<PAGE> 1
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 8, 1997)
10,000,000 FELINE PRIDES(SM) CONSECO LOGO
CONSECO, INC.
CONSECO FINANCING TRUST IV
---------------------
The securities offered hereby are FELINE PRIDES(SM) ("FELINE PRIDES" or the
"Securities") of Conseco, Inc., an Indiana corporation ("Conseco" or the
"Company"), and Conseco Financing Trust IV, a statutory business trust created
under the laws of the State of Delaware (the "Trust"). Each FELINE PRIDES
offered hereby initially will consist of a unit (referred to as an "Income
PRIDES"(SM)) with a Stated Amount of $50 (the "Stated Amount") comprised of (a)
a stock purchase contract (a "Purchase Contract") under which (i) the holder
will purchase from the Company on February 16, 2001 (the "Purchase Contract
Settlement Date"), for an amount of cash equal to the Stated Amount, a number of
newly issued shares of common stock, no par value per share (the "Common
Stock"), of the Company equal to the Settlement Rate described herein, and (ii)
the Company will pay the holder unsecured, subordinated contract adjustment
payments ("Contract Adjustment Payments") at the rate of .25% of the Stated
Amount per annum and (b) either beneficial ownership of a 6.75% Trust Originated
Preferred Security (a "Trust Preferred Security"), having a stated liquidation
amount per Trust Preferred Security equal to the Stated Amount, representing a
preferred undivided beneficial interest in the assets of the Trust or, upon the
occurrence of a Tax Event Redemption (as defined herein) prior to the Purchase
Contract Settlement Date, the Applicable Ownership Interest (as defined herein)
in the Treasury Portfolio (as defined herein). The Company will, directly or
indirectly, own all the common securities (the "Common Securities" and, together
with the Trust Preferred Securities, the "Trust Securities") representing common
undivided beneficial interests in the assets of the Trust. The Trust exists for
the sole purpose of issuing the Trust Securities and investing the proceeds
thereof in an equivalent principal amount of 6.75% Junior Subordinated
Debentures of the Company due February 16, 2003 (the "Debentures"). As long as
the FELINE PRIDES are in the form of Income PRIDES, the related Trust Preferred
Securities or the Treasury Portfolio, as applicable, will be pledged to the
Collateral Agent (as defined herein) to secure the holder's obligation to
purchase Common Stock under the related Purchase Contracts.
(continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE S-19 OF THIS PROSPECTUS SUPPLEMENT FOR
CERTAIN INFORMATION RELEVANT TO AN INVESTMENT IN THE SECURITIES, INCLUDING THE
PERIOD AND CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS OF CERTAIN
DISTRIBUTIONS ON THE SECURITIES MAY BE DEFERRED AND THE RELATED UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES OF SUCH DEFERRAL.
Prior to the offering made hereby there has been no public market for the
Securities. The Income PRIDES have been approved for listing on the New York
Stock Exchange (the "NYSE") under the symbol "CNC PrF", subject to official
notice of issuance. On December 8, 1997, the last reported sale price of the
Common Stock on the NYSE was $44 3/8 per share.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
<TABLE>
<S> <C> <C> <C>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) COMMISSION(2) COMPANY(3)
- -----------------------------------------------------------------------------------------------------------------------------
Per Income PRIDES...................................... $50.00 $1.50 $48.50
- -----------------------------------------------------------------------------------------------------------------------------
Total(4)............................................... $500,000,000 $15,000,000 $485,000,000
=============================================================================================================================
</TABLE>
(1) Plus accrued distributions on the related Trust Preferred Securities and
Contract Adjustment Payments, if any, from December 12, 1997.
(2) The Company and the Trust have agreed to indemnify the Underwriters against
certain liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(3) Before deducting expenses payable by the Company estimated at $1,300,000.
(4) The Company and the Trust have granted to the Underwriters a 30-day option
to purchase up to an additional 1,500,000 Income PRIDES, to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Commission and Proceeds to the Company will be
$575,000,000, $17,250,000 and $557,750,000, respectively. See
"Underwriting."
---------------------
The Securities are offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by them, and subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Securities offered hereby will be made in New York, New York on
or about December 12, 1997.
---------------------
MERRILL LYNCH & CO.
CREDIT SUISSE FIRST BOSTON
FURMAN SELZ
PAINEWEBBER INCORPORATED
SBC WARBURG DILLON READ INC.
SANDS BROTHERS & CO., LTD.
---------------------
The date of this Prospectus Supplement is December 8, 1997.
- ---------------------
(SM) Service mark of Merrill Lynch & Co., Inc.
<PAGE> 2
Aggregate payments of 7% of the Stated Amount per annum are scheduled to be
made or accrued on each Income PRIDES quarterly in arrears on February 16, May
16, August 16 and November 16 of each year, commencing February 16, 1998, until
the Purchase Contract Settlement Date. These payments will consist of cumulative
cash distributions on the related Trust Preferred Securities or the Treasury
Portfolio, as applicable, payable at the rate of 6.75% of the Stated Amount per
annum, and Contract Adjustment Payments payable by the Company at the rate of
.25% of the Stated Amount per annum, subject in the case of distributions on
Trust Preferred Securities and the Contract Adjustment Payments to the Company's
right to defer payment of such amounts. The ability of the Trust to make the
quarterly distributions on the Trust Preferred Securities will be solely
dependent upon the receipt of corresponding interest payments from the Company
on the Debentures. The Company will have the right at any time, and from time to
time, limited to a period not extending beyond the maturity date of the
Debentures, to defer the interest payments due on the Debentures, and to defer
Contract Adjustment Payments until the Purchase Contract Settlement Date. As a
consequence of such deferral, quarterly distributions on the Income PRIDES would
be deferred, but would continue to accrue with interest compounded quarterly. If
a Tax Event Redemption has occurred prior to the Purchase Contract Settlement
Date and the Treasury Portfolio has become a component of the Income PRIDES as
described herein, quarterly distributions on the Treasury Portfolio as a portion
of the cumulative cash distributions to the holders of Income PRIDES will not be
deferred.
The applicable distribution rate on the Trust Preferred Securities and the
interest rate on the related Debentures that remain outstanding on and after the
Purchase Contract Settlement Date will be reset on the third Business Day (as
defined herein) immediately preceding the Purchase Contract Settlement Date to a
rate per annum (the "Reset Rate") to be determined by the Reset Agent (as
defined herein) equal to the sum of (x) a spread amount (the "Reset Spread") to
be determined by the Reset Agent on the tenth Business Day prior to the Purchase
Contract Settlement Date and (y) the rate of interest on the Two-Year Benchmark
Treasury (as defined herein) in effect on the third Business Day immediately
preceding the Purchase Contract Settlement Date, such sum being the distribution
rate the Trust Preferred Securities should bear in order for a Trust Preferred
Security to have an approximate market value of 100.5% of the Stated Amount on
the third Business Day immediately preceding the Purchase Contract Settlement
Date, provided that the Company may limit such Reset Spread to be no higher than
200 basis points (2%). Such market value may be less than 100.5% if the Reset
Spread is limited to a maximum of 2%.
The payment of distributions and certain redemptions out of monies held by
the Trust and payments on liquidation of the Trust will be guaranteed by the
Company (the "Guarantee") to the extent described herein and under "Description
of the Guarantee." The Guarantee covers payments of distributions and other
payments on the Trust Preferred Securities only if and to the extent the Trust
has funds available therefor, which will not be the case unless the Company has
made a payment of principal or interest on the Debentures held by the Trust as
its sole asset. The Guarantee, when taken together with the Company's
obligations under the Debentures, the Indenture (as defined herein) and the
Company's obligations under the Declaration (as defined below), provides a full
and unconditional guarantee on a subordinated basis by the Company of amounts
due on the Trust Preferred Securities. The Company's obligations under the
Guarantee are unsecured and will rank (i) subordinate and junior in right of
payment to all other liabilities of the Company except those made pari passu or
subordinate by their terms, (ii) pari passu with the most senior preferred or
preference stock now or hereafter issued by the Company, and pari passu with any
guarantee now or hereafter issued by the Company in respect of any preferred
stock or preference stock of any affiliate of the Company, and (iii) senior to
the Common Stock of the Company.
The obligations of the Company under the Debentures are unsecured and will
be subordinate and junior in right of payment, to the extent set forth herein,
to all existing and future Senior Indebtedness (as defined herein) of the
Company and will be effectively subordinated to all existing and future
liabilities and obligations of the Company's subsidiaries. As of September 30,
1997, the aggregate amount of Senior Indebtedness and liabilities and
obligations of the Company's subsidiaries that would have effectively ranked
senior to the Debentures was approximately $28.7 billion. As of September 30,
1997, after giving pro forma effect to the Senior Indebtedness incurred in
connection with the Company's recent acquisition of Washington National
Corporation (the "WNC Merger"), the offering hereby (the "Offering") and the
application of the proceeds
S-2
<PAGE> 3
thereof, the aggregate amount of Senior Indebtedness and liabilities and
obligations of the Company's subsidiaries that would have effectively ranked
senior to the Debentures would have been approximately $28.6 billion. The
Contract Adjustment Payments will be subordinated and junior in right of payment
to all liabilities of the Company (other than the Guarantee, with which they
will rank pari passu).
If the holder of an Income PRIDES (unless a Tax Event Redemption has
occurred) has not notified the Purchase Contract Agent (as defined herein) by
the fifth Business Day immediately preceding the Purchase Contract Settlement
Date, in the manner described herein, of its intention to settle the related
Purchase Contract with separate cash on the Business Day immediately preceding
the Purchase Contract Settlement Date, the Remarketing Agent (as defined
herein), pursuant to the terms of the Remarketing Agreement and the Remarketing
Underwriting Agreement (each as defined herein), will use its reasonable efforts
to remarket the related Trust Preferred Security on the third Business Day
immediately preceding the Purchase Contract Settlement Date for settlement on
the Purchase Contract Settlement Date at a price of approximately 100.5% of such
Trust Preferred Security's stated liquidation amount plus accrued and unpaid
distributions, if any, thereon. The proceeds from such remarketing, in an amount
equal to the aggregate stated liquidation amount of such Trust Preferred
Securities, will automatically be applied to satisfy in full such holder's
obligation to purchase Common Stock under the related Purchase Contract. In
addition, after deducting as a remarketing fee (the "Remarketing Fee") an amount
not exceeding 25 basis points (.25%) of the aggregate stated liquidation amount
of the remarketed securities, from any amount received in connection with such
remarketing in excess of the aggregate stated liquidation amount of such Trust
Preferred Securities plus any accrued and unpaid distributions (including
deferred distributions, if any), the Remarketing Agent will remit the remaining
portion of the proceeds, if any, to the Purchase Contract Agent for the benefit
of such holder. If, despite using its reasonable efforts the Remarketing Agent
fails to remarket the Trust Preferred Securities at a price not less than 100%
of their aggregate stated liquidation amount plus accrued and unpaid
distributions (including deferred distributions, if any), the remarketing will
be deemed to have failed (a "Failed Remarketing") and the Company will exercise
its rights as a secured party to dispose of the Trust Preferred Securities in
accordance with applicable law and satisfy in full, from such proceeds, such
holder's obligation to purchase Common Stock under the related Purchase
Contracts; provided, that if the Company exercises such rights as a secured
creditor with respect to such Trust Preferred Securities, any accrued and unpaid
distributions (including any deferred distributions) on such Trust Preferred
Securities will be paid in cash by the Company to the holder of record of such
Trust Preferred Securities. The Company will cause a notice of such Failed
Remarketing to be published on the second Business Day immediately preceding the
Purchase Contract Settlement Date.
On or prior to the fifth Business Day immediately preceding the Purchase
Contract Settlement Date, each holder (including, initially, an Underwriter) of
an Income PRIDES (unless a Tax Event Redemption has occurred) will have the
right to substitute for the related Trust Preferred Securities held by the
Collateral Agent zero-coupon U.S. Treasury Securities (Cusip No. 912820 AZ0),
which are principal strips of the 7 3/4% U.S. Treasury Securities that mature on
the Business Day immediately preceding the Purchase Contract Settlement Date
(the "Treasury Securities"), in an amount per Income PRIDES equal to the Stated
Amount per Trust Preferred Security. Because Treasury Securities are issued in
integral multiples of $1,000, holders may make such substitutions only in
integral multiples of 20 Income PRIDES; provided, however, if a Tax Event
Redemption has occurred prior to the Purchase Contract Settlement Date and the
Treasury Portfolio has became a component of the Income PRIDES, holders of
Income PRIDES may make such substitutions only in integral multiples of 32,000
Income PRIDES (but obtaining the release of the appropriate Applicable Ownership
Interest of the Treasury Portfolio rather than the Trust Preferred Securities),
at any time on or prior to the second Business Day immediately preceding the
Purchase Contract Settlement Date. Such Treasury Securities will be substituted
for the Trust Preferred Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may be, and will be pledged with
the Collateral Agent to secure the holder's obligation to purchase Common Stock
under the related Purchase Contracts. FELINE PRIDES with respect to which
Treasury Securities have been substituted for the related Trust Preferred
Securities or the Treasury Portfolio, as the case may be, as collateral to
secure such obligation are referred to herein as "Growth PRIDES"(SM). Each
Growth PRIDES will consist of a unit with a face amount of $50 comprised of (a)
a Purchase Contract under which (i) the holder will purchase from the Company on
S-3
<PAGE> 4
the Purchase Contract Settlement Date for an amount of cash equal to the Stated
Amount of such Growth PRIDES a number of newly issued shares of Common Stock of
the Company equal to the Settlement Rate described herein and (ii) the Company
will pay the holder Contract Adjustment Payments, at the rate of .25% of the
Stated Amount per annum, and (b) a 1/20 undivided beneficial ownership interest
in a related Treasury Security having a principal amount at maturity equal to
$1,000 and maturing on the Business Day immediately preceding the Purchase
Contract Settlement Date. Upon the substitution of Treasury Securities for the
related Trust Preferred Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may be, as collateral, such
Trust Preferred Securities or appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, will be released to the holder as
described herein and thereafter will trade separately from the resulting Growth
PRIDES. Contract Adjustment Payments will be payable by the Company on the
Growth PRIDES on February 16, May 16, August 16 and November 16 of each year. In
addition, original issue discount ("OID") will continue to accrue on the related
Treasury Securities. A holder of Growth PRIDES will have the right to
subsequently recreate Income PRIDES at any time on or prior to the fifth
Business Day immediately preceding the Purchase Contract Settlement Date by
delivering 20 Growth PRIDES to the Purchase Contract Agent plus 20 Trust
Preferred Securities to the Collateral Agent in exchange for 20 Income PRIDES
and the release of the related Treasury Security to such holder; provided,
however, if a Tax Event Redemption has occurred prior to the Purchase Contract
Settlement Date and the Treasury Portfolio has become a component of the Income
PRIDES, holders of Growth PRIDES may make such substitution (but using the
appropriate Applicable Ownership Interest of the Treasury Portfolio rather than
Trust Preferred Securities) only in integral multiples of 32,000 Growth PRIDES
at any time on or prior to the second Business Day immediately preceding the
Purchase Contract Settlement Date. Such Trust Preferred Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as the case
may be, will be substituted for the Treasury Security and will be pledged with
the Collateral Agent to secure the holder's obligation to purchase Common Stock
under the related Purchase Contracts.
If a Failed Remarketing has occurred, holders of Trust Securities
(including, following the distribution of the Debentures upon a dissolution of
the Trust as described herein, such Debenture holders) holding such Trust
Securities or Debentures, as the case may be, following the Purchase Contract
Settlement Date will have the right, in the case of the Trust Securities, to
require the Trust to put to the Company the related Debentures or, in the case
of the Debentures, to put such Debentures directly to the Company on March 2,
2001, upon at least three Business Days' prior notice, at a price equal to $50
per Debenture, plus accrued and unpaid interest (including deferred interest),
if any, thereon. Upon the repurchase of such Debentures by the Company, (i) the
proceeds from such repurchase shall simultaneously be applied (in the case of
Trust Securities) to redeem such Trust Securities of such holder having an
aggregate stated liquidation amount equal to the aggregate principal amount of
the Debentures so repurchased and (ii) any accrued and unpaid distributions
(including deferred distributions) with respect to such Trust Securities will be
paid to such holder in cash.
On the Business Day immediately preceding the Purchase Contract Settlement
Date, unless a holder of Income PRIDES or Growth PRIDES (i) has settled the
related Purchase Contracts through the early delivery of cash to the Purchase
Contract Agent in the manner described herein, (ii) in the case of Income
PRIDES, has settled the related Purchase Contracts with separate cash on the
Business Day immediately preceding the Purchase Contract Settlement Date
pursuant to prior notification to the Purchase Contract Agent, (iii) has had the
Trust Preferred Securities related to such holder's Purchase Contract remarketed
in the manner described herein in connection with settling such Purchase
Contracts, or (iv) an event described under "Description of the Purchase
Contracts -- Termination" has occurred, then (A) in the case of Income PRIDES
(unless a Tax Event Redemption has occurred) the Company will exercise its
rights as a secured party to dispose of the Trust Preferred Securities in
accordance with applicable law and (B) in the case of Growth PRIDES or Income
PRIDES (in the event that a Tax Event Redemption has occurred) the principal
amount of the related Treasury Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as applicable, when paid at
maturity, will automatically be applied to satisfy in full such holder's
obligation to purchase Common Stock under the related Purchase Contracts.
S-4
<PAGE> 5
In the event that a holder of either Income PRIDES or Growth PRIDES effects
the early settlement of the related Purchase Contracts through the delivery of
cash or settles (in the case of Income PRIDES) such Purchase Contracts with cash
on the Business Day immediately preceding the Purchase Contract Settlement Date,
the related Trust Preferred Securities, the appropriate Applicable Ownership
Interest of the Treasury Portfolio or Treasury Securities, as the case may be,
will be released to the holder as described herein.
The Company will have the right at any time to dissolve the Trust, after
satisfaction of liabilities to creditors, and cause the Debentures to be
distributed to the holders of the Trust Securities. If the Debentures are
distributed to the holders of the Trust Preferred Securities, the Company will
use its best efforts to cause the Debentures to be listed on such exchange on
which the Trust Preferred Securities are then listed, including, if applicable,
the New York Stock Exchange.
The Debentures (and, thus, the Trust Securities) are redeemable at the
option of the Company, in whole but not in part, on not less than 30 days nor
more than 60 days prior notice upon the occurrence and continuation of a Tax
Event (as defined herein) under the circumstances described herein (a "Tax Event
Redemption"). If the Company so redeems all of the Debentures, the Trust must
redeem all of the Trust Securities at a redemption price (the "Redemption
Price") per Trust Security equal to the Redemption Amount (as defined herein)
plus accrued and unpaid distributions including deferred distributions, if any,
thereon to the date fixed for redemptions and pay in cash such Redemption Price
to the holders of such Trust Preferred Securities. If such Tax Event Redemption
occurs prior to the Purchase Contract Settlement Date, the Redemption Price
payable in liquidation of the Income PRIDES holders' interests in the Trust or
in the Debentures will be distributed to the Collateral Agent, who in turn will
apply an amount equal to the Redemption Amount of such Redemption Price to
purchase, on behalf of the holders of Income PRIDES, the Treasury Portfolio and
remit the remaining portion, if any, of such Redemption Price to the Purchase
Contract Agent for payment to the holder of such Income PRIDES. See "Description
of the Debentures -- Tax Event Redemption." Such Treasury Portfolio will be
substituted for the Trust Preferred Securities and will be pledged with the
Collateral Agent to secure such Income PRIDES holders' obligations to purchase
the Common Stock under their Purchase Contracts.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING TRANSACTIONS, THE PURCHASE OF SECURITIES TO
COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-5
<PAGE> 6
PROSPECTUS SUPPLEMENT SUMMARY
The following summary information is qualified in its entirety by the more
detailed information and consolidated financial statements of the Company
appearing elsewhere in the accompanying Prospectus, this Prospectus Supplement
or in the documents incorporated herein or in the accompanying Prospectus by
reference. A listing of the pages on which certain definitions of capitalized
terms used in this Prospectus Supplement Summary and elsewhere in this
Prospectus Supplement are defined is set forth in the "Index of Terms for
Prospectus Supplement" herein. Except as otherwise noted, all information in
this Prospectus Supplement assumes no exercise of the Underwriters'
over-allotment option. Unless the context otherwise requires, the terms
"Conseco" and "Company" refer to Conseco, Inc. and its consolidated
subsidiaries.
THE COMPANY
The Company is a financial services holding company. The Company develops,
markets and administers annuity, supplemental health insurance, individual and
group major medical insurance and individual life insurance products. The
Company's operating strategy is to grow the insurance business within its
subsidiaries by focusing its resources on the development and expansion of
profitable products and strong distribution channels. The Company has
supplemented such growth by acquiring companies that have profitable niche
products and strong distribution systems. Once a company has been acquired, the
Company's operating strategy has been to consolidate and streamline management
and administrative functions, to realize superior investment returns through
active asset management, to eliminate unprofitable products and distribution
channels, and to expand and develop the profitable distribution channels and
products.
The Company's executive offices are located at 11825 North Pennsylvania
Street, Carmel, Indiana 46032 and the telephone number is (317) 817-6100.
THE TRUST
The Trust is a statutory business trust created under Delaware law pursuant
to (i) a declaration of trust, dated as of May 21, 1997, executed by the
Company, as sponsor (the "Sponsor"), and certain of the trustees of the Trust
(the "Conseco Trustees") and (ii) the filing of a certificate of trust with the
Secretary of State of the State of Delaware on May 23, 1997. Such declaration
will be amended and restated in its entirety (as so amended and restated, the
"Declaration") substantially in the form filed as an exhibit to the Registration
Statement of which this Prospectus Supplement forms a part. The Declaration will
be qualified as an indenture under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"). The Trust exists for the exclusive purposes of (i)
issuing the Trust Securities representing undivided beneficial interests in the
assets of the Trust, (ii) investing the gross proceeds of the Trust Securities
in the Debentures and (iii) engaging in only those other activities necessary,
appropriate, convenient or incidental thereto. See "The Trust."
THE OFFERING
Securities Offered......... 10,000,000 Income PRIDES.
Issuers.................... Conseco, Inc. and Conseco Financing Trust IV.
Stated Amount.............. $50 per Income PRIDES.
Components of FELINE
PRIDES................... Each FELINE PRIDES offered hereby initially will
consist of a unit (referred to as an Income PRIDES)
comprised of (a) a Purchase Contract under which
(i) the holder will purchase from the Company on
the Purchase Contract Settlement Date, for an
amount of cash equal to the Stated Amount, a number
of newly issued shares of Common Stock of the
Company equal to the Settlement Rate, and (ii) the
Company will
S-6
<PAGE> 7
pay Contract Adjustment Payments to the holder, and
(b) either beneficial ownership of a 6.75% Trust
Originated Preferred Security, having a stated
liquidation amount equal to the Stated Amount,
representing a preferred, undivided beneficial
interest in the assets of the Trust or, upon the
occurrence of a Tax Event Redemption prior to the
Purchase Contract Settlement Date, the appropriate
Applicable Ownership Interest in the Treasury
Portfolio. The purchase price of each Income PRIDES
will be allocated between the related Purchase
Contract and the related Trust Preferred Security,
in proportion to their respective fair market
values at the time of purchase. See "Certain
Federal Income Tax Consequences -- Income PRIDES;
Allocation of Purchase Price." The Company will,
directly or indirectly, own all of the Common
Securities. The Trust exists for the sole purpose
of issuing the Trust Preferred Securities and the
Common Securities and investing the proceeds
thereof in an equivalent principal amount of 6.75%
Junior Subordinated Debentures of the Company due
February 16, 2003.
The applicable distribution rate on the Trust
Preferred Securities and the interest rate on the
related Debentures that remain outstanding on and
after the Purchase Contract Settlement Date will be
reset on the third Business Day immediately
preceding the Purchase Contract Settlement Date to
the Reset Rate, to be determined by a nationally
recognized investment banking firm chosen by the
Company (the "Reset Agent"). See "Description of
the Trust Preferred Securities -- Market Rate
Reset."
The Company will have the right at any time to
dissolve the Trust and, after satisfaction of
liabilities to creditors of the Trust, if any,
cause the Debentures to be distributed to the
holders of the Trust Securities. References herein
to Trust Preferred Securities, unless the context
otherwise requires, mean (i) the Trust Preferred
Securities or (ii) the Debentures which have been
delivered to the holders of the Trust Preferred
Securities upon dissolution of the Trust. In
addition, as described below upon the occurrence of
a Tax Event (as defined herein) prior to the
Purchase Contract Settlement Date, the Company may
at its option cause the Debentures (and, thus, the
Trust Preferred Securities) to be redeemed at the
Redemption Price and the Treasury Portfolio will be
substituted for the redeemed Trust Preferred
Securities in the manner described herein to secure
the Income PRIDES holders' obligations under their
related Purchase Contracts. The distribution rate
and the payment dates for the Trust Preferred
Securities will correspond to the interest rate and
the payment dates for the Debentures, which will be
the sole assets of the Trust. As long as a FELINE
PRIDES is in the form of an Income PRIDES, the
related Trust Preferred Securities or the Treasury
Portfolio, as applicable, will be pledged pursuant
to a pledge agreement, to be dated as of December
12, 1997 (the "Pledge Agreement"), between the
Company and The Chase Manhattan Bank, as collateral
agent for the Company (together with any successor
thereto in such capacity, the "Collateral Agent"),
to secure the holder's obligation to purchase
Common Stock under the related Purchase Contract.
See "Risk Factors."
Purchase Contract
Agreement.................. The FELINE PRIDES will be issued under a Purchase
Contract Agreement, to be dated as of December 12,
1997 (the "Purchase Contract Agreement"), between
the Company and The First National Bank of Chicago,
as agent for the holders of the FELINE PRIDES
(together with any successor thereto in such
capacity, the "Purchase Contract Agent").
S-7
<PAGE> 8
Substitution of Pledged
Securities; Growth
PRIDES................... Each holder (including, initially, an Underwriter)
of an Income PRIDES will have the right, on or
prior to the fifth Business Day immediately
preceding the Purchase Contract Settlement Date, to
substitute for the related Trust Preferred
Securities held by the Collateral Agent zero-coupon
U.S. Treasury Securities in an amount per Income
PRIDES equal to the Stated Amount per Trust
Preferred Security. Such Treasury Securities will
be substituted for the Trust Preferred Securities
and will be pledged with the Collateral Agent to
secure the holder's obligation to purchase Common
Stock under the related Purchase Contracts. Because
Treasury Securities are issued in integral
multiples of $1,000, holders of Income PRIDES may
make such substitutions only in integral multiples
of 20 Income PRIDES; provided, however, if a Tax
Event Redemption has occurred prior to the Purchase
Contract Settlement Date and the Treasury Portfolio
has became a component of the Income PRIDES,
holders of Income PRIDES may make such
substitutions only in integral multiples of 32,000
Income PRIDES (but obtaining the release of the
appropriate Applicable Ownership Interest of the
Treasury Portfolio rather than the Trust Preferred
Securities), at any time on or prior to the second
Business Day immediately preceding the Purchase
Contract Settlement Date. FELINE PRIDES with
respect to which Treasury Securities have been
substituted for the related Trust Preferred
Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may
be, as collateral to secure such obligation will be
referred to as Growth PRIDES. Each Growth PRIDES
will consist of a unit with a face amount of $50
comprised of (a) a Purchase Contract under which
(i) the holder will purchase from the Company on
the Purchase Contract Settlement Date or earlier
for an amount of cash equal to the Stated Amount of
such Growth PRIDES a number of newly issued shares
of Common Stock equal to the Settlement Rate
described herein and (ii) the Company will pay the
holder Contract Adjustment Payments and (b) a 1/20
undivided beneficial ownership interest in a
related Treasury Security having a principal amount
at maturity equal to $1,000 and maturing on the
Business Day immediately preceding the Purchase
Contract Settlement Date. Upon the substitution of
Treasury Securities for the related Trust Preferred
Securities or for the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as
the case may be, as collateral, such Trust
Preferred Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as
the case may be, will be released to the holder as
described herein and thereafter will trade
separately from the resulting Growth PRIDES. See
"Description of the FELINE PRIDES -- Substitution
of Pledged Securities."
Holders who elect to substitute Pledged Securities
(as defined in "Description of the Purchase
Contracts -- Pledged Securities and Pledge
Agreement"), thereby creating Growth PRIDES or
recreating Income PRIDES (as discussed below), will
be responsible for any fees or expenses payable in
connection therewith. See "Certain Provisions of
the Purchase Contract Agreement and the Pledge
Agreement -- Miscellaneous."
Recreating Income PRIDES... On or prior to the fifth Business Day immediately
preceding the Purchase Contract Settlement Date, a
holder of Growth PRIDES will have the right to
subsequently recreate Income PRIDES by delivering
20 Growth PRIDES to the Purchase Contract Agent
plus 20 Trust
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Preferred Securities to the Collateral Agent in
exchange for 20 Income PRIDES and the release of
the related Treasury Security to such holder;
provided, however, if a Tax Event Redemption has
occurred prior to the Purchase Contract Settlement
Date and the Treasury Portfolio has become a
component of the Income PRIDES, holders of Growth
PRIDES may make such substitution (but using the
Treasury Portfolio rather than Trust Preferred
Securities) only in integral multiples of 32,000
Growth PRIDES at any time on or prior to the second
Business Day immediately preceding the Purchase
Contract Settlement Date. Such Trust Preferred
Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may
be, will be pledged with the Collateral Agent to
secure the holder's obligation to purchase Common
Stock under the related Purchase Contracts. See
"Description of the FELINE PRIDES -- Recreating
Income PRIDES."
Current Payments........... Holders of Income PRIDES will be entitled to
receive aggregate cash distributions at a rate of
7% of the Stated Amount per annum from and after
December 12, 1997, payable quarterly in arrears,
consisting of cumulative cash distributions on the
related Trust Preferred Securities or the Treasury
Portfolio, as applicable, payable at the rate of
6.75% of the Stated Amount per annum, and Contract
Adjustment Payments, payable by the Company at the
rate of .25% of the Stated Amount per annum,
subject (in the case of such distributions on the
Trust Preferred Securities and of the Contract
Adjustment Payments) to the Company's right to
defer the payment of such amounts. The ability of
the Trust to make the quarterly distributions on
the related Trust Preferred Securities will be
solely dependent upon the receipt of corresponding
interest payments from the Company on the
Debentures. The obligations of the Company under
the Debentures are unsecured and will be
subordinate and junior in right of payment, to the
extent set forth herein, to all existing and future
Senior Indebtedness of the Company and will be
effectively subordinated to all existing and future
liabilities and obligations of the Company's
subsidiaries. As of September 30, 1997, the
aggregate amount of Senior Indebtedness and
liabilities and obligations of the Company's
subsidiaries that would have effectively ranked
senior to the Debentures was approximately $28.7
billion. As of September 30, 1997, after giving pro
forma effect to the financing for the WNC Merger,
the Offering and the application of the proceeds
thereof, the aggregate amount of Senior
Indebtedness and liabilities and obligations of the
Company's subsidiaries that would have effectively
ranked senior to the Debentures would have been
approximately $28.6 billion. The Contract
Adjustment Payments will be subordinated and junior
in right of payment to all liabilities of the
Company other than the Company's Guarantee with
which they will rank pari passu.
In the event that a holder of Income PRIDES
substitutes Treasury Securities for the related
Trust Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury
Portfolio, as the case may be, such holder would
receive on the resulting Growth PRIDES only the
quarterly distributions of Contract Adjustment
Payments, subject to the Company's rights of
deferral described herein. In addition, OID would
continue to accrue on the related Treasury
Securities. See "Risk Factors -- Right to Defer
Current Payments."
If a Tax Event Redemption has occurred prior to the
Purchase Contract Settlement Date as described
herein and the Treasury Portfolio has become a
component of the Income PRIDES, quarterly
distributions on
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the appropriate Applicable Ownership Interest of
the Treasury Portfolio, as a portion of the
cumulative quarterly distribution to the holders of
Income PRIDES, will not be deferred.
Contract Adjustment
Payments................... Contract Adjustment Payments will be fixed at a
rate per annum of .25% of the Stated Amount per
Purchase Contract. See "Description of the Purchase
Contracts -- Contract Adjustment Payments."
Option to Extend
Distribution Payment
Periods.................. The Company has the right at any time, and from
time to time, limited to a period not extending
beyond the maturity date of the Debentures, to
defer the interest payments due on the Debentures.
As a consequence of such deferral, quarterly
distributions to holders of Income PRIDES (or any
Trust Preferred Securities outstanding after the
Purchase Contract Settlement Date or after a
substitution of collateral resulting in the
creation of Growth PRIDES) would be deferred (but
despite such deferral, would continue to accumulate
quarterly and would accrue interest thereon
compounded quarterly at the rate of 6.75% per annum
through and including February 15, 2001, and at the
Reset Rate thereafter). The Company also has the
right to defer the payment of Contract Adjustment
Payments on the related Purchase Contracts until no
later than the Purchase Contract Settlement Date;
however, such deferred Contract Adjustment
Payments, if any, will bear additional Contract
Adjustment Payments at the rate of 7% per annum
(such deferred Contract Adjustment Payments
together with such additional Contract Adjustment
Payments shall be referred to as the "Deferred
Contract Adjustment Payments"). See "Description of
the Purchase Contracts -- Contract Adjustment
Payments." If interest payments on the Debentures
or the Contract Adjustment Payments are deferred,
the Company has agreed, among other things, not to
declare or pay any dividend on or repurchase its
capital stock (subject to certain exceptions)
during the period of such deferral. If a Tax Event
Redemption has occurred prior to the Purchase
Contract Settlement Date and the Treasury Portfolio
has become a component of the Income PRIDES,
quarterly distributions on the appropriate
Applicable Ownership Interest of the Treasury
Portfolio as a portion of the cumulative quarterly
distributions to the holders of Income PRIDES will
not be deferred.
In the event that the Company elects to defer the
payment of Contract Adjustment Payments on the
related Purchase Contracts until the Purchase
Contract Settlement Date, each holder of the
related Income PRIDES or Growth PRIDES will receive
on the Purchase Contract Settlement Date in respect
of such Deferred Contract Adjustment Payments, in
lieu of a cash payment, a number of shares of
Common Stock equal to (x) the aggregate amount of
Deferred Contract Adjustment Payments payable to
such holder divided by (y) the Applicable Market
Value (as defined herein). See "Description of the
Purchase Contracts -- Option to Defer Contract
Adjustment Payments."
Payment Dates.............. Subject to the deferral provisions described
herein, the current payments described above in
respect of the Income PRIDES will be payable
quarterly in arrears on February 16, May 16, August
16 and November 16 of each year, commencing
February 16, 1998, through and including (i) in the
case of the Contract Adjustment Payments, the
earlier of the Purchase Contract Settlement Date or
the most recent such quarterly date on or prior to
any early settlement of the related Purchase
Contracts and (ii) in the case of Trust Preferred
Securities, through and including the most recent
such quarterly date on or prior to
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the earlier of the Purchase Contract Settlement
Date and the date the liquidation amount of a Trust
Preferred Security, together with all accumulated
and unpaid distributions thereon, is paid in full
(each, a "Payment Date").
Remarketing................ Unless a Tax Event Redemption has occurred,
pursuant to a Remarketing Agreement (the
"Remarketing Agreement") dated as of December 12,
1997, among the Company, the Trust, the Purchase
Contract Agent and a nationally recognized
investment banking firm chosen by the Company (the
"Remarketing Agent"), and subject to the terms of a
Remarketing Underwriting Agreement to be dated as
of the third Business Day immediately preceding the
Purchase Contract Settlement Date among such
parties (the "Remarketing Underwriting Agreement"),
the Trust Preferred Securities of such Income
PRIDES holders who have failed to notify the
Purchase Contract Agent, on or prior to the fifth
Business Day immediately preceding the Purchase
Contract Settlement Date, of their intention to
settle the related Purchase Contracts with separate
cash, will be remarketed on the third Business Day
immediately preceding the Purchase Contract
Settlement Date. The Remarketing Agent will use its
reasonable efforts to remarket such Trust Preferred
Securities on such date for settlement on the
Purchase Contract Settlement Date at a price of
approximately 100.5% of the aggregate stated
liquidation amount of such Trust Preferred
Security, plus accrued and unpaid distributions
(including deferred distributions), if any,
thereon. The portion of the proceeds from such
remarketing equal to the aggregate stated
liquidation amount of such Trust Preferred
Securities will be automatically applied to satisfy
in full such Income PRIDES holders' obligations to
purchase Common Stock under the related Purchase
Contracts. In addition, after deducting as the
Remarketing Fee an amount not exceeding 25 basis
points (.25%) of the aggregate stated liquidation
amount of the remarketed securities from any amount
of such proceeds in excess of the aggregate stated
liquidation amount of the remarketed Trust
Preferred Securities plus any accrued and unpaid
distributions (including any deferred
distributions), the Remarketing Agent will remit
the remaining portion of the proceeds, if any, for
the benefit of such holder. Income PRIDES holders
whose Trust Preferred Securities are so remarketed
will not otherwise be responsible for any
Remarketing Fee in connection therewith. If,
despite using its reasonable efforts, the
Remarketing Agent cannot remarket the related Trust
Preferred Securities of such holders of Income
PRIDES at a price not less than 100% of the
aggregate stated liquidation amount of such Trust
Preferred Securities plus accrued and unpaid
distributions, including deferred distributions, if
any, and thus resulting in a Failed Remarketing,
the Company will exercise its rights as a secured
party to dispose of the Trust Preferred Securities
in accordance with applicable law and to satisfy in
full, from such disposition, such holder's
obligation to purchase Common Stock under the
related Purchase Contracts, provided, that if the
Company exercises such rights as a secured creditor
with respect to such Trust Preferred Securities,
any accrued and unpaid distributions (including any
deferred distributions) on such Trust Preferred
Securities will be paid in cash by the Company to
the holder of record of such Trust Preferred
Securities. The Company will cause a notice of such
Failed Remarketing to be published on the second
Business Day immediately preceding the Purchase
Contract Settlement Date. It is currently
anticipated that Merrill Lynch, Pierce, Fenner &
Smith Incorporated will be
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the Remarketing Agent. See "Description of the
Purchase Contracts -- Remarketing."
