00) of additional Indebtedness in accordance with the terms of
Section 7.7.1 hereof and (c) the Company will have a Consolidated Net Worth
immediately after giving effect to such transaction equal to or greater than the
Consolidated Net Worth of the Company immediately preceding such transaction.
For purposes of this Section 7.12, the term "Major Acquisition" shall mean any
purchase or other acquisition (whether in a single transaction or a series of
related transactions) by the Company or any of its Subsidiaries of assets at a
price that is equal to or greater than 15% of the total assets of the Company
and its Subsidiaries on a consolidated basis, determined in accordance with
GAAP, as reflected on the consolidated financial statements of the Company as of
the end of the fiscal quarter next preceding the date of the acquisition.
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SECTION 7.14 LIMITATION ON CERTAIN AMENDMENTS OF CERTIFICATE OF INCORPORATION.
For so long as IP shall continue to hold at least $15,000,000 million in
principal amount of the Securities, the Company shall not, without the prior
written consent of IP, amend or take any action to amend its certificate of
incorporation if an effect of such amendment would be an increase (or the
permission for an increase) in the size of the Board of Directors or the
modification of any provision relating to the classification of the Board of
Directors as set forth in Article Seventh of the Restated Certificate of
Incorporation. The Company shall not, without the prior written consent of the
Holders of a majority of the aggregate principal amount of the Securities then
outstanding, amend or take any action to amend (a) its certificate of
incorporation if such amendment amends any of the powers (including voting
powers), preferences or rights of any class of Capital Stock and would adversely
affect the Securities; or (b) the Exchange Subordinated Debt or the Exchange
Subordinated Debt Indenture if such amendment would adversely affect the
Securities.
SECTION 7.15 DETERMINATION AS TO BONA FIDE TAKEOVER PROPOSAL.
Upon any written request of the Holder or Holders of at least $4.0 million
aggregate principal amount of Securities outstanding, the Company shall cause a
special meeting of the Board of Directors to be called for the purpose of making
a determination regarding the occurrence of a Bona Fide Takeover Proposal, such
meeting to be held no later than three Business Days following the receipt by
the Company of such written notice. At such meeting, the Board of Directors of
the Company shall determine whether a Bona Fide Takeover Proposal has occurred,
such determination to be made in good faith by such Board of Directors by
majority vote, excluding any director who is an employee of the Company, who is
an Interested Party, or who is a designee of an Interested Party or of
Travelers. The Holder or Holders requesting such special meeting shall have the
opportunity to appear at such meeting and shall be granted a reasonable amount
of time to present information to the Board of Directors of the Company
concerning the occurrence of a Bona Fide Takeover Proposal.
SECTION 8.1 LIMITATION ON ACQUISITION OF CAPITAL STOCK.
Except as otherwise provided in this Section 8.1 or as may be consented to
by Travelers and without limitation of Section 3.3.3 hereof, IP hereby covenants
and agrees with Travelers and the Company that, for a period of two years
following the Closing Date, (i) IP will not, and will cause its Affiliates that
are controlled by IP, not to, acquire any Capital Stock of the Company and (ii)
IP will not act in concert with any other Person to acquire any Capital Stock of
the Company. IP represents and warrants to Travelers and the Company that IP has
no actual knowledge of any plan or intention by any Permitted Holder to acquire
any Capital Stock of the Company, other than the Warrants and any options that
may be issued under the Company Stock Option Plan. Notwithstanding anything in
this Section 8.1 to the contrary, the provisions of this Section 8.1 shall not
restrict the ability of IP or any Affiliate of IP to (a) make open market
purchases in bona fide brokers' transactions or in bona fide transactions
directly with an unaffiliated market maker; (b) acquire Capital Stock of the
Company following a Bona Fide Takeover Proposal; (c) effect any Three Party
Transaction (provided that no steps are taken to solicit or effect such Three
Party Transaction prior to the date that is one year following the Closing
Date); (d) acquire shares of Capital Stock of the Company upon the conversion of
Securities or of shares of Class B Common Stock; or (e) acquire shares of
Capital Stock of the Company in connection with a sale or transfer permitted
under Section 8.2 hereof.
SECTION 8.2 LIMITATIONS ON SALE.
8.2.1 LIMITATIONS ON SALE DURING FIRST 18 MONTHS. Each Lender agrees with
Travelers and the Company, and any Affiliate of IP by its acceptance of the
transfer of any Securities or Conversion Shares agrees with Travelers and the
Company, that, subject to the provisions of this Section 8.2.1, until the date
that is 18 months following the Closing Date, without the consent of Travelers,
it will not sell or transfer any Securities or Conversion Shares held by it.
Notwithstanding anything in this Section 8.2.1 to the contrary, the restrictions
set forth in this Section 8.2.1 shall not apply (i) at any time that Travelers
and its Affiliates collectively do not own at least a majority of the shares of
Preferred Stock outstanding on the Closing Date or a majority of the aggregate
principal amount of the Exchange Subordinated Debt issued in exchange for
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shares of Preferred Stock, (ii) to any sale or transfer (A) effected pursuant to
a Bona Fide Takeover Proposal or (B) by IP to any of its Affiliates that are
controlled by IP, (iii) to any sale or transfer of any Management Pledged
Securities or any Conversion Shares underlying such Management Pledged
Securities (A) to any Pledgee after a default in the obligation secured by a
bona fide pledge of such Management Pledged Securities or such Conversion Shares
or (B) by or at the direction of any Pledgee (other than IP or any Affiliate
thereof) after a default in the obligation secured by a bona fide pledge of such
Management Pledged Securities or such Conversion Shares, or (iv) to any sale or
transfer of any Producer Pledged Securities or any Conversion Shares underlying
such Producer Pledged Securities (A) to any Pledgee after a default in the
obligation secured by a bona fide pledge of such Producer Pledged Securities or
such Conversion Shares or (B) by or at the direction of the Pledgee after a
default in the obligation secured by a bona fide pledge of such Producer Pledged
Securities or such Conversion Shares.
8.2.2 CERTAIN LIMITATIONS DURING PERIOD SUBSEQUENT TO FIRST 18 MONTHS.
(a) Each Lender agrees, and each transferee of Securities or Conversion
Shares by its acceptance of the transfer of any Securities or Conversion Shares
agrees, that, subject to the provisions of this Section 8.2.2, from and
following the date that is 18 months following the Closing Date and until the
date that is five years following the Closing Date:
(i) it will not sell or otherwise transfer (other than to an Affiliate
controlled by it) Securities or Conversion Shares unless it first has
complied with the provisions of Section 8.2.3 hereof, if applicable, with
respect to such sale; and
(ii) it will not sell, by itself or as part of a group of Permitted
Holders, for value to any one Person or group, in any one transaction or
series of related transactions, (A) Securities in an aggregate principal
amount of more than $5,000,000 or (B) Conversion Shares in an amount
greater than the number of Conversion Shares into which Securities in the
aggregate principal amount of $5,000,000 may be converted, unless the buyer
of such Securities or Conversion Shares is approved by Travelers, which
approval cannot be unreasonably withheld.
For purposes of, and without limiting, the immediately preceding clause (ii), a
material defect in the character of the proposed buyer or in the character of
any Person acting in concert with such proposed buyer to acquire such Securities
or Conversion Shares shall be deemed to be a reasonable basis for withholding
approval for such sale.
(b) Notwithstanding anything in this Section 8.2.2 to the contrary, the
restrictions set forth in this Section 8.2.2 (including but not limited to the
requirement to comply with Section 8.2.3 hereof) shall not apply (i) at any time
that Travelers and its Affiliates collectively do not own at least a majority of
the shares of Preferred Stock outstanding on the Closing Date or a majority of
the aggregate principal amount of the Exchange Subordinated Debt issued in
exchange for shares of Preferred Stock, (ii) to any sale or transfer effected
pursuant to a Bona Fide Takeover Proposal, (iii) to any Securities or Conversion
Shares from and after the date on which such Securities or Conversion Shares are
first sold in a bona fide transaction to a Person who is not a Permitted Holder,
the spouse or child of a Permitted Holder, or a trust for the benefit of a
Permitted Holder or the spouse or child of a Permitted Holder, (iv) to
Conversion Shares that have been acquired in open market purchases in bona fide
brokers' transactions or in bona fide transactions directly with an unaffiliated
market maker, (v) to any sale or transfer of any Management Pledged Securities
or any Conversion Shares underlying such Management Pledged Securities (A) to
any Pledgee after a default in the obligation secured by a bona fide pledge of
such Management Pledged Securities or such Conversion Shares or (B) by or at the
direction of any Pledgee (other than IP or any Affiliate thereof) after a
default in the obligation secured by a bona fide pledge of such Management
Pledged Securities or such Conversion Shares, or (vi) to any sale or transfer of
any Producer Pledged Securities or any Conversion Shares underlying such
Producer Pledged Securities (A) to any Pledgee after a default in the obligation
secured by a bona fide pledge of such Producer Pledged Securities or such
Conversion Shares or (B) by or at the direction of any Pledgee after a default
in the obligation secured by a bona fide pledge of such Producer Pledged
Securities or such Conversion Shares.
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8.2.3 TAG-ALONG RIGHTS.
(a) In the event any Tag Seller desires to sell for value any Securities or
Conversion Shares in a transaction that (pursuant to Section 8.2.2(a) hereof)
requires compliance with this Section 8.2.3 (for purposes of this Section 8.2.3,
a "Tag Sale"), then at least 20 days prior to the closing of such Tag Sale, such
Tag Seller shall, by written notice to each Permitted Holder that is a Holder of
Securities or Conversion Shares setting forth the principal amount of Securities
or the number of Conversion Shares to be sold, the percentage of the aggregate
Securities or the number of Conversion Shares held by all Permitted Holders
which the principal amount of Securities or the number of Conversion Shares to
be sold represents, the price per $1,000 principal amount of Securities or per
Conversion Share proposed to be paid to such Tag Seller in such Tag Sale, the
name of the purchaser(s) and the terms and conditions of such Tag Sale, offer
(the "Participation Offer") to each Permitted Holder that is a Holder of
Securities or Conversion Shares (collectively, for purposes of this Section
8.2.3, the "Nonparticipating Tag Holders") the right to sell in the Tag Sale the
principal amount of Securities or Conversion Shares which represents the same
percentage (rounded to the nearest $1,000 principal amount of Securities or the
nearest Conversion Share) of such Nonparticipating Tag Holder's Securities or
Conversion Shares as the Securities or Conversion Shares being disposed of by
the Tag Seller represents of the aggregate Securities or Conversion Shares held
by all Permitted Holders; provided that, if the consideration to be received by
the Tag Seller includes any securities, only Nonparticipating Tag Holders who
have certified to the reasonable satisfaction of the Tag Seller that they are
Accredited Investors (as defined in Regulation D) shall be entitled to
participate in such Tag Sale.
All Securities or Conversion Shares sold or transferred by Nonparticipating
Tag Holders pursuant to this Section 8.2.3 shall be sold at the same price and
otherwise treated the same, in substance, as the Securities or the Conversion
Shares, as the case may be, being sold by the Tag Seller; provided, however,
that appropriate adjustments, if any, as shall be mutually agreed to in good
faith by Travelers and the Tag Sellers shall be made in the purchase price for
any Series B Notes to be sold by the Nonparticipating Tag Holders in the event
the conversion price thereunder shall be greater than the conversion price of
the Series A Notes. The provisions of this Section 8.2.3 shall not apply to any
sale or other transfer, in one transaction or series of related transactions, of
Securities in an aggregate principal amount of $1,000,000 or less, or of
Conversion Shares in an amount equal to or less than the number of Conversion
Shares into which Securities in an aggregate principal amount of $1,000,000 may
be converted, until an aggregate of $8,000,000 principal amount of Securities,
and/or Conversion Shares into which such aggregate principal amount of
Securities may be converted, have been sold in transactions to which this
Section 8.2.3 would apply but for the provisions of this sentence. The rights
granted to Travelers under this Section 8.2.3 may be assigned by Travelers to
any transferee of Securities or Conversion Shares owned by Travelers and any
such transferee may further assign those rights to any subsequent transferee of
such Securities or Conversion Shares, provided that the rights set forth in this
Section 8.2.3 will terminate, with respect to any such transferee or subsequent
transferee that is not an Affiliate of Travelers, upon the third anniversary of
the Closing Date.
(b) Within 10 Business Days after their receipt of the Participation Offer,
each eligible Nonparticipating Tag Holder who desires to participate in the Tag
Sale shall deliver to the Tag Sellers a written notice specifying the principal
amount of Securities that each such Nonparticipating Tag Holder desires to sell
in the Participation Offer, whereupon each such Nonparticipating Tag Holder
shall be obligated to sell such Securities at the closing of such Tag Sale, if
and when it occurs.
(c) Each eligible Nonparticipating Tag Holder's right to participate in the
proposed Tag Sale shall be conditioned upon (i) the consummation of the
transactions contemplated in the Participation Offer with the transferee named
therein and (ii) such Nonparticipating Tag Holder's execution and delivery of
all agreements and other documents which the Tag Seller is required to execute
and deliver in connection with such Tag Sale. If any Nonparticipating Tag Holder
shall accept the Participation Offer, the Tag Seller shall reduce, to the extent
necessary, the principal amount of Securities the Tag Seller otherwise would
have sold in the proposed Tag Sale so as to permit those Nonparticipating Tag
Holders who have accepted the Participation Offer to sell the principal amount
of Securities that they are entitled to sell under this Section 8.2.3.
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8.2.4 NO TRANSFER TO IP PARTNERS. Notwithstanding any provision of this
Loan Agreement to the contrary, until the later to occur of (i) the date on
which Travelers shall first own neither (A) shares of Preferred Stock with an
aggregate liquidation preference of at least $10,000,000 nor (B) Exchange
Subordinated Debt in an aggregate principal amount of at least $10,000,000, or
(ii) the fifth anniversary of the Closing Date, IP will not sell, distribute or
otherwise transfer any Securities or Conversion Shares to its partners without
the consent of Travelers. Notwithstanding Section 8.2.1 and Section 8.2.2(b),
until the fifth anniversary of the Closing Date, without the prior written
consent of Travelers, no Lender shall (and each Lender shall cause such Lender's
controlled Affiliates not to) (i) acquire any Management Pledged Securities or
Producer Pledged Securities following a default in the obligation secured by
such Management Pledged Securities or Producer Pledged Securities, as
applicable, except pursuant to a direct transfer from the pledgor of such
Management Pledged Securities or Producer Pledged Securities, as applicable, or
(ii) acquire directly (or knowingly indirectly as part of a series of related
transactions) from any Pledgee any Conversion Shares underlying any Management
Pledged Securities or Producer Pledged Securities, as applicable, pledged to
such Pledgee following a default in the obligation secured by such Management
Pledged Securities, such Producer Pledged Securities or such Conversion Shares,
except pursuant to an open market purchase in an anonymous brokerage
transaction.