Purchase Contract
Settlement Date............ February 16, 2001.
Settlement of Purchase
Contracts................ On the Business Day immediately preceding the
Purchase Contract Settlement Date, unless a holder
of Income PRIDES or Growth PRIDES (i) has settled
the related Purchase Contracts through the early
delivery of cash to the Purchase Contract Agent in
the manner described herein, (ii) in the case of
the Income PRIDES, has settled the related Purchase
Contracts with separate cash on the Business Day
prior to the Purchase Contract Settlement Date
pursuant to prior notification to the Purchase
Contract Agent, (iii) has had the Trust Preferred
Securities related to such holder's Purchase
Contracts remarketed in the manner described herein
in connection with settling such Purchase
Contracts, or (iv) an event described under
"Description of the Purchase
Contracts -- Termination" has occurred, then (A) in
the case of Income PRIDES (unless a Tax Event
Redemption has occurred) the Company will exercise
its rights as a secured party to dispose of the
Trust Preferred Securities in accordance with
applicable law and (B) in the case of Growth PRIDES
or Income PRIDES (if a Tax Event Redemption has
occurred prior to the Purchase Contract Settlement
Date) the principal amount of the related Treasury
Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as applicable,
when paid at maturity, will automatically be
applied to satisfy in full such holder's obligation
to purchase Common Stock under the related Purchase
Contracts.
In the event that a holder of either Income PRIDES
or Growth PRIDES effects the early settlement of
the related Purchase Contracts through the delivery
of cash or, in the case of an Income PRIDES,
settles such Purchase Contracts with cash on the
Business Day immediately preceding the Purchase
Contract Settlement Date, the related Trust
Preferred Securities, the appropriate Applicable
Ownership Interest of the Treasury Portfolio or
Treasury Securities, as the case may be, will be
released to the holder as described herein.
Settlement Rate............ The number of newly issued shares of Common Stock
issuable upon settlement of each Purchase Contract
on the Purchase Contract Settlement Date (the
"Settlement Rate") will be calculated as follows
(subject to adjustment under certain
circumstances): (a) if the Applicable Market Value
is equal to or greater than $53.40 (the "Threshold
Appreciation Price," which is approximately 20.34%
above the last reported sale price of the Common
Stock set forth on the cover page of this
Prospectus Supplement (the "Reference Price")), the
Settlement Rate (which is equal to the Stated
Amount divided by the Threshold Appreciation Price)
will be .9363; accordingly, if, between the date of
this Prospectus Supplement and the period during
which the Applicable Market Value is measured, the
market price for the Common Stock increases to an
amount that is higher than the Threshold
Appreciation Price, the aggregate market value of
the shares of Common Stock issued upon settlement
of each Purchase Contract (assuming that such
market value is the same as the Applicable Market
Value of such Common Stock) will be higher than the
Stated Amount, and if such market price is the same
as the Threshold Appreciation Price, the aggregate
market value
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of such shares (assuming that such market value is
the same as the Applicable Market Value of such
Common Stock) will be equal to the Stated Amount;
(b) if the Applicable Market Value is less than the
Threshold Appreciation Price but greater than the
Reference Price, the Settlement Rate will be equal
to the Stated Amount divided by the Applicable
Market Value; accordingly, if the market price for
the Common Stock increases between the date of this
Prospectus Supplement and the period during which
the Applicable Market Value is measured but such
market price is less than the Threshold
Appreciation Price, the aggregate market value of
the shares of Common Stock issued upon settlement
of each Purchase Contract (assuming that such
market value is the same as the Applicable Market
Value of such Common Stock) will be equal to the
Stated Amount; and (c) if the Applicable Market
Value is less than or equal to the Reference Price,
the Settlement Rate (which is equal to the Stated
Amount divided by the Reference Price) will be
1.1268; accordingly, if the market price for the
Common Stock decreases between the date of this
Prospectus Supplement and the period during which
the Applicable Market Value is measured, the
aggregate market value of the shares of Common
Stock issued upon settlement of each Purchase
Contract (assuming that such market value is the
same as the Applicable Market Value of such Common
Stock) will be less than the Stated Amount, and if
such market price stays the same, the aggregate
market value of such shares (assuming that such
market value is the same as the Applicable Market
Value of such Common Stock) will be equal to the
Stated Amount. "Applicable Market Value" means the
average of the Closing Price (as defined herein)
per share of Common Stock on each of the twenty
consecutive Trading Days (as defined herein) ending
on the third Trading Day immediately preceding the
Purchase Contract Settlement Date. See "Description
of the Purchase Contracts -- General."
Early Settlement........... A holder of Income PRIDES (unless a Tax Event
Redemption has occurred) may settle the related
Purchase Contracts on or prior to the fifth
Business Day immediately preceding the Purchase
Contract Settlement Date in the manner described
herein, but only in integral multiples of 20 Income
PRIDES; provided, however, if a Tax Event
Redemption has occurred prior to the Purchase
Contract Settlement Date and the Treasury Portfolio
has become a component of the Income PRIDES,
holders of Income PRIDES may settle early only in
integral multiples of 32,000 Income PRIDES at any
time on or prior to the second Business Day
immediately preceding the Purchase Contract
Settlement Date. Holders of Growth PRIDES may
settle the related Purchase Contracts on or prior
to the second Business Day immediately preceding
the Purchase Contract Settlement Date in the manner
described herein (in either case, an "Early
Settlement"). Upon such Early Settlement, (a) the
holder will pay to the Company through the Purchase
Contract Agent in immediately available funds an
amount equal to the Stated Amount for each Purchase
Contract to be settled and deliver the Income
PRIDES or Growth PRIDES, as the case may be, to the
Purchase Contract Agent, (b) the related Trust
Preferred Securities, appropriate Applicable
Ownership Interest of the Treasury Portfolio or
Treasury Securities, as the case may be, within
three Business Days of the date of Early
Settlement, will be transferred to the holder free
and clear of the Company's security interest
therein, and (c) the Company, within three Business
Days of the date of Early Settlement, will deliver
.9363 newly issued shares of Common Stock to the
holder for each Purchase Contract so settled. Upon
Early Settlement, (i) the holder's rights to
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receive Deferred Contract Adjustment Payments, if
any, on the Purchase Contracts being settled will
be forfeited, (ii) the holder's right to receive
additional Contract Adjustment Payments in respect
of such Purchase Contracts will terminate and (iii)
no adjustment will be made to or for the holder on
account of Deferred Contract Adjustment Payments,
if any, or any amount accrued in respect of
Contract Adjustment Payments. See "Description of
the Purchase Contracts -- Early Settlement."
Termination................ The Purchase Contracts (including the right
thereunder to receive accrued or Deferred Contract
Adjustment Payments and the obligation to purchase
Common Stock) will automatically terminate upon the
occurrence of certain events of bankruptcy,
insolvency or reorganization with respect to the
Company. Upon such termination, the Collateral
Agent will release the related Trust Preferred
Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may
be, or, if substituted, the related Treasury
Securities, held by it to the Purchase Contract
Agent for distribution to the holders, subject in
the case of the Treasury Portfolio to the Purchase
Contract Agent's disposition of the subject
securities for cash, and the payment of such cash
to the holders, to the extent that the holder would
otherwise have been entitled to receive less than
$1,000 of any such security. Upon such termination,
there may be a delay before such release and
distribution. In the event that the Company becomes
the subject of a case under the United States
Bankruptcy Code of 1978, as amended (the
"Bankruptcy Code"), such delay may occur as a
result of the automatic stay under the Bankruptcy
Code and continue until such automatic stay has
been lifted. The Company expects any such delay to
be limited. See "Description of the Purchase
Contracts -- Termination."
Voting and Certain Other
Rights................... Holders of Trust Preferred Securities will not be
entitled to vote to appoint, remove or replace, or
to increase or decrease the number of Regular
Trustees (as defined herein) and will generally
have no voting rights except in the limited
circumstances described under "Description of Trust
Preferred Securities -- Voting Rights." Holders of
Purchase Contracts forming part of the Income
PRIDES or Growth PRIDES in their capacities as such
holders will have no voting or other rights in
respect of the Common Stock.
Listing of the Income
PRIDES..................... The Income PRIDES have been approved for listing on
the New York Stock Exchange (the "NYSE") under the
symbol "CNC PrF", subject to official notice of
issuance. If Growth PRIDES and Trust Preferred
Securities are separately traded, the Company will
endeavor to cause such securities to be listed on
such exchange on which the Income PRIDES are then
listed, including, if applicable, the NYSE. See
"Underwriting."
NYSE Symbol of Common
Stock.................... "CNC"
TRUST PREFERRED SECURITIES
The Trust.................. The Trust is a Delaware statutory business trust.
The sole assets of the Trust will consist of the
Debentures. The Company will directly or indirectly
own all of the Common Securities representing
common undivided beneficial ownership interests in
the assets of the Trust.
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<PAGE> 15
Trust Preferred
Securities................. 10,000,000 of 6.75% Trust Originated Preferred
Securities (liquidation amount $50 per Trust
Preferred Security), representing preferred,
undivided beneficial ownership interests in the
assets of the Trust.
Distributions.............. Distributions on the Trust Preferred Securities,
which will constitute all or a portion of the
distributions on the Income PRIDES, will be
cumulative, will accrue from the first date of
issuance of the Trust Preferred Securities and will
be payable initially at the annual rate of 6.75% of
the liquidation amount of $50 per Trust Preferred
Security to but excluding the Purchase Contract
Settlement Date, and in the case of Trust Preferred
Securities that remain outstanding on and after the
Purchase Contract Settlement Date, from the
Purchase Contract Settlement Date to but excluding
February 16, 2003, at the Reset Rate, in each case,
when, as and if funds are available for payment.
Subject to the distribution deferral provisions,
distributions will be payable quarterly in arrears
on each February 16, May 16, August 16 and November
16, commencing February 16, 1998.
Market Rate Reset.......... The applicable quarterly distribution rate on the
Trust Preferred Securities and the interest rate on
the Debentures on and after the Purchase Contract
Settlement Date will be reset on the third Business
Day immediately preceding the Purchase Contract
Settlement Date to the Reset Rate, determined by
the Reset Agent as the rate the Trust Preferred
Securities should bear in order for a Trust
Preferred Security to have an approximate market
value no less than 100.5% of the Stated Amount on
the third Business Day immediately preceding the
Purchase Contract Settlement Date, provided, that
the Company may limit such Reset Rate to be no
higher than the rate on the Two-Year Benchmark
Treasury plus 200 basis points (2%). Such market
value may be less than 100.5% if the Reset Spread
is limited to a maximum of 2%. It is currently
anticipated that Merrill Lynch, Pierce, Fenner &
Smith Incorporated will be the Reset Agent. See
"Description of the Trust Preferred
Securities -- Market Rate Reset."
Distribution Deferral
Provisions................. The ability of the Trust to pay distributions on
the Trust Preferred Securities will be solely
dependent on the receipt of interest payments from
the Company on the Debentures. The Company will
have the right at any time, and from time to time,
to defer the interest payments due on the
Debentures for successive extension periods (the
"Extension Periods") limited, in the aggregate, to
a period not extending beyond the maturity date of
the Debentures. The corresponding quarterly
distributions on the Trust Preferred Securities
would be deferred by the Trust (but would continue
to accumulate quarterly and would accrue interest,
compounded quarterly, at the rate of 6.75% per
annum through and including February 15, 2001, and
at the Reset Rate thereafter) until the end of any
such Extension Period. If a deferral of an interest
payment occurs, the holders of the Trust Preferred
Securities will be required to accrue interest
income for United States federal income tax
purposes in advance of the receipt of any
corresponding cash distribution with respect to
such deferred interest payment. See "Risk
Factors -- Right to Defer Current Payments,"
"Description of the Trust Preferred
Securities -- Distributions" and "Certain Federal
Income Tax Consequences -- Income PRIDES -- Trust
Preferred Securities -- Interest Income and
Original Issue Discount."
Rights Upon Deferral of
Distribution............. During any period in which interest payments on the
Debentures are deferred, interest will accrue on
the Debentures (compounded quarterly)
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<PAGE> 16
and quarterly distributions on the Trust Preferred
Securities will continue to accumulate with
interest thereon at the rate of 6.75% per annum
through and including February 15, 2001, and at the
Reset Rate thereafter, compounded quarterly.
Liquidation Preference..... In the event of any liquidation of the Trust, and
after satisfaction of liabilities to creditors of
the Trust, if any, holders will be entitled to
receive Debentures in an aggregate principal amount
equal to the aggregate stated liquidation amount of
the Trust Preferred Securities.
Put Option................. If a Failed Remarketing has occurred, holders of
Trust Securities (including, following the
distribution of the Debentures upon a dissolution
of the Trust as described herein, such Debenture
holders) holding such Trust Securities or
Debentures, as the case may be, following the
Purchase Contract Settlement Date will have the
right, in the case of Trust Securities, to require
the Trust to put to the Company the related
Debentures or, in the case of Debentures, to put
such Debentures directly to the Company on March 2,
2001, upon at least three Business Days' prior
notice, at a price per Debenture equal to $50, plus
accrued and unpaid interest (including deferred
interest), if any, thereon. Upon the repurchase of
such Debentures by the Company, (i) the proceeds
from such repurchase shall simultaneously be
applied (in the case of Trust Securities) to redeem
such Trust Securities of such holder in an
aggregate stated liquidation amount equal to the
aggregate principal amount of the Debentures so
repurchased and (ii) any accrued and unpaid
distributions (including deferred distributions)
with respect to such Trust Securities will be paid
to such holder in cash. See "Description of the
Debentures -- Put Option."
Distribution of the
Debentures................. In certain circumstances involving an Investment
Company Event, the Trust would be dissolved, with
the result that, after satisfaction of liabilities
to creditors of the Trust, if any, Debentures with
an aggregate principal amount equal to the
aggregate stated liquidation amount of the Trust
Preferred Securities would be distributed to the
holders of the Trust Preferred Securities on a pro
rata basis. In such event, an Income PRIDES would
thereafter consist of a Debenture with a principal
amount equal to the Stated Amount of such Income
PRIDES and the related Purchase Contract, and such
Debenture would be otherwise treated as if it were
a Trust Preferred Security. See "Description of the
Trust Preferred Securities -- Distribution of the
Debentures."
Tax Event Redemption....... The Debentures (and, thus, the Trust Securities)
are redeemable, at the option of the Company, on
not less than 30 days or more than 60 days prior
written notice, in whole but not in part upon the
occurrence and continuation of a Tax Event under
the circumstances described herein at a Redemption
Price equal to, for each Debenture, the Redemption
Amount together with accrued and unpaid
distributions (including deferred distributions).
See "Description of the Debentures -- Tax Event
Redemption." If the Company so redeems all of the
Debentures, the Trust must redeem all of the Trust
Securities and pay in cash such Redemption Price to
the holders of such Trust Securities. If such Tax
Event Redemption occurs prior to the Purchase
Contract Settlement Date, the Redemption Price
payable in liquidation of any Income PRIDES
holders' interest in the Trust, will be distributed
to the Collateral Agent, who in turn will apply an
amount equal to the Redemption Amount of such
Redemption Price to purchase the Treasury Portfolio
on behalf of the holders of Income PRIDES and remit
the remaining portion, if any, of such Redemption
Price to the
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Purchase Contract Agent for payment to the holders
of such Income PRIDES. The Treasury Portfolio will
be substituted for the Trust Preferred Security and
will be pledged with the Collateral Agent to secure
such Income PRIDES holders' obligations to purchase
the Common Stock under their Purchase Contracts.
See "Description of the Debentures -- Tax Event
Redemption."
Other than in the event of a Tax Event Redemption,
the Company will not have the ability to redeem the
Debentures prior to their stated maturity date.
Guarantee.................. The Company will irrevocably and unconditionally
guarantee (the "Guarantee"), on a subordinated
basis, the payment in full of (i) distributions on
the Trust Preferred Securities to the extent the
Trust has funds available therefor, (ii) the
redemption price of Trust Preferred Securities in
respect of which the related Debentures have been
repurchased by the Company on the Purchase Contract
Settlement Date, to the extent the Trust has funds
available therefor, and (iii) generally, the
liquidation amount of the Trust Preferred
Securities or the Redemption Price upon a Tax Event
Redemption, to the extent the Trust has assets
available for distribution to holders of Trust
Preferred Securities in the event of a dissolution
of the Trust. The Company's obligations under the
Guarantee are unsecured and will rank (i)
subordinate and junior in right of payment to all
other liabilities of the Company except those made
pari passu or subordinate by their terms, (ii) pari
passu with the most senior preferred or preference
stock now or hereafter issued by the Company, and
pari passu with any guarantee now or hereafter
issued by the Company in respect of any preferred
stock or preference stock of any affiliate of the
Company, and (iii) senior to the Common Stock of
the Company. See "Description of the Guarantee."
Debentures................. Unless a Tax Event Redemption has occurred, the
Debentures will mature on February 16, 2003, and
will bear, initially, interest at the rate of 6.75%
per annum, payable quarterly in arrears on each
February 16, May 16, August 16 and November 16
commencing February 16, 1998. The interest rate on
the Debentures, and the distribution rate on the
Trust Preferred Securities that remain outstanding
after the Purchase Contract Settlement Date, will
be reset on the third Business Day immediately
preceding the Purchase Contract Settlement Date to
the Reset Rate determined by the Reset Agent. See
"Description of Debentures -- Interest." Interest
payments on the Debentures may be deferred from
time to time by the Company for successive
Extension Periods not extending, in the aggregate,
beyond the stated maturity date of the Debentures.
During any Extension Period, interest at the rate
of 6.75% per annum through and including February
15, 2001, and at the Reset Rate thereafter would
continue to accrue and compound quarterly. Upon the
termination of any Extension Period and the payment
of all amounts then due, the Company may commence a
new Extension Period, provided such new Extension
Period does not extend beyond the stated maturity
date of the Debentures. No interest shall be due
during an Extension Period until the end of such
period. During an Extension Period, the Company
will be prohibited (subject to certain exceptions)
from paying dividends on or purchasing any of its
capital stock and making certain other restricted
payments until quarterly interest payments are
resumed and all amounts then due on the Debentures
are paid. See "Description of the
Debentures -- Option to Extend Interest Payment
Period." The obligations of the Company under the
Debentures are
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unsecured and will be subordinate and junior in
right of payment, to the extent set forth herein,
to all existing and future Senior Indebtedness of
the Company and will be effectively subordinated to
all existing and future liabilities and obligations
of the Company's subsidiaries. See "Description of
the Debentures -- Subordination." As of September
30, 1997, the aggregate amount of Senior
Indebtedness and liabilities and obligations of the
Company's subsidiaries that would have effectively
ranked senior to the Debentures was approximately
$28.7 billion. As of September 30, 1997, after
giving pro forma effect to the financing for the
WNC Merger, the Offering and the application of the
proceeds thereof, the aggregate amount of Senior
Indebtedness and liabilities and obligations of the
Company's subsidiaries that would have effectively
ranked senior to the Debentures would have been
approximately $28.6 billion.
Federal Income Tax
Consequences............. Provided the Company does not exercise its right to
defer interest on the Debentures, a beneficial
owner of Income PRIDES and Trust Preferred
Securities will include in gross income its pro
rata share of the stated interest on the Debentures
when such interest income is paid or accrued in
accordance with its regular method of tax
accounting. The Company intends to report the
Contract Adjustment Payments as income to holders
of Income PRIDES and Growth PRIDES, but holders
should consult their tax advisors concerning the
possibility that the Contract Adjustment Payments
may be treated as loans, purchase price
adjustments, rebates or option premiums rather than
being includible in income on a current basis.
Holders of Growth PRIDES will be required to
include in gross income their allocable share of
any OID or market discount, or amortize their
allocable share of any bond premium otherwise
includible or deductible, respectively, with
respect to the Treasury Securities posted with the
Collateral Agent. If a Tax Event Redemption has
occurred, a beneficial owner of Income PRIDES will
be required to include in gross income its
allocable share of OID on the Treasury Portfolio as
it accrues on a constant yield to maturity basis.
See "Certain Federal Income Tax Consequences."
Use of Proceeds............ All or substantially all of the proceeds from the
sale of the Income PRIDES, of which the Trust
Preferred Securities are a component, will be
invested by the Trust in Debentures of the Company,
and the remainder, if any, will be paid to the
Company. The net proceeds of such sale, estimated
to be approximately $483.7 million, will be used by
the Company to reduce outstanding indebtedness and
for general corporate purposes. See "Use of
Proceeds."
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RISK FACTORS
Potential purchasers of the FELINE PRIDES offered hereby should carefully
consider the risk factors set forth herein under "Risk Factors" as well as other
information contained in this Prospectus Supplement, the accompanying Prospectus
and the documents incorporated by reference therein.
INVESTMENT IN FELINE PRIDES REQUIRES HOLDERS TO PURCHASE COMMON STOCK; RISK OF
DECLINE IN EQUITY VALUE
Although holders of the FELINE PRIDES will be the beneficial owners of the
related Trust Preferred Securities, Treasury Portfolio or Treasury Securities,
as the case may be, prior to the Purchase Contract Settlement Date, unless a
holder of FELINE PRIDES settles the related Purchase Contracts through the
delivery of cash to the Purchase Contract Agent in the manner described below or
the Purchase Contracts are terminated (upon the occurrence of certain events of
bankruptcy, insolvency or reorganization with respect to the Company), the
proceeds of the repurchase by the Company of the related Debentures or the
principal of the related Treasury Securities, or the applicable Appropriate
Ownership Interest of the Treasury Portfolio, when paid at maturity, as the case
may be, will automatically be applied to the purchase of a specified number of
shares of Common Stock on behalf of such holder. Thus, unless a holder of Income
PRIDES has cash settled, following the Purchase Contract Settlement Date, the
holder will own shares of Common Stock rather than a beneficial interest in
Trust Preferred Securities. See "Description of the Purchase Contracts --
General." There can be no assurance that the market value of the Common Stock
receivable by the holder on the Purchase Contract Settlement Date will be equal
to or greater than the Stated Amount of the FELINE PRIDES held by such holder.
If the Applicable Market Value of the Common Stock is less than the Reference
Price the aggregate market value of the Common Stock issued to the holder in
settlement of each Purchase Contract on the Purchase Contract Settlement Date
(assuming that such market value is the same as the Applicable Market Value of
such Common Stock) will be less than the Stated Amount paid for the FELINE
PRIDES and the market value per share of such Common Stock will be less than the
effective price per share paid by each holder for such Common Stock on the date
hereof, in which case an investment in the Securities will result in a loss.
Accordingly, a holder of the FELINE PRIDES assumes the risk that the market
value of the Common Stock may decline, and that such decline could be
substantial.
LIMITATIONS ON OPPORTUNITY FOR EQUITY APPRECIATION
The opportunity for equity appreciation afforded by an investment in the
FELINE PRIDES is less than the opportunity for equity appreciation afforded by a
direct investment in the Common Stock because the market value of the Common
Stock to be received by a holder of Purchase Contracts on the Purchase Contract
Settlement Date (assuming that such market value is the same as the Applicable
Market Value of such Common Stock) will only exceed the Stated Amount if the
Applicable Market Value of the Common Stock exceeds the Threshold Appreciation
Price (which represents an appreciation of 20.34% over the Reference Price).
Moreover, in such event, holders of FELINE PRIDES would receive on the Purchase
Contract Settlement Date only 83.1% (the percentage equal to the Reference Price
divided by the Threshold Appreciation Price) of the shares of Common Stock that
such holders would have received if they had made a direct investment in the
Common Stock on the date hereof, and therefore would receive on the Purchase
Contract Settlement Date only 83.1% of the appreciation in the value of the
Common Stock in excess of the Threshold Appreciation Price through such date.
FACTORS AFFECTING TRADING PRICES
The trading prices of Income PRIDES and Growth PRIDES in the secondary
market will be directly affected by the trading prices of the Common Stock in
the secondary market, the general level of interest rates and the credit quality
of the Company. It is impossible to predict whether the price of the Common
Stock or interest rates will rise or fall. Trading prices of the Common Stock
will be influenced by the Company's operating results and prospects and by
economic, financial and other factors and market conditions that can affect the
capital markets generally, including the level of, and fluctuations in, the
trading prices of stocks generally and sales of substantial amounts of Common
Stock in the market subsequent to the offering of the
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<PAGE> 20
Securities or the perception that such sales could occur. Fluctuations in
interest rates may give rise to opportunities of arbitrage based upon changes in
the relative value of the Common Stock underlying the Purchase Contracts and of
the other components of the FELINE PRIDES. Any such arbitrage could, in turn,
affect the trading prices of the Income PRIDES, Growth PRIDES, Trust Preferred
Securities and Common Stock.
VOTING AND CERTAIN OTHER RIGHTS
Holders of Trust Preferred Securities will not be entitled to vote to
appoint, remove or replace or to increase or decrease the number of Conseco
Trustees, and generally will have no voting rights except in the limited
circumstances described under "Description of the Trust Preferred
Securities -- Voting Rights." Holders of FELINE PRIDES will not be entitled to
any rights with respect to the Common Stock (including, without limitation,
voting rights and rights to receive any dividends or other distributions in
respect thereof) unless and until such time as the Company shall have delivered
shares of Common Stock for FELINE PRIDES on the Purchase Contract Settlement
date or as a result of Early Settlement, as the case may be, and unless the
applicable record date, if any, for the exercise of such rights occurs after
such date. For example, in the event that an amendment is proposed to the
Articles of Incorporation or By-Laws of the Company and the record date for
determining the stockholders of record entitled to vote on such amendment occurs
prior to such delivery, holders of FELINE PRIDES will not be entitled to vote on
such amendment.
DILUTION OF COMMON STOCK
The number of shares of Common Stock that holders of the FELINE PRIDES are
entitled to receive on the Purchase Contract Settlement Date or as a result of
Early Settlement is subject to adjustment for certain events arising from stock
splits and combinations, stock dividends and certain other actions of the
Company that modify its capital structure. See "Description of the Purchase
Contracts -- Anti-Dilution Adjustments." Such number of shares of Common Stock
to be received by such holders on the Purchase Contract Settlement Date or as a
result of Early Settlement will not be adjusted for other events, such as
offerings of Common Stock for cash or in connection with acquisitions. The
Company is not restricted from issuing additional Common Stock during the term
of either the Purchase Contracts or the Trust Preferred Securities and has no
obligation to consider the interests of the holders of FELINE PRIDES for any
reason. Additional issuances may materially and adversely affects the price of
the Common Stock and, because of the relationship of the number of shares to be
received on the Purchase Contract Settlement Date to the price of the Common
Stock, such other events may adversely affect the trading price of Income PRIDES
or Growth PRIDES.
POSSIBLE ILLIQUIDITY OF THE SECONDARY MARKET
It is not possible to predict how Income PRIDES, Growth PRIDES or Trust
Preferred Securities will trade in the secondary market or whether such market
will be liquid or illiquid. Income PRIDES and Growth PRIDES are novel securities
and there is currently no secondary market for either Income PRIDES or Growth
PRIDES. The Income PRIDES have been approved for listing on the NYSE. If Growth
PRIDES and Trust Preferred Securities are separately traded to a sufficient
extent that applicable exchange listing requirements are met, the Company will
endeavor to cause such securities to be listed on such exchange on which the
Income PRIDES are then listed, including, if applicable, the NYSE. The Company
and the Trust have been advised by the Underwriters that they presently intend
to make a market for the Growth PRIDES and the Trust Preferred Securities;
however, they are not obligated to do so and any market making may be
discontinued at any time. There can be no assurance as to the liquidity of any
market that may develop for the Income PRIDES, the Growth PRIDES or the Trust
Preferred Securities, the ability of holders to sell such securities or whether
a trading market, if it develops, will continue. In addition, in the event that
holders of Income PRIDES were to substitute Treasury Securities for Trust
Preferred Securities, thereby converting their Income PRIDES to Growth PRIDES,
the liquidity of Income PRIDES could be adversely affected. There can be no
assurance that the Income PRIDES will not be delisted from the NYSE or that
trading in the Income PRIDES will not be suspended as a result of the election
by holders to create Growth PRIDES through the substitution of collateral, which
could cause the number of Income PRIDES to fall below the
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<PAGE> 21
requirement for listing securities on the NYSE that at least 1,000,000 Income
PRIDES be outstanding at any time.
PLEDGED SECURITIES ENCUMBERED
Although the beneficial owners of FELINE PRIDES will be the beneficial
owners of the related Trust Preferred Securities, Treasury Portfolio or Treasury
Securities (together, the "Pledged Securities"), as applicable, those Pledged
Securities will be pledged with the Collateral Agent to secure the obligations
of the holders under the related Purchase Contracts. Thus, rights of the holders
to their Pledged Securities will be subject to the Company's security interest.
Additionally, notwithstanding the automatic termination of the Purchase
Contracts, in the event that the Company becomes the subject of a case under the
Bankruptcy Code, the delivery of the Pledged Securities to holders of the FELINE
PRIDES may be delayed by the imposition of the automatic stay of Section 362 of
the Bankruptcy Code.
INVESTMENT COMPANY EVENT DISTRIBUTION
Upon the occurrence of an Investment Company Event, the Trust will be
dissolved (except in the limited circumstances described in the following
sentence) with the result that Debentures with an aggregate principal amount
equal to the aggregate stated liquidation amount of the Trust Preferred
Securities would be distributed to the holders of the Trust Preferred Securities
on a pro rata basis. Such dissolution and distribution shall be conditioned on
the Company being unable to avoid such Investment Company Event within a 90 day
period by taking some ministerial action or pursuing some other reasonable
measure that will have no adverse effect on the Trust, the Company or the
holders of the Trust Preferred Securities, and will involve no material cost. In
addition, the Company will have the right at any time to dissolve the Trust. See
"Description of the Trust Preferred Securities -- Distribution of the
Debentures."
There can be no assurance as to the impact on the market prices for Income
PRIDES of a distribution of the Debentures in exchange for Trust Preferred
Securities upon a dissolution of the Trust. Because Income PRIDES will consist
of Debentures and related Purchase Contracts upon the occurrence of the
dissolution of the Trust as a result of an Investment Company Event or
otherwise, prospective purchasers of Income PRIDES are also making an investment
decision with regard to the Debentures and should carefully review all the
information regarding the Debentures contained herein. See "Description of the
Trust Preferred Securities -- Distribution of the Debentures" and "Description
of the Debentures -- General."
TAX EVENT REDEMPTION
The Debentures (and, thus, the Trust Securities) are redeemable, at the
option of the Company, on not less than 30 days or more than 60 days prior
written notice, in whole but not in part, at any time prior to the Purchase
Contract Settlement Date upon the occurrence and continuation of a Tax Event
under the circumstances described herein at a Redemption Price equal to, for
each Debenture, the Redemption Amount plus accrued and unpaid distributions
(including deferred distributions). See "Description of the Debentures -- Tax
Event Redemption." If the Company so redeems all of the Debentures, the Trust
must redeem all of the Trust Securities and pay in cash such Redemption Price to
the holder of such Trust Securities. If the Tax Event Redemption has occurred
prior the Purchase Contract Settlement Date, the Redemption Price payable in
liquidation of the Income PRIDES holders' interest in the Trust will be
distributed to the Collateral Agent, who in turn will apply an amount equal to
the Redemption Amount of such Redemption Price to purchase the Treasury
Portfolio on behalf of the holders of Income PRIDES. Holders of Trust Preferred
Securities, not held in the form of Income PRIDES, will receive redemption
payments directly. The Treasury Portfolio will be substituted for the Trust
Preferred Securities and will be pledged with the Collateral Agent to secure
such Income PRIDES holders' obligations to purchase the Company's Common Stock
under their Purchase Contracts. There can be no assurance as to the impact on
the market prices for the Income PRIDES of the substitution of the Treasury
Portfolio as collateral in replacement of any Trust Preferred Securities so
redeemed. See "Description of the Trust Preferred Securities -- Mandatory
Redemption." A Tax Event Redemption will be a taxable event to the beneficial
owners of the Trust Preferred Securities. See "Certain Federal Income Tax
Consequences -- Tax Event Redemption."
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<PAGE> 22
RIGHT TO DEFER CURRENT PAYMENTS
The Company may, at its option, defer the payment of Contract Adjustment
Payments on the Purchase Contracts until the Purchase Contract Settlement Date.
However, deferred installments of Contract Adjustment Payments will bear
Deferred Contract Adjustment Payments at the rate of 7% per annum (compounding
on each succeeding Payment Date) until paid. If the Purchase Contracts are
settled early or terminated (upon the occurrence of certain events of
bankruptcy, insolvency or reorganization with respect to the Company), the right
to receive Contract Adjustment Payments and Deferred Contract Adjustment
Payments, if any, will also terminate.
In the event that the Company elects to defer the payment of Contract
Adjustment Payments on the Purchase Contracts until the Purchase Contract
Settlement Date, each holder of Purchase Contracts will receive on the Purchase
Contract Settlement Date in respect of the Deferred Contract Adjustment
Payments, in lieu of a cash payment, a number of shares of Common Stock equal to
(x) the aggregate amount of Deferred Contract Adjustment Payments payable to
such holder divided by (y) the Applicable Market Value. See "Description of the
Purchase Contracts -- Contract Adjustment Payments."
The Company also will have the right under the Indenture to defer payments
of interest on the Debentures by extending the interest payment period at any
time, and from time to time, on the Debentures. As a consequence of such an
extension, quarterly distributions on the Trust Preferred Securities, held
either as a component of the Income PRIDES or held separately, would be deferred
(but despite such deferrals would accrue interest at a rate of 6.75% per annum
through and including February 15, 2001, and at the Reset Rate thereafter,
compounded on a quarterly basis) by the Trust during any such Extension Period.
Such right to extend the interest payment period for the Debentures will be
limited such that an Extension Period may not extend beyond the stated maturity
of the Debentures. During any such Extension Period, (a) the Company shall not
declare or pay dividends on, make distributions with respect to, or redeem,
purchase or acquire, or make a liquidation payment with respect to, any of its
capital stock (other than (i) purchases or acquisitions of capital stock of the
Company in connection with the satisfaction by the Company of its obligations
under any employee or agent benefit plans or the satisfaction by the Company of
its obligations pursuant to any contract or security outstanding on the date of
such event requiring the Company to purchase capital stock of the Company, (ii)
as a result of a reclassification of the Company's capital stock or the exchange
or conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock, (iii) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being converted or
exchanged, (iv) dividends or distributions in capital stock of the Company (or
rights to acquire capital stock) or repurchases or redemptions of capital stock
solely from the issuance or exchange of capital stock or (v) redemptions or
repurchases of any rights outstanding under a shareholder rights plan), (b) the
Company shall not make any payment of interest, principal or premium, if any, on
or repay, repurchase or redeem any debt securities issued by the Company that
rank junior to the Debentures and (c) the Company shall not make any guarantee
payments with respect to the foregoing (other than payments pursuant to the
Guarantee or the Common Securities Guarantee (as defined herein)). Prior to the
termination of any such Extension Period, the Company may further extend the
interest payment period; provided, that such Extension Period may not extend
beyond the stated maturity of the Debentures. Upon the termination of any
Extension Period and the payment of all amounts then due, the Company may
commence a new Extension Period, subject to the above requirements. See
"Description of the Trust Preferred Securities -- Distributions" and
"Description of the Debentures -- Option to Extend Interest Payment Period."
The Company believes, and intends to take the position, that as of the
issue date of the Debentures, the likelihood that it will exercise its right to
defer payments of stated interest on the Debentures is remote and that,
therefore, the Debentures should not be considered to be issued with OID as a
result of the Company's right to defer payments of stated interest on the
Debentures unless it actually exercises such deferral right. There is no
assurance that the Internal Revenue Service will agree with such position. See
"Certain Federal Income Tax Consequences -- Income PRIDES -- Trust Preferred
Securities -- Interest Income and Original Issue Discount."