SECTION 8.3 FORM A FILING.
As soon as practicable on or following the date of this Agreement, IP shall
file with the Texas Department of Insurance a Form A seeking approval of the
acquisition of "control" (as defined in Art. 21.49-1, Section 2 of the Texas
Insurance Code) of Intermediate No. 2, Transport and Continental by IP. IP shall
use commercially reasonable efforts to cause such Form A application to be
approved.
SECTION 8.4 PLEDGE AGREEMENT.
Each Lender, and each Holder by its acceptance of any Securities, consents
to the terms of the Pledge Agreement and to the designation of Insurance
Partners Advisors, L.P., as the Agent thereunder.
SECTION 9.1 WHEN COMPANY MAY MERGE, ETC.
9.1.1 MERGER OR CONSOLIDATION. The Company shall not, directly or
indirectly, (i) consolidate with or merge with or into any other Person, or
transfer (by lease, assignment, sale or otherwise) all or substantially all of
the properties and assets of the Company, in a single transaction or through a
series of related transactions, to another Person or group of affiliated Persons
or permit any Subsidiaries of the Company to enter into any such transaction or
transactions if such transaction or transactions in the aggregate would result
in a sale of all or substantially all of the properties and assets of the
Company and the Subsidiaries of the Company on a consolidated basis or (ii)
adopt a Plan of Liquidation, unless, in either case:
(a) the Company shall be the continuing Person, or the Person (if other
than the Company) (or, in the case of a Plan of Liquidation, the sole person to
which assets are transferred) formed by such consolidation or into which the
Company is merged or to which the properties and assets of the Company and any
Subsidiaries of the Company on a consolidated basis are transferred or leased
(the Company or such other person being hereinafter referred to as the
"Surviving Corporation") shall be organized and validly existing under the laws
of the United States or any State thereof or the District of Columbia and shall
expressly assume all the obligations of the Company under the Securities and
this Loan Agreement;
(b) the Surviving Person shall have a Consolidated Net Worth (immediately
after giving effect to such transaction and the assumption contemplated by (a)
above and the incurrence or anticipated incurrence of any Indebtedness to be
incurred in connection therewith, on a pro forma basis, the application of the
net proceeds, if any, of any such transaction) equal to or greater than the
Consolidated Net Worth of the Company (immediately preceding such transaction);
(c) immediately prior to and immediately after giving effect to such
transaction, no Default or Event of Default (including by reason of the
incurrence of Indebtedness not permitted by the covenants herein) shall have
occurred and be continuing; and
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(d) immediately after giving effect to such transaction, the Surviving
Person shall be able to incur at least One Dollar ($1.00) of additional
Indebtedness pursuant to the terms of Section 7.7.1 hereof.
Notwithstanding the foregoing, any Wholly-Owned Subsidiary with a Net Worth
greater than zero may merge into the Company or any Wholly-Owned Subsidiary of
the Company at any time, provided such merger is not part of a plan or
transaction otherwise prohibited by this Loan Agreement.
In the event that the provisions of this Section 9.1 shall be violated as a
result of the foreclosure on or sale of any of the assets of Intermediate No. 1
or any of its Subsidiaries by the lenders under the Credit Agreement in
accordance with the terms of the Credit Agreement and applicable law, the
Holders shall have no claim against any of such lenders or any purchaser of such
assets in such sale as a result of such violation of this Section 9.1.
9.1.2 SUBSIDIARY SALES. For purposes of Section 9.1.1 hereof, the transfer
(by lease, assignment, sale or otherwise) of all or substantially all of the
properties and assets of one or more Subsidiaries of the Company (other than a
transfer to the Company or one or more Wholly-Owned Subsidiaries of the Company)
the Capital Stock of which constitute all or substantially all of the properties
and assets of the Company shall be deemed to be the transfer of all or
substantially all of the assets of the properties and assets of the Company.
IF THE PROPOSED AMENDMENTS ARE ADOPTED, EACH OF THE FOLLOWING SECTIONS WILL BE
RETAINED AS IT CURRENTLY EXISTS:
SECTION 7.1 PAYMENT OF SECURITIES.
The Company shall pay the principal of, premium (if any) and interest on
the Securities on the dates and in the manner provided in the Securities.
SECTION 7.2 MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain (i) an office or agency where the Securities may
be presented for payment; (ii) an office or agency where the Securities may be
presented for registration of transfer and for exchange as provided in this Loan
Agreement; and (iii) an office or agency where notices and demands to or upon
the Company in respect of the Securities may be served. The location of such
office or agency for payment initially shall be at the Company's offices in Fort
Worth, Texas. The Company shall give to each Holder written notice of any change
of location thereof.
SECTION 7.4 CORPORATE EXISTENCE.
Subject to the provisions of Article 9 hereof, the Company will, and,
subject to Section 7.16, will cause each Subsidiary of the Company to, preserve
and keep in full force and effect its corporate existence and the corporate or
other existence of each of its Subsidiaries in accordance with the respective
organizational documents of each of them and the rights (charter and statutory)
and franchises of the Company and each such Subsidiary; provided, however, that,
the Company shall not be required to preserve any right or franchise, and with
respect to any of the Subsidiaries of the Company, any such existence, right or
franchise, if the Company shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and its
Subsidiaries taken as a whole and that the loss thereof, individually or in the
aggregate through a series of related transactions, will not have a Material
Adverse Effect on the Company.
SECTION 7.6 NOTICE OF DEFAULT.
The Company shall deliver to the Holders, promptly (but in any event within
5 Business Days), upon becoming aware of any Default that has occurred and is
continuing or Event of Default, a written notice specifying with particularity
such event. The Company shall deliver to IP (so long as IP owns any Securities)
and Travelers (so long as Travelers owns any Securities), promptly (but in any
event within 5 Business Days), upon becoming aware of any event of default of
which the Company is aware or with respect to which a holder of Indebtedness
having an outstanding aggregate principal amount of $2 million or more has given
notice under any agreement pursuant to which such Indebtedness may have been
issued, a written notice specifying
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with particularity such event. The Company shall deliver to the Holders,
promptly (but in any event within 5 Business Days of receipt thereof by the
Company), a copy of any notice received by the Company as contemplated by the
definition of "Senior Bank" hereunder and any notice received by the Company as
contemplated by Section 6.2.2 hereof.
SECTION 7.13 CHANGE OF CONTROL.
7.13.1 CHANGE OF CONTROL. In the event a Change of Control shall occur and
shall continue in effect for a period of ten Business Days (the Business Day
immediately following the expiration of such ten Business Day period being
referred to herein as the "Change of Control Date"), each Holder shall have the
right to require the Company to repurchase all or any part of such Holder's
Securities at a purchase price equal to 100% of the aggregate principal amount
thereof, together with unpaid interest to the date of repurchase (the "Change of
Control Offer Price"), in accordance with the terms set forth in Section 7.13.2
below, but subject to any pro rata repurchase of shares of Preferred Stock or
Exchange Subordinated Debt as permitted by Section 7.3(c) (ii) and (iv),
respectively. Prior to any obligation arising to repurchase Securities pursuant
to this Section 7.13, the Company shall have either (i) repurchased in full all
outstanding Indebtedness pursuant to the Credit Agreement and all other Senior
Indebtedness of the Company which pursuant to its terms is required to be
repurchased upon a Change of Control, or shall have offered to repurchase and
shall have repurchased such Indebtedness from any holder who accepted such
offer, or (ii) obtained the requisite consents from holders of such Indebtedness
to permit the repurchase of the Securities as provided for under this covenant.
The Company covenants and agrees to satisfy the condition precedent to the
repurchase of the Securities referred to in the preceding sentence prior to the
80th day following the Change of Control Date, and failure to do so shall
constitute a covenant default (and not a payment default). It is understood and
agreed that the condition precedent to the repurchase of the Securities referred
to in the preceding sentence is a condition to such repurchase, and not to the
Company taking the actions set forth in Section 7.13.2.
7.13.2 PROCEDURE. Subject to the terms of Section 7.13.1, within 20 days
following the Change of Control Date, the Company shall mail a notice of the
Change of Control to all Holders at their last registered address. The notice of
a Change of Control shall state:
(i) that a Change of Control has occurred and that each Holder has the
right, subject to the Company having complied with the condition precedent
set forth in Section 7.13.1, to require the Company to repurchase all or
any part of such Holder's Securities at a purchase price equal to 100% of
the aggregate principal amount thereof, together with unpaid interest to
the date of repurchase, and may elect to exercise such right in the manner
provided in clause (iv) below and otherwise upon the terms set forth
therein;
(ii) the Change of Control Offer Price and the date, not less than 30
days nor more than 60 days after the date of mailing of such notice by the
Company, for repurchase of the Securities pursuant to the rights granted
under this Section 7.13 (the "Change of Control Payment Date");
(iii) that, unless the Company defaults in the payment of the Change
of Control Offer Price or the Company is prohibited by the terms of Section
7.13.1 from repurchasing Securities on the Change of Control Payment Date,
all Securities that the Company is required to repurchase shall cease to
accrue interest on and after the Change of Control Payment Date;
(iv) that Holders electing to require the Company to repurchase any
Securities will be required to surrender the Security, with the form
entitled "Option of Holder to Elect Purchase" on the reverse side of the
Security completed and otherwise in proper form for transfer, to the
address specified in the notice, prior to the close of business on the
Business Day preceding the Change of Control Payment Date;
(v) that the Holders will be entitled to withdraw their election to
require the Company to repurchase any Securities on the terms and
conditions set forth in such notice;
(vi) that the Holders electing to require the Company to repurchase
any Securities in part will be issued a new Security in a principal amount
equal to the unpurchased portion of the Securities surrendered; provided,
however, that any portion of a Security repurchased by the Company and any
new
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Security issued to the Holder in respect of the unpurchased portion thereof
shall be in the principal amount of $1,000 or an integral multiple thereof;
and
(vii) that any Security that a Holder does not require the Company to
repurchase will continue to accrue interest.
Any such notice and related time periods shall be subject to, and shall comply
with, the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations to the extent applicable in connection with any
notifications under this Section 7.13.
7.13.3 ACCEPTANCE OF THE COMPANY. On a Change of Control Payment Date, the
Company shall, subject to the terms of Section 7.13.1, (i) accept for payment
all Securities or portions thereof that Holders have required the Company to
repurchase pursuant to the rights granted under this Section 7.13 and (ii)
promptly thereafter mail or deliver to Holders of Securities accepted for
repurchase payment in the amount equal to the aggregate Change of Control Offer
Price for such Securities, and the Company shall execute and mail or deliver to
such Holders a new Security equal in principal amount to any unpurchased portion
of the Securities surrendered. The Company will notify the Holders of the
results of the notifications required by this Section 7.13 on the Change of
Control Payment Date.
IF THE PROPOSED AMENDMENTS ARE ADOPTED, THE FOLLOWING SECTIONS WILL BE AMENDED
AS FOLLOWS (STRIKE-THROUGH INDICATES TEXT TO BE DELETED AND DOUBLE UNDERLINE
INDICATES TEXT TO BE ADDED):
SECTION 1.1
"AFFILIATE" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of Voting
Securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. No limited partner of
IP Bermuda or IP Delaware shall be deemed to be an "Affiliate" of IP Bermuda or
IP Delaware solely by virtue of its status as a limited partner of IP Bermuda or
IP Delaware. [As used in the definitions of "Interested Party" and "Unrelated
Person" and Section 3.3.3 hereof only, an "Affiliate" of any individual (the
"First Individual") shall include (i) any other individual who would be
attributed stock owned by the First Individual by applying the attribution rules
of Section 318(a)(1) of the IRC (each such other individual being referred to as
a "Clause (i) Affiliate") and (ii) any other Person directly or indirectly
controlled by any Clause (i) Affiliate, by one or more of Clause (i) Affiliates,
or by one or more Clause (i) Affiliates and any First Individual.]
SECTION 7.5 REPORTS.
If the Company is subject to Sections 13(a) or 15(d) of the Exchange Act,
the Company shall [file with the SEC the annual reports, quarterly reports and
other documents which the Company is required to file with the SEC pursuant to
such Sections 13(a) and 15(d), such documents to be filed with the SEC on or
prior to the respective dates by which the Company is required to so file or any
extension thereof in compliance with the rules and regulations of the SEC (the
"Required Filing Dates"). The Company shall also in any event] transmit by mail
to all Holders, as their names and addresses appear in the Securities Register,
without cost to such Holders, [(i)] within 15 days after it is required to file
such with the SEC [each Required Filing Date,] copies of the annual reports,
quarterly reports and other documents which the Company is required to file with
the SEC pursuant to Sections 13(a) and 15(d) of the Exchange Act [and (ii) if
filing such documents by the Company with the SEC is not required under the
Exchange Act, within 15 days after each Required Filing Date (if such filings
were required) substantially equivalent information. The Company shall also
furnish such information to any prospective purchaser of Securities or
Conversion Shares designated by any Holder.]
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SECTION 9.2. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger of the Company, or any transfer or lease
of substantially all of the assets of the Company [in accordance with Section
9.1 hereof,] the successor person formed by such consolidation or into which the
Company is merged or to which such transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Loan Agreement with the same effect as if such successor person had been
named as the Company. When a successor corporation assumes all of the
obligations of the Company hereunder and under the Securities, the predecessor
shall be released from such obligations.
SECTION 10.1 RIGHT OF CONVERSION.
(a) Subject to the terms and provisions of this Article 10, the Holder of
any Security or Securities shall have the right, at its option, to convert the
principal of any such Security or Securities (or any portion of the principal
thereof that is an integral multiple of $1,000) into a number of fully paid and
nonassessable shares of Class A Common Stock [or Class B Common Stock]
determined as follows: Divide the principal amount of Securities to be
converted by the conversion price in effect on the conversion date; round the
result to the nearest whole share of Class A Common Stock or [Class B Common
Stock.] The initial conversion price for the Series A Notes will be equal to
$50,000,000 divided by the number of shares of Class A Common Stock to be
issued and outstanding immediately prior to the Spin-Off. The initial
conversion price for the Series B Notes will be equal to the greater of the
initial conversion price for the Series A Notes or 10% in excess of the last
reported sale price of the Class A Common Stock on the first trading day on or
after the Closing Date on which the Class A Common Stock trades on a "regular
way" basis. The respective conversion prices for the Series A Notes and the
Series B Notes shall be subject to adjustment as provided herein.