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<PAGE> 23
Should the Company exercise its right to defer payments of interest by
extending the interest payment period, each beneficial owner of Trust Preferred
Securities held either as a component of the Income PRIDES or held separately
would be required to include such beneficial owner's share of the stated
interest on the Trust Preferred Securities in gross income, as OID, on daily
economic accrual basis, regardless of their method of tax accounting and in
advance of receipt of the cash attributable to such income. As a result, each
such beneficial owner of Trust Preferred Securities would recognize income for
United States federal income tax purposes in advance of the receipt of cash
attributable to such income, and would not receive the cash from the Trust
related to such income if such holder disposes of its Trust Preferred Securities
prior to the record date for the date on which distributions of such amounts are
made. See "Certain Federal Income Tax Consequences -- Income PRIDES -- Trust
Preferred Securities -- Interest Income and Original Issue Discount." The
Company has no current intention of exercising its right to defer payments of
interest by extending the interest payment period on the Debentures. However,
should the Company determine to exercise such right in the future, the market
price of the Trust Preferred Securities is likely to be affected. A holder that
disposes of its Trust Preferred Securities during an Extension Period,
therefore, might not receive the same return on its investment as a holder that
continues to hold its Trust Preferred Securities. In addition, as a result of
the existence of the Company's right to defer interest payments, the market
price of the Trust Preferred Securities (which represent a preferred, undivided
beneficial interest in the assets of the Trust) may be more volatile than the
market price of other securities that are not subject to such deferral. See
"Certain Federal Income Tax Consequences -- Income PRIDES -- Trust Preferred
Securities -- Interest Income and Original Issue Discount."
RANKING OF SUBORDINATE OBLIGATIONS UNDER THE GUARANTEE, THE DEBENTURES AND THE
CONTRACT ADJUSTMENT PAYMENTS
The Company's obligations under the Guarantee are unsecured and will rank
(i) subordinate and junior in right of payment to all other liabilities of the
Company except those made pari passu or subordinate by their terms, (ii) pari
passu with the most senior preferred or preference stock now or hereafter issued
by the Company and pari passu with any guarantee now or hereafter issued by the
Company in respect of any preferred stock or preference stock of any affiliate
of the Company, and (iii) senior to the Common Stock. The obligations of the
Company under the Debentures are unsecured and will be subordinate and junior in
right of payment, to the extent set forth herein, to all present and future
Senior Indebtedness and will be effectively subordinated to all existing and
future liabilities and obligations of the Company's subsidiaries. As of
September 30, 1997, the aggregate amount of Senior Indebtedness and liabilities
and obligations of the Company's subsidiaries that would have effectively ranked
senior to the Debentures was approximately $28.7 billion. As of September 30,
1997, after giving pro forma effect to the financing for the WNC Merger, the
Offering and the application of the proceeds thereof, the aggregate amount of
Senior Indebtedness and liabilities and obligations of the Company's
subsidiaries that would have effectively ranked senior to the Debentures would
have been approximately $28.6 billion. The Contract Adjustment Payments will be
subordinated and junior in right of payment to all liabilities of the Company
(other than the Guarantee with which they will rank pari passu). There are no
terms in the Trust Preferred Securities, the Debentures or the Guarantee that
limit the ability of the Company or any of its subsidiaries to incur additional
indebtedness, liabilities or obligations, including indebtedness, liabilities or
obligations that rank senior to the Debentures, the Guarantee and the Contract
Adjustment Payments. See "Description of the Guarantee -- Status of the
Guarantee" and "Description of the Debentures -- Subordination."
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
No statutory, judicial or administrative authority directly addresses the
treatment of the FELINE PRIDES or instruments similar to the FELINE PRIDES for
United States federal income tax purposes. As a result, certain United States
federal income tax consequences of the purchase, ownership and disposition of
FELINE PRIDES are not entirely clear. See "Certain Federal Income Tax
Consequences."
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PURCHASE CONTRACT AGREEMENT NOT QUALIFIED UNDER TRUST INDENTURE ACT;
LIMITED OBLIGATIONS OF PURCHASE CONTRACT AGENT
Although the Trust Preferred Securities constituting a part of the Income
PRIDES will be issued pursuant to the Declaration, which will be qualified under
the Trust Indenture Act, the Purchase Contract Agreement will not be qualified
as an indenture under the Trust Indenture Act and the Purchase Contract Agent
will not be required to qualify as a trustee thereunder. Accordingly, holders of
FELINE PRIDES will not have the benefit of the protections of the Trust
Indenture Act. The protections generally afforded the holder of the security
issued under an indenture that has been qualified under the Trust Indenture Act
include disqualification of the indenture trustee for "conflicting interests" as
defined under the Trust Indenture Act, provisions preventing a trustee that is
also a creditor of the issuer from improving its own credit position at the
expense of the security holders immediately prior to or after a default under
such indenture and the requirement that the indenture trustee deliver reports at
least annually with respect to certain matters concerning the indenture trustee
and the securities. Under the terms of the Purchase Contract Agreement, the
Purchase Contract Agent will have only limited obligations to the holders of
FELINE PRIDES. See "Certain Provisions of the Purchase Contract Agreement and
the Pledge Agreement -- Information Concerning the Purchase Contract Agent."
RIGHTS UNDER THE GUARANTEE
The Guarantee will be qualified as an indenture under the Trust Indenture
Act. The Guarantee Trustee will act as indenture trustee under the Guarantee for
the purposes of compliance with the provisions of the Trust Indenture Act. The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
Trust Preferred Securities.
The Guarantee guarantees to the holders of the Trust Preferred Securities,
on a subordinated basis, the payment of (i) any accrued and unpaid distributions
that are required to be paid on the Trust Preferred Securities, to the extent
the Trust has funds available therefor, (ii) the redemption price, including all
accumulated and unpaid distributions to the date of redemption, of Trust
Preferred Securities in respect of which the related Debentures have been
repurchased by the Company on the Purchase Contract Settlement Date, to the
extent the Trust has funds available therefor, and (iii) upon a voluntary or
involuntary dissolution of the Trust (other than in connection with the
distribution of Debentures to the holders of Trust Preferred Securities), the
lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid
distributions on the Trust Preferred Securities to the date of payment to the
extent the Trust has funds available therefor or (b) the amount of assets of the
Trust remaining available for distribution to holders of the Trust Preferred
Securities in liquidation of the Trust. The majority in liquidation amount of
the Trust Preferred Securities will have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Guarantee
Trustee or to direct the exercise of any trust or power conferred upon the
Guarantee Trustee under the Guarantee. Notwithstanding the foregoing, any holder
of the Trust Preferred Securities may institute a legal proceeding directly
against the Company to enforce such holder's rights under the Guarantee without
first instituting a legal proceeding against the Trust, the Guarantee Trustee or
any other person or entity. If the Company were to default on its obligation to
pay amounts payable on the Debentures or otherwise, the Trust would lack funds
for the payment of distributions or amounts payable on redemption of the Trust
Preferred Securities or otherwise, and, in such event, holders of the Trust
Preferred Securities would not be able to rely upon the Guarantee for payment of
such amounts. Instead, holders of the Trust Preferred Securities would rely on
the enforcement (1) by the Institutional Trustee of its rights as registered
holder of the Debentures against the Company pursuant to the terms of the
Indenture and the Debentures or (2) by such holder of the Institutional
Trustee's or such holder's own rights against the Company to enforce payments on
the Debentures. See "-- Enforcement of Certain Rights by Holders of Trust
Preferred Securities," "Description of the Debentures" and "Description of the
Guarantee." The Declaration provides that each holder of Trust Preferred
Securities, by acceptance thereof, agrees to the provisions of the Guarantee,
including the subordination provisions thereof, and the Indenture.
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ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES
If a Declaration Event of Default (as defined herein) occurs and is
continuing, the holders of Trust Preferred Securities would rely on the
enforcement by the Institutional Trustee of its rights as registered holder of
the Debentures against the Company. In addition, the holders of a majority in
liquidation amount of the Trust Preferred Securities will have the right to
direct the time, method, and place of conducting any proceeding for any remedy
available to the Institutional Trustee or to direct the exercise of any trust or
power conferred upon the Institutional Trustee under the Declaration, including
the right to direct the Institutional Trustee to exercise the remedies available
to it as the holder of the Debentures. The Indenture provides that the Debt
Trustee (as defined herein) shall give holders of Debentures notice of all
defaults or events of default within 30 days after occurrence. However, except
in the cases of a default or an event of default in payment on the Debentures,
the Debt Trustee will be protected in withholding such notice if its officers or
directors in good faith determine that withholding of such notice is in the
interest of such holders.
If the Institutional Trustee fails to enforce its rights under the
Debentures in respect of an Indenture Event of Default (as defined herein) after
a holder of record of Trust Preferred Securities has made a written request,
such holder of record of Trust Preferred Securities may, to the extent permitted
by applicable law, institute a legal proceeding against the Company to enforce
the Institutional Trustee's rights under the Debentures. In addition, if the
Company fails to pay interest or principal on the Debentures on the date such
interest or principal is otherwise payable, and such failure to pay is
continuing, a holder of Trust Preferred Securities may directly institute a
proceeding for enforcement of payment to such holder of the principal of or
interest on the Debentures having a principal amount equal to the aggregate
stated liquidation amount of the Trust Preferred Securities of such holder (a
"Direct Action") after the respective due date specified in the Debentures. In
connection with such a Direct Action, the Company shall have the right under the
Indenture to set off any payment made to such holder by the Company. The holders
of Trust Preferred Securities will not be able to exercise directly any other
remedy available to the holders of the Debentures. See "Description of the Trust
Preferred Securities -- Declaration Events of Default."
LIMITED RIGHTS OF ACCELERATION
The Institutional Trustee, as holder of the Debentures, may accelerate
payment of the principal and accrued and unpaid interest on the Debentures only
upon the occurrence and continuation of a Declaration Event of Default or
Indenture Event of Default, which generally are limited to payment defaults,
breach of certain covenants, certain events of bankruptcy, insolvency and
reorganization of the Company and certain events of dissolution of the Trust.
See "Description of the Trust Preferred Securities -- Declaration Events of
Default." Accordingly, there is no right to acceleration upon default by the
Company of its payment obligations under the Guarantee.
TRADING PRICE OF THE TRUST PREFERRED SECURITIES
The Trust Preferred Securities may trade at a price that does not fully
reflect the value of accrued but unpaid interest with respect to the underlying
Debentures. A holder who disposes of his Trust Preferred Securities between
record dates for payments of distributions thereon will be required to include
accrued but unpaid interest on the Debentures through the date of disposition in
income as ordinary income (i.e., interest or, possibly, OID), and to add such
amount to his adjusted tax basis in his pro rata share of the underlying
Debentures deemed disposed of. To the extent the selling price is less than the
holder's adjusted tax basis, a holder will recognize a loss. See "Certain
Federal Income Consequences -- Income PRIDES -- Trust Preferred
Securities -- Interest Income and Original Issue Discount" and "-- Sales,
Exchanges or Other Dispositions of Trust Preferred Securities."
S-25
<PAGE> 26
THE COMPANY
BACKGROUND
The Company is a financial services holding company. The Company develops,
markets and administers annuity, supplemental health insurance, individual and
group major medical insurance and individual life insurance products. The
Company's operating strategy is to grow the insurance business within its
subsidiaries by focusing its resources on the development and expansion of
profitable products and strong distribution channels. The Company has
supplemented such growth by acquiring companies that have profitable niche
products and strong distribution systems. Once a company has been acquired, the
Company's operating strategy has been to consolidate and streamline management
and administrative functions, to realize superior investment returns through
active asset management, to eliminate unprofitable products and distribution
channels, and to expand and develop the profitable distribution channels and
products.
Since 1982, the Company has acquired 19 insurance groups and related
businesses. The Company continues to regularly investigate acquisition
opportunities in the insurance industry and other industries in which it
operates. Any decision to make an acquisition will depend on a favorable
evaluation by the Company of a variety of factors, including the operating
results and financial condition of the business to be acquired, its growth
potential, management and personnel and the potential return on such acquisition
in relation to other acquisition opportunities and the internal development of
the Company's business operations. No assurances can be given as to when, if at
all, or upon what terms the Company will make any such acquisition.
OPERATING SEGMENTS
Conseco conducts and manages its business through five segments, reflecting
the Company's major lines of insurance business and target markets: (i)
annuities; (ii) supplemental health insurance; (iii) life insurance; (iv)
individual and group major medical insurance and (v) other.
Annuities
This segment includes single-premium deferred annuities ("SPDAs"),
flexible-premium deferred annuities ("FPDAs"), single-premium immediate
annuities ("SPIAs") and variable annuities sold through both career agents and
professional independent producers. An SPDA is a savings vehicle in which the
policyholder, or annuitant, makes a single-premium payment to the insurance
company; the insurer guarantees the principal and accrues a stated rate of
interest. After a number of years, as specified in the annuity contract, the
annuitant may elect to take the proceeds of the annuity either in a single
payment or in a series of payments for life, for a fixed number of years, or for
a combination thereof. FPDAs are similar to SPDAs in many respects, except that
FPDAs allow for more than one premium payment. SPIAs are designed to provide a
series of periodic payments for a fixed period of time or for life, according to
the policyholder's choice at the time of issue. Once the payments begin, the
amount, frequency and length of time for which they are payable are fixed.
Variable annuities, sold on a single- or flexible-premium basis, differ from
fixed annuities in that the original principal value may fluctuate, depending on
the performance of assets allocated pursuant to various investment options
chosen by the contract owner.
Supplemental health insurance
This segment includes Medicare supplement, long-term care and specified
disease insurance. Medicare is a two-part federal health insurance program for
disabled persons and senior citizens (age 65 and older). Medicare supplement
policies provide coverage for many of the medical expenses which the Medicare
program does not cover, such as deductibles and coinsurance costs (in which the
insured and Medicare share the costs of medical expenses) and specified losses
which exceed the federal program's maximum benefits. Long-term care products
provide coverage, within prescribed limits, for nursing home, home healthcare,
or a combination of both nursing home and home health care expenses. Beginning
in 1997, the supplemental health segment includes specified disease products
such as cancer and heart/stroke insurance. These policies generally provide
fixed or limited benefits. Payments under cancer insurance policies are
generally made
S-26
<PAGE> 27
directly to, or at the direction of, the policyholder following diagnosis of, or
treatment for, a covered type of cancer. Heart/stroke policies provide for
payments directly to the policyholder for treatment of a covered heart disease,
heart attack or stroke.
Life insurance
This segment includes traditional life, universal life and other life
insurance products. This segment's products are currently sold through both
career agents and professional independent producers. Interest-sensitive life
products include universal life products that provide whole life insurance with
adjustable rates of return related to current interest rates. Traditional life
policies include whole life and term life products. Under whole life policies,
the policyholder generally pays a level premium over the policyholders' expected
lifetime. These policies, which continue to be marketed by the Company on a
limited basis, combine insurance protection with a savings component that
increases in amount gradually over the life of the policy. Term life products
offer pure insurance protection for a specified period of time -- typically one,
five, 10 or 20 years.
Individual and group major medical insurance
This segment includes individual and group major medical health insurance
products. The size of this segment increased significantly as a result of the
acquisition of Pioneer Financial Services, Inc. The profitability of this
business depends largely on the overall persistency of the business inforce,
claim experience and expense management.
Other
This segment includes fee revenue generated by Conseco's nonlife
subsidiaries, including the investment advisory fees earned by Conseco Capital
Management, Inc. and commissions earned for insurance product marketing and
distribution.
MARKETING AND DISTRIBUTION
Conseco's insurance subsidiaries are collectively licensed to market the
Company's insurance products in all states and in the District of Columbia, and
certain protectorates of the United States. Conseco believes that people
generally purchase life, accident and health insurance and annuity products only
after being contacted and solicited by an insurance agent or by direct
marketing. Accordingly, the success of the Company's distribution system is
dependent primarily on its ability to attract and retain agents who are
experienced and highly motivated. Conseco has formed a marketing subsidiary to
coordinate the marketing and distribution of its insurance companies and promote
cross selling of their products.
A description of the Company's primary distribution channels follows:
Professional Independent Producers. This distribution channel consists of a
general agency and insurance brokerage distribution system comprised of
approximately 190,000 independent licensed agents doing business in all states.
Career Agents. This agency force of approximately 3,900 agents working from
185 branch offices permits one-on-one contacts with potential policyholders and
promotes strong personal relationships with existing policyholders. The career
agents sell primarily Medicare supplement and long-term care insurance policies.
Direct Marketing. This distribution channel was added on September 30, 1997
with the acquisition of Colonial Penn Life Insurance Company, which is engaged
in the sale of "graded benefit life" insurance policies through direct
marketing. Conseco intends to cross market other products through this
distribution channel.
RECENT ACQUISITION
On September 20, 1997, the Company entered into an Agreement and Plan of
Merger with Washington National Corporation ("WNC") pursuant to which WNC became
a wholly owned subsidiary of the Company
S-27
<PAGE> 28
on December 5, 1997. In the merger, each share of WNC common stock was converted
into the right to receive $33.25 in cash, for a total transaction value of
approximately $410 million. The principal operating subsidiaries of WNC,
Washington National Insurance Company and United Presidential Life Insurance
Company, are engaged primarily in marketing and underwriting life insurance and
annuities for individuals and specialty health insurance for educators.
GENERAL
The Company's executive offices are located at 11825 North Pennsylvania
Street, Carmel, Indiana 46032 and the telephone number is (317) 817-6100. For
additional information concerning the Company, see the Company's Annual Report
on Form 10-K for the year ended December 31, 1996 and other documents filed with
the Commission and listed under "Incorporation of Certain Documents by
Reference" in the accompanying Prospectus.
S-28
<PAGE> 29
SELECTED HISTORICAL FINANCIAL INFORMATION OF THE COMPANY
The selected historical financial information set forth below is derived
from the consolidated financial statements of the Company. The Company's
consolidated balance sheets at December 31, 1995 and 1996, and the consolidated
statements of operations, shareholders' equity and cash flows for the years
ended December 31, 1994, 1995 and 1996 and notes thereto were audited by Coopers
& Lybrand L.L.P., independent accountants, and are included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, which is
incorporated by reference herein. The selected historical financial information
set forth below for the nine months ended September 30, 1996 and 1997, is
unaudited; however, in the opinion of the Company's management, such financial
information contains all adjustments, consisting only of normal recurring items,
necessary to present fairly the financial information for such periods. The
results of operations for the nine month period ended September 30, 1997 may not
be indicative of the results of operations to be expected for a full year. The
selected historical financial information is qualified in its entirety by, and
should be read in conjunction with, the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, and the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997, both of which are incorporated by
reference herein.
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 ("Western
National"); (iii) the transactions affecting Conseco's ownership interest in
Bankers Life Holding Corporation ("BLH") and CCP Insurance, Inc. ("CCP"); (iv)
the acquisition (the "LPG Merger") of Life Partners Group, Inc. ("LPG"); (v) the
acquisition (the "ATC Merger") of American Travellers Corporation ("ATC"); (vi)
the acquisition (the "THI Merger") of Transport Holdings Inc. ("THI"); (vii) the
acquisition (the "CAF Merger") of Capitol American Financial Corporation
("CAF"); (viii) the acquisition (the "PFS Merger") of Pioneer Financial
Services, Inc. ("PFS"); and (ix) the acquisition (the "CPL Acquisition") of
Colonial Penn Life Insurance Company and Providential Life Insurance Company and
certain other assets (collectively "CPL"). 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 the Company.
Following the completion of the initial public offering by CCP in July 1992, the
Company did not have unilateral control to direct all of CCP's activities and,
therefore, did not consolidate the financial statements of CCP with the
financial statements of the Company. As a result of the purchase by the Company
of all the shares of common stock of CCP it did not already own on August 31,
1995 (the "CCP Merger"), the financial statements of CCP's subsidiaries are
consolidated with the financial statements of the Company, effective January 1,
1995. The Company has included BLH in its financial statements since November 1,
1992. Through December 31, 1993, the financial statements of Western National
were consolidated with the financial statements of the Company. Following the
completion of the initial public offering of Western National (and subsequent
disposition of the Company's remaining equity interest in Western National), the
financial statements of Western National were no longer consolidated with the
financial statements of the Company. As of September 29, 1994, the Company began
to include in its financial statements the newly acquired Partnership II
subsidiary, American Life Holdings, Inc. ("ALH"). As of July 1, 1996, the
Company began to include in its financial statements its subsidiaries acquired
in the LPG Merger. Effective December 31, 1996, the Company began to include in
its financial statements its subsidiaries acquired in the ATC Merger and the THI
Merger. As of January 1, 1997 the Company began to include in its financial
statements its subsidiaries acquired in the CAF Merger. As of April 1, 1997, the
Company began to include in its financial statements its subsidiaries acquired
in the PFS Merger. Effective September 30, 1997, the Company began to include in
its balance sheet its subsidiaries acquired in the CPL Acquisition. Such
business combinations are described in the notes to the consolidated financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, and the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997, both of which are incorporated by reference
herein.
S-29
<PAGE> 30
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Insurance policy income....................... $ 378.7 $ 1,293.8 $ 1,285.6 $ 1,465.0 $ 1,654.2 $ 1,193.2 $ 2,440.9
Net investment income......................... 888.6 896.2 385.7 1,142.6 1,302.5 926.7 1,314.7
Net investment gains (losses)................. 160.2 242.6 (30.5) 188.9 30.4 9.8 137.3
Total revenues................................ 1,523.9 2,636.0 1,862.0 2,855.3 3,067.3 2,198.6 3,943.0
Interest expense on notes payable............. 46.2 58.0 59.3 119.4 108.1 84.6 76.0
Total benefits and expenses................... 1,193.9 2,025.8 1,537.6 2,436.8 2,573.7 1,845.6 3,241.2
Income before income taxes, minority interest
and extraordinary charge.................... 330.0 610.2 324.4 418.5 493.6 353.0 701.8
Extraordinary charge on extinguishment of
debt, net of tax............................ 5.3 11.9 4.0 2.1 26.5 18.6 6.2
Net income.................................... 169.5 297.0 150.4 220.4 252.4 174.5 395.9
Preferred stock dividends and charge related
to induced conversions of convertible
preferred stock............................. 5.5 20.6 18.6 18.4 27.4 22.7 19.9
Net income applicable to common stock......... 164.0 276.4 131.8 202.0 225.0 151.8 376.0
PER SHARE DATA(A):
Net income, primary........................... $ 1.36 $ 2.36 $ 1.25 $ 2.35 $ 1.91 $ 1.42 $ 1.82
Net income, fully diluted..................... 1.35 2.19 1.22 2.11 1.77 1.29 1.82
Dividends declared per common share........... .021 .075 .125 .046 .083 .051 .188
Book value per common share outstanding at
period end.................................. 5.46 8.45 5.22 10.22 16.86 12.61 19.49
Shares outstanding at period end.............. 99.6 101.2 88.7 81.0 167.1 133.9 188.0
Average fully diluted shares outstanding...... 118.4 134.0 123.4 104.5 142.5 134.7 210.2
BALANCE SHEET DATA (AT PERIOD END):
Total assets.................................. $11,772.7 $13,749.3 $10,811.9 $17,297.5 $25,612.7 $23,176.0 $33,138.0
Notes payable for which the Company is
directly liable............................. 163.2 413.0 191.8 871.4 1,094.9 1,169.0 1,876.8
Notes payable of affiliates, not direct
obligations of the Company.................. 392.0 290.3 611.1 584.7 -- 431.1 --
Commercial paper.............................. -- -- -- -- -- -- 492.9
Total liabilities............................. 11,154.4 12,382.9 9,743.2 15,782.5 21,829.7 21,072.3 28,450.7
Minority interests in consolidated
subsidiaries:
Company-obligated mandatorily redeemable
preferred securities of subsidiary
trusts.................................... -- -- -- -- 600.0 -- 900.0
Preferred stock............................. -- -- 130.1 110.7 97.0 92.5 --
Common stock................................ 24.0 223.8 191.6 292.6 .7 55.3 .7
Shareholders' equity.......................... 594.3 1,142.6 747.0 1,111.7 3,085.3 1,955.9 3,786.6
OTHER FINANCIAL DATA(B):
Premiums collected(c)......................... $ 1,464.9 $ 2,140.1 $ 1,879.1 $ 3,106.4 $ 3,210.4 $ 2,428.0 $ 3,657.5
Operating earnings(d)......................... 114.8 162.0 151.7 131.3 267.7 181.8 407.9
Operating earnings per fully diluted common
share(a)(d)................................. .90 1.19 1.23 1.26 1.89 1.35 1.94
Shareholders' equity excluding unrealized
appreciation (depreciation) of fixed
maturity securities(e)...................... 560.3 1,055.2 884.7 999.1 3,045.5 2,002.6 3,639.4
Book value per common share outstanding,
excluding unrealized appreciation
(depreciation) of fixed maturity
securities(a)(e)............................ 5.12 7.58 6.77 8.83 16.62 12.96 18.71
Ratio of debt to total capital (f):
As reported................................. .49X .34X .43X .49X .22X .43X .34X
Excluding unrealized appreciation
(depreciation) of fixed maturity
securities (e)............................ .50X .36X .39X .53X .23X .43X .34X
Ratio of debt and Company-obligated
mandatorily redeemable preferred
securities of subsidiary trusts to total
capital(f):
As reported............................. .49X .34X .43X .49X .35X .43X .46X
Excluding unrealized appreciation
(depreciation) of fixed maturity
securities (e)........................ .50X .36X .39X .53X .35X .43X .47X
Adjusted statutory capital (at period end)
(g)......................................... $ 603.1 $ 1,135.5 $ 791.6 $ 1,298.7 $ 1,775.1 $ 1,582.3 $ 2,340.0
</TABLE>
- ---------------
(a) All share and per share amounts have been restated to reflect two-for-one
stock splits paid on April 1, 1996 and February 11, 1997.
(b) Amounts under this heading are included to assist the reader in analyzing
the Company's financial position and results of operations. Such amounts are
not intended to, and do not, represent insurance policy income, net income,
net income per share, shareholders' equity or book value per share prepared
in accordance with GAAP.
S-30
<PAGE> 31
(c) Includes premiums received from universal life and products without
mortality or morbidity risk. Such premiums are not reported as revenues
under GAAP and were $1,131.8 million in 1992; $891.9 million in 1993; $634.6
million in 1994; $1,757.4 million in 1995; $1,811.5 million in 1996;
$1,266.5 in the nine month period ended September 30, 1996; and $1,426.7
million in the nine month period ended September 30, 1997.
(d) Represents income before extraordinary charge, excluding net investment
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 non-recurring 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. Such adjustments,
which the Company began to do in 1992, are in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115"), as described in the notes to
the consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, which is
incorporated herein by reference.
(f) For periods prior to 1996, debt includes obligations for which the Company
was not directly liable.
(g) Includes: (1) statutory capital and surplus; (2) asset valuation reserve and
interest maintenance reserve; and (3) the portion of surplus debentures
carried by the life companies as a liability to the Company. Such statutory
data reflect the combined data derived from the annual statements of the
Company's consolidated life insurance companies as filed with insurance
regulatory agencies and prepared in accordance with statutory accounting
practices.
S-31
<PAGE> 32
THE TRUST
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) a declaration of trust, dated as of May 21, 1997, executed by the Sponsor
and certain of the Conseco Trustees and (ii) the filing of a certificate of
trust with the Secretary of State of the State of Delaware on May 23, 1997. Such
trust declaration will be amended and restated in its entirety substantially in
the form filed as an exhibit to the Registration Statement of which this
Prospectus Supplement forms a part. The Declaration will be qualified as an
indenture under the Trust Indenture Act. Although upon issuance of the Trust
Preferred Securities, the holders of Income PRIDES will be the beneficial owners
of the related Trust Preferred Securities, such Trust Preferred Securities will
be pledged with the Collateral Agent to secure the obligations of the holders
under the related Purchase Contracts. See "Description of the Purchase
Contracts -- Pledged Securities and Pledge Agreement" and "Description of the
Trust Preferred Securities -- Book-Entry Only Issuance -- The Depository Trust
Company." The Company will directly or indirectly acquire Common Securities in
an aggregate liquidation amount equal to 3% of the total capital of the Trust.
The Trust exists for the exclusive purposes of (i) issuing the Trust Securities
representing undivided beneficial ownership interests in the assets of the
Trust, (ii) investing the proceeds of the Trust Securities in the Debentures and
(iii) engaging in only those other activities necessary, appropriate, convenient
or incidental thereto. The Trust has a term of approximately seven years, but
may dissolve earlier as provided in the Declaration.
The number of Conseco Trustees initially is four. Two of the Conseco
Trustees (the "Regular Trustees") are persons who are employees or officers of
or who are affiliated with the Company. Pursuant to the Declaration, the third
trustee will be a financial institution that is unaffiliated with the Company,
which trustee serves as institutional trustee under the Declaration and as
indenture trustee for the purposes of compliance with the provisions of the
Trust Indenture Act (the "Institutional Trustee"). The fourth trustee, First
Chicago Delaware Inc., a financial institution that is unaffiliated with the
Company, will serve as the Delaware Trustee, until removed or replaced by the
holder of the Common Securities. For the purpose of compliance with the
provisions of the Trust Indenture Act, The First National Bank of Chicago will
act as trustee (the "Guarantee Trustee") under the Guarantee. See "Description
of the Guarantee" and "Description of the Trust Preferred Securities -- Voting
Rights."
The Institutional Trustee will hold title to the Debentures for the benefit
of the holders of the Trust Securities and the Institutional Trustee will have
the power to exercise all rights, powers and privileges under the Indenture as
the holder of the Debentures. In addition, the Institutional Trustee will
maintain exclusive control of a segregated noninterest bearing bank account (the
"Property Account") to hold all payments made in respect of the Debentures for
the benefit of the holders of the Trust Securities. The Institutional Trustee
will make payments of distributions and payments on liquidation, redemption and
otherwise to the holders of the Trust Securities out of funds from the Property
Account. The Guarantee Trustee will hold the Guarantee for the benefit of the
holders of the Trust Preferred Securities. The Company, as the direct or
indirect holder of all the Common Securities, will have the right to appoint,
remove or replace any Conseco Trustee and to increase or decrease the number of
Conseco Trustees; provided, however, that the number of Conseco Trustees shall
be at least two, at least one of which shall be a Regular Trustee. The Company
will pay all fees and expenses related to the Trust and the offering of the
Trust Securities. See "Description of the Debentures -- Miscellaneous."
The rights of the holders of the Trust Preferred Securities, including
economic rights, rights to information and voting rights, are set forth in the
Declaration, the Delaware Business Trust Act, as amended (the "Trust Act"), and
the Trust Indenture Act. See "Description of the Trust Preferred Securities."
The trustee in the State of Delaware currently is First Chicago Delaware
Inc., Wilmington, Delaware. The principal place of business of the Trust shall
be c/o Conseco, Inc., 11825 N. Pennsylvania Street, Carmel, Indiana 46032, and
its telephone number shall be (317) 817-6100.
S-32
<PAGE> 33
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is listed and traded on the NYSE under the symbol "CNC".
The following table sets forth the quarterly dividends paid per share and the
ranges of high and low sales prices per share on the NYSE for the last two
fiscal years and for the periods in 1997 through December 8, 1997, based upon
information supplied by the NYSE. All applicable per share data have been
adjusted for the two-for-one stock splits distributed April 1, 1996, and
February 11, 1997.
<TABLE>
<CAPTION>
MARKET PRICE
------------------------ DIVIDEND
PERIOD HIGH LOW PAID
------ ---- --- --------
<S> <C> <C> <C>
1995:
First Quarter...................................... $12 5/32 $ 8 1/8 $.03125
Second Quarter..................................... 11 21/32 9 25/32 .03125
Third Quarter...................................... 13 5/16 11 3/8 .00500
Fourth Quarter..................................... 15 25/32 12 23/32 .00500
1996:
First Quarter...................................... $18 5/32 $14 15/16 $.00500
Second Quarter..................................... 20 3/8 17 3/8 .01000
Third Quarter...................................... 24 11/16 17 5/8 .01000
Fourth Quarter..................................... 33 1/8 24 7/16 .03125
1997:
First Quarter...................................... $43 7/8 $30 3/4 $.03125
Second Quarter..................................... 42 7/8 34 1/2 .03125
Third Quarter...................................... 50 35 1/8 .03125
Fourth Quarter (through December 8, 1997).......... 50 1/16 39 7/8 .12500
</TABLE>
Cash dividends are paid quarterly, in an amount determined by the Company's
Board of Directors. The Company's general policy is to retain most of its
earnings. Retained earnings have been used: (i) to finance the growth and
development of the Company's business through acquisitions or otherwise; (ii) to
pay preferred stock dividends; (iii) to pay distributions on the
Company-obligated mandatorily redeemable preferred stock of subsidiary trusts;
and (iv) to repurchase common stock on those occasions when the Company has
determined that its shares were undervalued in the market and that the use of
funds for stock repurchases would not interfere with other cash needs.
The Company has paid all cumulative dividends on its preferred stock and
distributions on its Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts when due. The Company is prohibited from paying
common stock dividends if such payments are not current.
The Company's ability to pay dividends depends primarily on the receipt of
cash dividends and other cash payments from its subsidiaries. The principal
operating subsidiaries of the Company are life insurance companies organized
under state laws and subject to regulation by state insurance departments. These
laws and regulations limit the ability of insurance subsidiaries to make cash
dividends, loans or advances to a holding company such as the Company. However,
these laws generally permit the payment, without prior approval, of annual
dividends which in the aggregate do not exceed the greater of (or in a few
states, the lesser of): (i) the subsidiary's prior year net gain from
operations; or (ii) 10 percent of surplus attributable to policyholders at the
prior year-end, both computed on the statutory basis of accounting prescribed
for insurance companies. Certain notes payable require the Company to maintain
financial ratios which could also limit its ability to pay dividends. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Liquidity and Capital Resources" in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, which is incorporated herein by
reference.
S-33
<PAGE> 34
CAPITALIZATION
The following table summarizes the actual capitalization of the Company and
its consolidated subsidiaries at September 30, 1997 and such capitalization
adjusted on a pro forma basis to reflect: (i) the WNC Merger and the related
financing transactions; (ii) the sale of the FELINE PRIDES offered hereby, (iii)
the concurrent purchase by the Trust from the Company of $515.5 million
principal amount of Debentures and (iv) an assumed application of the proceeds
from the foregoing, after underwriting commissions and estimated expenses of
this Offering, to repay indebtedness. This table should be read in conjunction
with the Company's Annual Report on Form 10-K for the year ended December 31,
1996, and the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, both of which are incorporated by reference herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------------------------------------------
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS FOR THE PRO FORMA
FOR WNC ISSUANCE OF FELINE AS
ACTUAL MERGER(2) PRIDES(3)(4)(5) ADJUSTED
-------- ----------- ------------------- ---------
<S> <C> <C> <C> <C>
Commercial paper and notes payable:
Commercial paper......................... $ 492.9 $ -- $ -- $ 492.9
Borrowings under revolving credit
agreements............................ 955.0 (483.7) 471.3
Bank debt incurred to finance the WNC
Merger................................ -- 400.0 400.0
Notes payable to Leucadia National
Corporation........................... 400.0 400.0
Senior notes due 2003.................... 170.0 170.0
Senior notes due 2004.................... 191.6 191.6
Subordinated debentures due 2004......... 10.9 10.9
Convertible subordinated debentures due
2005.................................. 32.6 32.6
Convertible subordinated debentures due
2003.................................. 86.1 86.1
Other.................................... 24.1 24.1
-------- ------ ------- --------
Total principal amount........... 2,363.2 400.0 (483.7) 2,279.5
Unamortized net (discount) premium......... 6.5 (.1) -- 6.4
-------- ------ ------- --------
Total commercial paper and notes
payable........................ 2,369.7 399.9 (483.7) 2,285.9
Minority interest in consolidated
subsidiaries:
Company-obligated mandatorily redeemable
preferred securities of subsidiary
trusts(1)............................. 900.0 483.7 1,383.7
Common stock of subsidiary............... .7 .7
Shareholders' equity:
7% PRIDES, convertible preferred stock,
no par value: 4,370,000 shares
authorized; 1,996,000 shares
outstanding........................... 122.0 122.0
Common and additional paid-in capital, no
par value: 1,000,000,000 shares
authorized; 188,009,367 shares
outstanding........................... 2,452.5 (3.4) 2,449.1
Unrealized appreciation of securities,
net of deferred tax................... 149.8 149.8
Retained earnings........................ 1,062.3 1,062.3
-------- ------- --------
Total shareholders' equity....... 3,786.6 -- (3.4) 3,783.2
-------- ------ ------- --------
Total capitalization............. $7,057.0 $399.9 $ (3.4) $7,453.5
======== ====== ======= ========
</TABLE>
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- ---------------
(1) Subsequent to the completion of the Offering, the assets of the Trust will
consist solely of approximately $515.5 million in aggregate principal amount
of the Debentures with an interest rate of 6.75% and a maturity date of
February 16, 2003. The assets of Conseco Financing Trust I consist solely of
$283.6 million aggregate principal amount of subordinated deferrable
interest debentures of the Company with an interest rate of 9.16% and a
maturity date of November 30, 2026; the assets of Conseco Financing Trust II
consist solely of $335.1 million aggregate principal amount of subordinated
deferrable interest debentures of the Company with an interest rate of 8.70%
and a maturity date of November 15, 2026; and the assets of Conseco
Financing Trust III consist solely of $309.3 million in aggregate principal
amount of subordinated debentures with an interest rate of 8.796% and a
maturity date of April 1, 2027. The assets, described in the previous
sentence, will not be available to meet the obligations of the Trust.
(2) Pro forma adjustments reflect the financing of the WNC Merger, in part, with
bank debt of $400 million.
(3) Pro forma adjustments assume that the anticipated net proceeds from the
issuance of the FELINE PRIDES will be used to reduce borrowings under the
revolving credit agreements.
(4) The pro forma adjustments assume that the underwriters' over-allotment is
not exercised.
(5) The present value of the Contract Adjustment Payments is charged to common
and additional paid-in capital.