With respect to any Security or Securities, or any portion thereof, which
shall be redeemed or repurchased by the Company, such right of conversion shall
terminate at the close of business on the Business Day prior to such date of
redemption or repurchase. Such right shall be exercised by the surrender of the
Security or Securities, the principal of which is so to be converted, to the
Company at any time during usual business hours at any office or agency to be
maintained by it in accordance with the provisions of Section 7.2, accompanied
by irrevocable written notice that the Holder elects to convert such Security or
Securities or any portion thereof and specifying the name or names (with
address) in which a certificate or certificates evidencing shares of Class A
Common Stock [or Class B Common Stock, as applicable,] are to be issued and (if
so required by the Company) by an instrument or instruments of transfer in form
satisfactory to the Company, duly executed by the Holder or his attorney, duly
authorized in writing and transfer tax stamps or funds therefor, if required
pursuant to Section 10.9. For convenience, the conversion of all or a portion,
as the case may be, of the principal of any Security into shares of Class A
Common Stock [or Class B Common Stock, as applicable,] is hereinafter sometimes
referred to as the conversion of such Security. All Securities surrendered for
conversion shall, if surrendered to the Company or any conversion agent, be
cancelled by the Company; and, subject to the next succeeding sentence, no
Securities shall be issued in lieu thereof. In the case of any Security which
is converted in part only, upon such conversion the Company shall execute and
deliver to the Holder thereof, at the expense of the Company, a new Security or
Securities (of the same series) of authorized denominations in an aggregate
principal amount equal to the unconverted portion of the principal amount of
such Security.
[(b) The Securities shall become convertible into shares of Class B Common
Stock on the date that is one year following the Closing Date. The Securities
shall become convertible into shares of Class A Common Stock on the date that is
the fifth anniversary of the Closing Date (the "Fifth Anniversary Date"), or, if
earlier, the earlier to occur of:]
[(i) the date on which a Bona Fide Takeover Proposal shall have
occurred (the "BFTP Conversion Date"); or]
[(ii) the date designated by the Board of Directors of the Company
in a resolution certified by the Secretary or Assistant Secretary of the
Company, provided that (A) such date shall be after the first anniversary
of the Closing Date and (B) Travelers shall have notified the Company in
writing that]
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[Travelers has received a legal opinion in form and substance acceptable to
Travelers from counsel acceptable to Travelers that the Securities becoming
convertible into Class A Common Stock on such date so designated will have
no adverse impact on the tax-free nature to Travelers and its stockholders
of the Spin-Off (the date so designated in accordance with this clause (ii)
being referred to as the "Designated Conversion Date").
(c) In addition, upon receipt by the Company of a written notice of a
transfer of Securities from the transferor thereof, together with a
certification of the transferee, in substantially the form of Exhibit N hereto,
that such transferee is not a Lender or a Related Person and that such transfer
constituted a bona fide transfer (the time of the Company's receipt of such
notice and certification being referred to as a "Notification Time"), such
Securities so transferred shall automatically become convertible into shares of
Class A Common Stock (i) on the first anniversary of the Closing Date, if the
Notification Time with respect to such transfer occurs prior to such first
anniversary, or (ii) at the Notification Time with respect to such transfer, if
such Notification Time occurs on or after such first anniversary (the date on
which such Securities so transferred shall become automatically convertible into
shares of Class A Common Stock pursuant to clause (i) or (ii) above being
referred to as the "Transfer Conversion Date").
(d) Notwithstanding the occurrence of the Fifth Anniversary Date, the
Designated Conversion Date, or the Transfer Conversion Date, as applicable, and
without limiting the effect of the occurrence of a BFTP Conversion Date, any
Securities received by IP Bermuda upon the Closing (the "IP Bermuda Securities")
that are, at the Fifth Anniversary Date, the Designated Conversion Date or at
the Transfer Conversion Date, as applicable, held by either IP Bermuda or any
Person whose ownership of the shares of Class A Common Stock into which such
Securities would be convertible would be attributed to IP Bermuda under Section
871(h)(3)(C) of the IRC (any of IP Bermuda or such Persons being referred to as
an "IP Bermuda Person") shall not become convertible into shares of Class A
Common Stock at such time or thereafter as long as such Securities are held by
an IP Bermuda Person except to the extent that the Company shall have received a
legal opinion, in form and substance acceptable to the Company from counsel
acceptable to the Company, to the effect that all or a portion of such IP
Bermuda Securities as are identified in such opinion becoming convertible into
Class A Common Stock will have no adverse U.S. federal income tax consequences
to any IP Bermuda Person that has been or is the holder of any of the IP Bermuda
Securities by causing the interest that has been paid or is payable on any of
the IP Bermuda Securities to have failed or to fail to be treated as "portfolio
interest" for purposes of Sections 871(h) and 881(c) of the IRC, in which event
such IP Bermuda Securities shall become convertible into shares of Class A
Common Stock on the date which is the later of (i) the Fifth Anniversary Date,
the Designated Conversion Date or the Transfer Conversion Date, as applicable,
and (ii) the date the Company receives such legal opinion.
(e) Once a Security (including any IP Bermuda Security) shall become
convertible into shares of Class A Common Stock pursuant to the foregoing
provisions of this Section 10.1, such Security shall no longer be convertible
into shares of Class B Common Stock, including, in the case of an IP Bermuda
Security, any such Security that has become convertible into shares of Class A
Common Stock and is thereafter acquired by an IP Bermuda Person.]
(f) The right of conversion granted hereunder will terminate at the close
of business on the Business Day immediately preceding the Maturity Date.
[(g) Each Lender other than IP and Travelers covenants and agrees with
Travelers that such Lender will not convert any Security until after the
expiration of the two-year period following the Closing Date. The restriction
contained in this Section 10.1(g) shall apply to and be binding upon any
transferee (and any subsequent transferee) of Securities of each such Lender.
The Company agrees with Travelers that, until after such two-year period, the
Company will not (i) effect any transfer of any such Securities on the Security
Register without obtaining from such transferee (and subsequent transferee) a
written agreement addressed to Travelers and the Company expressly agreeing to
be bound by the restrictions contained in this Section 10.1(g) or (ii) knowingly
effect any conversion of such Securities.]
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[(h) Any legal opinion delivered pursuant to this Section 10.1 shall not be
at the Company's expense and neither Travelers nor the Company shall have any
liability as a result of any adverse U.S. federal income tax consequences to any
holder referred to in this Section 10.1]
SECTION 16.4 SURVIVAL OF PROVISIONS; LIMITATION OF LIABILITY.
(a) All representations and warranties made by any party in this Loan
Agreement will survive the consummation of the transactions contemplated hereby,
all such representations and warranties will remain in full force and effect
following the Closing until the eighteen month anniversary date of the Closing
Date and no claim may be made in respect of any inaccuracy in any such
representation or warranty after the expiration of such eighteen month period;
provided, however, that (i) the representations and warranties of IP set forth
in Section 3.3.3(a) [and Section 8.1] shall survive the Closing indefinitely,
(ii) the representations and warranties of John Sharpe and Garland Lasater set
forth in Section 3.3.3(c), the representations and warranties of each Lender
(other than IP, John Sharpe, Garland Lasater and Travelers) set forth in
Section 3.3.3(b), and the representations and warranties of each Trustee under
any Trust set forth in Section 3.3.3(d) shall survive the Closing until the
expiration of the statute of limitations for the assessment of federal income
taxes of Travelers for the taxable year in which the Spin-Off occurs (giving
effect to any extensions thereto), and (iii) any representation or warranty as
to which a bona fide claim for indemnification has been asserted during the
survival period set forth in this Section 16.4(a) will (with respect to such
claim) survive, and may be pursued beyond, the expiration of such survival
period until such claim is resolved by final arbitration award or by
settlement.
(b) All covenants and agreements made by any party in this Loan Agreement
will survive the consummation of the transactions contemplated hereby, and will
remain in full force and effect following the Closing until the expiration of
the respective terms or periods specified therein or indefinitely in the case of
covenants and agreements that have no such specified term or period.
SECTION 16.16 [APPOINTMENT OF SUCCESSOR DIRECTOR; AGREEMENTS REGARDING THE
DESIGNATION OF DIRECTORS]; NOTICE.
[(c) In the event that Daniel Doctoroff shall cease to serve as a director
of the Company prior to the expiration of his term for any reason and IP shall
at such time hold at least $15,000,000 aggregate principal amount of Securities,
the Company shall cause an individual named by IP to be elected by the remaining
directors then in office to fill the unexpired portion of his term. This Section
16.16(a) shall also apply in the event that any successor or successors to Mr.
Doctoroff so designated shall cease to serve as a director prior to the
expiration of the specified term.
(d) IP and the Company agree with Travelers that, prior to the fifth
anniversary of the Closing Date, IP and the Company shall not enter into any
agreement granting (including by amending Section 16.16(a) to grant) to IP or
any of IP's Affiliates the right to designate any additional directors of the
Company.
(e)] The Company shall give each Holder of Securities ten days prior notice
of any record date with respect to a meeting of stockholders of the Company.
THE FOLLOWING ARE DEFINITIONS FROM THE LOAN AGREEMENT OF CERTAIN
CAPITALIZED TERMS USED IN THE FOREGOING PROVISIONS. IF THE PROPOSED AMENDMENTS
ARE ADOPTED, CERTAIN OF THESE DEFINITIONS WILL BE DELETED BECAUSE ANY REFERENCES
TO SUCH DEFINED TERMS ARE TO BE ELIMINATED BY THE PROPOSED AMENDMENTS.
DEFINITIONS TO BE DELETED BY THE PROPOSED AMENDMENTS ARE MARKED WITH AN
ASTERISK.
"AFFILIATE" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of Voting
Securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. No limited partner of
IP
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Bermuda or IP Delaware shall be deemed to be an "Affiliate" of IP Bermuda or IP
Delaware solely by virtue of its status as a limited partner of IP Bermuda or IP
Delaware. As used in the definitions of "Interested Party" and "Unrelated
Person" and Section 3.3.3 hereof only, an "Affiliate" of any individual (the
"First Individual") shall include (i) any other individual who would be
attributed stock owned by the First Individual by applying the attribution rules
of Section 318(a)(1) of the IRC (each such other individual being referred to as
a "Clause (i) Affiliate") and (ii) any other Person directly or indirectly
controlled by any Clause (i) Affiliate, by one or more of Clause (i) Affiliates,
or by one or more Clause (i) Affiliates and any First Individual.
"AGREEMENTS WITH MANAGEMENT" means, collectively, those certain employment
agreements between the Company and each of John Sharpe, Garland Lasater and A.
Foster Nelson, each of which is being executed and delivered concurrently with
the execution and delivery of this Loan Agreement.
* "ASSET SALE" means any sale (including but not limited to any transaction
that is considered a sale for tax or accounting purposes), assignment, transfer
or other disposition (including, without limitation, any disposition involving
reinsurance or a sale-leaseback transaction) by the Company or any of its
Subsidiaries to a Person other than the Company or its Subsidiaries of
properties or assets (including the Capital Stock of any Subsidiary of the
Company), other than sales of portfolio investments or reinsurance in the
ordinary course of business.
"BOARD OF DIRECTORS" means, with respect to any Person, the Board of
Directors or equivalent of such Person.
"BOARD RESOLUTION" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
* "BONA FIDE TAKEOVER PROPOSAL" means
(i) a tender offer or exchange offer published, sent or given to the
Company's security holders (within the meaning of Rule 14d-2(a) under the
Exchange Act); or
(ii) a written offer submitted to the Company's Board of Directors;
provided that, in the case of clause (i) or (ii), the Company's Board of
Directors (by majority vote, excluding any director who is an employee of
the Company, who is an Interested Party, or who is a designee of an
Interested Party or of Travelers) determines in good faith that each of the
following conditions is met:
(A) such offer was not made or solicited (directly or indirectly, in
writing or orally) by an Interested Party, the Company or any Affiliate
thereof, any director or officer of the Company or of any Affiliate of the
Company, or any employee of the Company or of any Affiliate of the Company
acting on behalf of the Company, any Affiliate of the Company or any
Interested Party;
(B) such offer is bona fide and is made by a Person or group whom the
Board of Directors believes is capable of consummating the transaction
contemplated by such offer; and
(C) the transaction contemplated by such offer, if consummated, would
result in any Person or group having "beneficial ownership" (within the
meaning of Rule 13d-3 under the Exchange Act) of Voting Securities of the
Company representing in excess of 50% of the Fully Diluted Voting Power of
the Company.
In addition, a Bona Fide Takeover Proposal shall be deemed to occur if,
contemporaneously with or following the acquisition by any Person or group of
"beneficial ownership" (within the meaning of Rule 13d-3 under the Exchange Act)
of Voting Securities of the Company representing in excess of 50% of the total
number of votes that could be cast in the election of directors of the Company
by the holders of all then outstanding Voting Securities of the Company, such
Person or group takes any overt action to cause individuals who, immediately
prior to such acquisition, constituted the Board of Directors of the Company
(together with any new directors whose election by the Board of Directors of the
Company or whose nomination for election by the stockholders of the Company was
approved by a vote of a majority of the
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directors then still in office who were either directors immediately prior to
such acquisition or whose election or nomination for election was previously so
approved) to cease to constitute a majority of the Board of Directors of the
Company then in office; provided that the Company's Board of Directors (by
majority vote, excluding any director who is an employee of the Company, who is
an Interested Party, or who is a designee of an Interested Party or of
Travelers) determines in good faith that (Y) such acquisition was not made or
solicited (directly or indirectly, in writing or orally) by an Interested Party,
the Company or any Affiliate thereof, any director or officer of the Company or
of any Affiliate of the Company, or any employee of the Company or of any
Affiliate of the Company acting on behalf of the Company, any Affiliate of the
Company or any Interested Party and (Z) that such overt action shall have
occurred; and, provided, further, that if such Person or group shall not have
the ability to immediately cause such individuals to cease to constitute a
majority of the Board of Directors of the Company, a Bona Fide Takeover Proposal
will only occur pursuant to this paragraph at such time thereafter as such
Person or group shall first have such ability.
"BUSINESS DAY" means a day other than the following: a Saturday, a Sunday
or a day on which banking institutions in New York, New York and Fort Worth,
Texas are not required to be open.