ACCOUNTING TREATMENT
The financial statements of the Trust will be reflected in the Company's
consolidated financial statements, with the Trust Preferred Securities shown on
the Company's balance sheet under the caption "Company-obligated mandatorily
redeemable preferred securities of subsidiary trusts." The financial statement
footnotes to the Company's consolidated financial statements will reflect that
the sole asset of the Trust will be the Debentures. Dividends on the Trust
Preferred Securities will be reflected as a charge to the Company's consolidated
income, identified as Minority Interest in Net Income of Consolidated
Subsidiaries, whether paid or accrued.
The Purchase Contracts are forward transactions in the Common Stock. Upon
settlement of a Purchase Contract, the Company will receive the Stated Amount on
such Purchase Contract and will issue the requisite number of shares of Common
Stock. The Stated Amount thus received will be credited to shareholders' equity
allocated between the common stock and paid-in capital accounts. The present
value of the Contract Adjustment Payments will initially be charged to equity,
with an offsetting credit to liabilities. Subsequent Contract Adjustment
Payments will be allocated between this liability account and interest expense
based on a constant rate calculation over the life of the transaction.
Prior to the issuance of shares of Common Stock upon settlement of the
Purchase Contracts, it is anticipated that the FELINE PRIDES will be reflected
in the Company's earnings per share calculations using the treasury stock
method. Under this method, the number of shares of Common Stock used in
calculating earnings per share is deemed to be increased by the excess, if any,
of the number of shares issuable upon settlement of the Purchase Contracts over
the number of shares that could be purchased by the Company in the market (at
the average market price during the period) using the proceeds receivable upon
settlement. Consequently, it is anticipated there will be no dilutive effect on
the Company's earnings per share except during periods when the average market
price of Common Stock is above the Threshold Appreciation Price.
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USE OF PROCEEDS
All or substantially all of the proceeds from the sale of the Income
PRIDES, of which the Trust Preferred Securities are a component, will be
invested by the Trust in the Debentures, and the remainder, if any, will be paid
to the Company. The net proceeds from such sale, estimated to be approximately
$483.7 million, will be used by the Company for the repayment of certain amounts
borrowed under the Company's revolving line of credit and its commercial paper
program and for other general corporate purposes. As of December 8, 1997, the
weighted average interest rate of borrowings under the Company's revolving line
of credit was 6.11% and the weighted average interest rate for outstanding
commercial paper was 5.88%. Borrowings under the revolving line of credit must
be repaid in 2001 and amounts borrowed under the commercial paper program are
due on various dates through February 6, 1998.
DESCRIPTION OF THE FELINE PRIDES
The following descriptions of certain terms of the FELINE PRIDES offered
hereby supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the FELINE PRIDES set forth
in the accompanying Prospectus, to which reference is hereby made. The summaries
of certain provisions of documents described below are not necessarily complete,
and in each instance reference is hereby made to the copies of such documents
(including the definitions therein of certain terms) which are on file with the
Commission. Wherever particular sections of, or terms defined in, such documents
are referred to herein, such sections or defined terms are incorporated by
reference herein. Capitalized terms not defined herein have the meanings
assigned to such terms in the accompanying Prospectus.
Each FELINE PRIDES will be issued under the Purchase Contract Agreement
between the Company and the Purchase Contract Agent. Each FELINE PRIDES offered
hereby initially will consist of a unit (referred to as an Income PRIDES) with a
Stated Amount of $50 comprised of (a) a Purchase Contract under which (i) the
holder (including, initially, an Underwriter) will purchase from the Company on
the Purchase Contract Settlement Date, for an amount of cash equal to the Stated
Amount, a number of newly issued shares of Common Stock equal to the Settlement
Rate described below under "Description of the Purchase Contracts -- General,"
and (ii) the Company will pay Contract Adjustment Payments to the holder, and
(b) (i) beneficial ownership of a related 6.75% Trust Originated Preferred
Security, having a stated liquidation amount per Trust Preferred Security equal
to the Stated Amount, representing a preferred, undivided beneficial ownership
interest in the assets of the Trust, which will consist solely of the
Debentures, (ii) in the case of a distribution of the Debentures upon the
dissolution of the Trust as a result of an Investment Company Event, as
described below, or otherwise, Debentures having a principal amount equal to the
Stated Amount or (iii) upon the occurrence of a Tax Event Redemption prior to
the Purchase Contract Settlement Date, the appropriate Applicable Ownership
Interest in the Treasury Portfolio. "Applicable Ownership Interest" means, with
respect to an Income PRIDES and the U.S. Treasury Securities in the Treasury
Portfolio, (A) a 1/20, or 5%, undivided beneficial ownership interest in a
$1,000 principal or interest amount of a principal or interest strip in a U.S.
Treasury Security included in such Treasury Portfolio which matures on or prior
to February 15, 2001 and (B) for each scheduled interest payment date on the
Debentures that occurs after the Tax Event Redemption Date, a .084375% undivided
beneficial ownership interest in a $1,000 face amount of such U.S. Treasury
Security which is a principal or interest strip maturing on such date. The
purchase price of each Income PRIDES will be allocated between the related
Purchase Contract and the related Trust Preferred Security in proportion to
their respective fair market values at the time of purchase. The Company expects
that, at the time of issuance, the fair market value of each Trust Preferred
Security will be equal to $50 and the fair market value of each Purchase
Contract will be equal to $0. Such position generally will be binding on each
beneficial owner of each Income PRIDES (but not on the IRS (as defined herein)).
See "Certain Federal Income Tax Consequences -- Income PRIDES -- Allocation of
Purchase Price." As long as a FELINE PRIDES is in the form of an Income PRIDES,
the related Trust Preferred Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as applicable, will be pledged to the
Collateral Agent, to secure the holder's obligation to purchase Common Stock
under the related Purchase Contracts.
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<PAGE> 37
SUBSTITUTION OF PLEDGED SECURITIES
Each holder (including, initially, an Underwriter) of an Income PRIDES
(unless a Tax Event Redemption has occurred) will have the right, at any time on
or prior to the fifth Business Day immediately preceding the Purchase Contract
Settlement Date, to substitute for the related Trust Preferred Securities held
by the Collateral Agent Treasury Securities in an aggregate principal amount
equal to the aggregate stated liquidation amount of such Trust Preferred
Securities. Such Treasury Securities will be pledged with the Collateral Agent
to secure the holder's obligation to purchase Common Stock under the related
Purchase Contracts. Because Treasury Securities are issued in integral multiples
of $1,000, holders of Income PRIDES may make such substitution only in integral
multiples of 20 Income PRIDES; provided, however, if a Tax Event Redemption has
occurred prior to the Purchase Contract Settlement Date and the Treasury
Portfolio has become a component of the Income PRIDES, holders of such Income
PRIDES may make such substitutions only in integral multiples of 32,000 Income
PRIDES (but obtaining the release of the Treasury Portfolio rather than the
Trust Preferred Securities), at any time on or prior to the second Business Day
immediately preceding the Purchase Contract Settlement Date. FELINE PRIDES with
respect to which Treasury Securities have been substituted for the related Trust
Preferred Securities or the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, as collateral to secure such holder's
obligation under the related Purchase Contracts will be referred to as Growth
PRIDES. To create 20 Growth PRIDES, (unless a Tax Event Redemption has
occurred), the Income PRIDES holder will (a) deposit with the Collateral Agent a
Treasury Security having a principal amount at maturity of $1,000 and (b)
transfer 20 Income PRIDES to the Purchase Contract Agent accompanied by a notice
stating that the Income PRIDES holder has deposited a Treasury Security with the
Collateral Agent and requesting that the Purchase Contract Agent instruct the
Collateral Agent to release to such holder the 20 Trust Preferred Securities
relating to such 20 Income PRIDES. Upon such deposit and receipt of an
instruction from the Purchase Contract Agent, the Collateral Agent will effect
the release of the related 20 Trust Preferred Securities from the pledge under
the Pledge Agreement free and clear of the Company's security interest therein
to the Purchase Contract Agent, which will (i) cancel the 20 Income PRIDES, (ii)
transfer the 20 related Trust Preferred Securities to such holder and (iii)
deliver 20 Growth PRIDES to the holder. The Treasury Security will be
substituted for the Trust Preferred Securities and will be pledged with the
Collateral Agent to secure the holder's obligation to purchase Common Stock
under the related Purchase Contracts. Each Growth PRIDES will consist of a unit
with a Stated Amount of $50 comprised of (a) a Purchase Contract with respect to
which (i) the holder will purchase from the Company on the Purchase Contract
Settlement Date or earlier for an amount of cash equal to the Stated Amount of
such Growth PRIDES, a number of newly issued shares of Common Stock of the
Company equal to the Settlement Rate described herein, and (ii) the Company will
pay the holder Contract Adjustment Payments and (b) a 1/20 undivided beneficial
ownership interest in a related Treasury Security having a principal amount at
maturity equal to $1,000 and maturing on the Business Day immediately preceding
the Purchase Contract Settlement Date. The related Trust Preferred Securities
released to the holder thereafter will trade separately from the resulting
Growth PRIDES. Contract Adjustment Payments will be payable by the Company on
the Growth PRIDES on each Payment Date from the later of December 12, 1997 and
the last Payment Date on which Contract Adjustment Payments were paid. In
addition, original issue discount will accrete on the related Treasury
Securities. Distributions on any Trust Preferred Securities, up to but not
including the Purchase Contract Settlement Date, including after a substitution
of collateral resulting in the creation of Growth PRIDES, will continue to be
payable by the Trust at the rate of 6.75% of the Stated Amount per annum,
subject to the Company's deferral rights described in "-- Current Payments."
Holders who elect to substitute Pledged Securities, thereby creating Growth
PRIDES or recreating Income PRIDES (as discussed below), shall be responsible
for any fees or expenses payable in connection with such substitution. See
"Certain Provisions of the Purchase Contract Agreement and the Pledge
Agreement -- Miscellaneous."
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<PAGE> 38
RECREATING INCOME PRIDES
On or prior to the fifth Business Day immediately preceding the Purchase
Contract Settlement Date a holder of Growth PRIDES may recreate Income PRIDES
(unless a Tax Event Redemption has occurred) by (a) depositing with the
Collateral Agent 20 Trust Preferred Securities and (b) transferring 20 Growth
PRIDES to the Purchase Contract Agent accompanied by a notice stating that the
Growth PRIDES holder has deposited 20 Trust Preferred Securities with the
Collateral Agent and requesting that the Purchase Contract Agent instruct the
Collateral Agent to release to such holder the related Treasury Security. Upon
such deposit and receipt of instructions from the Purchase Contract Agent, the
Collateral Agent will effect the release of the related Treasury Security from
the pledge of the Pledge Agreement free and clear of the Company's security
interest therein to the Purchase Contract Agent, which will (i) cancel the 20
Growth PRIDES, (ii) transfer such Treasury Security to such holder and (iii)
deliver 20 Income PRIDES to such holder; provided, however, if a Tax Event
Redemption has occurred prior to the Purchase Contract Settlement Date and the
Treasury Portfolio has become a component of the Income PRIDES, holders of
Growth PRIDES may make such substitutions (but using the appropriate Applicable
Ownership Interest of the Treasury Portfolio rather than the Trust Preferred
Securities) at any time on or prior to the second Business Day immediately
preceding the Purchase Contract Settlement Date but only in integral multiples
of 32,000 Growth PRIDES. The substituted Trust Preferred Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as the case
may be, will be pledged with the Collateral Agent to secure the holder's
obligation to purchase Common Stock under the related Purchase Contracts.
CURRENT PAYMENTS
Holders of Income PRIDES are entitled to receive aggregate cash
distributions at a rate of 7% of the Stated Amount per annum from and after
December 12, 1997, payable quarterly in arrears. The quarterly payments on the
Income PRIDES will consist of (i) cumulative cash distributions on the related
Trust Preferred Securities or the Treasury Portfolio, as applicable, payable at
the rate of 6.75% of the Stated Amount per annum and (ii) Contract Adjustment
Payments payable by the Company at the rate of .25% of the Stated Amount per
annum, subject (in the case of distributions on the Trust Preferred Securities
and the Contract Adjustment Payments) to the Company's right of deferral as
described herein.
The ability of the Trust to make the quarterly distributions on the Trust
Preferred Securities is solely dependent upon the receipt of corresponding
interest payments from the Company on the Debentures. The Company has the right
at any time, and from time to time, limited to a period not extending beyond the
maturity of the Debentures, to defer the interest payments on the Debentures. As
a consequence of such deferral, quarterly distributions (unless a Tax Event
Redemption has occurred) to holders of Income PRIDES (or any Trust Preferred
Securities outstanding after the Purchase Contract Settlement Date or after a
substitution of collateral resulting in the creation of Growth PRIDES) would be
deferred (but despite such deferral, would continue to accumulate quarterly and
would accrue interest thereon compounded quarterly at the rate of 6.75% per
annum through and including February 15, 2001, and at the Reset Rate
thereafter). The Company also has the right to defer the payment of Contract
Adjustment Payments on the related Purchase Contracts until the Purchase
Contract Settlement Date; however, deferred Contract Adjustment Payments will
bear additional Contract Adjustment Payments at the rate of 7% per annum (such
deferred installments of Contract Adjustment Payments, together with the
additional Contract Adjustment Payments, shall be referred to as the "Deferred
Contract Adjustment Payments"). See "Description of the Purchase
Contracts -- Contract Adjustment Payments" and "Description of the Trust
Preferred Securities -- Distributions." If a Tax Event Redemption has occurred
and the Treasury Portfolio has become a component of the Income PRIDES,
quarterly distributions on the Treasury Portfolio, as a portion of the
cumulative quarterly distributions to the holders of Income PRIDES, will not be
deferred.
The obligations of the Company under the Debentures are unsecured and will
be subordinate and junior in right of payment, to the extent set forth herein,
to all existing and future Senior Indebtedness of the Company and will be
effectively subordinated to all existing and future liabilities and obligations
of the Company's subsidiaries. As of September 30, 1997, the aggregate amount of
Senior Indebtedness and liabilities and obligations of the Company's
subsidiaries that would have effectively ranked senior to the Debentures was
approximately $28.7 billion. As of September 30, 1997, after giving pro forma
effect to the
S-38
<PAGE> 39
financing for the WNC Merger, the Offering and the application of the proceeds
thereof, the aggregate amount of Senior Indebtedness and liabilities and
obligations of the Company's subsidiaries that would have effectively ranked
senior to the Debentures would have been approximately $28.6 billion. The
Contract Adjustment Payments will be subordinated and junior in right of payment
to all liabilities of the Company (other than the Company's Guarantee with which
they rank pari passu).
In the event a holder of Income PRIDES substituted Treasury Securities for
the related Trust Preferred Securities or the Treasury Portfolio, as the case
may be, such holder would receive on the resulting Growth PRIDES only quarterly
Contract Adjustment Payments, subject to the Company's rights of deferral. In
addition, OID would accrue on the related Treasury Securities.
VOTING AND CERTAIN OTHER RIGHTS
Holders of Trust Preferred Securities, in their capacities as such holders,
will not be entitled to vote to appoint, remove or replace, or to increase or
decrease the number of Regular Trustees and will generally have no voting rights
except in the limited circumstances described under "Description of the Trust
Preferred Securities -- Voting Rights." Holders of Purchase Contracts relating
to the Income PRIDES or Growth PRIDES, in their capacities as such holders, will
have no voting or other rights in respect of the Common Stock.
LISTING OF THE SECURITIES
The Income PRIDES have been approved for listing on the NYSE under the
symbol "CNC PrF", subject to official notice of issuance. If the Growth PRIDES
and Trust Preferred Securities are separately traded, the Company will endeavor
to cause such securities to be listed on such exchange on which the Income
PRIDES are listed, including, if applicable, the NYSE.
NYSE SYMBOL OF COMMON STOCK
The Common Stock is listed on the NYSE under the symbol "CNC."
MISCELLANEOUS
The Company or its affiliates may from time to time purchase any of the
Securities offered hereby which are then outstanding by tender, in the open
market or by private agreement.
DESCRIPTION OF THE PURCHASE CONTRACTS
GENERAL
Each Purchase Contract underlying a FELINE PRIDES (unless earlier
terminated, or earlier settled at the holder's option) will obligate the holder
of such Purchase Contract to purchase, and the Company to sell, on the Purchase
Contract Settlement Date, for an amount in cash equal to the Stated Amount of
such FELINE PRIDES, a number of newly issued shares of Common Stock equal to the
Settlement Rate. The number of newly issued shares of Common Stock issuable upon
settlement of each Purchase Contract on the Purchase Contract Settlement Date
(the "Settlement Rate") will be calculated as follows (subject to adjustment
under certain circumstances): (a) if the Applicable Market Value is equal to or
greater than $53.40 (the "Threshold Appreciation Price," which is approximately
20.34% above the last reported sale price of the Common Stock set forth on the
cover page of this Prospectus Supplement (the "Reference Price")), the
Settlement Rate (which is equal to the Stated Amount divided by the Threshold
Appreciation Price) will be .9363; accordingly, if, between the date of this
Prospectus Supplement and the period during which the Applicable Market Value is
measured, the market price for the Common Stock increases to an amount that is
higher than the Threshold Appreciation Price, the aggregate market value of the
shares of Common Stock issued upon settlement of each Purchase Contract
(assuming that such market value is the same as the Applicable Market Value of
such Common Stock) will be higher than the Stated Amount, and if such market
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<PAGE> 40
price is the same as the Threshold Appreciation Price, the aggregate market
value of such shares (assuming that such market value is the same as the
Applicable Market Value of such Common Stock) will be equal to the Stated
Amount; (b) if the Applicable Market Value is less than the Threshold
Appreciation price but greater than the Reference Price, the Settlement Rate
will be equal to the Stated Amount divided by the Applicable Market Value;
accordingly, if the market price for the Common Stock increases between the date
of this Prospectus Supplement and the period during which the Applicable Market
Value is measured but such market price is less than the Threshold Appreciation
Price, the aggregate market value of the shares of Common Stock issued upon
settlement of each Purchase Contract (assuming that such market value is the
same as the Applicable Market Value of such Common Stock) will be equal to the
Stated Amount; and (c) if the Applicable Market Value is less than or equal to
the Reference Price, the Settlement Rate (which is equal to the Stated Amount
divided by the Reference Price) will be 1.1268 ; accordingly, if the market
price for the Common Stock decreases between the date of this Prospectus
Supplement and the period during which the Applicable Market Value is measured,
the aggregate market value of the shares of Common Stock issued upon settlement
of each Purchase Contract (assuming that such market value is the same as the
Applicable Market Value of such Common Stock) will be less than the Stated
Amount, and if such market price stays the same, the aggregate market value of
such shares (assuming that such market value is the same as the Applicable
Market Value of such Common Stock) will be equal to the Stated Amount.
"Applicable Market Value" means the average of the Closing Prices (as defined
herein) per share of Common Stock on each of the twenty consecutive Trading Days
(as defined herein) ending on the third Trading Day immediately preceding the
Purchase Contract Settlement Date. "Closing Price" of the Common Stock on any
date of determination means the closing sale price (or, if no closing price is
reported, the last reported sale price) of the Common Stock on the NYSE on such
date or, if the Common Stock is not listed for trading on the NYSE on any such
date, as reported in the composite transactions for the principal United States
securities exchange on which the Common Stock is so listed, or if the Common
Stock is not so listed on a United States national or regional securities
exchange, as reported by the Nasdaq Stock Market, or, if the Common Stock is not
so reported, the last quoted bid price for the Common Stock in the
over-the-counter market as reported by the National Quotation Bureau or similar
organization, or, if such bid price is not available, the market value of the
Common Stock on such date as determined by a nationally recognized independent
investment banking firm retained for this purpose by the Company. A "Trading
Day" means a day on which the Common Stock (A) is not suspended from trading on
any national or regional securities exchange or association or over-the-counter
market at the close of business and (B) has traded at least once on the national
or regional securities exchange or association or over-the-counter market that
is the primary market for the trading of the Common Stock.
No fractional shares of Common Stock will be issued by the Company pursuant
to the Purchase Contracts. In lieu of fractional shares otherwise issuable
(calculated on an aggregate basis) in respect of Purchase Contracts being
settled by a holder of Income PRIDES or Growth PRIDES, the holder will be
entitled to receive an amount of cash equal to such fraction of a share times
the Applicable Market Value.
On the Business Day immediately preceding the Purchase Contract Settlement
Date, unless a holder of Income PRIDES or Growth PRIDES (i) has settled the
related Purchase Contracts prior to the Purchase Contract Settlement Date
through the early delivery of cash to the Purchase Contract Agent in the manner
described under "-- Early Settlement," (ii) in the case of Income PRIDES, has
settled the related Purchase Contracts with separate cash on the Business Day
immediately preceding the Purchase Contract Settlement Date pursuant to prior
notice in the manner described under "-- Notice to Settle with Cash", (iii) has
had the Trust Preferred Securities related to such holder's Purchase Contracts
remarketed in the manner described herein in connection with settling such
Purchase Contracts, or (iv) an event described under "-- Termination" below has
occurred, then (A) in the case of Income PRIDES (unless a Tax Event Redemption
has occurred) the Company will exercise its rights as a secured party to dispose
of the Trust Preferred Securities in accordance with applicable law and (B) in
the case of Growth PRIDES or Income PRIDES (in the event that a Tax Event
Redemption has occurred), the principal amount of the related Treasury
Securities or the appropriate Applicable Ownership Interest of the Treasury
Portfolio, as applicable, when paid at maturity, will automatically be applied
to satisfy in full the holder's obligation to purchase Common Stock under the
related Purchase Contracts. Such Common Stock will then be issued and delivered
to such holder or such holder's
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<PAGE> 41
designee, upon presentation and surrender of the certificate evidencing such
FELINE PRIDES (a "FELINE PRIDES Certificate") and payment by the holder of any
transfer or similar taxes payable in connection with the issuance of the Common
Stock to any person other than such holder. In the event that a holder of either
Income PRIDES or Growth PRIDES effects the early settlement of the related
Purchase Contracts through the delivery of cash or, in the case of Income
PRIDES, settles the related Purchase Contracts with cash on the Business Day
immediately preceding the Purchase Contract Settlement Date, the related Trust
Preferred Securities or Treasury Securities, as the case may be, will be
released to the holder as described herein. The funds received by the Collateral
Agent on the Business Day immediately preceding the Purchase Contract Settlement
Date, upon cash settlement of a Purchase Contract, will be promptly invested in
overnight permitted investments and paid to the Company on the Purchase Contract
Settlement Date. Any funds received by the Collateral Agent in respect of the
interest earned from the overnight investment in permitted investments will be
distributed to the Purchase Contract Agent for payment to the holders.
Prior to the date on which shares of Common Stock are issued in settlement
of Purchase Contracts, the Common Stock underlying the related Purchase
Contracts will not be deemed to be outstanding for any purpose and the holders
of such Purchase Contracts will not have any voting rights, rights to dividends
or other distributions or other rights or privileges of a stockholder of the
Company by virtue of holding such Purchase Contracts. See "Description of the
Trust Preferred Securities -- Voting Rights."
Each holder of Income PRIDES or Growth PRIDES, by acceptance thereof, will
under the terms of the Purchase Contract Agreement and the related Purchase
Contracts be deemed to have (a) irrevocably agreed to be bound by the terms of
the related Purchase Contracts and the Pledge Agreement for so long as such
holder remains a holder of such FELINE PRIDES, and (b) duly appointed the
Purchase Contract Agent as such holder's attorney-in-fact to enter into and
perform the related Purchase Contracts on behalf of and in the name of such
holder. In addition, each beneficial owner of Income PRIDES or Growth PRIDES, by
acceptance of such interest, will be deemed to have agreed to treat (i) itself
as the owner of the related Trust Preferred Securities, the appropriate
Applicable Ownership Interest of the Treasury Portfolio or Treasury Securities,
as the case may be, and (ii) the Debentures as indebtedness of the Company, in
each case, for United States federal, state and local income and franchise tax
purposes.
REMARKETING
Pursuant to the Remarketing Agreement and subject to the terms of the
Remarketing Underwriting Agreement between the Remarketing Agent, the Purchase
Contract Agent, the Company and the Trust, the Trust Preferred Securities of
Income PRIDES holders' who have failed to notify the Purchase Contract Agent, on
or prior to the fifth Business Day immediately preceding the Purchase Contract
Settlement Date in the manner described under "-- Notice to Settle with Cash" of
their intention to settle the related Purchase Contracts with separate cash on
the Business Day immediately preceding the Purchase Contract Settlement Date,
will be remarketed on the third Business Day immediately preceding the Purchase
Contract Settlement Date. The Remarketing Agent will use its reasonable efforts
to remarket such Trust Preferred Securities on such date at a price of
approximately 100.5% of the aggregate stated liquidation amount of such Trust
Preferred Securities, plus accrued and unpaid distributions (including deferred
distributions), if any, thereon. The portion of the proceeds from such
remarketing equal to the aggregate stated liquidation amount of such Trust
Preferred Securities will automatically be applied to satisfy in full such
Income PRIDES holders' obligations to purchase Common Stock under the related
Purchase Contracts. In addition, after deducting as the Remarketing Fee an
amount not exceeding 25 basis points (.25%) of the aggregate stated liquidation
amount of the remarketed securities, from any amount of such proceeds in excess
of the aggregate stated liquidation amount of the remarketed Trust Preferred
Securities plus any accrued and unpaid distributions (including deferred
distributions, if any), the Remarketing Agent will remit the remaining portion
of the proceeds, if any, for the benefit of such holder. Income PRIDES holders
whose Trust Preferred Securities are so remarketed will not otherwise be
responsible for the payment of any Remarketing Fee in connection therewith. If,
in spite of using its reasonable efforts, the Remarketing Agent cannot remarket
the related Trust Preferred Securities of such holders of Income PRIDES at a
price not less than 100% of the aggregate stated liquidation amount of such
Trust Preferred Securities plus accrued and unpaid distributions (including
deferred distributions) and thus resulting in a Failed Remarketing, the Company
will exercise its rights as a
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secured party to dispose of the Trust Preferred Securities in accordance with
the applicable law and satisfy in full, from the proceeds of such disposition,
such holder's obligation to purchase Common Stock under the related Purchase
Contracts; provided, that if the Company exercises such rights as a secured
creditor, any accrued and unpaid distributions (including any deferred
distributions) on such Trust Preferred Securities will be paid in cash by the
Company to the holders of record of such Trust Preferred Securities. The Company
will cause a notice of such Failed Remarketing to be published on the second
Business Day immediately preceding the Purchase Contract Settlement Date by
publication in a daily newspaper in the English language of general circulation
in The City of New York, which is expected to be The Wall Street Journal. In
addition, the Company will request, not later than seven nor more than 15
calendar days prior to the remarketing date, that the Depository notify its
participants holding Trust Preferred Securities, Income PRIDES and Growth PRIDES
of such remarketing and of the procedures that must be followed if a Trust
Preferred Security holder wishes to exercise its right to put its Trust
Preferred Security to the Company as described herein. The Company will endeavor
to ensure that a registration statement with regard to the full amount of the
Trust Preferred Securities to be remarketed shall be effective in such form as
will enable the Remarketing Agent to rely on it in connection with the
remarketing process. It is currently anticipated that Merrill Lynch, Pierce,
Fenner & Smith Incorporated will be the Remarketing Agent.
EARLY SETTLEMENT
A holder of Income PRIDES may settle the related Purchase Contracts on or
prior to the fifth Business Day immediately preceding the Purchase Contract
Settlement Date by presenting and surrendering the FELINE PRIDES Certificate
evidencing such Income PRIDES at the offices of the Purchase Contract Agent with
the form of "Election to Settle Early" on the reverse side of such certificate
completed and executed as indicated, accompanied by payment (payable to the
Company in immediately available funds) of an amount equal to the Stated Amount
times the number of Purchase Contracts being settled; provided, however, if a
Tax Event Redemption has occurred prior to the Purchase Contract Settlement Date
and the Treasury portfolio has become a component of the Income PRIDES, holders
of such Income PRIDES may settle early only in integral multiples of 32,000
Income PRIDES (and the related appropriate Applicable Ownership Interest of the
Treasury Portfolio) at any time on or prior to the second Business Day
immediately preceding the Purchase Contract Settlement Date. A holder of Growth
PRIDES may settle the related Purchase Contracts on or prior to the second
Business Day immediately preceding the Purchase Contract Settlement Date by
presenting and surrendering the FELINE PRIDES Certificate evidencing such Growth
PRIDES at the offices of the Purchase Contract Agent with the form of "Election
to Settle Early" on the reverse side of such certificate completed and executed
as indicated, accompanied by payment in immediately available funds of an amount
equal to the Stated Amount times the number of Purchase Contracts being settled.
So long as the FELINE PRIDES are evidenced by one or more global security
certificates deposited with the Depositary (as defined herein), procedures for
early settlement will also be governed by standing arrangements between the
Depositary and the Purchase Contract Agent.
Upon Early Settlement of the Purchase Contracts related to any Income
PRIDES or Growth PRIDES, (a) the holder will receive .9363 newly issued shares
of Common Stock per Income PRIDES or Growth PRIDES having a Stated Amount of $50
(regardless of the market price of the Common Stock on the date of such Early
Settlement), subject to adjustment under the circumstances described in
"-- Anti-Dilution Adjustments" below, (b) the Trust Preferred Securities, the
appropriate Applicable Ownership Interest of the Treasury Portfolio or Treasury
Securities, as the case may be, related to such Income PRIDES or Growth PRIDES
will thereupon be transferred to the holder free and clear of the Company's
security interest therein, (c) the holder's right to receive Deferred Contract
Adjustment Payments, if any, on the Purchase Contracts being settled will be
forfeited, (d) the holder's right to receive future Contract Adjustment Payments
will terminate and (e) no adjustment will be made to or for the holder on
account of Deferred Contract Adjustment Payments, if any, or any amounts accrued
in respect of Contract Adjustment Payments.
If the Purchase Contract Agent receives a FELINE PRIDES Certificate,
accompanied by the completed "Election to Settle Early" and requisite
immediately available funds, from a holder of FELINE PRIDES by 5:00 p.m., New
York City time, on a Business Day, that day will be considered the settlement
date. If the Purchase Contract Agent receives the foregoing after 5:00 p.m., New
York City time, on a Business Day or at
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any time on a day that is not a Business Day (other than from Income PRIDES
holders after the occurrence of a Tax Event Redemption), the next Business Day
will be considered the settlement date.
Upon Early Settlement of Purchase Contracts in the manner described above,
presentation and surrender of the FELINE PRIDES Certificate evidencing the
related Income PRIDES or Growth PRIDES and payment of any transfer or similar
taxes payable by the holder in connection with the issuance of the related
Common Stock to any person other than the holder of such Income PRIDES or Growth
PRIDES, the Company will cause the shares of Common Stock being purchased to be
issued, and the related Trust Preferred Securities, the appropriate Applicable
Ownership Interest of the Treasury Portfolio or Treasury Securities, as the case
may be, securing such Purchase Contracts to be released from the pledge under
the Pledge Agreement (described in "-- Pledged Securities and Pledge Agreement")
and transferred, within three Business Days following the settlement date, to
the purchasing holder or such holder's designee.
NOTICE TO SETTLE WITH CASH
A holder of an Income PRIDES or Growth PRIDES wishing to settle the related
Purchase Contract with separate cash on the Business Day immediately preceding
the Purchase Contract Settlement Date must notify the Purchase Contract Agent by
presenting and surrendering the FELINE PRIDES Certificate evidencing such Income
PRIDES or Growth PRIDES at the offices of the Purchase Contract Agent with the
form of "Notice to Settle by Separate Cash" on the reverse side of the
certificate completed and executed as indicated on or prior to 5:00 p.m., New
York City time, on the second Business Day immediately preceding the Purchase
Contract Settlement Date in the case of a Growth PRIDES holder or an Income
PRIDES holder (if a Tax Event Redemption has occurred) and on the fifth Business
Day immediately preceding the Purchase Contract Settlement Date in the case of
Income PRIDES holder. If a holder that has given notice of such holder's
intention to settle the related Purchase Contract with separate cash fails to
deliver such cash on the Business Day immediately preceding the Purchase
Contract Settlement Date, then the Company will exercise its right as a secured
party to dispose of, in accordance with the applicable law, the related Trust
Preferred Securities or Treasury Securities, as the case may be, to satisfy in
full, from the disposition of such Trust Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, such holder's
obligation to purchase Common Stock under the related Purchase Contract.
CONTRACT ADJUSTMENT PAYMENTS
Contract Adjustment Payments will be fixed at a rate per annum of .25% of
the Stated Amount per Purchase Contract. Contract Adjustment Payments that are
not paid when due (after giving effect to any permitted deferral thereof) will
bear interest thereon at the rate per annum of 7% thereof, compounded quarterly,
until paid. Contract Adjustment Payments payable for any period will be computed
on the basis of a 360-day year of twelve 30-day months. Contract Adjustment
Payments will accrue from December 12, 1997 and will be payable quarterly in
arrears on February 16, May 16, August 16 and November 16 of each year,
commencing February 16, 1998.
Contract Adjustment Payments will be payable to the holders of Purchase
Contracts as they appear on the books and records of the Purchase Contract Agent
on the relevant record dates, which, as long as the Income PRIDES or Growth
PRIDES remain in book-entry only form, will be one Business Day prior to the
relevant payment dates. Such distributions will be paid through the Purchase
Contract Agent who will hold amounts received in respect of the Contract
Adjustment Payments for the benefit of the holders of the Purchase Contracts
relating to such Income PRIDES or Growth PRIDES. Subject to any applicable laws
and regulations, each such payment will be made as described under "--
Book-Entry System." In the event that the Income PRIDES or Growth PRIDES do
not continue to remain in book-entry only form, the Company shall have the
right to select relevant record dates, which shall be more than one Business
Day but less than 60 Business Days prior to the relevant payment dates. In the
event that any date on which Contract Adjustment Payments are to be made on
the Purchase Contracts related to the Income PRIDES or Growth PRIDES is not a
Business Day, then payment of the Contract Adjustment Payments payable on such
date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such
payment shall
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be made on the immediately preceding Business Day, in each case with the same
force and effect as if made on such payment date. A "Business Day" shall mean
any day other than Saturday, Sunday or any other day on which banking
institutions in New York City (in the State of New York) are permitted or
required by any applicable law to close.
The Company's obligations with respect to Contract Adjustment Payments will
be subordinated and junior in right of payment to all liabilities of the Company
(other than the Guarantee; with which they rank pari passu).
OPTION TO DEFER CONTRACT ADJUSTMENT PAYMENTS
The Company may, at its option and upon prior written notice to the holders
of the FELINE PRIDES and the Purchase Contract Agent, defer the payment of
Contract Adjustment Payments on the Purchase Contracts until no later than the
Purchase Contract Settlement Date. However, Deferred Contract Adjustment
Payments, if any, will bear additional Contract Adjustment Payments at the rate
of 7% per annum (compounding on each succeeding Payment Date) until paid. If the
Purchase Contracts are terminated (upon the occurrence of certain events of
bankruptcy, insolvency or reorganization with respect to the Company), the right
to receive Contract Adjustment Payments and Deferred Contract Adjustment
Payments, if any, will also terminate.
In the event that the Company elects to defer the payment of Contract
Adjustment Payments on the Purchase Contracts until the Purchase Contract
Settlement Date, each holder of FELINE PRIDES will receive on the Purchase
Contract Settlement Date in respect of the Deferred Contract Adjustment
Payments, in lieu of a cash payment, a number of shares of Common Stock equal to
(x) the aggregate amount of Deferred Contract Adjustment Payments payable to
such holder divided by (y) the Applicable Market Value.
In the event the Company exercises its option to defer the payment of
Contract Adjustment Payments, until the Deferred Contract Adjustment Payments
have been paid, the Company shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock or make guarantee
payments with respect to the foregoing (other than (i) purchases or acquisitions
of capital stock of the Company in connection with the satisfaction by the
Company of its obligations under any employee or agent benefit plans or the
satisfaction by the Company of its obligations pursuant to any contract or
security outstanding on the date of such event requiring the Company to purchase
capital stock of the Company, (ii) as a result of a reclassification of the
Company's capital stock or the exchange or conversion of one class or series of
the Company's capital stock for another class or series of the Company capital
stock, (iii) the purchase of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of the Company
capital stock or the security being converted or exchanged, (iv) dividends or
distributions in capital stock of the Company (or rights to acquire capital
stock) or repurchases or redemptions of capital stock solely from the issuance
or exchange of capital stock or (v) redemptions or repurchases of any rights
outstanding under a shareholder rights plan).
ANTI-DILUTION ADJUSTMENTS
The formula for determining the Settlement Rate will be subject to
adjustment (without duplication) upon the occurrence of certain events,
including: (a) the payment of dividends (and other distributions) of Common
Stock on Common Stock; (b) the issuance to all holders of Common Stock of
rights, warrants or options entitling them, for a period of up to 45 days, to
subscribe for or purchase Common Stock at less than the Current Market Price (as
defined herein) thereof; (c) subdivisions, splits and combinations of Common
Stock; (d) distributions to all holders of Common Stock of evidences of
indebtedness of the Company, shares of capital stock, securities, cash or
property (excluding any dividend or distribution covered by clause (a) or (b)
above and any dividend or distribution paid exclusively in cash); (e)
distributions consisting exclusively of cash to all holders of Common Stock in
an aggregate amount that, together with (i) other all-cash distributions made
within the preceding 12 months and (ii) any cash and the fair market value, as
of the expiration of the tender or exchange offer referred to below, of
consideration payable in respect of any tender or exchange offer by the Company
or a subsidiary thereof for the Common Stock concluded within the preceding 12
months, exceeds 15% of the Company's aggregate market capitalization (such
aggregate market
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capitalization being the product of the Current Market Price of the Common Stock
multiplied by the number of shares of Common Stock then outstanding) on the date
of such distribution; and (f) the successful completion of a tender or exchange
offer made by the Company or any subsidiary thereof for the Common Stock which
involves an aggregate consideration that, together with (i) any cash and the
fair market value of other consideration payable in respect of any tender or
exchange offer by the Company or a subsidiary thereof for the Common Stock
concluded within the preceding 12 months and (ii) the aggregate amount of any
all-cash distributions to all holders of the Company's Common Stock made within
the preceding 12 months, exceeds 15% of the Company's aggregate market
capitalization on the expiration of such tender or exchange offer. The "Current
Market Price" per share of Common Stock on any day means the average of the
daily Closing Prices for the 5 consecutive Trading Days selected by the Company
commencing not more than 30 Trading Days before, and ending not later than, the
earlier of the day in question and the day before the "ex date" with respect to
the issuance or distribution requiring such computation. For purposes of this
paragraph, the term "ex date", when used with respect to any issuance or
distribution, shall mean the first date on which the Common Stock trades regular
way on such exchange or in such market without the right to receive such
issuance or distribution.
In the case of certain reclassifications, consolidations, mergers, sales or
transfers of assets or other transactions pursuant to which the Common Stock is
converted into the right to receive other securities, cash or property, each
Purchase Contract then outstanding would, without the consent of the holders of
the related Income PRIDES or Growth PRIDES, as the case may be, become a
contract to purchase only the kind and amount of securities, cash and other
property receivable upon consummation of the transaction by a holder of the
number of shares of Common Stock which would have been received by the holder of
the related Income PRIDES or Growth PRIDES immediately prior to the date of
consummation of such transaction if such holder had then settled such Purchase
Contract.
If at any time the Company makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
United States federal income tax purposes (i.e., distributions of evidences of
indebtedness or assets of the Company, but generally not stock dividends or
rights to subscribe to capital stock) and, pursuant to the Settlement Rate
adjustment provisions of the Purchase Contract Agreement, the Settlement Rate is
increased, such increase may give rise to a taxable dividend to holders of
FELINE PRIDES. See "Certain Federal Income Tax Consequences -- Income
PRIDES -- Purchase Contracts -- Adjustment to Settlement Rate."
In addition, the Company may make such increases in the Settlement Rate as
the Board of Directors of the Company deems advisable to avoid or diminish any
income tax to holders of its capital stock resulting from any dividend or
distribution of capital stock (or rights to acquire capital stock) or from any
event treated as such for income tax purposes or for any other reasons.
Adjustments to the Settlement Rate will be calculated to the nearest
1/10,000th of a share. No adjustment in the Settlement Rate shall be required
unless such adjustment would require an increase or decrease of at least one
percent in the Settlement Rate; provided, however, that any adjustments which by
reason of the foregoing are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
The Company will be required, within ten Business Days following the
adjustment of the Settlement Rate, to provide written notice to the Purchase
Contract Agent of the occurrence of such event and a statement in reasonable
detail setting forth the method by which the adjustment to the Settlement Rate
was determined and setting forth the revised Settlement Rate.
Each adjustment to the Settlement Rate will result in a corresponding
adjustment to the number of shares of Common Stock issuable upon early
settlement of a Purchase Contract.
TERMINATION
The Purchase Contracts, and the rights and obligations of the Company and
of the holders of the FELINE PRIDES thereunder (including the right thereunder
to receive accrued Contract Adjustment
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Payments or Deferred Contract Adjustment Payments and the right and obligation
to purchase Common Stock), will automatically terminate upon the occurrence of
certain events of bankruptcy, insolvency or reorganization with respect to the
Company. Upon such termination, the Collateral Agent will release the related
Trust Preferred Securities, the appropriate Applicable Ownership Interest of the
Treasury Portfolio or Treasury Securities, as the case may be, held by it to the
Purchase Contract Agent for distribution to the holders, subject in the case of
the Treasury Portfolio to the Purchase Contract Agent's disposition of the
subject securities for cash and the payment of such cash to the holders to the
extent that the holders would otherwise have been entitled to receive less than
$1,000 of any such security. Upon such termination, however, such release and
distribution may be subject to a delay. In the event that the Company becomes
the subject of a case under the Bankruptcy Code, such delay may occur as a
result of the automatic stay under the Bankruptcy Code and continue until such
automatic stay has been lifted. The Company expects any such delay to be
limited.
PLEDGED SECURITIES AND PLEDGE AGREEMENT
The Trust Preferred Securities related to the Income PRIDES or, if
substituted, the Treasury Securities related to the Growth PRIDES, or the
Treasury Portfolio if a Tax Event Redemption has occurred prior to the Purchase
Contract Settlement Date (collectively, the "Pledged Securities") will be
pledged to the Collateral Agent, for the benefit of the Company, pursuant to the
Pledge Agreement to secure the obligations of holders of FELINE PRIDES to
purchase Common Stock under the related Purchase Contracts. The rights of
holders of FELINE PRIDES to the related Pledged Securities will be subject to
the Company's security interest therein created by the Pledge Agreement. No
holder of Income PRIDES or Growth PRIDES will be permitted to withdraw the
Pledged Securities related to such Income PRIDES or Growth PRIDES from the
pledge arrangement except (i) to substitute Treasury Securities for the related
Trust Preferred Securities or the appropriate Applicable Ownership Interest of
the Treasury Portfolio, as the case may be, (ii) to substitute Trust Preferred
Securities or the appropriate Applicable Ownership Interest of the Treasury
Portfolio, as the case may be, for the related Treasury Securities (for both (i)
and (ii), as provided for under "Description of the FELINE
PRIDES -- Substitution of Pledged Securities" and "-- Recreating Income PRIDES")
or (iii) upon the termination or Early Settlement of the related Purchase
Contracts. Subject to such security interest and the terms of the Purchase
Contract Agreement and the Pledge Agreement, each holder of Income PRIDES
(unless a Tax Event Redemption has occurred) will be entitled through the
Purchase Contract Agent and the Collateral Agent to all of the proportional
rights and preferences of the related Trust Preferred Securities (including
distribution, voting, redemption, repayment and liquidation rights), and each
holder of Growth PRIDES or Income PRIDES (if a Tax Event Redemption has
occurred) will retain beneficial ownership of the related Treasury Securities or
the appropriate Applicable Ownership Interest of the Treasury Portfolio, as
applicable, pledged in respect of the related Purchase Contracts. The Company
will have no interest in the Pledged Securities other than its security
interest.
Except as described in "Description of the Purchase Contracts -- General,"
the Collateral Agent will, upon receipt of distributions on the Pledged
Securities, distribute such payments to the Purchase Contract Agent, which will
in turn distribute those payments, together with Contract Adjustment Payments
received from the Company, to the persons in whose names the related Income
PRIDES or Growth PRIDES are registered at the close of business on the Record
Date immediately preceding the date of such distribution.
BOOK ENTRY-SYSTEM
The Depository Trust Company (the "Depositary") will act as securities
depositary for the FELINE PRIDES. The FELINE PRIDES will be issued only as
fully-registered securities registered in the name of Cede & Co. (the
Depositary's nominee). One or more fully-registered global security certificates
("Global Security Certificates"), representing the total aggregate number of
FELINE PRIDES, will be issued and will be deposited with the Depositary and will
bear a legend regarding the restrictions on exchanges and registration of
transfer thereof referred to below.
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The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the FELINE PRIDES so
long as such FELINE PRIDES are represented by Global Security Certificates.
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Depositary holds
securities that its participants ("Participants") deposit with the Depositary.
The Depositary also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations ("Direct Participants").
The Depositary is owned by a number of its Direct Participants and by the NYSE,
the American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the Depositary system is also available to others, such
as securities brokers and dealers, banks and trust companies that clear
transactions through or maintain a direct or indirect custodial relationship
with a Direct Participant either directly or indirectly ("Indirect
Participants"). The rules applicable to the Depositary and its Participants are
on file with the Commission.
No FELINE PRIDES represented by Global Security Certificates may be
exchanged in whole or in part for FELINE PRIDES registered, and no transfer of
Global Security Certificates in whole or in part may be registered, in the name
of any person other than the Depositary or any nominee of the Depositary unless
the Depositary has notified the Company that it is unwilling or unable to
continue as depositary for such Global Security Certificates or has ceased to be
qualified to act as such as required by the Purchase Contract Agreement or there
shall have occurred and be continuing a default by the Company in respect of its
obligations under one or more Purchase Contracts. All FELINE PRIDES represented
by one or more Global Security Certificates or any portion thereof will be
registered in such names as the Depositary may direct.
As long as the Depositary or its nominee is the registered owner of the
Global Security Certificates, such Depositary or such nominee, as the case may
be, will be considered the sole owner and holder of the Global Security
Certificates and all FELINE PRIDES represented thereby for all purposes under
the FELINE PRIDES and the Purchase Contract Agreement. Except in the limited
circumstances referred to above, owners of beneficial interests in Global
Security Certificates will not be entitled to have such Global Security
Certificates or the FELINE PRIDES represented thereby registered in their names,
will not receive or be entitled to receive physical delivery of FELINE PRIDES
Certificates in exchange therefor and will not be considered to be owners or
holders of such Global Security Certificates or any FELINE PRIDES represented
thereby for any purpose under the FELINE PRIDES or the Purchase Contract
Agreement. All payments on the FELINE PRIDES represented by the Global Security
Certificates and all transfers and deliveries of Trust Preferred Securities,
Treasury Portfolio, Treasury Securities and Common Stock with respect thereto
will be made to the Depositary or its nominee, as the case may be, as the holder
thereof.
Ownership of beneficial interests in the Global Security Certificates will
be limited to Participants or persons that may hold beneficial interests through
institutions that have accounts with the Depositary or its nominee. Ownership of
beneficial interests in Global Security Certificates will be shown only on, and
the transfer of those ownership interests will be effected only through, records
maintained by the Depositary or its nominee (with respect to Participants'
interests) or any such Participant (with respect to interests of persons held by
such Participants on their behalf). Procedures for settlement of Purchase
Contracts on the Purchase Contract Settlement Date or upon Early Settlement will
be governed by arrangements among the Depositary, Participants and persons that
may hold beneficial interests through Participants designed to permit such
settlement without the physical movement of certificates. Payments, transfers,
deliveries, exchanges and other matters relating to beneficial interests in
Global Security Certificates may be subject to various policies and procedures
adopted by the Depositary from time to time. None of the Company, the Purchase
Contract Agent or any agent of the Company or the Purchase Contract Agent will
have any responsibility or liability for any aspect of the Depositary's or any
Participant's records relating to, or for payments made on account of,
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beneficial interests in Global Security Certificates, or for maintaining,
supervising or reviewing any of the Depositary's records or any Participant's
records relating to such beneficial ownership interests.
The information in this section concerning the Depositary and its
book-entry system has been obtained from sources that the Company and the Trust
believe to be reliable, but neither the Company nor the Trust takes
responsibility for the accuracy thereof.
CERTAIN PROVISIONS OF THE PURCHASE CONTRACT
AGREEMENT AND THE PLEDGE AGREEMENT
GENERAL
Distributions on the FELINE PRIDES will be payable, Purchase Contracts (and
documents related thereto) will be settled and transfers of the FELINE PRIDES
will be registrable at the office of the Purchase Contract Agent in the Borough
of Manhattan, The City of New York. In addition, in the event that the FELINE
PRIDES do not remain in book-entry form, payment of distributions on the FELINE
PRIDES may be made, at the option of the Company, by check mailed to the address
of the person entitled thereto as shown on the Security Register.
Shares of Common Stock will be delivered on the Purchase Contract
Settlement Date (or earlier upon Early Settlement), or, if the Purchase
Contracts have terminated, the related Pledged Securities will be delivered
potentially after a delay as a result of the imposition of the automatic stay
under the Bankruptcy Code (see "Description of the Purchase
Contracts -- Termination"), in each case upon presentation and surrender of the
FELINE PRIDES Certificate at the office of the Purchase Contract Agent. The
Company expects any such delay to be limited.
If a holder of outstanding Income PRIDES or Growth PRIDES fails to present
and surrender the FELINE PRIDES Certificate evidencing such Income PRIDES or
Growth PRIDES to the Purchase Contract Agent on the Purchase Contract Settlement
Date, the shares of Common Stock issuable in settlement of the related Purchase
Contract and in payment of any Deferred Contract Adjustment Payments will be
registered in the name of the Purchase Contract Agent and, together with any
distributions thereon, shall be held by the Purchase Contract Agent as agent for
the benefit of such holder, until such FELINE PRIDES Certificate is presented
and surrendered or the holder provides satisfactory evidence that such
certificate has been destroyed, lost or stolen, together with any indemnity that
may be required by the Purchase Contract Agent and the Company.
If the Purchase Contracts have terminated prior to the Purchase Contract
Settlement Date, the related Pledged Securities have been transferred to the
Purchase Contract Agent for distribution to the holders entitled thereto and a
holder fails to present and surrender the FELINE PRIDES Certificate evidencing
such holder's Income PRIDES or Growth PRIDES to the Purchase Contract Agent, the
related Pledged Securities delivered to the Purchase Contract Agent and payments
thereon shall be held by the Purchase Contract Agent as agent for the benefit of
such holder, until such FELINE PRIDES Certificate is presented or the holder
provides the evidence and indemnity described above.
The Purchase Contract Agent will have no obligation to invest or to pay
interest on any amounts held by the Purchase Contract Agent pending
distribution, as described above.
No service charge will be made for any registration of transfer or exchange
of the FELINE PRIDES, except for any tax or other governmental charge that may
be imposed in connection therewith.
MODIFICATION
The Purchase Contract Agreement and the Pledge Agreement will contain
provisions permitting the Company and the Purchase Contract Agent or Collateral
Agent, as the case may be, with the consent of the holders of not less than a
majority of the Purchase Contracts at the time outstanding, to modify the terms
of the Purchase Contracts, the Purchase Contract Agreement and the Pledge
Agreement, except that no such
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modification may, without the consent of the holder of each outstanding Purchase
Contract affected thereby, (a) change any Payment Date, (b) change the amount or
type of Pledged Securities related to such Purchase Contract, impair the right
of the holder of any Pledged Securities to receive distributions on such Pledged
Securities (except for the rights of holders of Income PRIDES to substitute
Treasury Securities for the related Trust Preferred Securities or Treasury
Portfolio, as the case may be, or the rights of holders of Growth PRIDES to
substitute Trust Preferred Securities or Treasury Portfolio, as the case may be,
for the related Treasury Securities) or otherwise adversely affect the holder's
rights in or to such Pledged Securities, (c) change the place or currency of
payment or reduce any Contract Adjustment Payments or any Deferred Contract
Adjustment Payments, (d) impair the right to institute suit for the enforcement
of such Purchase Contract, (e) reduce the amount of Common Stock purchasable
under such Purchase Contract, increase the price to purchase Common Stock on
settlement of such Purchase Contract, change the Purchase Contract Settlement
Date or otherwise adversely affect the holder's rights under such Purchase
Contract or (f) reduce the above-stated percentage of outstanding Purchase
Contracts the consent of whose holders is required for the modification or
amendment of the provisions of the Purchase Contracts, the Purchase Contract
Agreement or the Pledge Agreement; provided, that if any amendment or proposal
referred to above would adversely affect only the Income PRIDES or the Growth
PRIDES, then only the affected class of holder will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the consent of the holders of not less than a majority of such
class.
NO CONSENT TO ASSUMPTION
Each holder of Income PRIDES or Growth PRIDES, by acceptance thereof, will
under the terms of the Purchase Contract Agreement and the Income PRIDES or
Growth PRIDES, as applicable, be deemed expressly to have withheld any consent
to the assumption (i.e., affirmance) of the related Purchase Contracts by the
Company or its trustee in the event that the Company becomes the subject of a
case under the Bankruptcy Code.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
The Company will covenant in the Purchase Contract Agreement that it will
not merge or consolidate with any other entity or sell, assign, transfer, lease
or convey all or substantially all of its properties and assets to any person,
firm or corporation unless the Company is the continuing corporation or the
successor corporation is a corporation organized under the laws of the United
States of America or a state thereof and such corporation expressly assumes the
obligations of the Company under the Purchase Contracts, the Debentures, the
Purchase Contract Agreement and the Pledge Agreement, and the Company or such
successor corporation is not, immediately after such merger, consolidation,
sale, assignment, transfer, lease or conveyance, in default in the performance
of any of its obligations thereunder.
TITLE
The Company, the Purchase Contract Agent and the Collateral Agent may treat
the registered owner of any FELINE PRIDES as the absolute owner thereof for the
purpose of making payment and settling the related Purchase Contracts and for
all other purposes.
REPLACEMENT OF FELINE PRIDES CERTIFICATES
In the event that physical certificates have been issued, any mutilated
FELINE PRIDES Certificate will be replaced by the Company at the expense of the
holder upon surrender of such certificate to the Purchase Contract Agent. FELINE
PRIDES Certificates that become destroyed, lost or stolen will be replaced by
the Company at the expense of the holder upon delivery to the Company and the
Purchase Contract Agent of evidence of the destruction, loss or theft thereof
satisfactory to the Company and the Purchase Contract Agent. In the case of a
destroyed, lost or stolen FELINE PRIDES Certificate, an indemnity satisfactory
to the Purchase Contract Agent and the Company may be required at the expense of
the holder of the FELINE PRIDES evidenced by such certificate before a
replacement will be issued.
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Notwithstanding the foregoing, the Company will not be obligated to issue
any Income PRIDES or Growth PRIDES on or after the Purchase Contract Settlement
Date (or after Early Settlement) or after the Purchase Contracts have
terminated. The Purchase Contract Agreement will provide that in lieu of the
delivery of a replacement FELINE PRIDES Certificate following the Purchase
Contract Settlement Date, the Purchase Contract Agent, upon delivery of the
evidence and indemnity described above, will deliver the Common Stock issuable
pursuant to the Purchase Contracts included in the Income PRIDES or Growth
PRIDES evidenced by such certificate, or, if the Purchase Contracts have
terminated prior to the Purchase Contract Settlement Date, transfer the
principal amount of the Pledged Securities included in the Income PRIDES or
Growth PRIDES evidenced by such certificate.
GOVERNING LAW
The Purchase Contract Agreement, the Pledge Agreement and the Purchase
Contracts will be governed by, and construed in accordance with, the laws of the
State of New York.
INFORMATION CONCERNING THE PURCHASE CONTRACT AGENT
The First National Bank of Chicago will be the Purchase Contract Agent. The
Purchase Contract Agent will act as the agent for the holders of Income PRIDES
and Growth PRIDES from time to time. The Purchase Contract Agreement will not
obligate the Purchase Contract Agent to exercise any discretionary actions in
connection with a default under the terms of the Income PRIDES and Growth PRIDES
or the Purchase Contract Agreement.
The Purchase Contract will contain provisions limiting the liability of the
Purchase Contract Agent. The Purchase Contract Agreement will contain provisions
under which the Purchase Contract Agent may resign or be replaced. Such
resignation or replacement would be effective upon the appointment of a
successor.
INFORMATION CONCERNING THE COLLATERAL AGENT
The Chase Manhattan Bank will be the Collateral Agent. The Collateral Agent
will act solely as the agent of the Company and will not assume any obligation
or relationship of agency or trust for or with any of the holders of the Income
PRIDES and Growth PRIDES except for the obligations owed by a pledgee of
property to the owner thereof under the Pledge Agreement and applicable law.
The Pledge Agreement will contain provisions limiting the liability of the
Collateral Agent. The Pledge Agreement will contain provisions under which the
Collateral Agent may resign or be replaced. Such resignation or replacement
would be effective upon the appointment of a successor.
The Chase Manhattan Bank maintains commercial banking relationships with
the Company.
MISCELLANEOUS
The Purchase Contract Agreement will provide that the Company will pay all
fees and expenses related to (i) the offering of the FELINE PRIDES, (ii) the
retention of the Collateral Agent and (iii) the enforcement by the Purchase
Contract Agent of the rights of the holders of the FELINE PRIDES; provided,
however, that holders who elect to substitute the related Pledged Securities,
thereby creating Growth PRIDES or recreating Income PRIDES, shall be responsible
for any fees or expenses payable in connection with such substitution, as well
as any commissions, fees or other expenses incurred in acquiring the Pledged
Securities to be substituted, and the Company shall not be responsible for any
such fees or expenses.
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DESCRIPTION OF THE TRUST PREFERRED SECURITIES
The Trust Preferred Securities, which form a component of the Income
PRIDES, and which, under certain circumstances, will trade separately, will be
issued pursuant to the terms of the Declaration. See "Description of the FELINE
PRIDES -- Substitution of Pledged Securities." The Declaration will be qualified
as an indenture under the Trust Indenture Act. The Institutional Trustee, The
First National Bank of Chicago, an independent trustee, will act as indenture
trustee for the Trust Preferred Securities under the Declaration for purposes of
compliance with the provisions of the Trust Indenture Act. The terms of the
Trust Preferred Securities will include those stated in the Declaration and
those made part of the Declaration by the Trust Indenture Act. The following
summary of certain provisions of the Trust Preferred Securities and the
Declaration is not necessarily complete, and reference is hereby made to the
copy of the Declaration (including the definitions therein of certain terms)
which is filed as an exhibit to the Registration Statement relating to this
Prospectus Supplement, the Trust Act and the Trust Indenture Act. Whenever
particular defined terms are referred to in this Prospectus Supplement, such
defined terms are incorporated herein by reference. The following descriptions
of certain terms of the Trust Preferred Securities offered hereby supplements
and, to the extent inconsistent with, replaces the description of the general
terms and provisions of the Trust Preferred Securities set forth in the
accompanying Prospectus, to which reference is hereby made.
GENERAL
The Declaration authorizes the Regular Trustees to issue on behalf of the
Trust the Trust Securities, which represent undivided beneficial ownership
interests in the assets of the Trust. All of the Common Securities will be
owned, directly or indirectly, by the Company. The Common Securities rank pari
passu, and payments will be made thereon on a pro rata basis, with the Trust
Preferred Securities, except that upon the occurrence and during the continuance
of an Indenture Event of Default, the rights of the holders of the Common
Securities to receive payment of periodic distributions and payments upon
liquidation, redemption and otherwise will be subordinated to the rights of the
holders of the Trust Preferred Securities. The Declaration does not permit the
issuance by the Trust of any securities other than the Trust Securities or the
incurrence of any indebtedness by the Trust. Pursuant to the Declaration, the
Institutional Trustee will own the Debentures purchased by the Trust for the
benefit of the holders of the Trust Securities. The payment of distributions out
of money held by the Trust, and payments upon redemption of the Trust Preferred
Securities or liquidation of the Trust, are guaranteed by the Company to the
extent described under "Description of the Guarantee." The Guarantee, when taken
together with the Company's obligations under the Debentures and the Indenture
and its obligations under the Declaration, including the obligations to pay
costs, expenses, debts and liabilities of the Trust (other than with respect to
the Trust Preferred Securities), provides a full and unconditional guarantee of
amounts due on the Trust Preferred Securities. The Guarantee will be held by The
First National Bank of Chicago, the Guarantee Trustee, for the benefit of the
holders of the Trust Preferred Securities. The Guarantee does not cover payment
of distributions when the Trust does not have sufficient available funds to pay
such distributions. In such event, the remedy of a holder of Trust Preferred
Securities is to vote to direct the Institutional Trustee to enforce the
Institutional Trustee's rights under the Debentures (except in the limited
circumstances in which the holder may take direct action). See "-- Declaration
Events of Default" and "-- Voting Rights."
DISTRIBUTIONS
Distributions on the Trust Preferred Securities will be fixed initially at
a rate per annum of 6.75% of the stated liquidation amount of $50 per Trust
Preferred Security. Distributions applicable on the Trust Preferred Securities
that remain outstanding on and after the Purchase Contract Settlement Date will
be reset on the third Business Day immediately preceding the Purchase Contract
Settlement Date. See "-- Market Rate Reset." Distributions in arrears for more
than one quarter will bear interest thereon at the rate of 6.75% per annum
through and including February 15, 2001 and at the Reset Rate thereafter,
compounded quarterly. The term "distribution" as used herein includes any such
interest payable unless otherwise stated. The amount of distributions payable
for any period will be computed on the basis of a 360-day year of twelve 30-day
months.
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Distributions on the Trust Preferred Securities will be cumulative and will
accrue from December 12, 1997 and will be payable quarterly in arrears on
February 16, May 16, August 16, and November 16 of each year, commencing
February 16, 1998, when, as and if funds are available for payment.
Distributions will be made by the Institutional Trustee, except as otherwise
described below.
The Company has the right under the Indenture to defer payments of interest
on the Debentures by extending the interest payment period from time to time on
the Debentures, which right, if exercised, would defer quarterly distributions
on the Trust Preferred Securities (though such distributions would continue to
accrue with interest at the rate of 6.75% per annum through and including
February 15, 2001, and at the Reset Rate thereafter) during any such extended
interest payment period. Such right to extend the interest payment period for
the Debentures is limited to a period, in the aggregate, not extending beyond
the maturity date of the Debentures. In the event that the Company exercises
this right, then (a) the Company shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of capital stock of the Company in connection with the
satisfaction by the Company of its obligations under any employee or agent
benefit plans or the satisfaction by the Company of its obligations pursuant to
any contract or security outstanding on the date of such event requiring the
Company to purchase capital stock of the Company, (ii) as a result of a
reclassification of the Company's capital stock or the exchange or conversion of
one class or series of the Company's capital stock for another class or series
of the Company's capital stock, (iii) the purchase of fractional interests in
shares of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(iv) dividends or distributions in capital stock of the Company (or rights to
acquire capital stock) or repurchases or redemptions of capital stock solely
from the issuance or exchange of capital stock or (v) redemptions or repurchases
of any rights outstanding under a shareholder rights plan), (b) the Company
shall not make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities issued by the Company that rank
junior to such Debentures, and (c) the Company shall not make any guarantee
payments with respect to the foregoing other than pursuant to the Guarantee or
the Common Securities Guarantee. Prior to the termination of any such Extension
Period, the Company may further extend the interest payment period; provided,
that such Extension Period, together with all such previous and further
extensions thereof, may not extend beyond the maturity date of the Debentures.
Upon the termination of any Extension Period and the payment of all amounts then
due, the Company may select a new Extension Period, subject to the above
requirements. See "Description of the Debentures -- Interest" and "-- Option to
Extend Interest Payment Period." If distributions are deferred, the deferred
distributions and accrued interest thereon shall be paid to holders of record of
the Trust Preferred Securities as they appear on the books and records of the
Trust on the record date next following the termination of such Extension
Period.
Distributions on the Trust Preferred Securities must be paid on the dates
payable to the extent that the Trust has funds available in the Property Account
for the payment of such distributions. The Trust's funds available for
distribution to the holders of the Trust Preferred Securities will be limited to
payments received from the Company on the Debentures. See "Description of the
Debentures." The payment of distributions out of moneys held by the Trust is
guaranteed by the Company to the extent set forth under "Description of the
Guarantee." Distributions on the Trust Preferred Securities will be payable to
the holders thereof, including the Collateral Agent, as they appear on the books
and records of the Trust on the relevant record dates, which, as long as the
Trust Preferred Securities remain in book-entry only form, will be one Business
Day prior to the relevant payment dates. Such distributions will be paid through
the Institutional Trustee who will hold amounts received in respect of the
Debentures in the Property Account for the benefit of the holders of the Trust
Preferred Securities. Subject to any applicable laws and regulations and the
provisions of the Declaration, each such payment will be made as described under
"-- Book-Entry Only Issuance -- The Depository Trust Company" below. In the
event that the Trust Preferred Securities do not continue to remain in
book-entry form, the Regular Trustees shall have the right to select relevant
record dates, which shall be more than one Business Day but less than 60
Business Days prior to the relevant payment dates. In the event that any date on
which distributions are to be made on the Trust Preferred Securities is not a
Business Day, then payment of the distributions payable on such date will be
made on the next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay), except that, if such
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Business Day is in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day, in each case with the same force and
effect as if made on such record date.
MARKET RATE RESET
The applicable quarterly distribution rate on the Trust Preferred
Securities and the interest rate on the related Debentures that remain
outstanding on and after the Purchase Contract Settlement Date will be reset on
the third Business Day immediately preceding the Purchase Contract Settlement
Date to the Reset Rate, which will be equal to the sum of the Reset Spread and
the rate on the Two-Year Benchmark Treasury in effect on the third Business Day
immediately preceding the Purchase Contract Settlement Date and will be
determined by the Reset Agent as the rate the Trust Preferred Securities should
bear in order for a Trust Preferred Security to have an approximate market value
on the third Business Day immediately preceding the Purchase Contract Settlement
Date of 100.5% of the Stated Amount; provided that the Company may limit such
Reset Rate to be no higher than the rate on the Two-Year Benchmark Treasury on
the Purchase Contract Settlement Date plus 200 basis points (2%). Such market
value may be less than 100.5% if the Reset Spread is limited to a maximum of 2%.
The "Two-Year Benchmark Treasury" shall mean direct obligations of the United
States (which may be obligations traded on a when-issued basis only) having a
maturity comparable to the remaining term to maturity of the Trust Preferred
Securities, as agreed upon by the Company and the Reset Agent. The rate for the
Two-Year Benchmark Treasury will be the bid side rate displayed at 10:00 A.M.,
New York City time, on the third Business Day immediately preceding the Purchase
Contract Settlement Date in the Telerate system (or if the Telerate system is
(a) no longer available on the third Business Day immediately preceding the
Purchase Contract Settlement Date or (b) in the opinion of the Reset Agent
(after consultation with the Company) no longer an appropriate system from which
to obtain such rate, such other nationally recognized quotation system as, in
the opinion of the Reset Agent (after consultation with the Company) is
appropriate). If such rate is not so displayed, the rate for the Two-Year
Benchmark Treasury shall be, as calculated by the Reset Agent, the yield to
maturity for the Two-Year Benchmark Treasury, expressed as a bond equivalent on
the basis of a year of 365 or 366 days, as applicable, and applied on a daily
basis, and computed by taking the arithmetic mean of the secondary market bid
rates, as of 10:30 A.M., New York City time, on the third Business Day
immediately preceding the Purchase Contract Settlement Date of three leading
United States government securities dealers selected by the Reset Agent (after
consultation with the Company) (which may include the Reset Agent or an
affiliate thereof). The Company may limit the Reset Rate to be no higher than
the rate on the Two-Year Benchmark Treasury on the third Business Day
immediately preceding the Purchase Contract Settlement Date plus 200 basis
points (2%). It is currently anticipated that Merrill Lynch, Pierce, Fenner &
Smith Incorporated will be the investment banking firm acting as the Reset
Agent.
On the tenth Business Day immediately preceding the Purchase Contract
Settlement Date, the Two-Year Benchmark Treasury to be used to determine the
Reset Rate on the Purchase Contract Settlement Date will be selected and the
Reset Spread to be added to the rate on the Two-Year Benchmark Treasury in
effect on the third Business Day immediately preceding the Purchase Contract
Settlement Date will be established by the Reset Agent, and the Reset Spread and
the Two-Year Benchmark Treasury will be announced by the Company (the "Reset
Announcement Date"). The Company will cause a notice of the Reset Spread and
such Two-Year Benchmark Treasury to be published on the Business Day following
the Reset Announcement Date by publication in a daily newspaper in the English
language of general circulation in The City of New York, which is expected to be
The Wall Street Journal. The Company will request, not later than 7 nor more
than 15 calendar days prior to the Reset Announcement Date, that the Depositary
notify its participants holding Trust Preferred Securities, Income PRIDES or
Growth PRIDES of such Reset Announcement Date and of the procedures that must be
followed if any owner of FELINE PRIDES wishes to settle the related Purchase
Contract with cash on the Business Day immediately preceding the Purchase
Contract Settlement Date.
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OPTIONAL REDEMPTION
The Debentures are redeemable at the option of the Company, in whole but
not in part, on not less than 30 days nor more than 60 days notice, upon the
occurrence and continuation of a Tax Event under the circumstances described
under "Description of the Debentures -- Tax Event Redemption". If the Company
redeems the Debentures upon the occurrence and continuation of a Tax Event, the
proceeds from such repayment shall simultaneously be applied on a pro rata basis
to redeem Trust Preferred Securities having an aggregate stated liquidation
amount equal to the aggregate principal amount of the Debentures so redeemed at
a Redemption Price, per Trust Preferred Security, equal to the Redemption Amount
plus accrued and unpaid interest thereon to the date of such redemption. Such
proceeds will be payable in cash to the holders of such Trust Preferred
Securities. If the Tax Event Redemption occurs prior to the Purchase Contract
Settlement Date, the Redemption Price payable to the Collateral Agent, in
liquidation of the Income PRIDES holders' interests in the Trust, will be
simultaneously applied by the Collateral Agent to purchase on behalf of the
holders' of the Income PRIDES the Treasury Portfolio. The Treasury Portfolio
will be pledged with the Collateral Agent to secure the obligation of Income
PRIDES holders' to purchase Common Stocks under the related Purchase Contracts.
If a Failed Remarketing has occurred, holders of Trust Securities
(including, following the distribution of the Debentures upon a dissolution of
the Trust as described herein, such Debenture holders) holding such Trust
Securities or Debentures, as the case may be, following the Purchase Contract
Settlement Date will have the right, in the case of Trust Securities, to require
the Trust to put to the Company the related Debentures or, in the case of the
Debentures, to put such Debentures directly to the Company on March 2, 2001,
upon at least three Business Days' prior notice, at a price per Debenture equal
to $50, plus accrued and unpaid interest (including deferred interest), if any,
thereon. Upon the repurchase of such Debentures by the Company, (i) the proceeds
from such repurchase shall simultaneously be applied (in the case of the Trust
Securities) to redeem such Trust Securities of such holder in an aggregate
stated liquidation amount equal to the aggregate principal amount of the
Debentures so repurchased and (ii) any accrued and unpaid distributions,
including deferred distributions, with respect to such Trust Securities will be
paid to such holder in cash.
REDEMPTION PROCEDURES
If the Trust gives a notice of redemption (which notice will be
irrevocable) in respect of all of the Trust Preferred Securities, then, by 12:00
noon, New York City time, on the redemption date, provided that the Company has
paid to the Institutional Trustee sufficient amount of cash in connection with
the related redemption or maturity of the Debentures, the Trust will irrevocably
deposit with the Depositary, the Purchase Contract Agent or the Collateral
Agent, as applicable, funds sufficient to pay the applicable Redemption Price
and will give the Depositary, the Purchase Contract Agent or the Collateral
Agent, as applicable, irrevocable instructions and authority to pay the
Redemption Price to the holders of the Trust Preferred Securities so called for
redemption. If notice of redemption shall have been given and funds deposited as
required, then, immediately prior to the close of business on the date of such
deposit, distributions will cease to accrue and all rights of holders of such
Trust Preferred Securities so called for redemption will cease, except the right
of the holders of such Trust Preferred Securities to receive the Redemption
Price but without interest on such Redemption Price. In the event that any date
fixed for redemption of Trust Preferred Securities is not a Business Day, then
payment of the Redemption Price payable on such date will be made on the next
succeeding day that is a Business Day (without any interest or other payment in
respect of any such delay), except that, if such Business Day falls in the next
calendar year, such payment will be made on the immediately preceding Business
Day.
DISTRIBUTION OF THE DEBENTURES
"Investment Company Event" means that the Regular Trustees shall have
received an opinion from independent counsel experienced in practice under the
1940 Act (as defined below) to the effect that, as a result of the occurrence of
a change in law or regulation or a written change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in
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1940 Act Law"), which Change in 1940 Act Law becomes effective on or after the
date of this Prospectus Supplement, there is more than an insubstantial risk
that the Trust is or will be considered an "investment company" which is
required to be registered under the Investment Company Act of 1940, as amended
(the "1940 Act").
If, at any time, an Investment Company Event shall occur and be continuing,
the Trust shall be dissolved, with the result that Debentures with an aggregate
principal amount equal to the aggregate stated liquidation amount of, with an
interest rate identical to the distribution rate of, and accrued and unpaid
interest equal to accrued and unpaid distributions on, the Trust Securities,
would be distributed to the holders of the Trust Securities in liquidation of
such holders' interests in the Trust on a pro rata basis within 90 days
following the occurrence of such Investment Company Event; provided, however,
that such dissolution and distribution shall be conditioned on the Company being
unable to avoid such Investment Company Event within such 90-day period by
taking some ministerial action or pursuing some other similar reasonable measure
that will have no adverse effect on the Trust, the Company or the holders of the
Trust Securities and will involve no material cost. If an Investment Company
Event occurs, Debentures distributed to the Collateral Agent in liquidation of
such holder's interest in the Trust would be pledged (in lieu of the Trust
Preferred Securities) to secure Income PRIDES holders' obligations to purchase
Common Stock under the Purchase Contracts.