* "CAPITAL LEASE" means any lease of any property (whether real, personal
or mixed) that, in conformity with GAAP, should be accounted for as a capital
lease.
"CAPITAL STOCK" or "CAPITAL STOCK" means any and all shares, interests,
rights to purchase or acquire, warrants, options, participations or other
equivalents of or interests in (however designated) corporate stock.
* "CAPITALIZED LEASE OBLIGATIONS" means obligations under a Capital Lease
that are required to be capitalized on the lessee's balance sheet for financial
reporting purposes in accordance with GAAP. The amount of Indebtedness
represented by such obligations shall be the capitalized amount of such
obligations determined in accordance with GAAP. The stated maturity of such
obligations shall be determined in accordance with GAAP.
"CHANGE OF CONTROL" means
(i) the occurrence of any event (including any merger or consolidation
of the Company or any Subsidiary of the Company with or into another
corporation, any merger of another corporation into the Company or any
Subsidiary of the Company or any other similar transaction) that results in
any Person or group (other than one or more of IP and its Affiliates and
the Individual Holders) having "beneficial ownership" (within the meaning
of Rule 13d-3 under the Exchange Act) of Voting Securities of the Company
representing in excess of 30% of the Fully Diluted Voting Power of the
Company;
(ii) the sale, lease, assignment, transfer or other disposition
(including, without limitation, by reinsurance, liquidation or
dissolution), of all or substantially all of the assets or business of (A)
the Company and its Subsidiaries considered as a whole, (B) Transport and
its Subsidiaries considered as a whole, (C) Intermediate No. 1 and its
Subsidiaries considered as a whole or (D) Intermediate No. 2 and its
Subsidiaries considered as a whole, in any such case to any Person or group
(other than one or more of IP and its Affiliates and the Individual Holders
and, in the case of clause (B), (C) or (D), the Company or any of its
Wholly-Owned Subsidiaries) in one transaction or a series of related
transactions;
(iii) the occurrence of any event resulting in any Person or group
(other than one or more of the Company, any Wholly-Owned Subsidiary of the
Company, IP, any Affiliate of IP and the Individual Holders) having
"beneficial ownership" (within the meaning of Rule 13d-3 under the Exchange
Act) of Voting Securities of Transport, Intermediate No. 1 or Intermediate
No. 2 representing in excess of 30% of the total number of votes that could
be cast in the election of directors of Transport, Intermediate No. 1 or
Intermediate No. 2, respectively, by the holders of all then outstanding
Voting Securities of Transport, Intermediate No. 1 or Intermediate No. 2,
respectively; or
(iv) for so long as Travelers and its Affiliates shall own shares of
Preferred Stock having an aggregate liquidation preference (including any
accrued dividends) equal to at least $20 million, the occurrence of any
event resulting in IP and its Affiliates and the Individual Holders having,
in the aggregate, "beneficial ownership" (within the meaning of Rule 13d-3
under the Exchange Act) of a
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number of shares of Class A Common Stock representing, or Securities or a
number of shares of Class B Common Stock which, if converted into shares of
Class A Common Stock, would represent, a number of votes that could be cast
in the election of directors that is less than the number of votes equal to
30% of the Fully Diluted Voting Power of the Company immediately after the
Closing (appropriately adjusted for stock dividends, splits and
combinations);
(v) in the event that the shares of Preferred Stock owned by Travelers
and its Affiliates have an aggregate liquidation preference (including any
accrued dividends) of less than $20 million, the occurrence of any event
resulting in IP and its Affiliates having, in the aggregate, "beneficial
ownership" (within the meaning of Rule 13d-3 under the Exchange Act) of a
number of shares of Class A Common Stock representing, or Securities or a
number of shares of Class B Common Stock which, if converted into shares of
Class A Common Stock, would represent, a number of votes that could be cast
in the election of directors that is less than the number of votes equal to
20% of the Fully Diluted Voting Power of the Company immediately after the
Closing (appropriately adjusted for stock dividends, splits and
combinations);
provided, however, that, notwithstanding clause (i) of this definition, no
Change of Control described in such clause (i) shall be deemed to have
occurred for so long as:
(Y) one or more of IP and its Affiliates and the Individual Holders
have "beneficial ownership" (within the meaning of Rule 13d-3 under the
Exchange Act) of Securities, Class A Common Stock or Class B Common
Stock representing a percentage of the Fully Diluted Voting Power of the
Company that is greater than the percentage of the Fully Diluted Voting
Power of the Company represented by the Voting Securities beneficially
owned by the Person or group referenced in such clause (i); and
(Z) individuals who, immediately prior to such event described in
such clause (i), constituted the Board of Directors of the Company
(together with any new directors whose election by the Board of
Directors of the Company or whose nomination for election by the
stockholders of the Company was approved by a vote of a majority of the
directors then still in office who were either directors immediately
prior to such event or whose election or nomination for election was
previously so approved) continue to constitute a majority of the Board
of Directors of the Company then in office.
For purposes of this definition, in determining the Securities or shares of
Class A Common Stock or Class B Common Stock beneficially owned by any
Individual Holder who has ceased to be a member of management of the Company or
any of its Subsidiaries, such Individual Holder shall not be deemed to
beneficially own (1) any Securities acquired after the date such Individual
Holder ceased to be a member of management of the Company or any of its
Subsidiaries or (2) any shares of Class A Common Stock or Class B Common Stock
acquired after the date such Individual Holder ceased to be a member of
management of the Company or any of its Subsidiaries (other than Conversion
Shares acquired upon the conversion of Securities or shares of Class B Common
Stock where such Securities or shares of Class B Common Stock were acquired by
such Individual Holder prior to the date such Individual Holder ceased to be a
member of management of the Company or any of its Subsidiaries).
"CHANGE OF CONTROL DATE" shall have the meaning provided in Section 7.13.1
hereof.
"CHANGE OF CONTROL OFFER PRICE" shall have the meaning provided in Section
7.13.1 hereof.
"CHANGE OF CONTROL PAYMENT DATE" shall have the meaning provided in Section
7.13.1 hereof.
"CHASE" shall mean The Chase Manhattan Bank, N.A.
"CLASS A COMMON STOCK" shall mean the Class A Common Stock, par value $.01
per share, of the Company.
"CLASS B COMMON STOCK" shall mean the Class B Common Stock, par value $.01
per share, of the Company.
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"CLOSING" shall have the meaning provided in Section 2.3 hereof.
"CLOSING DATE" means the date on which the Closing occurs.
"COMMITMENT FEE" shall have the meaning provided in Section 2.2 hereof.
"COMMON STOCK" means, collectively, the Class A Common Stock and the Class
B Common Stock.
"COMPANY" means Transport Holdings Inc. and any successor pursuant to a
merger or other transaction.
"COMPANY STOCK PLAN" means a stock plan to be adopted by the Company that
will provide for the issuance of options (which will first vest and become
exercisable no earlier than one year after the date of grant) or of restricted
stock (which will vest no earlier than one year after the date of grant) with
respect to a number of shares of Class A Common Stock representing in the
aggregate no more than 12% of the shares of Common Stock outstanding immediately
following the Closing, assuming (i) the conversion of all of the Securities,
(ii) the exercise of the Warrants, and (iii) the issuance of all options and
shares of restricted stock that may be issued under such stock plan and the
exercise of all such options.
* "CONSOLIDATED INTEREST EXPENSE" means, when used with reference to any
Person for any period, without duplication, (i) the interest expense in respect
of Indebtedness of any such Person and its Subsidiaries (including the interest
portion of any deferred payment obligation and any original issue discount
attributable to debt securities, as such, but excluding any original issue
discount attributable to any issuance of equity securities as part of an
investment unit with debt securities and further excluding any deferred
financing fees and charges attributable to the issuance of the Securities or the
execution and delivery of the initial Credit Agreement), (ii) the interest
component of Capitalized Lease Obligations of any such Person and its
Subsidiaries, and (iii) all commissions, discounts and other fees and charges
paid by any such Person and its Subsidiaries with respect to letters of credit
and bankers' acceptance financings, all as determined for such period on a
consolidated basis in accordance with GAAP. Notwithstanding the foregoing,
"Consolidated Interest Expense" shall not include interest expense for the
Exchange Subordinated Debt.
* "CONSOLIDATED INTEREST EXPENSE COVERAGE RATIO" means, when used with
reference to any Person, the ratio of:
(i) the amount of EBIT of such Person for the four full fiscal
quarters ended immediately prior to the date of the event (the "Event")
giving rise to the need to calculate the Consolidated Interest Expense
Coverage Ratio (the "Event Date") to
(ii) the sum of the Consolidated Interest Expense of such Person for
such period;
provided, however, that if any such calculation includes any period prior to the
Closing Date, such calculation for such period shall be made on a pro forma
basis after giving effect to the transactions contemplated by the Documents as
if the same had occurred at the beginning of such period.
In addition to and without limitation of the foregoing, for purposes of
this definition, "EBIT" and "Consolidated Interest Expense" for the four full
fiscal quarters immediately prior to the Event Date shall be calculated (without
duplication) after giving effect on a pro forma basis for the period of such
calculation (as if each of the following, if applicable, occurred at the
beginning of the first of such four fiscal quarters) to:
(i) the incurrence of any Indebtedness incurred by such Person with
respect to the Event during the period commencing at the beginning of such
four fiscal quarters and ending on the Event Date (the "Reference Period"),
(ii) the repayment of any Indebtedness of such Person or Subsidiary of
such Person during the Reference Period with the proceeds of any
Indebtedness referred to in the immediately preceding clause (i) or with
the proceeds from the sale or other disposition of assets referred to in
clause (iv) below,
(iii) (a) the acquisition by such Person or any Subsidiary of such
Person during the Reference Period of the Capital Stock of any other Person
which, as a result of such acquisition, becomes a Subsidiary of such Person
(provided that such pro forma calculation shall include the aggregate
amount of EBIT of such acquired Subsidiary for the four full fiscal
quarters of such acquired Subsidiary for which
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financial information is available immediately preceding the Event Date) or
(b) the acquisition of assets from any Person which constitutes
substantially all of the operating unit or business of such Person
(provided that such pro forma calculation shall include the EBIT
attributable to the assets acquired in such transaction for the four fiscal
quarters of such acquired assets for which financial information is
available immediately preceding the Event Date), and
(iv) any Asset Sales occurring during the Reference Period (including
the effect, if any, on the Company's earnings for the Reference Period
resulting from the disposition of assets in such Asset Sale).
Furthermore, in calculating "Consolidated Interest Expense" (A) interest on
Indebtedness determined on a fluctuating basis as of the Event Date and which
will continue to be so determined thereafter shall be deemed to have accrued
during the Reference Period at a fixed rate per annum equal to the rate of
interest on such Indebtedness in effect on the Event Date and (B) if interest on
any Indebtedness incurred on the Event Date may optionally be determined at an
interest rate based upon a factor of a prime or similar rate, a Eurocurrency
interbank offered rate, or other rates, then the interest rate shall be deemed
to be the lowest of such interest rates on the Event Date which are actually
available as options to the borrower of such Indebtedness and (C) the principal
amount of Indebtedness under a revolving credit or similar arrangement that was
in effect prior to the Event Date and that will continue to be in effect
following the Event shall be equal to the average daily principal amount of
Indebtedness outstanding during the Reference Period.
For purposes of calculating the Consolidated Interest Expense Coverage
Ratio with reference to a Person other than the Company, "EBIT" and
"Consolidated Net Income" for such person shall be calculated as nearly as
practicable in the same manner as EBIT and Consolidated Net Income are
calculated for the Company pursuant to this Agreement.
* "CONSOLIDATED NET INCOME" means, when used with respect to any Person for
any period, the net income (or loss) of such Person and its Subsidiaries for
such period, determined on a consolidated basis in accordance with GAAP;
provided, however, that:
(i) the net income (or loss) of any Person in which the Company or any
of its Subsidiaries has an equity interest with a third party (which
interest does not cause the net income of such Person to be consolidated
into the net income of the Company in accordance with GAAP) shall be
included only to the extent of the amount of dividends or distributions
paid in cash to the Company or its Subsidiaries in such period but not in
excess of the Company's or such Subsidiaries' pro rata share of such net
income less any capital contributions made to such Person by the Company or
its Subsidiaries in such period; and
(ii) the following shall be excluded: (A) the net income (or loss) of
any Person acquired for any period prior to the date of such acquisition,
(B) all gains or losses realized upon the sale or other disposition of
capital assets by the Company or any of its Subsidiaries, (C) all gains or
losses realized upon or in connection with or as a consequence of the
issuance, sale or disposition of any Capital Stock of the Company or any of
its Subsidiaries and (D) to the extent not otherwise included in clauses
(i) or (ii) above or this clause (iii), any after-tax extraordinary
non-cash gains or extraordinary non-cash losses, determined in accordance
with GAAP.
* "CONSOLIDATED NET WORTH" means, with respect to any Person, as of any
date of determination, the aggregate of capital, surplus and retained earnings
of such Person and its Subsidiaries determined on a consolidated basis in
accordance with GAAP. The "Consolidated Net Worth" of a Person other than the
Company shall be calculated as nearly as practicable in the same manner as
"Consolidated Net Worth" is calculated for the Company pursuant to this
Agreement.
* "CONSOLIDATED TAX EXPENSE" of the Company as of any date means the tax
expense of the Company and its Subsidiaries, determined on a consolidated basis
in accordance with GAAP.
"CONVERSION SHARES" means shares of Class A Common Stock and Class B Common
Stock issued or issuable upon the conversion of any of the Securities and shares
of Class A Common Stock issued or issuable upon the conversion of any shares of
Class B Common Stock issued or issuable upon the conversion of any of the
Securities.
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"CREDIT AGREEMENT" means the credit agreement to be entered into at or
prior to the Closing by Intermediate No. 1, the lending institutions that may be
party thereto from time to time and Chase, as Agent, or any successor agreement,
together with the documents related thereto, including, without limitation, any
guaranties, security agreements and pledge agreements, in each case as such
agreements may be amended, restated, supplemented or otherwise modified from
time to time and includes any agreement renewing, extending the maturity of,
refinancing (including by way of placement or issuance of notes) or
restructuring (including the inclusion of additional borrowers) all or any
portion of the Indebtedness under such agreements.
"DAMAGES" shall mean any and all losses, liabilities, claims, damages,
obligations, payments, costs and expenses (but not including consequential
damages), including reasonable attorneys' fees and disbursements and the costs
and expenses of any and all actions, suits, arbitrations, inquiries, proceedings
or investigations, whether by or before a court, arbitration panel or any
regulatory, administrative or other agency, commission or tribunal.
"DATA PROCESSING AGREEMENT" means that certain Data Processing Agreement,
dated as of the date hereof, between Transport and Travelers.
"DEFAULT" means any event or condition which is, or after notice or passage
of time or both would be, an Event of Default.
"DOCUMENTS" means this Loan Agreement, the Securities, the Credit
Agreement, the Reorganization Agreement, the Voting Agreement, the Agreements
with Management, the Tax Indemnification Agreement, the Service Agreements, the
Data Processing Agreement, the Registration Rights Agreements, the Warrants, the
Preferred Stock Certificate of Designations, the Restated Certificate of
Incorporation, the Exchange Subordinated Debt Indenture and the notes issuable
thereunder, and the Pledge Agreement, collectively or each of such documents
singularly, and any documents or instruments contemplated by or executed in
connection with any of them (together with any exhibits, schedules or other
attachments thereto).
* "EBIT" means, with respect to any Person, for any period, the sum of the
Consolidated Net Income of such Person for such period plus, without duplication
and to the extent deducted in computing such Consolidated Net Income, (i)
Consolidated Interest Expense for such period and (ii) Consolidated Tax Expense
for such period.
* "EVENT" shall have the meaning provided in the definition of
"Consolidated Interest Expense Coverage Ratio".
* "EVENT DATE" shall have the meaning provided in the definition of
"Consolidated Interest Expense Coverage Ratio."
"EVENT OF DEFAULT" shall have the meaning provided in Section 13.1 hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"EXCHANGE SUBORDINATED DEBT" shall mean the 12% Junior Subordinated Debt of
the Company for which the Preferred Stock is exchangeable in accordance with the
terms of the Preferred Stock.
"EXCHANGE SUBORDINATED DEBT INDENTURE" shall mean the Indenture governing
the Exchange Subordinated Debt in the form of Exhibit C hereto.
"FAIR MARKET VALUE" means, with respect to any property (other than cash)
received by or transferred to any Person, the sale value that could be obtained
for such item in an arm's-length transaction, as determined in good faith by the
Board of Directors of the Company and as evidenced by a Board Resolution;
provided, however, that in the case of the transfer by the Company or any
Subsidiary of the Company of any property (other than cash or securities traded
on a national securities exchange or on the NASDAQ National Market) having a
book value in excess of $5,000,000, such determination shall be made by a
nationally recognized valuation firm selected by the Company that has expertise
in valuing items of the same type as such property.
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"FISCAL YEAR" means a twelve-month period ending on the last day of
December in each year.
* "FIVE PERCENT HOLDER" means any partner (or group of partners acting in
concert with respect to any transaction for which the determination of "Five
Percent Holder" is being made) of IP Bermuda and/or IP Delaware that in the
aggregate hold five percent or more of the partnership interests of IP Bermuda
and/or IP Delaware (determined based on either contributed or committed
capital).
"FULLY DILUTED VOTING POWER OF THE COMPANY" shall mean, as of the time of
determination, the total number of votes that could be cast in the election of
directors of the Company at such time, assuming that all shares of Class A
Common Stock issuable, whether at such time or upon the passage of time, the
occurrence of future events or the termination of any restrictions or
limitations (including those imposed on IP Bermuda), upon the exercise,
conversion or exchange of all then outstanding rights, warrants, options,
convertible securities or indebtedness (including the Securities), exchangeable
securities or indebtedness, or other rights, exercisable for or convertible or
exchangeable into, directly or indirectly, shares of Class A Common Stock, shall
have been issued and are then outstanding; provided, however, that as used in
the definition of "Change of Control", the Fully Diluted Voting Power of the
Company shall be determined assuming that no shares of Preferred Stock are
outstanding.
"GAAP" means generally accepted accounting principles as in effect in the
United States of America from time to time and applied consistently throughout
the relevant periods.
"GUARANTEE" or "GUARANTY" (or variants thereof) means any direct or
indirect obligation, contingent or otherwise, of a Person guaranteeing or having
the economic effect of guaranteeing any Indebtedness of any other Person in any
manner, whether directly or indirectly, including, without limitation, all
obligations incurred through an agreement by such Person to purchase such
Indebtedness or obligation or any property or assets constituting security
therefor, or otherwise to assure the owner of the Indebtedness or obligation of
the primary obligor against loss in respect thereof; provided that the term
"Guarantee" or "Guaranty" shall not include endorsements for collection or
deposit in the ordinary course of business.
"HEDGING TRANSACTION" means, with respect to any Person, (i) interest rate
swap agreements, interest rate cap agreements and interest rate collar
agreements of such Person, (ii) currency swap agreements and currency cap
agreements of such Person and (iii) other written agreements or arrangements
principally designed to protect such Person against fluctuations in interest
rates or currency values or the price of any commodity used in the business of
such Person (excluding any agreement or arrangement entered into primarily for
an investment purpose).
"HOLDER" or "SECURITYHOLDER" means the Person in whose name any Securities
are registered as reflected on the Security Register at a given time, unless
specified otherwise.
* "INCUR" shall have the meaning provided in Section 7.7.1 hereof.
* "INCURRENCE DATE" shall have the meaning provided in Section 7.7.1
hereof.
"INDEBTEDNESS" means (without duplication), when used with reference to any
Person:
(i) any obligation, contingent or otherwise, (a) in respect of
borrowed money (whether or not the recourse of the lender is to the whole
of the assets of such Person or only to a portion thereof), or (b)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit or (c) representing the balance deferred and unpaid of the purchase
price of any property, if and to the extent (but only to the extent) any of
the foregoing indebtedness would appear as a liability upon a balance sheet
of such Person and its Subsidiaries prepared on a consolidated basis in
accordance with GAAP, and
(ii) shall also include, regardless of whether such items would appear
upon a balance sheet, (a) the principal component of any Capitalized Lease
Obligations of such Person, (b) obligations secured by a Lien to which any
property or asset, including leasehold interests and any other tangible or
intangible property rights, owned by such Person is subject, whether or not
the obligations secured thereby shall have been assumed by such Person
(provided that, if the obligations have not been assumed by such Person
such obligations shall be deemed to be in an amount equal to the lesser of
(1) the Fair Market
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Value of the property or properties to which the Lien relates or (2) the
amount of the Indebtedness secured by such Lien) by such Person or shall
otherwise be such Person's legal liability, (c) reimbursement obligations
and all other liabilities (contingent or otherwise) of such Person in
respect of letters of credit and letter of credit guarantees, (d) any
obligation of such Person in respect of Hedging Transactions, and (e)
Guarantees by such Person of items which would be included within this
definition, to the extent of such Guarantees.
"INDIVIDUAL HOLDER" shall mean a Lender who is identified on Schedule
1.1(b) hereto or any successor to or assignee of any such Lender, which
successor or assignee is a member of management of the Company or any of its
Subsidiaries.
* "INTERESTED PARTY" shall mean IP, any Individual Holder (but only so long
as such Individual Holder or an Affiliate of such Individual Holder owns any
Securities or Conversion Shares), any Five Percent Holder, any Affiliate of any
of the foregoing, or any other Person with whom or which any of the foregoing
has any agreement, arrangement or understanding with respect to a Bona Fide
Takeover Proposal.
"INTERMEDIATE NO. 1" shall have the meaning set forth in Section 5.1.1
hereof.
"INTERMEDIATE NO. 2" shall have the meaning set forth in Section 5.1.1
hereof.
"IP" means, collectively, IP Bermuda and IP Delaware.
"IP BERMUDA" means Insurance Partners Offshore (Bermuda), L.P., a Bermuda
limited partnership.
"IP DELAWARE" means Insurance Partners, L.P., a Delaware limited
partnership.
"IP ADVISORY FEE" means an investment advisory fee of $1,250,000 payable to
IP (or to one or more Affiliates of IP designated by IP) under the terms
specified in Section 16.5 hereof.
"IP PAYMENTS" means (a) all reasonable fees, costs and expenses of IP's
attorneys, accountants, actuaries, and consultants in connection with the
transactions contemplated by the Documents, and (b) the IP Advisory Fee, but
shall not include the Commitment Fee.
"IRC" means the Internal Revenue Code of 1986, as amended, and the Treasury
regulations promulgated thereunder.
"LENDER" means a Person that makes a loan at the Closing that is evidenced
by Securities.
"LIEN" means any mortgage, pledge, lien, encumbrance or security interest
of any kind (including, without limitation, any conditional sale or other title
retention agreement), any lease in the nature thereof, any option or other
agreement to sell and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction,
but shall not include any restriction on transfer imposed under federal or state
securities laws or any of the Documents.
"LOAN AGREEMENT" means this Subordinated Convertible Loan Agreement, as the
same from time to time may be amended.
* "MAJOR ACQUISITION" shall have the meaning provided in Section 7.12
hereof.
* "MANAGEMENT PLEDGED SECURITIES" means Series A Notes which (i) are
acquired at the Closing by one or more members of management of the Company or
any of its Subsidiaries (other than John Sharpe, Garland Lasater and A. Foster
Nelson) who are identified to the Company and Travelers at or prior to the
Closing, (ii) have an aggregate principal amount not in excess of $1,000,000,
(iii) are acquired in part with funds borrowed from any one or more of IP
Delaware, IP Bermuda or a third party lender, and (iv) are pledged to one or
more of IP Delaware, IP Bermuda or such third party lender, as applicable, to
secure repayment of such borrowings; provided, that the amount of such
borrowings by each such borrower shall not exceed 50% of the principal amount of
the Series A Notes so pledged.
"MATERIAL ADVERSE EFFECT" means, with respect to any Person, a material
adverse effect on the condition (financial or otherwise) of such Person and its
Subsidiaries, taken as a whole.
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"MATURITY DATE" means the date of maturity of the Securities, as set forth
in Exhibit A and Exhibit B hereto.
* "NET PROCEEDS" means, without duplication, (i) in the case of any sale by
the Company of any shares of its Capital Stock (other than Redeemable Stock),
the aggregate net proceeds received by the Company, after payment of expenses,
commissions and other similar fees or costs incurred in connection therewith,
whether such proceeds are in cash or in Property (valued at the Fair Market
Value thereof, at the time of receipt); and (ii) in the case of any exchange,
exercise, conversion or surrender of any outstanding securities of the Company
(other than Capital Stock that is not Redeemable Stock) for or into shares or
units of Capital Stock (other than Redeemable Stock) of the Company, the
aggregate net proceeds received by the Company from the original issuance of
such outstanding securities, after payment of expenses, commissions and other
similar fees or costs incurred in connection therewith, plus any additional
amount paid in cash or Property (valued at the Fair Market Value thereof at the
time of receipt) by the securityholder to the Company upon such exchange,
exercise, conversion or surrender and less any and all payments in cash or
Property (excluding payments in respect of accrued interest) made to the
securityholder in connection with such exchange, exercise, conversion or
surrender, and all other expenses (including commissions) incurred by the
Company in connection therewith and less any principal repayments made with
respect to convertible debt.
"NET WORTH" means, with respect to any Person, as of any date of
determination, the aggregate of capital, surplus and retained earnings of such
Person determined in accordance with GAAP.
"NO ADVERSE EFFECT REQUIREMENTS" means, for the purposes of Article 6
hereof with respect to payments made in shares of stock or subordinated debt of
the Company, stock or subordinated debt which (i) is an obligation of the
Company not secured by any Lien on any Property of the Company or its
Subsidiaries and not guaranteed or otherwise similarly supported by any
Subsidiary of the Company, (ii) is subordinated (in right of payment and
otherwise) to the Senior Indebtedness at least to the same extent that the
Securities are subordinated (in right of payment and otherwise) to the Senior
Indebtedness pursuant to Article 6 hereof and the other material terms and
conditions of which are at least as favorable to the Company and the holders of
the Senior Indebtedness as the terms and conditions of this Loan Agreement as in
effect on the Closing Date, (iii) in the case of Capital Stock which is
mandatorily redeemable, has no mandatory redemption date which is earlier than
the Maturity Date, and (iv) in the case of subordinated debt or Capital Stock
which is convertible into subordinated debt of the Company, has (a) no mandatory
redemption, sinking fund deposit, scheduled principal installment or maturity
date which is earlier than the Maturity Date, and (b) an interest rate which
does not exceed 8.5%; provided that no stock or subordinated debt shall satisfy
the "No Adverse Effect Requirements" to the extent that the effect of the
permission set forth in Article 6 to issue such stock or subordinated debt would
cause the Securities to be treated in any case or proceeding or similar event
described in Section 6.3 as part of the same class of claims as Senior
Indebtedness or any class of claims on a parity with or senior to the Senior
Indebtedness.
"OBLIGATIONS" means, with reference to any Indebtedness of any Person, any
principal of, premium, interest, penalties, fees and other liabilities payable
from time to time by such Person and all obligations performable by such Person
under the documentation governing such Indebtedness.
"OFFICER" means, with respect to any Person, the Chairman of the Board, the
President, any Executive Vice President, any Senior Vice President, any Vice
President, the Chief Operating Officer, the Chief Financial Officer, the
Treasurer or the Secretary of such Person, or with respect to any person which
is a partnership, any general partner or persons holding substantially similar
functions in such partnership as those set forth above.
"PAYMENT NOTICE" shall have the meaning provided in Section 6.2.2 hereof.
* "PERMITTED HOLDER" means IP, any Affiliate or partner of IP, any
Affiliate of any partner of IP, any Individual Holder or any Affiliate of any
Individual Holder, but shall exclude the Company and its Subsidiaries. For
purposes of Section 8.2.3 only, the term Permitted Holder shall include
Travelers and its Affiliates and Persons to whom Travelers has assigned its
tag-along rights pursuant to Section 8.2.3.
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"PERSON" or "PERSON" means any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization or government or other agency or political
subdivision thereof.
"PLAN OF LIQUIDATION" means, with respect to any Person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously) (i) the sale,
lease, conveyance or other disposition of all or substantially all of the assets
of such Person and (ii) the distribution of all or substantially all of the
proceeds of such sale, lease, conveyance or other disposition and all or
substantially all of the remaining assets of such Person to holders of Capital
Stock of such Person or a class or classes of Indebtedness of such Person.
"PLEDGE AGREEMENT" means the Pledge Agreement, in the form of Exhibit Q
hereto, to be executed and delivered by the Company pledging the stock of
Intermediate No. 1 as security for the repayment of the Securities.
* "PLEDGEE" means a pledgee of Management Pledged Securities or Producer
Pledged Securities.