The Company will have the right at any time to dissolve the Trust and,
after satisfaction of liabilities of creditors of the Trust as provided by
applicable law, cause the Debentures to be distributed to the holders of the
Trust Securities. As of the date of any distribution of Debentures upon
dissolution of the Trust, (i) the Trust Preferred Securities will no longer be
deemed to be outstanding, (ii) the Depositary or its nominee, as the record
holder of the Trust Preferred Securities, will receive a registered global
certificate or certificates representing the Debentures to be delivered upon
such distribution, and (iii) any certificates representing Trust Preferred
Securities not held by the Depositary or its nominee will be deemed to represent
Debentures having an aggregate principal amount equal to the aggregate stated
liquidation amount of, with an interest rate identical to the distribution rate
of, and accrued and unpaid interest equal to accrued and unpaid distributions
on, such Trust Preferred Securities until such certificates are presented to the
Company or its agent for transfer or reissuance. Debentures distributed to the
Collateral Agent in liquidation of the interest of the holders of the Trust
Preferred Securities in the Trust would be substituted for the Trust Preferred
Securities and pledged to secure Income PRIDES holders' obligations to purchase
Common Stock under the Purchase Contracts.
There can be no assurance as to the market prices for either the Trust
Preferred Securities or the Debentures that may be distributed in exchange for
the Trust Preferred Securities if a dissolution of the Trust were to occur.
Accordingly, the Trust Preferred Securities or such Debentures that an investor
may receive if a dissolution of the Trust were to occur may trade at a discount
to the price that the investor paid to purchase the Trust Preferred Securities
forming a part of the Income PRIDES offered hereby.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary dissolution of the Trust
(unless a Tax Event Redemption has occurred), the then holders of the Trust
Preferred Securities will be entitled to receive out of the assets of the Trust,
after satisfaction of liabilities to creditors, Debentures in an aggregate
principal amount equal to the aggregate stated liquidation amount of, with an
interest rate identical to the distribution rate of, and accrued and unpaid
interest equal to accrued and unpaid distributions on, the Trust Preferred
Securities on a pro rata basis in exchange for such Trust Preferred Securities.
The holders of the Common Securities will be entitled to receive
distributions upon any such dissolution pro rata with the holders of the Trust
Preferred Securities, except that if a Declaration Event of Default has occurred
and is continuing, the Trust Preferred Securities shall have a preference over
the Common Securities with regard to such distributions.
Pursuant to the Declaration, the Trust shall dissolve (i) on December 1,
2004, the expiration of the term of the Trust, (ii) upon the bankruptcy of the
Company or the holder of the Common Securities, (iii) upon the filing of a
certificate of dissolution or its equivalent with respect to the Company or the
revocation of the
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charter of the Company and the expiration of 90 days after the date of
revocation without a reinstatement thereof, (iv) after the receipt by the
Institutional Trustee of written direction from the Company to dissolve the
Trust or the filing of a certificate of dissolution or its equivalent with
respect to the Trust, (v) upon the distribution of Debentures, (vi) upon the
occurrence and continuation of a Tax Event Redemption or (vii) upon the entry of
a decree of a judicial dissolution of the holder of the Common Securities, the
Company or the Trust.
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Declaration with respect to the Trust
Securities (a "Declaration Event of Default"); provided, that pursuant to the
Declaration, the holder of the Common Securities will be deemed to have waived
any Declaration Event of Default with respect to the Common Securities until all
Declaration Events of Default with respect to the Trust Preferred Securities
have been cured, waived or otherwise eliminated. Until such Declaration Events
of Default with respect to the Trust Preferred Securities have been so cured,
waived or otherwise eliminated, the Institutional Trustee will be deemed to be
acting solely on behalf of the holders of the Trust Preferred Securities and
only the holders of the Trust Preferred Securities will have the right to direct
the Institutional Trustee with respect to certain matters under the Declaration
and, therefore, the Indenture. If a Declaration Event of Default with respect to
the Trust Preferred Securities is waived by holders of Trust Preferred
Securities, such waiver will also constitute the waiver of such Declaration
Event of Default with respect to the Common Securities without any further act,
vote or consent of the holders of the Common Securities. If the Institutional
Trustee fails to enforce its rights under the Debentures in respect of an
Indenture Event of Default after a holder of record of Trust Preferred
Securities has made a written request, such holder of record of Trust Preferred
Securities may, to the fullest extent permitted by applicable law, institute a
legal proceeding against the Company to enforce the Institutional Trustee's
rights under the Debentures without first proceeding against the Institutional
Trustee or any other person or entity. Notwithstanding the foregoing, if a
Declaration Event of Default has occurred and is continuing and such event is
attributable to the failure of the Company to pay interest or principal on the
Debentures on the date such interest or principal is otherwise payable (after
giving effect to any right of deferral), then a holder of Trust Preferred
Securities may directly institute a proceeding after the respective due date
specified in the Debentures for enforcement of payment (a "Direct Action") to
such holder directly of the principal of or interest on the Debentures having a
principal amount equal to the aggregate liquidation amount of the Trust
Preferred Securities of such holder. In connection with such Direct Action, the
Company shall have the right under the Indenture to set off any payment made to
such holder of the Company. The holders of Trust Preferred Securities will not
be able to exercise directly any other remedy available to the holders of the
Debentures. See "Effect of Obligations under the Debentures and the Guarantee."
Upon the occurrence of a Declaration Event of Default, the Institutional
Trustee as the sole holder of the Debentures will have the right under the
Indenture to declare the principal of and interest on the Debentures to be
immediately due and payable. The Company and the Trust are each required to file
annually with the Institutional Trustee an officer's certificate as to its
compliance with all conditions and covenants under the Declaration.
VOTING RIGHTS
Except as described herein, under the Trust Act and the Trust Indenture Act
and under "Description of the Guarantee -- Modification of the Guarantee;
Assignment," and as otherwise required by law and the Declaration, the holders
of the Trust Preferred Securities will have no voting rights.
Subject to the requirement of the Institutional Trustee obtaining a tax
opinion in certain circumstances set forth in the last sentence of this
paragraph, the holders of a majority in aggregate stated liquidation amount of
the Trust Preferred Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Institutional
Trustee, or direct the exercise of any trust or power conferred upon the
Institutional Trustee under the Declaration, including the right to direct the
Institutional Trustee, as holder of the Debentures, to (i) exercise the remedies
available under the Indenture with respect
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to the Debentures, (ii) waive any past Indenture Event of Default that is
waivable under Section 5.7 of the Indenture, (iii) exercise any right to rescind
or annul a declaration that the principal of all the Debentures shall be due and
payable or (iv) consent to any amendment, modification or termination of the
Indenture or the Debentures where such consent shall be required; provided,
however, that, where a consent or action under the Indenture would require the
consent or act of holders of more than a majority in principal amount of the
Debentures (a "Super-Majority") affected thereby, only the holders of at least
such Super-Majority in aggregate stated liquidation amount of the Trust
Preferred Securities may direct the Institutional Trustee to give such consent
or take such action. The Institutional Trustee shall notify all holders of the
Trust Preferred Securities of any notice of default received from the Debt
Trustee (as defined herein) with respect to the Debentures. Such notice shall
state that such Indenture Event of Default also constitutes a Declaration Event
of Default. Except with respect to directing the time, method and place of
conducting a proceeding for a remedy, the Institutional Trustee shall not take
any of the actions described in clauses (i), (ii) or (iii) above unless the
Institutional Trustee has obtained an opinion of tax counsel experienced in such
matters to the effect that, as a result of such action, the Trust will not fail
to be classified as a grantor trust for federal income tax purposes.
In the event the consent of the Institutional Trustee, as the holder of the
Debentures, is required under the Indenture with respect to any amendment,
modification or termination of the Indenture or the Debentures, the
Institutional Trustee shall request the direction of the holders of the Trust
Preferred Securities and the Common Securities with respect to such amendment,
modification or termination and shall vote with respect to such amendment,
modification or termination as directed by a majority in stated liquidation
amount of the Trust Preferred Securities and the Common Securities voting
together as a single class; provided, however, that where a consent under the
Indenture would require the consent of a Super-Majority, the Institutional
Trustee may only give such consent at the direction of the holders of at least
the proportion in stated liquidation amount of the Trust Preferred Securities
and the Common Securities which the relevant Super-Majority represents of the
aggregate principal amount of the Debentures outstanding. The Institutional
Trustee shall not take any such action in accordance with the directions of the
holders of the Trust Preferred Securities and the Common Securities unless the
Institutional Trustee has obtained an opinion of tax counsel experienced in such
matters to the effect that, as a result of such action, the Trust will not fail
to be classified as a grantor trust for United States federal income tax
purposes.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Trust Preferred Securities
may be given at a separate meeting of holders of Trust Preferred Securities
convened for such purpose, at a meeting of all of the holders of Trust
Securities or pursuant to written consent. The Regular Trustees will cause a
notice of any meeting at which holders of Trust Preferred Securities are
entitled to vote, or of any matter upon which action by written consent of such
holders is to be taken, to be mailed to each holder of record of Trust Preferred
Securities. Each such notice will include a statement setting forth the
following information: (i) the date of such meeting or the date by which such
action is to be taken; (ii) a description of any resolution proposed for
adoption at such meeting on which such holders are entitled to vote or of such
matter upon which written consent is sought; and (iii) instructions for the
delivery of proxies or consents. No vote or consent of the holders of Trust
Preferred Securities will be required for the Trust to cancel Trust Preferred
Securities or distribute Debentures in accordance with the Declaration.
Notwithstanding that holders of Trust Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of the Trust
Preferred Securities that are owned at such time by the Company or any entity
directly or indirectly controlling or controlled by, or under direct or indirect
common control with, the Company, shall not be entitled to vote or consent and
shall, for purposes of such vote or consent, be treated as if such Trust
Preferred Securities were not outstanding.
The procedures by which holders of Trust Preferred Securities may exercise
their voting rights are described below. See "-- Book-Entry Only Issuance -- The
Depository Trust Company."
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Holders of the Trust Preferred Securities will have no rights to appoint or
remove the Conseco Trustees, who may be appointed, removed or replaced solely by
the Company as the indirect or direct holder of all of the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the Regular
Trustees (and in certain circumstances the Institutional Trustee or the Delaware
Trustee), provided, that if any proposed amendment provides for, or the Regular
Trustees otherwise propose to effect, (i) any action that would adversely affect
the powers, preferences or special rights of the Trust Securities, whether by
way of amendment to the Declaration or otherwise or (ii) the dissolution of the
Trust other than pursuant to the terms of the Declaration, then the holders of
the Trust Securities voting together as a single class will be entitled to vote
on such amendment or proposal and such amendment or proposal shall not be
effective except with the approval of at least a majority in such stated
liquidation amount of the Trust Securities affected thereby; provided further,
that if any amendment or proposal referred to in clause (i) above would
adversely affect only the Trust Preferred Securities or the Common Securities,
then only the affected class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with the
approval of a majority in stated liquidation amount of such class of securities.
In addition, the Declaration may be amended without the consent of the holders
of the Trust Securities to, among other things, cause the Trust to continue to
be classified for United States federal income tax purposes as a grantor trust.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified as other than a grantor trust for purposes of United States
federal income taxation, (ii) reduce or otherwise adversely affect the powers of
the Institutional Trustee or (iii) cause the Trust to be deemed an "investment
company" which is required to be registered under the 1940 Act.
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any corporation or other body, except as
described below or as described in "Liquidation Distribution Upon Dissolution".
The Trust may, with the consent of the Regular Trustees and without the consent
of the holders of the Trust Securities, consolidate, amalgamate, merge with or
into, or be replaced by a trust organized as such under the laws of any State;
provided, that (i) if the Trust is not the surviving entity, such successor
entity either (x) expressly assumes all of the obligations of the Trust under
the Trust Securities or (y) substitutes for the Trust Securities other
securities having substantially the same terms as the Trust Securities (the
"Successor Securities"), so long as the Successor Securities rank the same as
the Trust Securities with respect to distributions and payments upon
liquidation, redemption and otherwise, (ii) the Company expressly acknowledges a
trustee of such successor entity possessing the same powers and duties as the
Institutional Trustee as the holder of the Debentures, (iii) if the Trust
Preferred Securities are listed, any Successor Securities will be listed upon
notification of issuance, on any national securities exchange or with another
organization on which the Trust Preferred Securities are then listed or quoted,
(iv) such merger, consolidation, amalgamation or replacement does not cause the
Trust Preferred Securities (including any Successor Securities) to be downgraded
by any nationally recognized statistical rating organization, (v) such merger,
consolidation, amalgamation or replacement does not adversely affect the rights,
preferences and privileges of the holders of the Trust Securities (including any
Successor Securities) in any material respect (other than with respect to any
dilution of the holders' interest in the new entity), (vi) such successor entity
has a purpose substantially identical to that of the Trust, (vii) prior to such
merger, consolidation, amalgamation or replacement, the Company has received an
opinion of a nationally recognized independent counsel to the Trust experienced
in such matters to the effect that, (A) such merger, consolidation, amalgamation
or replacement does not adversely affect the rights, preferences and privileges
of the holders of the Trust Securities (including any Successor Securities) in
any material respect (other than with respect to any dilution of the holders'
interest in the new entity), (B) following such merger, consolidation,
amalgamation or replacement, neither the Trust nor such successor
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entity will be required to register as an investment company under the 1940 Act
and (C) following such merger, consolidation, amalgamation or replacement, the
Trust (or the successor entity) will continue to be classified as a grantor
trust for federal income tax purposes, and (viii) the Company guarantees the
obligations of such successor entity under the Successor Securities at least to
the extent provided by the Guarantee and the Common Securities Guarantee (as
defined herein). Notwithstanding the foregoing the Trust shall not, except with
the consent of holders of 100% in stated liquidation amount of the Trust
Securities, consolidate, amalgamate, merge with or into, or be replaced by any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it, if such consolidation, amalgamation, merger or
replacement would cause the Trust or the successor entity to be classified as
other than a grantor trust for federal income tax purposes.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
In the event that the Trust Preferred Securities are issued as one or more
fully-registered global Trust Preferred Securities certificates representing the
total aggregate number of Trust Preferred Securities, the Depositary will act as
securities depositary for any Trust Preferred Securities that are held
separately from the Income PRIDES or that are released to holders in connection
with the creation of Growth PRIDES. In such event, the Trust Preferred
Securities will be issued only as fully-registered securities registered in the
name of Cede & Co. (the Depositary's nominee). However, under certain
circumstances, the Regular Trustees with the consent of the Company may decide
not to use the system of book-entry transfers through the DTC with respect to
the Trust Preferred Securities. In that event, certificates of the Trust
Preferred Securities will be printed and delivered to the holders.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the global Trust
Preferred Securities as represented by a global certificate.
Purchases of Trust Preferred Securities within the Depositary's system must
be made by or through Direct Participants, which will receive a credit for the
Trust Preferred Securities on the Depositary's records. The ownership interest
of each actual purchaser of each Trust Preferred Security (a "Beneficial Owner")
is in turn to be recorded on the Direct and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from the Depositary of
their purchases, but Beneficial Owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners purchased Trust Preferred Securities. Transfers of
ownership interests in the Trust Preferred Securities are to be accomplished by
entries made on the books of Participants acting on behalf of Beneficial Owners.
Beneficial Owners will not receive certificates representing their ownership
interests in the Trust Preferred Securities, except in the event that use of the
book-entry system for the Trust Preferred Securities is discontinued.
To facilitate subsequent transfers, all the Trust Preferred Securities
deposited by Participants with the Depositary will be registered in the name of
the Depositary's nominee, Cede & Co. The deposit of Trust Preferred Securities
with the Depositary and their registration in the name of Cede & Co. effect no
change in beneficial ownership. The Depositary has no knowledge of the actual
Beneficial Owners of the Trust Preferred Securities. The Depositary's records
reflect only the identity of the Direct Participants to whose accounts such
Trust Preferred Securities are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
So long as the Depositary or its nominee is the registered owner or holder
of a global certificate, the Depositary or such nominee, as the case may be,
will be considered the sole owner or holder of the Trust Preferred Securities
represented thereby for all purposes under the Declaration and the Trust
Preferred Securities. No beneficial owner of an interest in a global certificate
will be able to transfer that interest except in accordance with the Depositary
applicable procedures, in addition to those provided for under the Declaration.
The Depositary has advised the Company that it will take any action
permitted to be taken by a holder of Trust Preferred Securities (including the
presentation of Trust Preferred Securities for exchange as described
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below) only at the direction of one or more Participants to whose account the
Depositary's interests in the global certificates are credited and only in
respect of such portion of the stated liquidation amount of Trust Preferred
Securities as to which such Participant or Participants has or have given such
directions. However, if there is a Declaration Event of Default under the Trust
Preferred Securities, the Depositary will exchange the global certificates for
certificated securities, which it will distribute to its Participants.
Conveyance of notices and other communications by the Depositary to Direct
Participants and Indirect Participants and by Direct Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements that may be in effect from
time to time.
Although voting with respect to the Trust Preferred Securities is limited,
in those cases where a vote is required, neither the Depositary nor Cede & Co.
will itself consent or vote with respect to Trust Preferred Securities. Under
its usual procedures, the Depositary would mail an omnibus proxy to the Trust as
soon as possible after the record date. The omnibus proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
Trust Preferred Securities are credited on the record date (identified in a
listing attached to the omnibus proxy). The Company and the Trust believe that
the arrangements among the Depositary, Direct and Indirect Participants, and
Beneficial Owners will enable the Beneficial Owners to exercise rights
equivalent in substance to the rights that can be directly exercised by a record
holder of a beneficial interest in the Trust.
Distribution payments on the Trust Preferred Securities issued in the form
of one or more global certificates will be made to the Depositary in immediately
available funds. The Depositary's practice is to credit Direct Participants'
accounts on the relevant payment date in accordance with their respective
holdings shown on the Depositary's records unless the Depositary has reason to
believe that it will not receive payments on such payment date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the account of
customers in bearer form or registered in "street name," and such payments will
be the responsibility of such Participant and not of the Depositary, the Trust
or the Company, subject to any statutory or regulatory requirements to the
contrary that may be in effect from time to time. Payment of distributions to
the Depositary is the responsibility of the Trust, disbursement of such payments
to Direct Participants is the responsibility of the Depositary, and disbursement
of such payments to the Beneficial Owners is the responsibility of Direct and
Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Trust Preferred
Security certificate will not be entitled to receive physical delivery of Trust
Preferred Securities. Accordingly, each Beneficial Owner must rely on the
procedures of the Depositary to exercise any rights under the Trust Preferred
Securities.
Although the Depositary has agreed to the foregoing procedure in order to
facilitate transfer of interests in the global certificates among Participants,
the Depositary is under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time. None of the
Company, the Trust or any Conseco Trustee will have any responsibility for the
performance by the Depositary or its Participants or Indirect Participants under
the rules and procedures governing the Depositary. The Depositary may
discontinue providing its services as securities depositary with respect to the
Trust Preferred Securities at any time by giving reasonable notice to the Trust.
Under such circumstances, in the event that a successor securities depositary is
not obtained, Trust Preferred Securities certificates are required to be printed
and delivered to holders. Additionally, the Regular Trustees (with the consent
of the Company) may decide to discontinue use of the system of book-entry
transfers through the Depositary (or any successor depositary) with respect to
the Trust Preferred Securities. In that event, certificates for the Trust
Preferred Securities will be printed and delivered to holders. In each of the
above circumstances, the Company will appoint a paying agent with respect to the
Trust Preferred Securities.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the Company
and the Trust believe to be reliable, but neither the Company nor the Trust
takes responsibility for the accuracy hereof.
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REGISTRAR, TRANSFER AGENT AND PAYING AGENT
Payments in respect of the Trust Preferred Securities represented by the
global certificates shall be made to the Depositary, which shall credit the
relevant accounts at the Depositary on the applicable distribution dates, or, in
the case of certificated securities, such payments shall be made by check mailed
to the address of the holder entitled thereto as such address shall appear on
the Register. The Paying Agent shall be permitted to resign as Paying Agent upon
30 days' written notice to the Conseco Trustees. In the event that The First
National Bank of Chicago shall no longer be the Paying Agent, the Regular
Trustees shall appoint a successor to act as Paying Agent (which shall be a bank
or trust company).
The First National Bank of Chicago will act as registrar, transfer agent
and paying agent for the Trust Preferred Securities.
Registration of transfers of Trust Preferred Securities will be effected
without charge by or on behalf of the Trust, but upon payment (and the giving of
such indemnity as the Trust or the Company may require) in respect of any tax or
other government charge which may be imposed in relation to it.
INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE
The Institutional Trustee prior to the occurrence of a default with respect
to the Trust Securities and after the curing of any defaults that may have
occurred, undertakes to perform only such duties as are specifically set forth
in the Declaration and, after default, shall exercise the same degree of care as
a prudent individual would exercise in the conduct of his or her own affairs.
Subject to such provisions, the Institutional Trustee is under no obligation to
exercise any of the powers vested in it by the Declaration at the request of any
holder of Trust Preferred Securities, unless offered reasonable indemnity by
such holder against the costs, expenses and liabilities which might be incurred
thereby. The holders of Trust Preferred Securities will not be required to offer
such indemnity in the event such holders, by exercising their voting rights,
direct the Institutional Trustee to take any action it is empowered to take
under the Declaration following a Declaration Event of Default. The
Institutional Trustee also serves as trustee under the Guarantee.
The First National Bank of Chicago maintains commercial banking
relationships with the Company.
GOVERNING LAW
The Declaration and the Trust Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate the Trust in
such a way so that the Trust will not be required to register as an "investment
company" under the 1940 Act or be characterized as other than a grantor trust
for federal income tax purposes. The Company is authorized and directed to
conduct its affairs so that the Debentures will be treated as indebtedness of
the Company for federal income tax purposes. In this connection, the Company and
the Regular Trustees are authorized to take any action not inconsistent with
applicable law, the Declaration of Trust, the certificate of trust of the Trust
or the certificate of incorporation of the Company, that each of the Company and
the Regular Trustees determines in its discretion to be necessary or desirable
to achieve such end, as long as such action does not adversely affect the
interests of the holders of the Trust Preferred Securities or vary the terms
thereof.
Holders of the Trust Preferred Securities have no preemptive or similar
rights.
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DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee which
will be executed and delivered by the Company for the benefit of the holders
from time to time of Trust Preferred Securities. The Guarantee will be qualified
as an indenture under the Trust Indenture Act. The First National Bank of
Chicago will act as the Guarantee Trustee for the purposes of compliance with
the provisions of the Trust Indenture Act. The terms of the Guarantee will be
those set forth in the Guarantee and those made part of the Guarantee by the
Trust Indenture Act. The following summary is not necessarily complete, and
reference is hereby made to the copy of the form of Guarantee (including the
definitions therein of certain terms) which is filed as an exhibit to the
Registration Statement relating to this Prospectus Supplement, and to the Trust
Indenture Act. Whenever particular defined terms of the Guarantee are referred
to in this Prospectus Supplement, such defined terms are incorporated herein by
reference. The Guarantee will be held by the Guarantee Trustee for the benefit
of the holders of the Trust Preferred Securities. The following descriptions of
certain terms of the Guarantee supplements and, to the extent inconsistent with,
replaces the description of the general terms and provisions of the Guarantee
set forth in the accompanying Prospectus, to which reference is hereby made.
GENERAL
Pursuant to the Guarantee, the Company will irrevocably and unconditionally
agree, to the extent set forth therein, to pay in full on a subordinated basis,
to the holders of the Trust Preferred Securities issued by the Trust, the
Guarantee Payments (as defined herein) (except to the extent paid by the Trust),
as and when due, regardless of any defense, right of set-off or counterclaim
which the Trust may have or assert. The following payments or distributions with
respect to Trust Preferred Securities issued by the Trust to the extent not paid
by or on behalf of the Trust (the "Guarantee Payments"), will be subject to the
Guarantee thereon (without duplication): (i) any accrued and unpaid
distributions which are required to be paid on the Trust Preferred Securities,
to the extent the Trust shall have funds available therefor; (ii) the redemption
price, including all accumulated and unpaid distributions to the date of
redemption, of Trust Preferred Securities in respect of which the related
Debentures have been redeemed by the Company upon the occurrence of a Tax Event
Redemption, to the extent the Trust shall have funds available therefor; and
(iii) upon a voluntary or involuntary dissolution of the Trust (other than in
connection with the distribution of Debentures to the holders of Trust Preferred
Securities), the lesser of (a) the aggregate of the stated liquidation amount
and all accrued and unpaid distributions on such Trust Preferred Securities to
the date of payment, to the extent the Trust has funds available therefor, and
(b) the amount of assets of the Trust remaining available for distribution to
holders of the Trust Preferred Securities in liquidation of the Trust. The
Company's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Company to the holders of Trust Preferred
Securities or by causing the Trust to pay such amounts to such holders.
The Guarantee will be a full and unconditional guarantee on a subordinated
basis with respect to the Trust Preferred Securities issued by the Trust, but
will not apply to any payment of distributions except to the extent the Trust
shall have funds available therefor. If the Company does not make interest
payments on the Debentures purchased by the Trust, the Trust will not pay
distributions on the Trust Preferred Securities and will not have funds
available therefor. See "Effect of Obligations under the Debentures and the
Guarantee."
The Guarantee, when taken together with the Company's obligations under the
Debentures, the Indenture, and the Declaration, will have the effect of
providing a full and unconditional guarantee on a subordinated basis by the
Company of payments due on the Trust Preferred Securities.
The Company has also agreed separately to irrevocably and unconditionally
guarantee the obligations of the Trust with respect to the Common Securities
(the "Common Securities Guarantee") to the same extent as the Guarantee, except
that upon an Indenture Event of Default, holders of Trust Preferred Securities
shall have priority over holders of Common Securities with respect to
distributions and payments on liquidation, redemption or otherwise.
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CERTAIN COVENANTS OF THE COMPANY
In the Guarantee, the Company will covenant that, so long as any Trust
Preferred Securities issued by the Trust remain outstanding, if there shall have
occurred any event that would constitute an event of default under the Guarantee
or the Declaration, then (a) the Company shall not declare or pay any dividend
on, make any distributions with respect to, or redeem, purchase, acquire or make
a liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of capital stock of the Company in connection with the
satisfaction by the Company of its obligations under any employee or agent
benefit plans or the satisfaction by the Company of its obligations pursuant to
any contract or security outstanding on the date of such event requiring the
Company to purchase capital stock of the Company, (ii) as a result of a
reclassification of the Company's capital stock or the exchange or conversion of
one class or series of the Company's capital stock for another class or series
of the Company's capital stock, (iii) the purchase of fractional interests in
shares of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(iv) dividends or distributions in capital stock of the Company (or rights to
acquire capital stock) or repurchases or redemptions of capital stock solely
from the issuance or exchange of capital stock or (v) redemptions or repurchases
of any rights outstanding under a shareholder rights plan), (b) the Company
shall not make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities issued by the Company which rank
junior to the Debentures and (c) the Company shall not make any guarantee
payments with respect to the foregoing (other than payments pursuant to the
Guarantee or the Common Securities Guarantee).
MODIFICATION OF THE GUARANTEE; ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of Trust Preferred Securities (in which case no vote will be
required), the Guarantee may be amended only with the prior approval of the
holders of not less than a majority in stated liquidation amount of the
outstanding Trust Preferred Securities issued by the Trust. All guarantees and
agreements contained in the Guarantee shall bind the successors, assigns,
receivers, trustees and representatives of the Company and shall inure to the
benefit of the holders of the Trust Preferred Securities then outstanding.
TERMINATION
The Guarantee will terminate (a) upon distribution of the Debentures held
by the Trust to the holders of the Trust Preferred Securities, (b) upon full
payment of the redemption price of all the Trust Preferred Securities in the
event that all of the Debentures are repurchased by the Company upon the
occurrence of a Tax Event Redemption or (c) upon full payment of the amounts
payable in accordance with the Declaration upon liquidation of the Trust. The
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of Trust Preferred Securities must return payment
of any sums paid under the Trust Preferred Securities or the Guarantee.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder.
The holders of a majority in stated liquidation amount of the Trust
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee. If the Guarantee
Trustee fails to enforce such Guarantee, any holder of Trust Preferred
Securities may institute a legal proceeding directly against the Company to
enforce such holder's rights under the Guarantee, without first instituting a
legal proceeding against the Trust, the Guarantee Trustee or any other person or
entity. The Company waives any right or remedy to require that any action be
brought first against the Trust or any other person or entity before proceeding
directly against the Company.
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STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank (i) subordinate and junior in right of payment to all other
liabilities of the Company except those liabilities of the Company made pari
passu or subordinate by their terms, (ii) pari passu with the most senior
preferred or preference stock now or hereafter issued by the Company and pari
passu with any guarantee now or hereafter entered into by the Company in respect
of any preferred or preference stock of any affiliate of the Company and (iii)
senior to the Common Stock. The terms of the Trust Preferred Securities provide
that each holder of Trust Preferred Securities by acceptance thereof agrees to
the subordination provisions and other terms of the Guarantee relating thereto.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default with respect to
the Guarantee, undertakes to perform only such duties as are specifically set
forth in the Guarantee and, after default, shall exercise the same degree of
care as a prudent individual would exercise in the conduct of his or her own
affairs. Subject to such provisions, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee at the
request of any holder of Trust Preferred Securities, unless offered reasonable
indemnity against the costs, expenses and liabilities which might be incurred
thereby; but the foregoing shall not relieve the Guarantee Trustee, upon the
occurrence of an event of default under the Guarantee, from exercising the
rights and powers vested in it by the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the
internal laws of the State of New York.
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DESCRIPTION OF THE DEBENTURES
Set forth below is a description of the specific terms of the Debentures in
which the Trust will invest the proceeds from the issuance and sale of the Trust
Securities. The following description is not necessarily complete, and reference
is hereby made to the copy of the form of the Indenture to be entered into
between the Company and The First National Bank of Chicago, as trustee (the
"Debt Trustee"), as supplemented or amended from time to time (as so
supplemented and amended, the "Indenture") which is filed as an exhibit to the
Registration Statement relating to this Prospectus Supplement, and to the Trust
Indenture Act. Certain capitalized terms used herein are defined in the
Indenture.
Under certain circumstances involving the dissolution of the Trust,
Debentures may be distributed to the holders of the Trust Securities in
liquidation of the Trust. See "Description of the Trust Preferred Securities --
Distribution of the Debentures." The following descriptions of certain terms of
the Debentures supplement and, to the extent inconsistent with, replaces the
description of the general terms and provisions of the Debt Securities set forth
in the accompanying Prospectus, to which reference is hereby made.
GENERAL
The Debentures will be issued as unsecured subordinated debt under the
Indenture and will rank pari passu in right of payment with all of the Company's
other unsecured subordinated debt obligations. The Debentures will be limited in
aggregate principal amount to $600 million.
The Debentures will not be subject to a sinking fund provision. Unless a
Tax Event Redemption has occurred prior to the Purchase Contract Settlement
Date, the entire principal amount of the Debentures will mature and become due
and payable, together with any accrued and unpaid interest thereon including
Compound Interest (as defined herein) and expenses and taxes of the Trust, if
any, on February 16, 2003.
The Company will have the right at any time to dissolve the Trust and cause
the Debentures to be distributed to the holders of the Trust Securities. If
Debentures are distributed to holders of Trust Securities in liquidation of such
holders' interests in the Trust, such Debentures will initially be issued as a
Global Security (as defined herein). As described herein, under certain limited
circumstances, Debentures may be issued in certificated form in exchange for a
Global Security. See "-- Book-Entry and Settlement" below. In the event that
Debentures are issued in certificated form, such Debentures will be in
denominations of $50 and integral multiples thereof and may be transferred or
exchanged at the offices described below. Payments on Debentures issued as a
Global Security will be made to the Depositary, a successor depositary or, in
the event that no depositary is used, to a Paying Agent for the Debentures. In
the event Debentures are issued in certificated form, principal and interest
will be payable, the transfer of the Debentures will be registrable and
Debentures will be exchangeable for Debentures of other denominations of a like
aggregate principal amount, at the corporate trust office or agency of the
Institutional Trustee in Chicago, Illinois; provided, that at the option of the
Company, payment of interest may be made by check mailed to the address of the
holder entitled thereto or by wire transfer to an account appropriately
designated by the holder entitled thereto. Notwithstanding the foregoing, so
long as the holder of any Debentures is the Institutional Trustee, the payment
of principal and interest on the Debentures held by the Institutional Trustee
will be made at such place and to such account as may be designated by the
Institutional Trustee.
The Indenture does not contain provisions that afford holders of the
Debentures protection in the event of a highly leveraged transaction or other
similar transaction involving the Company that may adversely affect such
holders.
SUBORDINATION
The Indenture provides that the Debentures are subordinated and junior in
right of payment to the prior payment in full of all Senior Indebtedness of the
Company whether now existing or hereafter incurred. In the event and during the
continuation of any default by the Company in the payment of principal, premium,
interest or any other payment due on any Senior Indebtedness of the Company, or
in the event that the maturity of any Senior Indebtedness of the Company has
been accelerated because of a default, then in either
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case, no payment will be made by the Company with respect to the principal
(including redemption payments) of or interest on the Debentures. Upon any
distribution of assets of the Company to creditors upon any dissolution,
winding-up, liquidation or reorganization, whether voluntary or involuntary, or
in bankruptcy, insolvency, receivership or other proceedings, all principal,
premium, if any, and interest due or to become due on all Senior Indebtedness of
the Company must be paid in full before the holders of Debentures are entitled
to receive or retain any payment. In the event that the Debentures are declared
due and payable before the Maturity Date, then all amounts due or to become due
on all Senior Indebtedness shall have been paid in full before holders of the
Debentures are entitled to receive or retain any payment. Upon satisfaction of
all claims of all Senior Indebtedness then outstanding, the rights of the
holders of the Debentures will be subrogated to the rights of the holders of
Senior Indebtedness of the Company to receive payments or distributions
applicable to Senior Indebtedness until all amounts owing on the Debentures are
paid in full.
The term "Senior Indebtedness" means (i) all indebtedness of the Company,
whether now existing or hereafter created, incurred or assumed, which is for
money borrowed, or evidenced by a note or similar instrument given in connection
with the acquisition of any business, properties or assets, including
securities; (ii) any indebtedness of others of the kinds described in the
preceding clause (i) for the payment of which the Company is responsible or
liable as guarantor or otherwise; and (iii) amendments, renewals, extensions and
refundings of any such indebtedness, unless in any instrument or instruments
evidencing or securing such indebtedness or pursuant to which the same is
outstanding. The Senior Indebtedness shall continue to be Senior Indebtedness
and entitled to the benefits of the subordination provisions irrespective of any
amendment, modification or waiver of any term of the Senior Indebtedness or
extension or renewal of the Senior Indebtedness. Senior indebtedness does not
include (A) any indebtedness of the Company to any of its subsidiaries, (B)
indebtedness incurred for the purchase of goods or materials or for services
obtained in the ordinary course of business and (C) any indebtedness which by
its terms is expressly made pari passu with or subordinated to the Subordinated
Debt Securities. (Section 12.2 of the Subordinated Indenture.)
The Indenture does not limit the aggregate amount of Senior Indebtedness
that may be issued by the Company. As of September 30, 1997, the aggregate
amount of Senior Indebtedness and liabilities and obligations of the Company's
subsidiaries that would have effectively ranked senior to the Debentures was
approximately $28.7 billion. As of September 30, 1997, after giving pro forma
effect to the financing of the WNC Merger, the Offering and the application of
the proceeds thereof the aggregate amount of Senior Indebtedness and liabilities
and obligations of the Company's subsidiaries that would have effectively ranked
senior to the Debentures would have been approximately $28.6 billion.
INTEREST
Each Debenture shall bear interest initially at the rate of 6.75% per annum
from the original date of issuance, payable quarterly in arrears on February 16,
May 16, August 16 and November 16 of each year (each an "Interest Payment
Date"), commencing February 16, 1998, to the person in whose name such Debenture
is registered, subject to certain exceptions, at the close of business on the
Business Day next preceding such Interest Payment Date. The applicable interest
rate on the Debentures and the distribution rate on the related Trust Preferred
Securities outstanding on and after the Purchase Contract Settlement Date will
be reset on the third Business Day immediately preceding the Purchase Contract
Settlement Date to the Reset Rate, which will be equal to the sum of the Reset
Spread and the rate on the Two-Year Benchmark Treasury in effect on the third
Business Day immediately preceding the Purchase Contract Settlement Date, and
will be determined by the Reset Agent as the rate the Trust Preferred Securities
should bear in order for a Trust Preferred Security to have an approximate
market value on the third Business Day immediately preceding the Purchase
Contract Settlement Date of 100.5% of the Stated Amount; provided that the
Company may limit such Reset Rate to be no higher than the rate on the Two-Year
Benchmark Treasury on the third Business Day immediately preceding the Purchase
Contract Settlement Date plus 200 basis points (2%). Such market value may be
less than 100.5% if the Reset Spread is limited to a maximum of 2%.
On the Reset Announcement Date, the Two-Year Benchmark Treasury will be
selected and the Reset Spread to be added to the rate on the Two-Year Benchmark
Treasury in effect on the third Business Day immediately preceding the Purchase
Contract Settlement Date will be established by the Reset Agent, and
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the Reset Spread and the Two-Year Benchmark Treasury will be announced by the
Company. The Company will cause a notice of the Reset Spread and such Two-Year
Benchmark Treasury to be published on the Business Day following the Reset
Announcement Date by publication in a daily newspaper in the English language of
general circulation in The City of New York, which is expected to be The Wall
Street Journal. In the event the Debentures shall not continue to remain in
book-entry only form, the Company shall have the right to select record dates,
which shall be more than fifteen Business Days but less than 60 Business Days
prior to the Interest Payment Date.
The amount of interest payable for any period will be computed on the basis
of a 360-day year consisting of twelve 30-day months. The amount of interest
payable for any period shorter than a full quarterly period for which interest
is computed will be computed on the basis of the actual number of days elapsed
in such 90-day period. In the event that any date on which interest is payable
on the Debentures is not a Business Day, then payment of the interest payable on
such date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, then such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on such date.
TAX EVENT REDEMPTION
If a Tax Event shall occur and be continuing, the Company may, at its
option, redeem Debentures in whole (but not in part) at any time prior to the
Purchase Contract Settlement Date, at a Redemption Price equal to, for each
Debenture, the Redemption Amount plus accrued and unpaid interest thereon,
including Compound Interest and expenses and taxes of the Trust, if any, to the
date of redemption (the "Tax Event Redemption Date"). If, following the
occurrence of a Tax Event, the Company exercises its option to redeem the
Debentures, then the proceeds of such redemption will be applied to redeem Trust
Securities having a liquidation amount equal to the principal amount of
Debentures to be paid in accordance with their terms, at the Redemption Price.
Such Redemption Price will be payable in cash to the holders of such Trust
Securities. If such Tax Event Redemption occurs prior to the Purchase Contract
Settlement Date, the Redemption Price payable in liquidation of the Income
PRIDES holders' interest in the Trust will be distributed to the Collateral
Agent, who in turn will apply an amount equal to the Redemption Amount of such
Redemption Price to purchase the Treasury Portfolio on behalf of the holders of
Income PRIDES and remit the remaining portion, if any, of such Redemption Price
to the Purchase Contract Agent for payment to the holders of such Income PRIDES.
Such Treasury Portfolio will be substituted for the Trust Preferred Securities
and will be pledged with the Collateral Agent to secure such Income PRIDES
holders' obligation to purchase the Company's Common Stock under the Purchase
Contracts; provided, that if the Tax Event Redemption occurs after the Purchase
Contract Settlement Date, such Treasury Portfolio will not be purchased.
"Tax Event" means the receipt by the Trust of an opinion of a nationally
recognized independent tax counsel experienced in such matters to the effect
that, as a result of (a) any amendment to, or change (including any announced
prospective change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or therein
affecting taxation, (b) any amendment to or change in an interpretation or
application of such laws or regulations by any legislative body, court,
governmental agency or regulatory authority or (c) any interpretation or
pronouncement that provides for a position with respect to such laws or
regulations that differs from the generally accepted position on the date the
Trust Securities are issued, which amendment or change is effective or which
interpretation or pronouncement is announced on or after the date of issuance of
the Trust Securities under the Declaration, there is more than an insubstantial
risk that (i) interest payable by the Company on the Debentures would not be
deductible, in whole or in part, by the Company for federal income tax purposes
or (ii) the Trust would be subject to more than a de minimis amount of other
taxes, duties or other governmental charges.
"Treasury Portfolio" means, with respect to the Applicable Principal Amount
of Debentures (a) if the Tax Event Redemption Date occurs prior to the Purchase
Contract Settlement Date, a portfolio of zero-coupon U.S. Treasury Securities
consisting of (i) interest or principal strips of U.S. Treasury Securities which
mature on or prior to February 15, 2001 in an aggregate amount equal to the
Applicable Principal Amount and
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(ii) with respect to each scheduled interest payment date on the Debentures that
occurs after the Tax Event Redemption Date interest or principal strips of U.S.
Treasury Securities which mature on or prior to such date in an aggregate amount
equal to the aggregate interest payment that would be due on the Applicable
Principal Amount of the Debentures on such date, and (b) if the Tax Event
Redemption Date occurs after the Purchase Contract Settlement Date, a portfolio
of zero-coupon U.S. Treasury Securities consisting of (i) principal or interest
strips of U.S. Treasury Securities which mature on or prior to February 15, 2003
in an aggregate amount equal to the Applicable Principal Amount and (ii) with
respect to each scheduled interest payment date on the Debentures that occurs
after the Tax Event Redemption Date interest or principal strips of such U.S.
Treasury Securities which mature on or prior to such date in an aggregate amount
equal to the aggregate interest payment that would be due on the Applicable
Principal Amount of the Debentures on such date.
"Applicable Principal Amount" means either (i) if the Tax Event Redemption
Date occurs prior to the Purchase Contract Settlement Date, the aggregate
principal amount of the Debentures corresponding to the aggregate stated
liquidation amount of the Trust Preferred Securities which are components of
Income PRIDES on the Tax Event Redemption Date or (ii) if the Tax Event
Redemption occurs on or after the Purchase Contract Settlement Date, the
aggregate principal amount of the Debentures corresponding to the aggregate
stated liquidation amount of the Trust Preferred Securities outstanding on such
Tax Event Redemption Date.
"Redemption Amount" means for each Debenture, the product of the principal
amount of such Debenture and the Treasury Portfolio Purchase Price, expressed as
a percentage of the Applicable Principal Amount.
"Treasury Portfolio Purchase Price" means the lowest aggregate price quoted
by a primary U.S. government securities dealer in New York City (a "Primary
Treasury Dealer") to the Quotation Agent on the third Business Day immediately
preceding the Tax Event Redemption Date for the purchase of the Treasury
Portfolio for settlement on the Tax Event Redemption Date.
"Quotation Agent" means (i) Merrill Lynch Government Securities, Inc. and
its respective successors, provided, however, that if the foregoing shall cease
to be a Primary Treasury Dealer, the Company shall substitute therefor another
Primary Treasury Dealer, and (ii) any other Primary Treasury Dealer selected by
the Company.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each registered holder of Debentures to be
prepaid at its registered address. Unless the Company defaults in payment of the
Redemption Price, on and after the redemption date interest shall cease to
accrue on such Debentures.
PUT OPTION
If a Failed Remarketing has occurred, holders of Debentures (including the
Institutional Trustee, and following the distribution of the Debentures upon a
dissolution of the Trust as described herein, such Debenture holders) will have
the right to put their Debentures to the Company on March 2, 2001, upon at least
three Business Days' prior notice, at a price per Debenture equal to $50, plus
accrued and unpaid interest, if any, thereon. Upon the repurchase of such
Debentures by the Company, the proceeds from such repurchase shall
simultaneously be applied to redeem (in the case of Trust Securities) any
outstanding Trust Preferred Securities of such holders having an aggregate
stated liquidation amount equal to the aggregate principal amount of the
Debentures so repurchased plus accrued and unpaid distributions, including
deferred distributions, if any.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company shall have the right at any time, and from time to time, during
the term of the Debentures, to defer payments of interest by extending the
interest payment period for a period not extending beyond the maturity date of
the Debentures, at the end of which Extension Period, the Company shall pay all
interest
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then accrued and unpaid (including any expenses and taxes of the Trust, as
herein defined) together with interest thereon compounded quarterly at the rate
of 6.75% per annum through and including February 15, 2001, and at the Reset
Rate thereafter, to the extent permitted by applicable law ("Compound
Interest"); provided, that during any such Extension Period, (a) the Company
shall not declare or pay dividends or make any distribution with respect to, or
redeem, purchase, acquire or make a liquidation payment with respect to, any of
its capital stock (other than (i) purchases or acquisitions of capital stock of
the Company in connection with the satisfaction by the Company of its
obligations under any employee or agent benefit plans or the satisfaction by the
Company of its obligations pursuant to any contract or security outstanding on
the date of such event requiring the Company to purchase capital stock of the
Company, (ii) as a result of a reclassification of the Company's capital stock
or the exchange or conversion of one class or series of the Company's capital
stock for another class or series of the Company capital stock, (iii) the
purchase of fractional interests in shares of the Company's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged, (iv) dividends or distributions in
capital stock of the Company (or rights to acquire capital stock) or repurchases
or redemptions of capital stock solely from the issuance or exchange of capital
stock or (v) redemptions or repurchases of any rights outstanding under a
shareholder rights plan), (b) the Company shall not make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by the Company that rank junior to the Debentures, and
(c) the Company shall not make any guarantee payments with respect to the
foregoing (other than payments pursuant to the Guarantee or the Common
Securities Guarantee). Prior to the termination of any such Extension Period,
the Company may further defer payments of interest by extending the interest
payment period; provided, however, that such Extension Period, including all
such previous and further extensions, may not extend beyond the maturity of the
Debentures. Upon the termination of any Extension Period and the payment of all
amounts then due, the Company may commence a new Extension Period, subject to
the terms set forth in this section. No interest during an Extension Period,
except at the end thereof, shall be due and payable, but the Company, at its
option, may prepay on any Interest Payment Date all of the interest accrued
during the then elapsed portion of an Extension Period. The Company has no
present intention of exercising its right to defer payments of interest by
extending the interest payment period on the Debentures. If the Institutional
Trustee shall be the sole holder of the Debentures, the Company shall give the
Regular Trustees and the Institutional Trustee notice of its selection of such
Extension Period one Business Day prior to the earlier of (i) the date
distributions on the Trust Preferred Securities are payable or (ii) the date the
Regular Trustees are required to give notice, if applicable, to the NYSE (or
other applicable self-regulatory organization) or to holders of the Trust
Preferred Securities of the record or payment date of such distribution. The
Regular Trustees shall give notice of the Company's selection of such Extension
Period to the holders of the Trust Preferred Securities. If the Institutional
Trustee shall not be the sole holder of the Debentures, the Company shall give
the holders of the Debentures notice of its selection of such Extension Period
ten Business Days prior to the earlier of (i) the Interest Payment Date or (ii)
the date upon which the Company is required to give notice, if applicable, to
the NYSE (or other applicable self-regulatory organization) or to holders of the
Debentures of the record or payment date of such related interest payment.
EXPENSES AND TAXES OF THE TRUST
In the Indenture, the Company, as borrower, has agreed to pay all debts and
other obligations (other than with respect to the Trust Securities) and all
costs and expenses of the Trust (including the costs and expenses relating to
the organization of the Trust, the fees and expenses of the Trustees and the
costs and expenses relating to the operation of the Trust) and to pay any and
all taxes and all costs and expenses with respect thereto (other than United
States withholding taxes) to which the Trust might become subject. The Company
also has agreed in the Indenture to execute such additional agreements as may be
necessary or desirable to give full effect to the foregoing.
INDENTURE EVENTS OF DEFAULT
If any Indenture Event of Default shall occur and be continuing, the
Institutional Trustee, as the holder of the Debentures, will have the right to
declare the principal of and the interest on the Debentures (including any
Compound Interest and expenses and taxes of the Trust, if any) and any other
amounts payable under the
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Indenture to be forthwith due and payable and to enforce its other rights as a
creditor with respect to the Debentures.
The following are Events of Default under the Indenture with respect to the
Debentures: (1) failure to pay interest on the Debentures when due, continued
for 30 days; provided, however, that if the Company is permitted by the terms of
the Debentures to defer the payment in question, then the date on which such
payment is due and payable shall be the date on which the Company is required to
make payment following such deferral, if such deferral has been elected pursuant
to the terms of the Debentures; (2) failure to pay the principal of (or premium,
if any, on) the Debentures when due and payable at the stated maturity date,
upon redemption or otherwise; provided, however, if the Company is permitted by
the terms of the Debentures to defer the payment in question, the date on which
such payment is due and payable shall be the date on which the Company is
required to make payment following such deferral, if such deferral has been
elected pursuant to the terms of the Debentures; (3) failure to observe or
perform in any material respect certain other covenants contained in the
Indenture, continued for a period of 90 days after written notice has been given
to the Company by the Debt Trustee or holders of at least 25% in aggregate
principal amount of the outstanding Debentures; and (4) certain events of
bankruptcy, insolvency or reorganization relating to the Company.
The Indenture provides that the Debt Trustee shall, within 30 days after
the occurrence of any Default or Event of Default with respect to the
Debentures, give the holders of the Debentures notice of all uncured Defaults or
Events of Default known to it (the term "Default" includes any event which after
notice or passage of time or both would be an Event of Default); provided,
however, that, except in the case of an Event of Default or a Default in a
payment on the Debentures, the Debt Trustee shall be protected in withholding
such notice so long as the board of directors, the executive committee or
directors or responsible officers of the Debt Trustee in good faith determine
that the withholding of such notice is in the interest of the holders of the
Debentures.
If an Event of Default with respect to the Debentures occurs and is
continuing, the Debt Trustee or the holders of at least 25% in aggregate
principal amount of the outstanding Debentures, by notice in writing to the
Company (and to the Debt Trustee if given by the holders of at least 25% in
aggregate principal amount of the Debentures), may declare the unpaid principal
of and accrued interest to the date of acceleration on all the outstanding
Debentures to be due and payable immediately and, upon any such declaration, the
Debentures shall become immediately due and payable.
In addition, in the case of the Debentures held by the Trust, if an Event
of Default has occurred and is continuing and such event is attributable to the
failure of the Company to pay interest or principal, then a holder of Trust
Preferred Securities may directly institute a proceeding against the Company for
payment.
Any such declaration with respect to the Debentures may be annulled and
past Events of Default and Defaults (except, unless theretofore cured, an Event
of Default or a Default in payment of principal of or interest on the
Debentures) may be waived by the holders of a majority of the principal amount
of the outstanding Debentures, upon the conditions provided in the Indenture.
The Indenture provides that the Company shall periodically file statements
with the Debt Trustee regarding compliance by the Company with certain of the
respective covenants thereof and shall specify any Event of Default or Defaults
with respect to the Debentures, in performing such covenants, of which the
signers may have knowledge.
An Indenture Event of Default also constitutes a Declaration Event of
Default. The holders of Trust Preferred Securities in certain circumstances have
the right to direct the Institutional Trustee to exercise its rights as the
holder of the Debentures. See "Description of the Trust Preferred
Securities -- Declaration Events of Default" and "-- Voting Rights."
Notwithstanding the foregoing, if an Event of Default has occurred and is
continuing and such event is attributable to the failure of the Company to pay
interest or principal on the Debentures on the date such interest or principal
is otherwise payable, the Company acknowledges that a holder of Trust Preferred
Securities may directly institute a proceeding for enforcement of payment to
such holder directly of the principal of and interest on the Debentures having a
principal amount equal to the aggregate stated liquidation amount of the Trust
Preferred Securities of such holder after
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the respective due date specified in the Debentures. In connection with such
action, the Company shall have the right under the Indenture to set-off any
payment made to such holder by the Company. The holders of Trust Preferred
Securities will not be able to exercise directly any other remedy available to
the holders of the Debentures.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Trust Preferred Securities in connection with
the involuntary or voluntary dissolution of the Trust, the Debentures will be
issued in the form of one or more global certificates (each a "Global Security")
registered in the name of the Depositary or its nominee. Except under the
limited circumstances described below, Debentures represented by the Global
Security will not be exchangeable for, and will not otherwise be issuable as,
Debentures in certificated form. The Global Securities described above may not
be transferred except by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the Depositary
or to a successor depositary or its nominee.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in certificated form. Such
laws may impair the ability to transfer beneficial interests in such a Global
Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Debentures in
certificated form and will not be considered the holders (as defined in the
Indenture) thereof for any purpose under the Indenture, and no Global Security
representing Debentures shall be exchangeable, except for another Global
Security of like denomination and tenor to be registered in the name of the
Depositary or its nominee or to a successor Depositary or its nominee.
Accordingly, each Beneficial Owner must rely on the procedures of the Depositary
or if such person is not a Participant, on the procedures of the Participant
through which such person owns its interest to exercise any rights of a holder
under the Indenture.
THE DEPOSITARY
If Debentures are distributed to holders of Trust Preferred Securities in
liquidation of such holders' interests in the Trust, the Depositary will act as
securities depositary for the Debentures. For a description of the Depositary
and the specific terms of the depositary arrangements, see "Description of the
Trust Preferred Securities -- Book-Entry Only Issuance -- The Depository Trust
Company." As of the date of this Prospectus Supplement, the description therein
of the Depositary's book-entry system and the Depositary's practices as they
relate to purchases, transfers, notices and payments with respect to the Trust
Preferred Securities apply in all material respects to any debt obligations
represented by one or more Global Securities held by the Depositary. The Company
may appoint a successor to the Depositary or any successor depositary in the
event the Depositary or such successor depositary is unable or unwilling to
continue as a depositary for the Global Securities.
None of the Company, the Trust, the Institutional Trustee, any paying agent
and any other agent of the Company or the Debt Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Security
for such Debentures or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
A Global Security shall be exchangeable for Debentures registered in the
names of persons other than the Depositary or its nominee only if (i) the
Depositary notifies the Company that it is unwilling or unable to continue as a
depositary for such Global Security and no successor depositary shall have been
appointed, (ii) the Depositary at any time, ceases to be a clearing agency
registered under the Exchange Act at which time the depositary is required to be
so registered to act as such depositary and no successor depositary shall have
been appointed, (iii) the Company, in its sole discretion, determines that such
Global Security shall be so exchangeable or (iv) there shall have occurred an
Indenture Event of Default with respect to such Debentures. Any Global Security
that is exchangeable pursuant to the preceding sentence shall be exchangeable
for Debentures registered in such names as the Depositary shall direct. It is
expected that such
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instructions will be based upon directions received by the Depositary from its
Participants with respect to ownership of beneficial interests in such Global
Security.
GOVERNING LAW
The Indenture and the Debentures will be governed by, and construed in
accordance with, the internal laws of the State of New York.
MISCELLANEOUS
The Company will pay all fees and expenses related to (i) the offering of
the Trust Securities and the Debentures, (ii) the organization, maintenance and
dissolution of the Trust, (iii) the retention of the Conseco Trustees and (iv)
the enforcement by the Institutional Trustee of the rights of the holders of the
Trust Preferred Securities.
EFFECT OF OBLIGATIONS UNDER THE
DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to issue
the Trust Securities evidencing undivided beneficial interests in the assets of
the Trust, and to invest the proceeds from such issuance and sale in the
Debentures and engage in only those other activities necessary or incidental
thereto.
As long as payments of interest and other payments are made when due on the
Debentures, such payments will be sufficient to cover distributions and payments
due on the Trust Securities because of the following factors: (i) the aggregate
principal amount of Debentures will be equal to the sum of the aggregate stated
liquidation amount of the Trust Securities; (ii) the interest rate and the
interest and other payment dates on the Debentures will match the distribution
rate and distribution and other payment dates for the Trust Securities; (iii)
the Company shall pay, and the Trust shall not be obligated to pay, directly or
indirectly, all costs, expenses, debts, and obligations of the Trust (other than
with respect to the Trust Securities); and (iv) the Declaration further provides
that the Conseco Trustees shall not take or cause or permit the Trust to, among
other things, engage in any activity that is not consistent with the purposes of
the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Trust Preferred Securities (to the extent funds
therefor are available) are guaranteed by the Company as and to the extent set
forth under "Description of the Guarantee." If the Company does not make
interest payments on the Debentures purchased by the Trust, the Trust will not
have sufficient funds to pay distributions on the Trust Preferred Securities.
The Guarantee does not apply to any payment of distributions unless and until
the Trust has sufficient funds for the payment of such distributions.
If the Company fails to make interest or other payments on the Debentures
when due (taking account of any Extension Period), the Declaration provides a
mechanism whereby the holders of the Trust Preferred Securities, using the
procedures described in "Description of the Trust Preferred
Securities -- Book-Entry Only Issuance -- The Depository Trust Company" and
"-- Voting Rights," may direct the Institutional Trustee to enforce its rights
under the Indenture. If the Institutional Trustee fails to enforce its rights
under the Indenture in respect of an Indenture Event of Default, such holder of
record of Trust Preferred Securities may, to the fullest extent permitted by
applicable law, institute a legal proceeding against the Company to enforce the
Institutional Trustee's rights under the Indenture without first instituting any
legal proceeding against the Institutional Trustee or any other person or
entity. Notwithstanding the foregoing, if a Declaration Event of Default has
occurred and is continuing and such event is attributable to the failure of the
Company to pay interest or principal on the Debentures on the date such interest
or principal is otherwise payable, then a holder of Trust Preferred Securities
may directly institute a proceeding against the Company for payment. The
Company, under the Guarantee, acknowledges that the Guarantee Trustee shall
enforce the Guarantee on behalf of the holders of the Trust Preferred
Securities. If the Company fails to make payments under the Guarantee, the
Guarantee provides a mechanism whereby the holders of the Trust Preferred
Securities may direct the Guarantee Trustee to enforce its rights thereunder.
Notwithstanding the foregoing, if the Company
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has failed to make a payment under the Guarantee, any holder of Trust Preferred
Securities may institute a legal proceeding directly against the Company to
enforce its rights under the Guarantee without first instituting a legal
proceeding against the Trust, the Guarantee Trustee, or any other person or
entity.
The Guarantee, when taken together with the Company's obligations under the
Debentures and the Indenture and its obligations under the Declaration,
including its obligations to pay costs, expenses, debts and liabilities of the
Trust (other than with respect to the Trust Securities), has the effect of
providing a full and unconditional guarantee of amounts due on the Trust
Preferred Securities. See "Description of the Guarantee."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the material United States federal
income tax consequences of the purchase, ownership and disposition of FELINE
PRIDES, Trust Preferred Securities and Common Stock acquired under a Purchase
Contract. Unless otherwise stated, this summary applies only to "U.S. Holders"
who purchase Income PRIDES upon original issuance for an amount equal to the
Stated Amount thereof. A "U.S. Holder" is (i) a person who is a citizen or
resident of the United States, (ii) a corporation or partnership created or
organized in or under the laws of the United States or any state thereof or the
District of Columbia, (iii) an estate the income of which is subject to United
States federal income taxation, regardless of its source, or (iv) a trust if a
court within the United States is able to exercise primary supervision over the
administration of such trust and one or more United States persons have the
authority to control all substantial decisions of such trust. The tax treatment
of a holder may vary depending on such holder's particular situation. This
summary does not deal with special classes of holders such as banks, thrifts,
real estate investment trusts, regulated investment companies, insurance
companies, dealers in securities or currencies, tax-exempt investors, or persons
that will hold FELINE PRIDES, Trust Preferred Securities or Common Stock
acquired under a Purchase Contract as a position in a "straddle," as part of a
"synthetic security" or "hedge," as part of a "conversion transaction" or other
integrated investment, or as other than a capital asset. This summary does not
address the tax consequences to persons that have a functional currency other
than the U.S. dollar or the tax consequences to shareholders, partners or
beneficiaries of a holder of FELINE PRIDES, Trust Preferred Securities or Common
Stock acquired pursuant to a Purchase Contract. Further, it does not include any
description of any alternative minimum tax consequences or the tax laws of any
state, local or foreign government that may be applicable. PROSPECTIVE INVESTORS
THAT ARE NOT UNITED STATES PERSONS (WITHIN THE MEANING OF SECTION 7701(a)(30) OF
THE CODE) ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN FELINE PRIDES,
INCLUDING THE POTENTIAL APPLICATION OF UNITED STATES WITHHOLDING TAXES.
This summary is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury regulations (including proposed Treasury regulations)
issued thereunder, Internal Revenue Service ("IRS") rulings and pronouncements
and judicial decisions now in effect, all of which are subject to change,
possibly on a retroactive basis. Any such changes may be applied retroactively
in a manner that could cause the tax consequences to vary substantially from the
consequences described below, possibly adversely affecting a U.S. Holder.
No statutory, administrative or judicial authority directly addresses the
treatment of FELINE PRIDES or instruments similar to FELINE PRIDES for United
States federal income tax purposes. As a result, no assurance can be given that
the IRS will agree with the tax consequences described herein. PROSPECTIVE
INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE FELINE
PRIDES IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
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INCOME PRIDES
Allocation of Purchase Price. A U.S. Holder's acquisition of Income PRIDES
will be treated as an acquisition of a unit consisting of the Trust Preferred
Security and the Purchase Contract constituting such Income PRIDES. The purchase
price of each Income PRIDES will be allocated between the Trust Preferred
Security and the Purchase Contract constituting such Income PRIDES in proportion
to their respective fair market values at the time of purchase. Such allocation
will establish the U.S. Holder's initial tax basis in the Trust Preferred
Security and the Purchase Contract. The Company will report the fair market
value of each Trust Preferred Security as $50 and the fair market value of each
Purchase Contract as $0. This position will be binding upon each U.S. Holder
(but not on the IRS) unless such U.S. Holder explicitly discloses a contrary
position on a statement attached to such U.S. Holder's timely filed United
States federal income tax return for the taxable year in which an Income PRIDES
is acquired. Thus, absent such disclosure, a U.S. Holder should allocate the
purchase price for an Income PRIDES in accordance with the foregoing. The
remainder of this discussion assumes that this allocation of purchase price will
be respected for United States federal income tax purposes.
Trust Preferred Securities
Ownership of Trust Preferred Securities. A U.S. Holder will be treated as
owning the Trust Preferred Securities constituting a part of the Income PRIDES.
The Company and, by acquiring FELINE PRIDES, each U.S. Holder agree to treat
such U.S. Holder as the owner, for United States federal, state and local income
and franchise tax purposes, of the Trust Preferred Securities constituting a
part of the Income PRIDES beneficially owned by such U.S. Holder. The remainder
of this summary will assume that U.S. Holders of Income PRIDES will be treated
as the owners of the Trust Preferred Securities constituting a part of such
Income PRIDES for United States federal, state and local income and franchise
tax purposes.
Classification of the Trust. In connection with the issuance of the FELINE
PRIDES, Sidley & Austin ("Tax Counsel") will deliver an opinion that, under
current law and assuming compliance with the terms of the Declaration, and based
on certain facts and assumptions contained in such opinion, the Trust will be
classified as a grantor trust and not as an association taxable as a corporation
for United States federal income tax purposes. As a result, each U.S. Holder of
Trust Preferred Securities will be treated as owning an undivided beneficial
ownership interest in the Debentures. Accordingly, each U.S. Holder of Trust
Preferred Securities will be required to include in its gross income its pro
rata share of the interest income or OID that is paid or accrued on the
Debentures. See "-- Interest Income and Original Issue Discount."
Classification of the Debentures. The Company, the Trust and, by acquiring
FELINE PRIDES, each U.S. Holder agree to treat the Debentures as indebtedness of
the Company for all United States tax purposes. In connection with the issuance
of the Debentures, Tax Counsel will deliver an opinion that, under current law,
and based on certain representations, facts and assumptions set forth in such
opinion, the Debentures will be classified as indebtedness for United States
federal income tax purposes.
Interest Income and Original Issue Discount. Subject to the discussion
below regarding the Company's right to defer payments of interest on the
Debentures, the Debentures should be treated as "reset bonds" under applicable
Treasury regulations, and interest on the Debentures should not constitute
contingent interest for purposes of the OID rules. Under the Treasury
regulations applicable to reset bonds, the Debentures should be treated, solely
for purposes of calculating the accrual of OID, as maturing on the day
immediately preceding the Purchase Contract Settlement Date for an amount equal
to 100.5% of the Stated Amount (the "Reset Amount") and as having been reissued
on the Purchase Contract Settlement Date for the Reset Amount. If the amount of
the initial purchase price for the FELINE PRIDES allocated to the Trust
Preferred Securities is less than the Reset Amount, the Debentures should be
treated as having been issued with OID equal to the difference between the Reset
Amount and the amount so allocated to the Trust Preferred Securities, unless
such difference is less than three-fourths of one-percent of the Reset Amount.
If the Debentures were treated as issued with OID, a U.S. Holder would be
required to include such OID in income on an economic accrual basis over the
period between the issue date and the day immediately preceding the Purchase
Contract Settlement Date regardless of such U.S. Holder's method of tax
accounting. Consequently,
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each U.S. Holder (including those using the cash basis of accounting) would be
required to include OID in its gross income even though the Company would not
actually make current cash payments with respect to such OID. Any amount of OID
included in a U.S. Holder's gross income would increase such U.S. Holder's tax
basis in its Trust Preferred Securities. In addition, a U.S. Holder should
include stated interest on the Debentures in income as ordinary income when paid
to the Trust or accrued, in accordance with such U.S. Holder's regular method of
accounting.
Under the Indenture, the Company has the right to defer payments of
interest on the Debentures. The Company's right to defer payments of interest
could cause the Debentures to be subject to the OID rules. The Company, however,
believes, and intends to take the position, that as of the issue date, the terms
and conditions of the Debentures (in particular the restrictions on the
Company's ability to pay dividends during an Extension Period) make the
likelihood that the Company would exercise its option to defer the payment of
interest a "remote" contingency for these purposes. If so treated, except as
provided below, the Debentures would not be subject to the OID rules as a result
of the Company's right to defer payments of interest on the Debentures.
If the Company were to exercise its right to defer payments of interest,
the Debentures would at that time be treated, solely for purposes of the OID
rules, as reissued with OID. In such event, all of a U.S. Holder's taxable
interest income with respect to the Debentures would thereafter be accounted for
on an economic accrual basis regardless of such U.S. Holder's method of tax
accounting, and actual distributions of stated interest would not be reported as
taxable income. Consequently, each U.S. Holder (including those using the cash
basis of accounting) would be required to include OID in its gross income even
though the Company would not make actual cash payments during an Extension
Period. Any amount of OID included in a U.S. Holder's gross income would
increase such U.S. Holder's tax basis in its Trust Preferred Securities, and the
amount of distributions received by a U.S. Holder with respect to such Trust
Preferred Securities would reduce the tax basis of such Trust Preferred
Securities.
The IRS could take the position that the likelihood that the Company would
exercise its right to defer payments of interest is not a "remote" contingency
for these purposes, in which case U.S. Holders would be required to accrue OID
on the Debentures on an economic accrual basis under the OID rules described in
the preceding paragraph.
U.S. Holders that are corporations will not be entitled to a dividends
received deduction with respect to any income recognized with respect to the
Trust Preferred Securities.
Distribution of Debentures to U.S. Holders of Trust Preferred Securities. A
distribution by the Trust of the Debentures as described under the caption
"Description of the Trust Preferred Securities -- Liquidation Distribution Upon
Dissolution" will be non-taxable to U.S. Holders. In such event, a U.S. Holder
will have an aggregate tax basis in the Debentures received in the liquidation
equal to the aggregate tax basis such U.S. Holder had in its Trust Preferred
Securities surrendered therefor, and the holding period of such Debentures would
include the period during which such U.S. Holder had held the Trust Preferred
Securities. A U.S. Holder will continue to include interest (or OID) in respect
of Debentures received from the Trust in the manner described under "-- Interest
Income and Original Issue Discount."
Sales, Exchanges or Other Dispositions of Trust Preferred Securities. Gain
or loss will be recognized by a U.S. Holder on a sale, exchange, redemption or
other taxable disposition (collectively, a "disposition") of a Trust Preferred
Security (including a redemption for cash or the remarketing thereof in
satisfaction of the U.S. Holder's obligations pursuant to a Purchase Contract)
in an amount equal to the difference between the amount realized by the U.S.
Holder on the disposition of the Trust Preferred Securities (except to the
extent that such amount realized is characterized as a payment in respect of
accrued but unpaid interest on such U.S. Holder's allocable share of the
Debentures that such U.S. Holder has not included in gross income previously)
and the U.S. Holder's adjusted tax basis in the Trust Preferred Security.
Selling expenses incurred by a U.S. Holder, including the remarketing fee, will
reduce the amount of gain or increase the amount of loss recognized by such U.S.
Holder upon the sale, exchange or other disposition of the Trust Preferred
Securities. Gain or loss realized by a U.S. Holder on a disposition of a Trust
Preferred Security may be long-term capital gain depending on the holding period
of the Trust Preferred Security. Capital gains of individuals are eligible
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for reduced rates of taxation depending upon the holding period of such capital
assets. The deductibility of capital losses is subject to limitations.
Purchase Contracts
Income From Contract Adjustment Payments and Deferred Contract Adjustment
Payments. There is no direct authority addressing the treatment of the Contract
Adjustment Payments and Deferred Contract Adjustment Payments, if any, under
current law, and such treatment is unclear. Contract Adjustment Payments and
Deferred Contract Adjustment Payments, if any, may constitute taxable income to
a U.S. Holder when received or accrued, in accordance with the U.S. Holder's
method of tax accounting. To the extent the Company is required to file
information returns with respect to Contract Adjustment Payments or Deferred
Contract Adjustment Payments, it intends to report such payments as taxable
income to each U.S. Holder. U.S. Holders should consult their own tax advisors
concerning the treatment of Contract Adjustment Payments and Deferred Contract
Adjustment Payments, including the possibility that any such payment may be
treated as a loan, purchase price adjustment, rebate or payment analogous to an
option premium, rather than being includible in income on a current basis. The
Company does not intend to deduct the Contract Adjustment Payments or Deferred
Contract Adjustment Payments, if any, because it views them as a cost of issuing
the Common Stock. The treatment of Contract Adjustment Payments and Deferred
Contract Adjustment Payments could affect a U.S. Holder's tax basis in a
Purchase Contract or Common Stock received under a Purchase Contract or the
amount realized by a U.S. Holder upon the sale or disposition of a FELINE PRIDES
or the termination of a Purchase Contract. See "-- Acquisition of Common Stock
under a Purchase Contract," "-- Sale or Disposition of FELINE PRIDES" and
"-- Termination of Purchase Contract."
Acquisition of Common Stock Under a Purchase Contract. A U.S. Holder
generally will not recognize gain or loss on the purchase of Common Stock under
a Purchase Contract, except with respect to any cash paid in lieu of a
fractional share of Common Stock. Subject to the following discussion, a U.S.
Holder's aggregate initial tax basis in the Common Stock received under a
Purchase Contract generally should equal the purchase price paid for such Common
Stock plus such U.S. Holder's tax basis in the Purchase Contract (if any), less
the portion of such purchase price and tax basis allocable to the fractional
share. Payments of Contract Adjustment Payments or Deferred Contract Adjustment
Payments that have been received in cash by a U.S. Holder but not included in
income by such U.S. Holder should reduce such U.S. Holder's tax basis in the
Purchase Contract or the Common Stock to be received thereunder (see "-- Income
from Contract Adjustment Payments and Deferred Contract Adjustment Payments"
above). The holding period for Common Stock received under a Purchase Contract
will commence on the day after the acquisition of such Common Stock.
Ownership of Common Stock Acquired Under the Purchase Contract. Any
dividend on Common Stock paid by the Company out of its current or accumulated
earnings and profits (as determined for United States federal income tax
purposes) will be includible in income by a U.S. Holder when received. Any such
dividend will be eligible for the dividends received deduction if received by an
otherwise qualifying corporate U.S. Holder that meets the holding period and
other requirements for the dividends received deduction.
Upon a disposition of Common Stock, a U.S. Holder generally will recognize
capital gain or loss equal to the difference between the amount realized and
such U.S. Holder's adjusted tax basis in the Common Stock. Such gain or loss may
be long-term capital gain or loss depending on the holding period of the Common
Stock. Capital gains of individuals are eligible for reduced rates of taxation
depending upon the holding period of such capital assets. The deductibility of
capital losses is subject to limitations.
Early Settlement of Purchase Contract. A U.S. Holder will not recognize
gain or loss on the receipt of such U.S. Holder's proportionate share of Trust
Preferred Securities or Treasury Securities upon Early Settlement of a Purchase
Contract and will have the same tax basis in such Trust Preferred Securities or
Treasury Securities as before such Early Settlement.
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Termination of Purchase Contract. If a Purchase Contract terminates, a U.S.
Holder will recognize gain or loss equal to the difference between the amount
realized (if any) upon such termination and such U.S. Holder's adjusted tax
basis (if any) in the Purchase Contract at the time of such termination.
Payments of Contract Adjustment Payments or Deferred Contract Adjustment
Payments, if any, received by a U.S. Holder but not included in income by such
U.S. Holder should either reduce such U.S. Holder's tax basis in the Purchase
Contract or result in an amount realized on the termination of the Purchase
Contract. Any Contract Adjustment Payments or Deferred Contract Adjustment
Payments included in a U.S. Holder's income but not paid should increase such
U.S. Holder's tax basis in the Purchase Contract (see "-- Income from Contract
Adjustment Payments and Deferred Contract Adjustment Payments" above). Any such
gain or loss may be long-term capital gain or loss depending upon the holding
period of the Purchase Contract. Capital gains of individuals are eligible for
reduced rates of taxation depending upon the holding period of such capital
assets. The deductibility of capital losses is subject to limitations. A U.S.
Holder will not recognize gain or loss on the receipt of such U.S. Holder's
proportionate share of the Trust Preferred Securities, Treasury Securities or
Treasury Portfolio upon termination of the Purchase Contract and will have the
same tax basis in such Trust Preferred Securities, Treasury Securities or
Treasury Portfolio as before such distribution.
Adjustment to Settlement Rate. U.S. Holders of FELINE PRIDES might be
treated as receiving a constructive distribution from the Company if (i) the
Settlement Rate is adjusted and as a result of such adjustment the proportionate
interest of U.S. Holders of FELINE PRIDES in the assets or earnings and profits
of the Company is increased and (ii) the adjustment is not made pursuant to a
bona fide, reasonable anti-dilution formula. An adjustment in the Settlement
Rate would not be considered made pursuant to such a formula if the adjustment
were made to compensate a U.S. Holder for certain taxable distributions with
respect to the Common Stock. Thus, under certain circumstances, an increase in
the Settlement Rate might give rise to a taxable dividend to U.S. Holders of
FELINE PRIDES even though such U.S. Holders would not receive any cash related
thereto.