"PREFERRED STOCK" shall mean the Cumulative Exchangeable Preferred Stock of
the Company having the terms set forth in the Preferred Stock Certificate of
Designations.
"PREFERRED STOCK CERTIFICATE OF DESIGNATIONS" shall mean the Certificate of
Designations for the Preferred Stock, in the form of Exhibit D hereto.
"PRIVATE PLACEMENT" means the offering, issuance and sale of the Securities
and the Warrants.
"PRIVATE PLACEMENT MEMORANDUM" means the memorandum with respect to the
Private Placement to be provided to some or all of the Private Placement
Participants.
"PRIVATE PLACEMENT PARTICIPANT" means each purchaser of Securities or
Warrants.
* "PRODUCER PLEDGED SECURITIES" means Series A Notes which (i) are acquired
at the Closing by one or more Affiliates of independent insurance agencies that
market products of Transport Life or Continental Life and who are identified to
the Company and Travelers at or prior to the Closing, (ii) have an aggregate
principal amount not in excess of $3,000,000, (iii) are acquired in whole or in
part with funds borrowed from Transport Life, and (iv) are pledged to Transport
Life to secure repayment of such borrowings; provided, that the amount of such
borrowings by each such borrower that are so secured shall not exceed 50% of the
principal amount of the Series A Notes so pledged.
"PROPERTY" or "PROPERTY" means any assets or property of any kind or nature
whatsoever, real, personal or mixed (including fixtures), whether tangible or
intangible, provided that the terms "Property" or "property", when used with
respect to any Person, shall not include securities issued by such Person.
"QUARTERLY STATEMENT" shall mean, with respect to any Person that is an
insurance company, the quarterly statement of such Person filed with or
submitted to the insurance regulatory authority in the state in which such
Person is domiciled on forms prescribed or permitted by such authority.
"REDEEMABLE STOCK" of a corporation means any Capital Stock of such
corporation that by its terms or otherwise (i) is required to be redeemed or
repurchased on or prior to the Maturity Date of the Securities or (ii) is
convertible or exchangeable into either Capital Stock referred to in clause (i)
or Indebtedness having a scheduled maturity at any time on or prior to the
Maturity Date of the Securities.
"REDEMPTION DATE" means, when used with respect to any Security to be
redeemed, the date fixed for such redemption pursuant to this Loan Agreement and
the form of Security annexed hereto as Exhibit A or Exhibit B, as applicable.
"REDEMPTION PRICE" means the applicable price fixed for redemption pursuant
to this Loan Agreement and the form of Security annexed hereto as Exhibit A or
Exhibit B, as applicable, plus accrued unpaid interest to the Redemption Date.
* "REFINANCING INDEBTEDNESS" shall have the meaning provided in Section
7.7.2 hereof.
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"REGISTRATION RIGHTS AGREEMENTS" shall have the meanings provided in
Section 14.1 hereof.
"REGULATION D" shall have the meaning provided in Section 3.3.1 hereof.
* "RELATED PERSON" means any Person, or an Affiliate thereof, which (a) is
a limited or general partner of any Lender; (b) is a holder of 5% or more of any
class of equity interest in any Lender; (c) is any Person in which any Lender is
either a general partner or the holder of 5% or more of any class of equity
interest; (d) is the owner of 5% or more of any class of equity interest in any
Person that is a Related Person as described in subsections (a) through (c)
above; (e) is an officer or director of any Lender or any Person that is a
Related Person as described in subsections (a) through (d) above; or (f) would
be attributed, by applying the constructive ownership rules of Section 318 of
the IRC, (i) 5% or more of any class of equity interest in any Person that is a
Related Person as described in subsections (a) through (c) above or (ii) stock
owned by any Lender or Person that is a Related Person as described in
subsections (a) through (f)(1) above who is an individual;provided that, for
purposes of this subsection (f), such Section 318 shall be modified such that no
attribution shall take place between any Person and a partnership, corporation,
estate or trust under Sections 318(a)(2) or 318(a)(3) unless such Person is the
holder of 5% or more of any class of equity interest in the partnership,
corporation, estate or trust, or the partnership, corporation, estate or trust
is the holder of 5% or more of any class of equity interest in such Person;
provided, further, that for purposes of applying Section 318(a)(3), an entity
shall be attributed stock of its owners in proportion to such owners' equity
interests in such entity, and no Person shall be treated as described in
subsection (f)(ii) above unless such Person would be attributed at least 5% of
the stock of a corporation wholly owned by the individual. For purposes of
applying the foregoing definition to a publicly traded corporation, the
principles of Treasury regulation section 1.382-2T(k)(1)(i) shall be applied to
determine stock ownership of such corporation.
"REORGANIZATION AGREEMENT" shall mean the Reorganization and Distribution
Agreement dated as of the date hereof, among Travelers, the Company, American
Financial, and Transport.
"RESTATED CERTIFICATE OF INCORPORATION" shall mean the restated certificate
of incorporation of the Company to be in effect immediately after the Closing as
provided in Section 3.1.4 of this Loan Agreement.
* "RESTRICTED PAYMENT" shall have the meaning set forth in Section 7.3
hereof.
* "SALES PROCEEDS" means the sum of (i) cash and (ii) the Fair Market Value
of any non-cash items, received (excluding amounts held in escrow) by the
Company and any of its Subsidiaries upon the sale, lease, transfer, assignment
or other disposition (collectively, a "sale") of any property, rights or other
assets, less any amounts applied to repay Indebtedness outstanding at the time
of such sale which is required to be repaid in connection with such Asset Sale
and in addition, in the case of sales of property or other assets, less (x) all
sales, transfer, income or other similar taxes payable as a result of such sale,
(y) the direct out-of-pocket expenses (including, without limitation, reasonable
brokerage fees, investment banking fees, and fees and expenses of counsel,
accountants and appraisers) incurred as a result of such sale, and (z)
appropriate amounts to be provided by the Company or any of its Subsidiaries as
a reserve, in accordance with GAAP, against adjustments in the sales price or
liabilities associated with such sale and retained by the Company or any of its
Subsidiaries after such sale.
"SEC" means the Securities and Exchange Commission.
"SECURITIES" means, collectively, the Series A Notes and the Series B
Notes.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated by the SEC thereunder.
"SECURITY REGISTER" shall have the meaning provided in Section 2.6 hereof.
"SENIOR BANK" means (i) the lender (if the sole lender) or the agent (if
acting on behalf of lenders) under the Credit Agreement and, with respect to its
successors, such persons who have been identified in a written notice to the
Company, IP (so long as IP holds any Securities) and Travelers (so long as
Travelers holds any Securities) as being successors, or (ii) if there is no
agent, those lenders having the ability to bind all lenders under the Credit
Agreement, but for purposes of Section 6.2.2 hereof, if there is no agent, such
term
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<PAGE> 123
shall mean such Person designated under the Credit Agreement for the purpose of
giving or receiving notices under the Loan Agreement on behalf of all lenders
thereunder with respect to which written notice is received by the Holders.
Senior Bank shall mean Chase or the Substitute Bank, as applicable, in its
capacity as agent under the Credit Agreement, until and unless written notice
with respect to a successor is received by the Company, IP (so long as IP holds
any Securities) and Travelers (so long as Travelers holds any Securities).
"SENIOR INDEBTEDNESS" means (a) from and after the effective time of the
merger of Intermediate No. 1 with and into the Company as contemplated by
Section 7.16 hereof, all Obligations of the Company under the Credit Agreement,
including, without limitation, the principal of, and premium and interest
(including, without limitation, interest after the filing of a petition
initiating any proceeding referred to in Section 13.1.4 or 13.1.5 hereof,
whether or not pursuant to applicable law or otherwise, the claim for interest
is allowed as a claim in any case or proceeding) on, all loans, letters of
credit,
A-28
<PAGE> 124
Facsimile copies of the Consent and Letter of Transmittal, properly and
duly executed, will be accepted. The Consent and Letter of Transmittal, the
Notes and any other required documents should be sent or delivered by each
Holder of a Note tendering in the Exchange Offer and consenting to the Proposed
Amendments to the Depositary at the address set forth below:
The Depositary for the Exchange Offer and Solicitation is:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By Mail, Overnight Delivery or Hand:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
CORPORATE TRUST OPERATIONS
11th Floor, 230 South Tryon Street
Charlotte, North Carolina 28288-1153
For further information call
(800) 829-8432
Any questions or requests for assistance or additional copies of this
Statement or the Consent and Letter of Transmittal may be directed to the
Depositary at its telephone number and location set forth on this page.
<PAGE> 125
PART II.
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Indiana Corporation Law grants authorization to Indiana corporations to
indemnify officers and directors for their conduct if such conduct was in good
faith and was in the corporation's best interests or, in the case of directors,
was not opposed to such best interests, and permits the purchase of insurance in
this regard. In addition, the shareholders of a corporation may approve the
inclusion of other or additional indemnification provisions in the articles of
incorporation and by-laws.
The By-laws of Conseco provides for the indemnification of any person made
a party to any action, suit or proceeding by reason of the fact that he is a
director, officer or employee of Conseco, unless it is adjudged in such action,
suit or proceeding that such person is liable for negligence or misconduct in
the performance of his duties. Such indemnification shall be against the
reasonable expenses, including attorneys' fees, incurred by such person in
connection with the defense of such action, suit or proceeding. In some
circumstances, Conseco may reimburse any such person for the reasonable costs of
settlement of any such action, suit or proceeding if a majority of the members
of the Board of Directors not involved in the controversy shall determine that
it was in the interests of Conseco that such settlement be made and that such
person was not guilty of negligence or misconduct.
The above discussion of Conseco's By-laws and the Indiana Corporation Law
is not intended to be exhaustive and is qualified in its entirety by such
By-laws and the Indiana Corporation Law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person thereof in the
successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<S> <C> <C>
2(a) -- Agreement and Plan of Merger dated as of September 25, 1996 by and between
Conseco, Inc. and Transport Holdings Inc. (schedules omitted -- the
Registrant agrees to furnish a copy of any schedule to the Securities and
Exchange Commission (the "Commission") upon request).**
2(b) -- First Amendment to Agreement and Plan of Merger dated as of November 7, 1996
by and between Conseco, Inc. and Transport Holdings Inc.**
4(a) -- Subordinated Convertible Loan Agreement dated as of June 12, 1995, among
Transport Holdings Inc., Travelers Group Inc. and the Lenders named therein
(previously filed as an exhibit to the Registration Statement on Form S-1,
No. 33-94960, of Transport Holdings Inc. and incorporated herein by
reference).
4(b) -- Amendment No. 1 to Subordinated Convertible Loan Agreement dated as of
August 7, 1995, among Transport Holdings Inc., Travelers Group Inc. and the
Lenders named therein (previously filed as an exhibit to the Current Report
on Form 8-K dated September 29, 1995 of Transport Holdings Inc. and
incorporated herein by reference).
</TABLE>
II-1
<PAGE> 126
<TABLE>
<S> <C> <C>
4(c) -- Amendment No. 2 to Subordinated Convertible Loan Agreement dated as of
January 16, 1996 among Transport Holdings Inc., Insurance Partners, L.P. and
Insurance Partners Offshore (Bermuda), L.P. (previously filed as an exhibit
to the Annual Report on Form 10-K of Transport Holdings Inc. for the year
ended December 31, 1995 and incorporated herein by reference).
4(d) -- Proposed Amendments to the Loan Agreement (included herein as Appendix A).
5 -- Opinion of Lawrence W. Inlow, General Counsel to Conseco, Inc., as to the
validity of the issuance of the securities registered hereby.***
8 -- Form of Opinion of Weil, Gotshal & Manges LLP as to certain tax matters.**
23(a) -- Consent of Lawrence W. Inlow, General Counsel to Conseco, Inc. (included in
the opinion filed as Exhibit 5 to the Registration Statement).***
23(b) -- Consent of Coopers & Lybrand L.L.P. with respect to the financial statements
of the Registrant.*
23(c) -- Consent of KPMG Peat Marwick LLP with respect to the financial statements of
Transport Holdings Inc.*
23(d) -- Consent of Arthur Andersen LLP with respect to the financial statements of
American Travellers Corporation.*
23(e) -- Consent of KPMG Peat Marwick LLP with respect to the financial statements of
Capitol American Financial Corporation.*
23(f) -- Consent of Coopers & Lybrand L.L.P. with respect to the financial statements
of Life Partners Group, Inc.*
23(g) -- Consent of Donaldson, Lufkin & Jenrette Securities Corporation.***
24 -- Powers of Attorney of Stephen C. Hilbert, Rollin M. Dick, Ngaire E. Cuneo,
David R. Decatur, M. Phil Hathaway, Louis P. Ferrero, Donald F. Gongaware,
James D. Massey and Dennis E. Murray, Sr.***
99(a) -- Opinion of Donaldson, Lufkin & Jenrette Securities Corporation.**
99(b) -- Form of Consent and Letter of Transmittal.*
</TABLE>
- -------------------------
* Filed herewith.
** Previously filed as an exhibit to the Registration Statement on Form S-4
(file no. 333-14377) filed by Conseco, Inc.
*** Previously filed as an exhibit to this Registration Statement.
(b) Financial Statement Schedules -- Inapplicable.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes as follows:
(1) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(2) That every prospectus: (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes
II-2
<PAGE> 127
of determining any liability under the Securities Act of 1933, each such
post-effective amendment, shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(e) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(f) The undersigned registrant hereby undertakes 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.
(g) See Part II -- Item 20.
II-3
<PAGE> 128
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
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
and the State of Indiana, on the 20th day of December, 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, President December 20, 1996
- ------------------------------ and Chief Executive Officer (Principal
Stephen C. Hilbert Executive Officer of the Registrant)
* Director, Executive Vice President and December 20, 1996
- ------------------------------ Chief Financial Officer (Principal
Rollin M. Dick Financial and Accounting Officer of the
Registrant)
* Director December 20, 1996
- ------------------------------
Ngaire E. Cuneo
* Director December 20, 1996
- ------------------------------
David R. Decatur
* Director December 20, 1996
- ------------------------------
M. Phil Hathaway
* Director December 20, 1996
- ------------------------------
Louis P. Ferrero
* Director December 20, 1996
- ------------------------------
Donald F. Gongaware
* Director December 20, 1996
- ------------------------------
James D. Massey
* Director December 20, 1996
- ------------------------------
Dennis E. Murray, Sr.
*By: /s/ Karl W. Kindig
-------------------------
Karl W. Kindig,
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 1
EXHIBIT 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Conseco, Inc. on Form S-4 (File No. 333-17675), 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
December 17, 1996
<PAGE> 1
EXHIBIT 23(c)
ACCOUNTANTS' CONSENT
The Board of Directors
Transport Holdings Inc.:
We consent to the incorporation by reference herein of our report dated
February 22, 1996, related to the consolidated financial statements of
Transport Holdings Inc. and subsidiaries, and to the reference to our firm
under the headings "Selected Historical Financial Information of THI" and
"Experts" in the Statement.
/s/ KPMG PEAT MARWICK LLP
-------------------------
KPMG PEAT MARWICK LLP
Dallas, Texas
December 17, 1996
<PAGE> 1
EXHIBIT 23(d)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated March 4, 1996
included in American Travellers Corporation Form 10-K for the year ended
December 31, 1995 and to all references to our Firm included in this
Registration Statement.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Philadelphia, PA
December 17, 1996
<PAGE> 1
EXHIBIT 23(e)
ACCOUNTANTS' CONSENT
The Shareholders and Board of Directors
Capitol American Financial Corporation:
We consent to the incorporation by reference herein of our reports dated
January 31, 1996, related to the consolidated financial statements and related
financial statement schedules of Capitol American Financial Corporation and
subsidiaries, and to the reference to our firm under the headings "Selected
Historical Financial Information of CAF" and "Experts" in the Registration
Statement.
/s/ KPMG PEAT MARWICK LLP
-------------------------
KPMG PEAT MARWICK LLP
Columbus, Ohio
December 17, 1996
<PAGE> 1
EXHIBIT 23(f)
CONSENT OF INDEPENDENT ACCOUNTANTS
-------------------------
We consent to the incorporation by reference in the registration
statement of Conseco, Inc. on Form S-4 (File No. 333-17675), 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
December 17, 1996
<PAGE> 1
CONSENT AND LETTER OF TRANSMITTAL
TO TENDER AND GIVE CONSENT IN RESPECT OF
8.5% SERIES A SUBORDINATED CONVERTIBLE NOTES DUE 2005 AND
8.5% SERIES B SUBORDINATED CONVERTIBLE NOTES DUE 2005 OF
TRANSPORT HOLDINGS INC.
DATED DECEMBER 20, 1996
THE OFFER WILL EXPIRE AT MIDNIGHT, NEW YORK CITY TIME, ON JANUARY 20, 1997,
UNLESS EXTENDED. THIS OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE
CONSUMMATION OF THE MERGER OF TRANSPORT HOLDINGS INC. WITH AND INTO CONSECO,
INC. SEE "THE EXCHANGE OFFER AND SOLICITATION -- CONDITIONS TO THE OFFER" IN THE
ACCOMPANYING OFFER TO PURCHASE.
EXCEPT UNDER CERTAIN LIMITED CIRCUMSTANCES, NOTES, ONCE TENDERED, MAY NOT BE
WITHDRAWN, AND CONSENTS, ONCE DELIVERED, MAY NOT BE REVOKED. SEE "THE EXCHANGE
OFFER AND SOLICITATION -- WITHDRAWAL OF TENDERS AND REVOCATION OF CONSENTS" IN
THE ACCOMPANYING OFFER TO PURCHASE.
The Depositary for the Exchange Offer and Solicitation is:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By Mail, Overnight Delivery or Hand:
First Union National Bank of North Carolina
Corporate Trust Operations
11th Floor, 230 South Tryon Street
Charlotte, NC 28288-1153
For Information Call: (800) 829-8432
DELIVERY OF THIS CONSENT AND LETTER OF TRANSMITTAL ("CONSENT AND LETTER OF
TRANSMITTAL") TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY. YOU MUST SIGN THIS CONSENT AND LETTER OF TRANSMITTAL IN THE
APPROPRIATE SPACE THEREFOR PROVIDED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9
SET FORTH BELOW.
THE INSTRUCTIONS ACCOMPANYING THIS CONSENT AND LETTER OF TRANSMITTAL SHOULD
BE READ CAREFULLY BEFORE THIS CONSENT AND LETTER OF TRANSMITTAL IS COMPLETED.
This Consent and Letter of Transmittal is to be used if Notes (as defined
below) are to be physically delivered herewith according to the delivery
procedures set forth in the section entitled "The Exchange Offer and
Solicitation -- Procedures for Tendering Notes and Delivering Consents" of the
accompanying Offer to Purchase and Consent Solicitation Statement dated December
20, 1996 (the "Offer to Purchase"). Holders who tender Notes are required to
consent to the Proposed Amendments. The tender of Notes under this Consent and
Letter of Transmittal will constitute such consent.
Holders who wish to consent to the Proposed Amendments and tender their
Notes must, at a minimum, complete columns (1) through (3) in the table below
and sign in the appropriate box below. If only those columns are completed, the
Holder will be deemed to have consented to the Proposed Amendments with respect
to, and to have tendered, all Notes listed in the box. If the Holder wishes to
tender less than all of such Notes, column (4) must be completed in full, and
such Holder should refer to Instruction 4.
PERSONS WHO ARE NOT REGISTERED HOLDERS OF THE NOTES TENDERED MUST OBTAIN AN
EXECUTED PROXY FROM THE REGISTERED HOLDER OF SUCH NOTES AND DELIVER SUCH PROXY
TO THE DEPOSITARY WITH THE EXECUTED LETTER OF TRANSMITTAL OR THE REGISTERED
HOLDER MUST SIGN THE CONSENT CONTAINED HEREIN.
HOLDERS WHO WISH TO RECEIVE THE EXCHANGE OFFER CONSIDERATION WITH RESPECT
TO ANY NOTE MUST TENDER PRIOR TO MIDNIGHT, NEW YORK CITY TIME, ON JANUARY 20,
1997 (THE "EXPIRATION DATE"). HOLDERS WHO TENDER NOTES TO THE DEPOSITARY AFTER
THE EXPIRATION DATE WILL NOT RECEIVE ANY TENDER PAYMENTS. HOWEVER, THE COMPANY'S
OBLIGATION TO MAKE TENDER PAYMENTS IS SUBJECT TO THE CONDITIONS DESCRIBED IN THE
OFFER TO PURCHASE.
All capitalized terms used herein and not defined shall have the meaning
ascribed to such terms in the Offer to Purchase.
<PAGE> 2
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
DESCRIPTION OF NOTES TENDERED AND WITH RESPECT TO WHICH CONSENT IS GIVEN
(SEE INSTRUCTIONS 3 AND 4)
- ----------------------------------------------------------------------------------------------------------
NOTES TENDERED AND WITH RESPECT TO WHICH CONSENT IS
NAME(S) AND ADDRESS(ES) OF HOLDER(S) GIVEN
(PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL SIGNED SCHEDULE IF NECESSARY)
- ----------------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
- ----------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
TOTAL PRINCIPAL TENDERED AND WITH
NOTE AMOUNT OF RESPECT TO WHICH
NUMBERS NOTES CONSENT IS GIVEN*
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
TOTAL NOTES
TENDERED
- ----------------------------------------------------------------------------------------------------------
* Unless otherwise indicated, it will be assumed that the entire principal amount of Notes delivered to
the Depositary is being tendered. See Instruction 4. Tenders of Notes will be accepted only in
principal amounts equal to $1,000 or integral multiples thereof. You must consent to the Proposed
Amendments with respect to any Note tendered, and tender of any Notes will constitute a Consent to the
Proposed Amendments with respect to such Notes. If you are not the registered Holder of the Notes, the
assignment block on the back of the Note must be properly completed in order to tender, or the Note
must be accompanied by appropriate bond powers, and you must obtain a consent from the registered
Holder of such Notes to Consent. If the space provided above is inadequate, attach a signed schedule
setting forth the requested information.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to Conseco, Inc., an Indiana corporation
("Conseco"), upon the terms and subject to the conditions set forth in its Offer
to Purchase, receipt of which is hereby acknowledged, and in accordance with
this Consent and Letter of Transmittal (which together constitute the "Offer"),
the principal amount of the 8.5% Series A Subordinated Convertible Notes due
2005 (the "Series A Notes") or 8.5% Series B Subordinated Convertible Notes due
2005 (the "Series B Notes" and, collectively with the Series A Notes, the
"Notes") of Transport Holdings Inc., a Delaware corporation ("THI"), indicated
in the table above entitled "Description of Notes Tendered and With Respect to
Which Consent Is Given" and consents to the Proposed Amendments with respect to
the principal amount of Notes so tendered.
Subject to, and effective upon, acceptance for payment of the Notes
tendered hereby in accordance with the terms of the Offer, the undersigned
hereby sells, assigns and transfers to, or upon the order of, Conseco all right,
title and interest in and to such Notes tendered hereby.
The undersigned hereby irrevocably constitutes and appoints the Depositary
as the true and lawful agent and attorney-in-fact of the undersigned, with full
power of substitution (such power of attorney being deemed to be an irrevocable
power coupled with an interest), to (a) deliver certificates for such Notes,
together with all accompanying evidences of transfer and authenticity, to or
upon the order of Conseco, (b) present such Notes for transfer on the books of
Conseco, (c) deliver the Consent contained herein to Conseco and (d) receive all
benefits and otherwise exercise all rights of beneficial ownership of such Notes
and Consents, all in accordance with the terms of the Offer.
The undersigned agrees and acknowledges that, by the execution and delivery
hereof, the undersigned makes and provides the written Consent to the Proposed
Amendments (with respect to the principal amount of the Notes indicated in the
table above entitled "Description of Notes Tendered and With Respect to Which
Consent Is Given") as permitted by Section 15.1 of the Loan Agreement. The
undersigned understands that the Consent provided hereby shall remain in full
force and effect unless and until such Consent is revoked in accordance with the
procedures set forth in the Offer to Purchase and this Consent and Letter of
Transmittal. The undersigned understands that an amendment to the Loan Agreement
providing for the Proposed Amendments will be executed by Conseco and become
effective immediately upon receipt of the Requisite Consents (which may occur as
early as the Effective Time), and that no revocation of Consents may be made
after the Notes to which such Consents relate have been accepted for payment.
The undersigned hereby represents and warrants that (a) he or she has full
power and authority to give the Consent contained herein and (b) he or she owns
the Notes tendered hereby within the meaning of Rule 10b-4 under the Securities
Exchange Act of 1934, as amended, and has full power and authority to validly
tender, sell, assign and transfer the Notes tendered hereby and that the Notes
tendered hereby are free and clear of all security interests, liens, charges,
restrictions, encumbrances conditional sales agreements or other obligations
relating to the sale or transfer thereof, and are not subject to any adverse
claim. Upon request, the undersigned will execute and deliver any additional
documents deemed by Conseco to be necessary or desirable to complete the sale of
the Notes tendered hereby and to perfect the undersigned's Consent. The
undersigned represents that he or she has read and agrees to all of the terms
and conditions of the Offer.
The consideration for each Note validly tendered and not withdrawn pursuant
to the Exchange Offer will consist of shares of Conseco Common Stock and cash
determined in accordance with the section entitled "The Exchange Offer and
Solicitation -- Terms of the Exchange Offer and Solicitation" in the Offer to
Purchase.
The undersigned understands that tenders of Notes and delivery of Consents
pursuant to any of the procedures described in the section entitled "The
Exchange Offer and Solicitation -- Procedures for Tendering Notes and Delivering
Consents" of the Offer to Purchase and in the instructions hereto will
<PAGE> 4
constitute a binding agreement between the undersigned and Conseco upon the
terms and subject to the conditions of the Offer.
Unless otherwise indicated herein under "Special Payment or Issuance
Instructions," the undersigned hereby requests that any Notes representing
principal amounts not tendered or not accepted for purchase be issued in the
name(s) of the undersigned and checks for payments of the Offer Consideration to
be made in connection with the Offer be issued to the order of the undersigned.
Similarly, unless otherwise indicated herein under "Special Delivery
Instructions," the undersigned hereby requests that any Notes representing
principal amounts not tendered or not accepted for purchase and checks for
payments of the Offer Consideration to be made in connection with the Offer be
delivered to the undersigned at the address shown below the undersigned's
signature(s). In the event that the "Special Payment or Issuance Instructions"
box or the "Special Delivery Instructions" box is, or both are, completed, the
undersigned hereby requests that any Notes representing principal amounts not
tendered or not accepted for purchase be issued in the name(s) of, certificates
for such Notes be delivered to, and checks for payments of the Offer
Consideration to be made in connection with the Offer be issued in the name(s)
of, and be delivered to, the person(s) at the address(es) so indicated, as
applicable. The undersigned recognizes that Conseco has no obligation pursuant
to the "Special Payment or Issuance Instructions" box or "Special Delivery
Instructions" box to transfer any Notes from the name of the registered
holder(s) thereof if Conseco does not accept for purchase any of the principal
amount of such Notes so tendered.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned. Except as
stated in the Offer to Purchase, Notes, once tendered, may not be withdrawn, and
Consents, once delivered, may not be revoked.
<PAGE> 5
- --------------------------------------------------------------------------------
SPECIAL PAYMENT OR
ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 4, 5, 6 AND 7)
To be completed ONLY if certificates for shares of Conseco Common
Stock and/or any check for the Offer Consideration of Notes purchased are
to be issued in the name of and sent to someone other than the
undersigned. If the Notes are to be issued to someone other than the
undersigned, the assignment block on the back of the Notes must be
properly completed, or the Notes must be accompanied by appropriate bond
powers. Attach a separate signed schedule if the space provided below is
insufficient.
Issue [ ] check [ ] certificate for Conseco
Common Stock to:
Name
-----------------------------------------------------
(PLEASE PRINT)
Address
-----------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
(INCLUDE ZIP CODE)
---------------------------------------------------------------
(TAXPAYER IDENTIFICATION OR
SOCIAL SECURITY NUMBER(S))* OF PAYEE,
*Please also complete the enclosed Substitute Form W-9
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 4, 5, 6 AND 7)
To be completed ONLY if certificates for shares of Conseco Common
Stock and/or any check for the Offer Consideration of Notes purchased are
to be sent to someone other than the undersigned, or to the undersigned at
an address other than that shown above.
Mail [ ] check [ ] certificate for Conseco
Common Stock to:
Name
-----------------------------------------------------
(PLEASE PRINT)
Address
-----------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
(INCLUDE ZIP CODE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IF THIS CONSENT AND LETTER OF TRANSMITTAL IS SIGNED BY A HOLDER OF NOTES WHO IS
NOT A REGISTERED HOLDER, THEN THE REGISTERED HOLDER MUST SIGN A VALID PROXY OR
THE FOLLOWING CONSENT:
Pursuant to Conseco's solicitation of Consents to the Proposed Amendments and
the Offer,
the undersigned hereby consents to the Proposed Amendments.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE(S) OF REGISTERED HOLDER(S)
Dated:
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 6
- --------------------------------------------------------------------------------
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 1 AND 5)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ENCLOSED)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Note or on a security position listing or by person(s) authorized to
become registered holder(s) by certificate(s) and documents transmitted
herewith. If signature is by attorney-in-fact, executor, administrator,
trustee, guardian, officer of a corporation or another acting in a
fiduciary or representative capacity, please set forth the full title. See
Instruction 5.
--------------------------------------------------------------------------
--------------------------------------------------------------------------
SIGNATURE(S) OF OWNER(S)
Dated:
-----------------------------------------------------------------------------
Name(s)
-------------------------------------------------------------------------
(PLEASE PRINT)
Area Code and
Telephone Number ( )
------------------------------------------------------
(DAY)
( )
------------------------------------------------------
(NIGHT)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5)
USED BY FINANCIAL INSTITUTIONS ONLY.
Authorized Signature
------------------------------------------------------------
Name
----------------------------------------------------------------------------
(PLEASE PRINT)
Title
------------------------------------------------------------------------------
Name of Firm
-------------------------------------------------------------------
Address
---------------------------------------------------------------------------
--------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number ( )
Dated:
- --------------------------------------------------------------------------------
<PAGE> 7
INSTRUCTIONS FORMING PART
OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. If this Consent and Letter of Transmittal is
signed by the Holder of the Notes tendered herewith and payment of the Offer
Consideration and delivery are to be made directly to such Holder, or if such
Notes are tendered for the account of a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers
Inc. or a commercial bank or trust company having an office, branch or agency in
the United States (each such entity being hereinafter referred to as an
"Eligible Institution"), no signature guarantee is required. In all other cases,
all signatures on this Consent and Letter of Transmittal or a facsimile thereof
must be guaranteed by a Medallion Signature Guarantor, except in cases where
Notes tendered herewith are tendered for the account of an Eligible Institution.
2. DELIVERY OF CONSENT AND LETTER OF TRANSMITTAL AND NOTES. This Consent
and Letter of Transmittal is to be completed by Holders if certificates
representing Notes are to be physically delivered to the Depositary herewith by
such Holders according to the delivery procedures set forth under the caption
"The Exchange Offer and Solicitation -- Procedures for Tendering Notes and
Delivering Consents" in the Offer to Purchase. All physically delivered Notes,
as well as a properly completed and duly executed Consent and Letter of
Transmittal (or a manually signed facsimile thereof) and any other documents
required by this Letter of Transmittal, must be received by the Depositary at
its address set forth herein on or prior to the Expiration Date.
The method of delivery of the Notes, the Consent and Letter of Transmittal
and any other required documents is at the option and risk of the tendering
holders. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended.
All tendering holders, by execution of this Consent and Letter of
Transmittal (or a facsimile thereof), waive any right to receive any notice of
the acceptance of their tender.
3. INADEQUATE SPACE. If the space provided for responses to any requests
for information contained in this Consent and Letter of Transmittal is
inadequate, attach a separate signed schedule setting forth such information.
4. PARTIAL TENDERS OR CONSENTS. Consent to the Proposed Amendments and
tenders of Notes will be accepted only in integral multiples of $1,000. If
consent is given or tenders made with respect to less than the entire principal
amount of the Notes, fill in the principal amount (in integral multiples of
$1,000) of the Notes which are to be tendered and as to which Consents are given
in the column entitled "Principal Amount Tendered and With Respect to Which
Consent is Given." In such case, a new Note for the remainder of the principal
amount of the Note will be issued and sent to the holders unless otherwise
specified in the "Special Payment or Issuance Instructions" or "Special Delivery
Instructions" boxes on this Consent and Letter of Transmittal. The aggregate
principal amount of all Notes delivered to the Depositary is deemed to have been
tendered and Consents given with respect thereto unless otherwise indicated.
5. SIGNATURES ON CONSENT AND LETTER OF TRANSMITTAL, BOND POWERS AND
ENDORSEMENTS.
(a) If this Consent and Letter of Transmittal is signed by a person
other than the registered Holder, a consent in the form provided in this
Consent and Letter of Transmittal or a valid proxy must be obtained from
such holder of record with the signature of such holder of record
guaranteed by a Medallion Signature Guarantor. See Instruction 1. If this
Consent and Letter of Transmittal is signed by the registered Holder of the
Notes tendered hereby, the signature must correspond with the name as
written on the face of the Notes without any change whatsoever.
(b) If any of the Notes is held of record by two or more persons, all
such persons must sign this Consent and Letter of Transmittal.
(c) If any of the Notes is registered in different names, it will be
necessary to complete, sign and submit as many separate Consents and
Letters of Transmittal as there are different registrations.
<PAGE> 8
(d) If this Consent and Letter of Transmittal is signed by the
registered Holder(s) of the Notes, no endorsements of Notes or separate
bond powers are required unless payment is to be made, or Notes not
tendered or not purchased are to be issued or returned, in the name of any
person other than the registered Holder(s). Signatures on any such Notes or
bond powers must be guaranteed by a Medallion Signature Guarantor. See
Instruction 1.
(e) If this Consent and Letter of Transmittal is signed by a person
other than the registered Holder of the Notes listed, the Notes must be
endorsed or accompanied by appropriate bond powers in either case signed
exactly as the name of the registered Holder appears on the Notes.
Signatures on such Notes or bond powers must be guaranteed by a Medallion
Signature Guarantor. See Instruction 1.
(f) If this Consent and Letter of Transmittal or any Notes or bond
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing
and must submit proper evidence satisfactory to the Depositary of their
authority so to act.
6. TRANSFER TAXES. Conseco will pay or cause to be paid any security
transfer taxes with respect to the sale and transfer of any Notes to it pursuant
to the Offer. If, however, payment of the Offer Consideration is to be made to,
or Notes not tendered or not purchased are to be issued or returned in the name
of, any person other than the registered Holder(s), the amount of any security
transfer taxes (whether imposed on the registered Holder(s), such other person
or otherwise) payable on account of the transfer to such person will be deducted
from the payment unless satisfactory evidence of the payment of such taxes, or
exemption therefrom, is submitted.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If certificates representing
shares of Conseco Common Stock and/or checks are to be issued in the name of a
person other than the signer of the Letter of Transmittal or if such
certificates and/or checks are to be sent to someone other than the signer of
the Letter of Transmittal or to the signer at a different address, the captioned
boxes "Special Payment or Issuance Instructions" and "Special Delivery
Instructions" on this Consent and Letter of Transmittal should be completed.
8. IRREGULARITIES. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance for payment of any tender of Notes
will be determined by Conseco, in its sole discretion, which determination shall
be final and binding on all parties. Conseco reserves the absolute right to
reject any or all tenders determined by Conseco not to be in proper form or the
acceptance of or payment for which may, in the opinion of Conseco's counsel, be
unlawful. Conseco also reserves the absolute right to waive any of the
conditions of the Offer or any defect or irregularity in the tender of any
particular Notes and Conseco's interpretation of the terms and conditions of the
Offer (including these Instructions) will be final and binding. No tender of
Notes will be deemed to be properly made until all defects and irregularities
have been cured or waived. Unless waived, any defects or irregularities in
connection with tenders must be cured prior to the Expiration Date. The
Depositary is obligated to return any Note improperly tendered to the Holder
thereof, which Holder shall have the right to retender such Note in proper form
so long as such tender is made prior to the Expiration Date. Except as set forth
in the immediately preceding sentence, none of the Depositary, Conseco or any
other person shall be obligated to give notice of defects or irregularities in
tenders and consents, nor shall any of them incur any liability for failure to
give any such notice.
9. REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Requests for assistance
may be directed to, and additional copies of the Offer to Purchase and this
Consent and Letter of Transmittal may be obtained from, the Depositary at its
address as set forth below.
10. SUBSTITUTE FORM W-9. Each tendering Holder is required to provide the
Depositary with a correct taxpayer identification number ("TIN") on Substitute
Form W-9 which is provided under "Important Tax Information" below, and to
certify that the Holder is not subject to backup withholding. Failure to provide
the information on the form may subject the tendering Holder to a $50 penalty
imposed by the Internal Revenue Service and 31% federal income tax withholding
on the payments made to the Holder or other payee with respect to Notes
purchased and Consents given pursuant to the Offer and the Solicitation. If the
consenting Holder does not have a TIN and has applied for a TIN or intends to
apply for a TIN in the near future, then
<PAGE> 9
this Holder should write "Applied for" in the space for the TIN in Part 1, check
the box in Part 3, sign and date the form, and give it to the Depositary. In
addition, a consenting Holder who checked the box in Part 3 must complete the
Certificate of Awaiting Taxpayer Identification Number. Generally, such Holder
will then have 60 days to obtain a TIN and furnish it to the Depositary by
completing a new Form W-9 including the new TIN. Notwithstanding that the box in
Part 3 on the Substitute Form W-9 is checked (and the Certificate of Awaiting
Taxpayer Identification Number is completed), the Depositary will withhold 31%
of all such payments until such time as a properly certified TIN is provided to
the Depositary.
In order for a foreign individual to qualify as an exempt recipient, the
Holder must submit a completed IRS Form W-8. IRS Form W-8 may be obtained by
contacting the Depositary at the address set forth below.
IMPORTANT: This Consent and Letter of Transmittal (or a manually signed
facsimile thereof), together with Notes and all other required documents must be
received by the Depositary on or prior to the Expiration Date.
IMPORTANT TAX INFORMATION
THE FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL
INFORMATION ONLY. EACH HOLDER IS URGED TO CONSULT A TAX ADVISOR TO DETERMINE THE
PARTICULAR TAX CONSEQUENCES TO HIM OR HER, (INCLUDING THE APPLICABILITY AND
EFFECT OF STATE, LOCAL AND OTHER TAX LAWS) OF THE CONSENTS AND THE SALE OF THE
NOTES PURSUANT TO THE SOLICITATION AND THE OFFER. CERTAIN HOLDERS (INCLUDING
INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS FINANCIAL INSTITUTIONS, DEALERS IN
SECURITIES AND FOREIGN PERSONS OR ENTITIES) MAY BE SUBJECT TO SPECIAL RULES NOT
DISCUSSED BELOW. THE DISCUSSION DOES NOT CONSIDER THE EFFECT OF ANY APPLICABLE
FOREIGN, STATE, LOCAL OR OTHER TAX LAWS.
SUBSTITUTE FORM W-9
Under the federal income tax laws, the Depositary may be required to
withhold 31% of the amount of any payment made to certain holders pursuant to
the Offer and the Solicitation. In order to avoid such backup withholding, each
tendering Holder must provide the Depositary with such holders's correct TIN by
completing the Substitute Form W-9 set forth below. In general, if a Holder is
an individual, the TIN is the Social Security number of such individual. If the
Depositary is not provided with the correct TIN, the Holder may be subject to a
$50 penalty imposed by the Internal Revenue Service. In addition, any Offer
Consideration paid to such Holder with respect to the Notes purchased pursuant
to the Offer may be subject to 31% backup withholding tax. Certain Holders
(including, among others, all corporations and certain foreign individuals) are
not subject to these backup withholding and reporting requirements. These
Holders should enter the correct TIN in Part 1 of the Substitute Form W-9,
write, "Exempt" in Part 2 of the Substitute Form W-9, sign under the
certification and date the form. In order for a foreign individual to qualify as
an exempt recipient, the Holder must submit a completed IRS Form W-8. IRS Form
W-8 may be obtained by contacting the Depositary at the address set forth below.
For further information regarding backup withholding and instructions for
completing the Substitute Form W-9 (including how to obtain a TIN if you do not
have one and how to complete the Substitute Form W-9 if Notes are held in more
than one name), consult the Guidelines for Certification of Taxpayer
Identification Number.
CONSEQUENCES OF FAILURE TO FILE SUBSTITUTE FORM W-9
Failure to complete the Substitute Form W-9 will not, by itself, cause the
Notes to be deemed invalidly tendered but may require the Depositary to withhold
31% of the amount of any payments made pursuant to the Exchange Offer and
Solicitation. Backup withholding is not an additional federal income tax.
Rather, the federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, the holder may claim a refund from the
Internal Revenue Service.
<PAGE> 10
PAYER'S NAME:
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
SUBSTITUTE Part 1 -- PLEASE PROVIDE YOUR TIN IN
FORM W-9 THE BOX AT RIGHT AND CERTIFY BY SIGNING ------------------------------------
AND DATING BELOW: Social Security Number or
Employer Identification Number
----------------------------------------------------------------------------
Part 2 -- CERTIFICATION: UNDER PENALTIES OF PERJURY, I CERTIFY THAT (1) The
number on this form is my correct TIN (or I am waiting for a number to be
issued to me), and (2) I am not subject to backup withholding because (a) I
Department of the Treasury am exempt from backup withholding or (b) I have not been notified by the
Internal Revenue Service Internal Revenue Service ("IRS") that I am subject to backup withholding as
a result of a failure to report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to backup withholding.
PAYER'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER (TIN) You must cross out item (2) above if you have been notified by the IRS that
AND CERTIFICATION you are subject to backup withholding because of underreporting interest or
dividends on your tax return. However, if after being notified by the IRS
that you were subject to backup withholding, you received another
notification from the IRS that you were no longer subject to backup
withholding, do not cross out item (2).
----------------------------------------------------------------------------
CERTIFICATION: UNDER PENALTIES OF PERJURY, I CERTIFY THAT Part 3
THE INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT, Awaiting TIN [ ]
AND COMPLETE.
Name
----------------------------------------------------------------------
(Please Print)
Address
----------------------------------------------------------------------
----------------------------------------------------------------------
(Include Zip Code)
SIGNATURE DATE DATE
---------------------------------------------- ----------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY
IMPOSED BY THE INTERNAL REVENUE SERVICE AND BACKUP WITHHOLDING OF 31% OF
ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER AND THE SOLICITATION.
PLEASE REVIEW THE "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 3 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
reportable payments due to me will be withheld until I provide a number.
<TABLE>
<S> <C>
- --------------------------------------------- ------------------------------
Signature Date
</TABLE>
<PAGE> 11
The Depositary for the Exchange Offer and Solicitation is:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By Mail, Overnight Delivery or Hand:
First Union National Bank of North Carolina
Corporate Trust Operations
11th Floor, 230 South Tryon Street
Charlotte, North Carolina 28288-1153
For Information Call: (800) 829-8432