GROWTH PRIDES
Substitution of Treasury Securities to Create Growth PRIDES
A U.S. Holder of an Income PRIDES that delivers Treasury Securities to the
Collateral Agent in substitution for Trust Preferred Securities generally will
not recognize gain or loss upon the delivery of such Treasury Securities or the
release of the Trust Preferred Securities to such U.S. Holder. Such U.S. Holder
will continue to include in income any interest, OID or market discount or
amortize any bond premium otherwise includible or deductible, respectively, by
such U.S. Holder with respect to such Treasury Securities and Trust Preferred
Securities, and such U.S. Holder's tax basis in the Treasury Securities, the
Trust Preferred Securities and the Purchase Contract will not be affected by
such delivery and release. U.S. Holders should consult their tax advisors
concerning the tax consequences of purchasing, owning and disposing of Treasury
Securities.
Ownership of Treasury Securities
A U.S. Holder will be treated as owning the Treasury Securities
constituting a part of the Growth PRIDES. The Company, the Trust and, by
acquiring FELINE PRIDES, each U.S. Holder agree to treat such U.S. Holder as the
owner, for United States federal, state and local income and franchise tax
purposes, of the Treasury Securities constituting a part of the Growth PRIDES
beneficially owned by such U.S. Holder. The remainder of this summary will
assume that U.S. Holders of Growth PRIDES will be treated as the owners of the
Treasury Securities constituting a part of such Growth PRIDES for United States
federal, state and local income and franchise tax purposes.
Substitution of Trust Preferred Securities to Recreate Income PRIDES
A U.S. Holder of a Growth PRIDES that delivers Trust Preferred Securities
to the Collateral Agent to recreate an Income PRIDES generally will not
recognize gain or loss upon the delivery of such Trust Preferred Securities or
the release of the Treasury Securities to the U.S. Holder. Such U.S. Holder will
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continue to include in income any interest, OID or market discount or amortize
any bond premium otherwise includible or deductible, respectively, by such U.S.
Holder with respect to such Treasury Securities and Trust Preferred Securities,
and such U.S. Holder's tax basis in the Treasury Securities, the Trust Preferred
Securities and the Purchase Contract will not be affected by such delivery and
release.
SALE OR DISPOSITION OF FELINE PRIDES
Upon a disposition of FELINE PRIDES, a U.S. Holder will be treated as
having sold, exchanged or disposed of the Purchase Contract and the Trust
Preferred Securities, Treasury Portfolio or, in the case of Growth PRIDES, the
Treasury Securities, that constitute such FELINE PRIDES and generally will have
gain or loss equal to the difference between the portion of the proceeds to such
U.S. Holder allocable to the Purchase Contract and the Trust Preferred
Securities, Treasury Portfolio or Treasury Securities, as the case may be, and
such U.S. Holder's respective adjusted tax bases in the Purchase Contract and
the Trust Preferred Securities, Treasury Portfolio or Treasury Securities. Such
gain or loss generally will be capital gain or loss, except to the extent that
such U.S. Holder is treated as having received an amount with respect to accrued
interest on the Trust Preferred Securities, which will be treated as ordinary
interest income, or to the extent such U.S. Holder is treated as having received
an amount with respect to accrued Contract Adjustment Payments or Deferred
Contract Adjustment Payments, which may be treated as ordinary income, in each
case to the extent not previously included in income. Such capital gain or loss
may be long-term capital gain or loss depending on the holding period of the
FELINE PRIDES. Capital gains of individuals are eligible for reduced rates of
taxation depending upon the holding period of such capital assets. The
deductibility of capital losses is subject to limitations. If the disposition of
FELINE PRIDES occurs when the Purchase Contract has negative value, the U.S.
Holder should be considered to have received additional consideration for the
Trust Preferred Securities, Treasury Portfolio or Treasury Securities in an
amount equal to such negative value, and to have paid such amount to be released
from the U.S. Holder's obligation under the Purchase Contract. U.S. Holders
should consult their tax advisors regarding a disposition of the FELINE PRIDES
at a time when the Purchase Contract has negative value.
Payments to a U.S. Holder of Contract Adjustment Payments or Deferred
Contract Adjustment Payments that have not previously been included in the
income of such U.S. Holder should either reduce such U.S. Holder's tax basis in
the Purchase Contract or result in an increase in the amount realized on the
disposition of the Purchase Contract. Any Contract Adjustment Payments or
Deferred Contract Adjustment Payments included in a U.S. Holder's income but not
paid should increase such U.S. Holder's tax basis in the Purchase Contract (see
"-- Income from Contract Adjustment Payments and Deferred Contract Adjustment
Payments" above).
TAX EVENT REDEMPTION
A Tax Event Redemption will be a taxable event for U.S. Holders of Trust
Preferred Securities. Gain or loss will be recognized by a U.S. Holder in an
amount equal to the difference between the Redemption Price (whether paid
directly to such U.S. Holder or applied by the Collateral Agent to the purchase
of the Treasury Portfolio on behalf of holders of Income PRIDES), except to the
extent of amounts paid in respect of accrued but unpaid interest not previously
included income, and the U.S. Holder's adjusted tax basis in the Trust Preferred
Securities. Gain or loss realized by a U.S. Holder upon a Tax Event Redemption
will be capital gain or loss and may be long-term capital gain or loss depending
upon the holding period of the Trust Preferred Securities. Capital gains of
individuals are eligible for reduced rates of taxation depending upon the
holding period of such capital assets. The deductibility of capital losses is
subject to limitations.
Ownership of Treasury Portfolio. The Company, the Trust and by acquiring
FELINE PRIDES, each U.S. Holder agree to treat such U.S. Holder as the owner,
for United States federal, state and local income and franchise tax purposes, of
that portion of the Treasury Portfolio constituting a part of the Income PRIDES
beneficially owned by such U.S. Holder. Each U.S. Holder will include in income
any amount earned on such pro rata portion of the Treasury Portfolio for all
United States federal, state and local income and franchise tax purposes. Based
on such agreement, the remainder of this summary assumes that U.S. Holders of
FELINE
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PRIDES will be treated as the owners of the Treasury Portfolio constituting a
part of such Income PRIDES for United States federal, state and local income and
franchise tax purposes.
Interest Income and Original Issue Discount. The Treasury Portfolio will
consist of stripped Treasury Securities. A U.S. Holder of Income PRIDES will be
required to treat its pro rata portion of each Treasury Security in the Treasury
Portfolio as a bond that was originally issued on the date the Collateral Agent
acquired the relevant Treasury Securities and will include OID in income over
the life of the Treasury Securities in an amount equal to the U.S. Holder's pro
rata portion of the excess of the amounts payable on such Treasury Securities
over the value of the Treasury Securities at the time the Collateral Agent
acquires them on behalf of holders of Income PRIDES. The amount of such excess
will constitute only a portion of the total amounts payable in respect of the
Treasury Portfolio. Consequently, a substantial portion of each scheduled
interest payment to U.S. Holders will be treated as a tax-free return of the
U.S. Holder's investment in the Treasury Portfolio and will not be considered
current income for federal income tax purposes.
A U.S. Holder, whether on the cash or accrual method of tax accounting,
will be required to include OID (other than OID on short-term Treasury
Securities as defined below) in income for federal income tax purposes as it
accrues on a constant yield to maturity basis. See "-- Interest Income and
Original Issue Discount" above. In the case of any Treasury Security with a
maturity of one year or less from the date it is purchased (a "short-term
Treasury Security"), in general only accrual basis taxpayers will be required to
include OID in income as it is accrued. Unless such an accrual basis U.S. Holder
elects to accrue the OID on a short-term Treasury Security according to the
constant-yield-to-maturity method, such OID will be accrued on a straight-line
basis.
Tax Basis of the Treasury Portfolio. A U.S. Holder's initial tax basis in
the Treasury Portfolio will equal such U.S. Holder's pro rata portion of the
amount paid by the Collateral Agent for the Treasury Portfolio. A U.S. Holder's
tax basis in the Treasury Portfolio will be increased by the amount of OID
included in income with respect thereto and decreased by the amount of cash
received in respect thereof.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Payments under the FELINE PRIDES, Trust Preferred Securities or Common
Stock acquired under a Purchase Contract, the proceeds received with respect to
a fractional share of Common Stock upon the settlement of a Purchase Contract,
and the sale of FELINE PRIDES, Trust Preferred Securities or Common Stock
acquired under a Purchase Contract, may be subject to information reporting and
United States federal backup withholding tax at the rate of 31% if the U.S.
Holder thereof fails to supply an accurate taxpayer identification number or
otherwise fails to comply with applicable United States information reporting or
certification requirements. Any amounts so withheld will be allowed as a credit
against such U.S. Holder's United States federal income tax liability.
ERISA CONSIDERATIONS
Generally, employee benefit plans that are subject to ERISA, plans and
individual retirement accounts that are subject to Section 4975 of the Code and
entities whose assets are considered assets of such plans ("Plans") may purchase
the Securities subject to the investing fiduciary's determination that the
investment in the Securities satisfies ERISA's fiduciary standards and other
requirements applicable to investments by Plans. Accordingly, among other
factors, the fiduciary should consider whether the investment would satisfy the
prudence and diversification requirements of ERISA and would be consistent with
the documents and instruments governing the Plans.
Under regulations issued by the U.S. Department of Labor (the "DOL"), a
Plan that owns the Securities may be deemed to own a portion of the assets held
in the Trust, including a portion of the Debentures held in the Trust. In
addition, the Company and its affiliates may be "parties in interest" (within
the meaning of ERISA) or "disqualified persons" (within the meaning of Section
4975 of the Code) with respect to certain Plans (generally, Plans maintained or
sponsored by, or contributed to by, any such persons or Plans with
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respect to which any such persons are fiduciaries or service providers). The
acquisition and ownership of the Securities and a deemed acquisition and
ownership of an interest in the Debentures by a Plan with respect to which the
Company or any of its affiliates is considered a party in interest or a
disqualified person may constitute or result in a prohibited transaction under
ERISA or Section 4975 of the Code, unless such Securities are acquired and are
held pursuant to and in accordance with an applicable exemption. In this regard,
the DOL has issued prohibited transaction class exemptions ("PTCEs") that may
apply to the acquisition and holding of the Securities. These class exemptions
are PTCE 84-14 (respecting transactions determined by independent qualified
professional asset managers), PTCE 90-1 (respecting insurance company separate
accounts), PTCE 91-38 (respecting bank collective trust funds), PTCE 95-60
(respecting insurance company general accounts) and PTCE 96-23 (respecting
transactions determined by in-house asset managers).
Any fiduciary proposing to acquire the Securities on behalf of a Plan
should consult with ERISA counsel for the Plan and should not acquire the
Securities unless it is determined that such acquisition and holding does not
and will not constitute a prohibited transaction and will satisfy the applicable
fiduciary requirements imposed under ERISA. Any such acquisition by a Plan shall
be deemed a representation by the Plan and the fiduciary effecting the
investment on behalf of the Plan that such acquisition and holding satisfies the
applicable fiduciary requirements of ERISA, and is entitled to exemptive relief
from the prohibited transaction provisions of ERISA and the Code in accordance
with one or more of the foregoing PTCEs or another available prohibited
transaction exemption.
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Underwriting Agreement") among the Company, the Trust and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Credit Suisse First Boston Corporation,
Furman Selz LLC, PaineWebber Incorporated, SBC Warburg Dillion Read Inc. and
Sands Brothers & Co., Ltd. (the "Underwriters"), the Company and the Trust have
agreed to sell to the Underwriters, and the Underwriters severally have agreed
to purchase from the Company and the Trust, the number of Income PRIDES set
forth below opposite each Underwriter's name. In the Underwriting Agreement, the
Underwriters have agreed, subject to the terms and conditions set forth therein,
to purchase all of the Income PRIDES offered hereby if any of the Income PRIDES
are purchased. In the event of default by an Underwriter, the Underwriting
Agreement provides that, in certain circumstances, the purchase commitments of
the nondefaulting Underwriters may be increased or the Underwriting Agreement
may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
INCOME PRIDES
UNDERWRITERS -------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 1,800,000
Credit Suisse First Boston Corporation...................... 1,800,000
Furman Selz LLC............................................. 1,800,000
PaineWebber Incorporated.................................... 1,800,000
SBC Warburg Dillon Read Inc. ............................... 1,800,000
Sands Brothers & Co., Ltd. ................................. 1,000,000
----------
Total.......................................... 10,000,000
==========
</TABLE>
The Underwriters have advised the Company and the Trust that they propose
initially to offer the Income PRIDES to the public at the public offering price
set forth on the cover page of this Prospectus Supplement and to certain dealers
at such price less a concession not in excess of $.90 per Income PRIDES. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $.10 per Income PRIDES on sales to certain other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.
S-80
<PAGE> 81
Until the distribution of the Securities is completed, rules of the
Commission may limit the ability of the Underwriters and any selling group
members to bid for and purchase the Securities or shares of Common Stock. As an
exception to these rules, the Underwriters are permitted to engage in certain
transactions that stabilize the price of the Securities or the Common Stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Securities or the Common Stock.
If the Underwriters create a short position in the Securities in connection
with this offering, i.e., if they sell more Securities than are set forth on the
cover page of this Prospectus, the Underwriters may reduce that short position
by purchasing Securities in the open market. The Underwriters may also elect to
reduce any short position by exercising all or part of the over-allotment option
described below.
The Underwriters may also impose a penalty bid on certain selling group
members. This means that if the Underwriters purchase Securities in the open
market to reduce the Underwriters' short position or to stabilize the price of
the Securities, they may reclaim the amount of the selling concession from any
Underwriter and selling group members who sold those Securities as part of this
offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company, the Trust nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Securities or the
Common Stock. In addition, neither the Company, the Trust nor any of the
Underwriters makes any representation that the Underwriters will engage in such
transaction or that such transactions, once commenced, will not be discontinued
without notice.
The Company and the Trust have granted to the Underwriters an option,
exercisable for 30 days following the date of this Prospectus Supplement, to
purchase up to an aggregate of an additional 1,500,000 Income PRIDES from the
Company and the Trust at the Price to Public set forth on the cover page of this
Prospectus Supplement less the underwriting discount. The Underwriters may
exercise this option only to cover over-allotments, if any, made on the sale of
the Income PRIDES offered hereby. If the Underwriters exercise their
over-allotment option, each of the Underwriters has severally agreed, subject to
certain conditions, to effect the foregoing transactions with respect to
approximately the same percentage of such Income PRIDES that the respective
number of Income PRIDES set forth opposite its name in the foregoing table bears
to the Income PRIDES offered hereby.
The Company and the Trust have agreed, for a period of 90 days after the
date of this Prospectus Supplement, to not, without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated, directly or indirectly,
sell, offer to sell, grant any option for the sale of, or otherwise dispose of,
or enter into any agreement to sell, any Income PRIDES, Purchase Contracts,
Trust Preferred Securities or Common Stock, as the case may be, or any
securities of the Company similar to the Income PRIDES, Purchase Contracts,
Trust Preferred Securities or Common Stock or any security convertible into or
exchangeable or exercisable for Income PRIDES, Purchase Contracts, Trust
Preferred Securities or Common Stock other than (i) to the Underwriters pursuant
to the Underwriting Agreement, (ii) shares of Common Stock or options for shares
of Common Stock issued pursuant to or sold in connection with any employee or
agent benefit, dividend reinvestment and stock option and stock purchase plans
of the Company and its subsidiaries, (iii) any securities issued pursuant to or
sold in connection with any securities of the Company and its subsidiaries,
outstanding as of the date hereof, which are convertible into or exchangeable or
exercisable for any securities of the Company and its subsidiaries, (iv) any
securities issued pursuant to a merger or acquisition, (v) the Growth PRIDES or
Income PRIDES to be created or recreated upon substitution of Pledged
Securities, or shares of Common Stock issuable upon early settlement of the
Income PRIDES or Growth PRIDES or (vi) upon exercise of stock options.
Prior to this offering, there has been no public market for the Income
PRIDES. The public offering price for the Income PRIDES was determined in
negotiations between the Company, the Trust and the
S-81
<PAGE> 82
Underwriters. In determining the terms of the Income PRIDES, including the
public offering price, the Company, the Trust and the Underwriters considered
the market price of the Common Stock and also considered the Company's recent
results of operations, the future prospects of the Company and the industry in
general, market prices and terms of, and yields on, securities of other
companies considered to be comparable to the Company and prevailing conditions
in the securities markets. The Income PRIDES have been approved for listing on
the NYSE under the symbol "CNC PrF", subject to official notice of issuance. The
Company and the Trust have been advised by the Underwriters that they presently
intend to make a market for the Growth PRIDES and the Trust Preferred
Securities; however, they are not obligated to do so and any market making may
be discontinued at any time. There can be no assurance that an active trading
market will develop for the Income PRIDES, the Growth PRIDES or the Trust
Preferred Securities or that the Income PRIDES will trade in the public market
subsequent to the offering at or above the initial public offering price.
The Company and the Trust have agreed to indemnify the Underwriters
against, or to contribute to payments that the Underwriters may be required to
make in respect of, certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
This Prospectus Supplement, as amended or stickered, may be used by the
Remarketing Agent for remarketing the Trust Preferred Securities at such time as
is necessary.
In the ordinary course of their respective businesses, the Underwriters and
their affiliates have performed, and may in the future perform, investment
banking and/or commercial banking services for the Company.
LEGAL OPINIONS
The validity of the Purchase Contracts, the Common Stock issuable upon
settlement thereof and the Debentures will be passed upon for the Company and
the Trust by John J. Sabl, Executive Vice President, General Counsel and
Secretary of the Company, and Sidley & Austin, Chicago, Illinois, and certain
matters of Delaware law with respect to the validity of the Trust Preferred
Securities offered hereby will be passed upon for the Company and the Trust by
Richards, Layton & Finger, special Delaware counsel to the Company and the
Trust. The validity of the Purchase Contracts, the Common Stock issuable upon
settlement thereof, the Debentures and the Trust Preferred Securities will be
passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP,
New York, New York. In rendering their opinions, Sidley & Austin, Mr. Sabl and
Skadden, Arps, Slate, Meagher & Flom LLP will rely on the opinion of Karl W.
Kindig, Senior Vice President, Legal of Conseco Services, LLC, a subsidiary of
the Company, as to matters of Indiana law, and Mr. Sabl will rely on the opinion
of Sidley & Austin as to matters of New York law. Messrs. Sabl and Kindig are
full-time employees and own Common Stock and options to purchase Common Stock.
S-82
<PAGE> 83
INDEX OF TERMS FOR PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
1940 Act.................................................. S-55
Applicable Market Value................................... S-13
Applicable Ownership Interest............................. S-36
Applicable Principal Amount............................... S-68
Bankruptcy Code........................................... S-14
Beneficial Owner.......................................... S-59
Business Day.............................................. S-44
Change in 1940 Act Law.................................... S-54
Closing Price............................................. S-40
Code...................................................... S-73
Collateral Agent.......................................... S-7
Common Securities......................................... S-1
Common Securities Guarantee............................... S-62
Common Stock.............................................. S-1
Compound Interest......................................... S-69
Conseco Trustees.......................................... S-6
Contract Adjustment Payments.............................. S-1
Current Market Price...................................... S-45
Debentures................................................ S-1
Debt Trustee.............................................. S-65
Declaration............................................... S-6
Declaration Event of Default.............................. S-56
Default................................................... S-70
Deferred Contract Adjustment Payments..................... S-10
Depositary................................................ S-46
Direct Action............................................. S-25
Direct Participants....................................... S-47
Early Settlement.......................................... S-13
Exchange Act.............................................. S-47
Extension Periods......................................... S-15
Failed Remarketing........................................ S-3
FELINE PRIDES............................................. S-1
FELINE PRIDES Certificate................................. S-41
Guarantee................................................. S-2
Guarantee Payments........................................ S-62
Guarantee Trustee......................................... S-32
Global Security........................................... S-71
Global Security Certificates.............................. S-46
Growth PRIDES............................................. S-3
Income PRIDES............................................. S-1
Indenture................................................. S-65
Indenture Event of Default................................ S-56
Indirect Participants..................................... S-47
Institutional Trustee..................................... S-32
Interest Payment Date..................................... S-66
Investment Company Event.................................. S-54
IRS....................................................... S-73
NYSE...................................................... S-1
OID....................................................... S-4
Participants.............................................. S-47
</TABLE>
A-1
<PAGE> 84
<TABLE>
<S> <C>
Payment Date............................................................................................ S-11
Pledge Agreement........................................................................................ S-7
Pledged Securities...................................................................................... S-21
Primary Treasury Dealer................................................................................. S-68
Property Account........................................................................................ S-32
Purchase Contract....................................................................................... S-1
Purchase Contract Agent................................................................................. S-7
Purchase Contract Agreement............................................................................. S-7
Purchase Contract Settlement Date....................................................................... S-1
Quotation Agent......................................................................................... S-68
Redemption Amount....................................................................................... S-68
Redemption Price........................................................................................ S-5
Reference Price......................................................................................... S-12
Regular Trustees........................................................................................ S-32
Remarketing Agent....................................................................................... S-11
Remarketing Agreement................................................................................... S-11
Remarketing Fee......................................................................................... S-3
Remarketing Underwriting Agreement...................................................................... S-11
Reset Agent............................................................................................. S-7
Reset Amount............................................................................................ S-74
Reset Announcement Date................................................................................. S-53
Reset Rate.............................................................................................. S-2
Reset Spread............................................................................................ S-2
Securities.............................................................................................. S-1
Senior Indebtedness..................................................................................... S-66
Settlement Rate......................................................................................... S-12
Sponsor................................................................................................. S-6
Stated Amount........................................................................................... S-1
Successor Securities.................................................................................... S-58
Super-Majority.......................................................................................... S-57
Tax Counsel............................................................................................. S-74
Tax Event............................................................................................... S-67
Tax Event Redemption.................................................................................... S-5
Tax Event Redemption Date............................................................................... S-67
Threshold Appreciation Price............................................................................ S-12
Trading Days............................................................................................ S-40
Treasury Portfolio...................................................................................... S-67
Treasury Portfolio Purchase Price....................................................................... S-68
Treasury Securities..................................................................................... S-3
Trust................................................................................................... S-1
Trust Act............................................................................................... S-32
Trust Indenture Act..................................................................................... S-6
Trust Preferred Security................................................................................ S-1
Trust Securities........................................................................................ S-1
Two-Year Benchmark Treasury............................................................................. S-53
Underwriters............................................................................................ S-80
Underwriting Agreement.................................................................................. S-80
U.S. Holder............................................................................................. S-73
WNC..................................................................................................... S-27
WNC Merger.............................................................................................. S-2
</TABLE>
A-2
<PAGE> 85
PROSPECTUS
$1,150,000,000
CONSECO, INC.
DEBT SECURITIES, PREFERRED STOCK, DEPOSITARY SHARES, COMMON STOCK, STOCK
PURCHASE CONTRACTS, STOCK PURCHASE UNITS AND WARRANTS
CONSECO FINANCING TRUST IV
CONSECO FINANCING TRUST V
CONSECO FINANCING TRUST VI
CONSECO FINANCING TRUST VII
PREFERRED SECURITIES FULLY AND UNCONDITIONALLY GUARANTEED
BY CONSECO, INC.
------------------------
Conseco, Inc., an Indiana corporation ("Conseco" or the "Company"), may
offer and sell from time to time, in one or more series, (i) its debt
securities, consisting of debentures, notes and/or other evidences of
indebtedness representing unsecured obligations of Conseco (the "Debt
Securities"), (ii) shares of its preferred stock, no par value per share
("Preferred Stock"), which may be represented by depositary shares (the
"Depositary Shares") as described herein, (iii) shares of its common stock, no
par value per share ("Common Stock"), (iv) Stock Purchase Contracts ("Stock
Purchase Contracts") to purchase shares of Common Stock, (v) Stock Purchase
Units, each representing ownership of a Stock Purchase Contract and Preferred
Securities (as defined herein) or debt obligations of third parties, including
U.S. Treasury securities, securing the holder's obligation to purchase Common
Stock under the Stock Purchase Contracts ("Stock Purchase Units") and (vi)
warrants to purchase Debt Securities, Preferred Stock, Common Stock or other
securities or rights ("Warrants").
Conseco Financing Trust IV, Conseco Financing Trust V, Conseco Financing
Trust VI and Conseco Financing Trust VII (each, a "Conseco Trust"), statutory
business trusts formed under the laws of the State of Delaware, may offer, from
time to time, preferred securities, representing preferred undivided beneficial
interests in the assets of the respective Conseco Trusts ("Preferred
Securities"). The payment of periodic cash distributions ("Distributions") with
respect to Preferred Securities out of moneys held by each of the Conseco
Trusts, and payments on liquidation, redemption or otherwise with respect to
such Preferred Securities, will be guaranteed by the Company to the extent
described herein (each, a "Trust Guarantee"). See "Description of Preferred
Securities" and "Description of Trust Guarantees." The Company's obligations
under the Trust Guarantees will rank junior and subordinate in right of payment
to all other liabilities of the Company and pari passu with its obligations
under the most senior preferred or preference stock of the Company. See
"Description of Trust Guarantees -- Status of the Trust Guarantees."
Subordinated Debt Securities (as defined herein) may be issued and sold by the
Company in one or more series to a Conseco Trust or a trustee of such Conseco
Trust in connection with the investment of the proceeds from the offering of
Preferred Securities and Common Securities (as defined herein) of such Conseco
Trust. The Subordinated Debt Securities purchased by a Conseco Trust may be
subsequently distributed pro rata to holders of Preferred Securities and Common
Securities in connection with the dissolution of such Conseco Trust. The Debt
Securities, Preferred Stock, Depositary Shares, Common Stock, Stock Purchase
Contracts, Stock Purchase Units, Warrants and Preferred Securities are herein
collectively referred to as the "Securities."
Certain specific terms of the particular Securities in respect of which
this Prospectus is being delivered will be set forth in an accompanying
supplement to this Prospectus (the "Prospectus Supplement"), which will
describe, without limitation and where applicable, the following: (i) in the
case of Debt Securities, the specific designation, aggregate principal amount,
ranking as senior or subordinated Debt Securities, denomination, maturity,
premium, if any, interest rate (which may be fixed or variable), time and method
of calculating interest, if any, place or places where principal of, premium, if
any, and interest, if any, on such Debt Securities
<PAGE> 86
will be payable, the currencies or currency units in which principal of,
premium, if any, and interest, if any, on such Debt Securities will be payable,
any terms of redemption or conversion, any sinking fund provisions, the purchase
price, any listing on a securities exchange, any right of the Company to defer
payment of interest on the Debt Securities and the maximum length of such
deferral period and other special terms; (ii) in the case of Preferred Stock and
Depositary Shares, the specific designation, stated value and liquidation
preference per share and number of shares offered, the purchase price, dividend
rate (which may be fixed or variable), method of calculating payment of
dividends, place or places where dividends on such Preferred Stock will be
payable, any terms of redemption, dates on which dividends shall be payable and
dates from which dividends shall accrue, any listing on a securities exchange,
voting and other rights, including conversion or exchange rights, if any, and
other special terms, including whether interests in the Preferred Stock will be
represented by Depositary Shares and, if so, the fraction of a share of
Preferred Stock represented by each Depositary Share; (iii) in the case of
Common Stock, the number of shares offered, the initial offering price, market
price and dividend information; (iv) in the case of Stock Purchase Contracts,
the number of shares of Common Stock issuable thereunder, the purchase price of
the Common Stock, the date or dates on which the Common Stock is required to be
purchased by the holders of the Stock Purchase Contracts, any periodic payments
required to be made by the Company to the holders of the Stock Purchase
Contracts or vice versa, and the terms of the offering and sale thereof, (v) in
the case of Stock Purchase Units, the specific terms of the Stock Purchase
Contracts and any Preferred Securities or debt obligations of third parties
securing the holder's obligation to purchase the Common Stock under the Stock
Purchase Contracts, and the terms of the offering and sale thereof; (vi) in the
case of Warrants, the specific designation, the number, purchase price, exercise
price and other terms thereof, any listing of the Warrants or the underlying
Securities on a securities exchange or any other terms in connection with the
offering, sale and exercise of the Warrants, as well as the terms on which and
the Securities for which such Warrants may be exercised; and (vii) in the case
of Preferred Securities, the specific designation, number of securities,
liquidation amount per security, the purchase price, any listing on a securities
exchange, distribution rate (or method of calculation thereof), dates on which
distributions shall be payable and dates from which distributions shall accrue,
any voting rights, terms for any conversion or exchange into other securities,
any redemption, exchange or sinking fund provisions, any other rights,
preferences, privileges, limitations or restrictions relating to the Preferred
Securities, the specific terms and provisions of the Guarantee and the terms
upon which the proceeds of the sale of the Preferred Securities shall be used to
purchase a specific series of Subordinated Debt Securities of the Company.
The offering price to the public of the Securities will be limited to U.S.
$1,150,000,000 in the aggregate (or its equivalent (based on the applicable
exchange rate at the time of issue), if Securities are offered for consideration
denominated in one or more foreign currencies or currency units as shall be
designated by the Company). The Debt Securities may be denominated in United
States dollars or, at the option of the Company if so specified in the
applicable Prospectus Supplement, in one or more foreign currencies or currency
units. The Debt Securities may be issued in registered form or bearer form, or
both. If so specified in the applicable Prospectus Supplement, Securities of one
or more classes or series may be issued in whole or in part in the form of one
or more temporary or permanent global securities.
The Common Stock is listed on the New York Stock Exchange under the trading
symbol "CNC".
The Securities may be sold to or through underwriters, through dealers or
agents or directly to purchasers. See "Plan of Distribution." The names of any
underwriters, dealers or agents involved in the sale of the Securities in
respect of which this Prospectus is being delivered and any applicable fee,
commission or discount arrangements with them will be set forth in a Prospectus
Supplement. See "Plan of Distribution" for possible indemnification arrangements
for dealers, underwriters and agents.
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is December 8, 1997.
2
<PAGE> 87
FOR NORTH CAROLINA RESIDENTS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA,
NOR HAS THE COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY OR THE ADEQUACY OF
THIS DOCUMENT.
State insurance holding company laws and regulations applicable to the
Company generally provide that no person may acquire control of the Company, and
thus indirect control of its insurance subsidiaries, unless such person has
provided certain required information to, and such acquisition is approved (or
not disapproved) by, the appropriate insurance regulatory authorities.
Generally, any person acquiring beneficial ownership of 10% or more of the
Common Stock would be presumed to have acquired such control, unless the
appropriate insurance regulatory authorities upon advance application determine
otherwise.
NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, ANY
ACCOMPANYING PROSPECTUS SUPPLEMENT OR THE DOCUMENTS INCORPORATED OR DEEMED
INCORPORATED BY REFERENCE HEREIN. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY UNDERWRITER, DEALER OR AGENT. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN
THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THOSE SECURITIES TO WHICH IT RELATES, IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY PROSPECTUS
SUPPLEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by Conseco with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
the following regional offices of the Commission: New York Regional Office, 7
World Trade Center, 13th Floor, New York, New York 10048; and Chicago Regional
Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, upon
payment of the prescribed rates. In addition, the Commission maintains a Web
site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants, including the Company,
that file electronically with the Commission. Copies of such reports, proxy
statements and other information can also be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Company and the Conseco Trusts have filed with the Commission a
Registration Statement on Form S-3 under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Securities offered hereby. This
Prospectus, which constitutes part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits thereto, certain parts of which are omitted in accordance with the
rules and regulations of the Commission. Statements contained herein or in any
Prospectus Supplement concerning the provisions of any document do not purport
to be complete and, in each instance, are qualified in all respects by reference
to the copy of such document filed as an exhibit to the Registration Statement
or otherwise filed with the Commission. For further information with respect to
the Company, the Conseco Trusts and the Securities, reference is hereby made to
such Registration Statement, including the exhibits thereto and the documents
incorporated herein by reference, which can be examined at the Commission's
principal office, 450 Fifth Street, N.W., Washington, D.C. 20549, or copies of
which can be obtained from the Commission at such office upon payment of the
fees prescribed by the Commission.
No separate financial statements of the Conseco Trusts have been included
or incorporated by reference herein. The Company does not consider that such
financial statements would be material to holders of the
3
<PAGE> 88
Preferred Securities because (i) all of the voting securities of the Conseco
Trusts will be owned, directly or indirectly, by the Company, a reporting
company under the Exchange Act, (ii) the Conseco Trusts have and will have no
independent operations but exist for the sole purpose of issuing securities
representing undivided beneficial interests in their assets and investing the
proceeds thereof in Subordinated Debt Securities issued by the Company, and
(iii) the Company's obligations described herein and in any accompanying
Prospectus Supplement, under the Declaration (as defined herein) (including the
obligation to pay expenses of the Conseco Trusts), the Subordinated Indenture
and any supplemental indentures thereto, the Subordinated Debt Securities issued
to the Conseco Trust and the Trust Guarantees taken together, constitute a full
and unconditional guarantee by the Company of payments due on the Preferred
Securities. See "Description of Preferred Securities of the Conseco Trusts" and
"Description of Trust Guarantees."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by this reference:
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1996
including Part III thereof which is incorporated by reference from the Company's
proxy statement dated April 10, 1997 for its annual meeting of shareholders (the
"Company's Annual Report");
2. Quarterly Reports on Form 10-Q for the quarters ended March 31, June
30 and September 30, 1997;
3. Current Reports on Form 8-K dated April 1, 1997 and April 30, 1997;
and
4. The description of the Common Stock in its Registration Statements
filed pursuant to Section 12 of the Exchange Act, and any amendment or report
filed for the purpose of updating any such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the offering made hereby shall be deemed to be incorporated by
reference in this Prospectus or any Prospectus Supplement and to be part hereof
from the date of filing of such documents.
Any statement contained herein, or in a document incorporated or deemed to
be incorporated by reference herein, shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus or
any Prospectus Supplement. To the extent that any proxy statement is
incorporated by reference herein, such incorporation shall not include any
information contained in such proxy statement that is not, pursuant to the
Commission's rules, deemed to be "filed" with the Commission or subject to the
liabilities of Section 18 of the Exchange Act.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents incorporated herein by reference (other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference into such documents). Any such request should be directed to James W.
Rosensteele, Senior Vice President, Corporate Communications, Conseco, Inc.,
11825 N. Pennsylvania Street, Carmel, Indiana 46032 (telephone number: (317)
817-2893).
4
<PAGE> 89
THE COMPANY
The Company is a financial services holding company. The Company develops,
markets and administers annuity, supplemental health insurance, individual and
group major medical insurance and individual life insurance products. The
Company's operating strategy is to grow the insurance business within its
subsidiaries by focusing its resources on the development and expansion of
profitable products and strong distribution channels. The Company has
supplemented such growth by acquiring companies that have profitable niche
products and strong distribution systems. Once a company has been acquired, the
Company's operating strategy has been to consolidate and streamline management
and administrative functions, to realize superior investment returns through
active asset management, to eliminate unprofitable products and distribution
channels, and to expand and develop the profitable distribution channels and
products.
The Company's principal executive offices are located at 11825 N.
Pennsylvania Street, Carmel, Indiana 46032. Its telephone number is (317)
817-6100.
THE CONSECO TRUSTS
Each of the Conseco Trusts is a statutory business trust formed under
Delaware law pursuant to (i) a declaration of trust (each a "Declaration")
executed by the Company as sponsor for such trust (the "Sponsor"), and the
Conseco Trustees (as defined herein) of such trust and (ii) the filing of a
certificate of trust with the Secretary of State of the State of Delaware on May
23, 1997. Each Conseco Trust exists for the exclusive purposes of (i) issuing
and selling the Preferred Securities and common securities representing common
undivided beneficial interests in the assets of such Conseco Trust (the "Common
Securities" and, together with the Preferred Securities, the "Trust
Securities"), (ii) using the gross proceeds from the sale of the Trust
Securities to acquire the Subordinated Debt Securities and (iii) engaging in
only those other activities necessary, appropriate, convenient or incidental
thereto. All of the Common Securities will be directly or indirectly owned by
the Company. The Common Securities will rank pari passu, and payments will be
made thereon pro rata, with the Preferred Securities, except that, if an event
of default under the Declaration has occurred and is continuing, the rights of
the holders of the Common Securities to payment in respect of distributions and
payments upon liquidation, redemption and otherwise will be subordinated to the
rights of the holders of the Preferred Securities. The Company will directly or
indirectly acquire Common Securities in an aggregate liquidation amount equal to
at least 3% of the total capital of each Conseco Trust.
Unless otherwise specified in the applicable Prospectus Supplement, each
Conseco Trust has a term of up to 55 years but may terminate earlier, as
provided in the Declaration. Each Conseco Trust's business and affairs will be
conducted by the trustees (the "Conseco Trustees") appointed by the Company as
the direct or indirect holder of all of the Common Securities. The holder of the
Common Securities will be entitled to appoint, remove or replace any of, or
increase or reduce the number of, the Conseco Trustees of each Conseco Trust.
The duties and obligations of the Conseco Trustees shall be governed by the
Declaration of such Conseco Trust. A majority of the Conseco Trustees (the
"Regular Trustees") of each Conseco Trust will be persons who are employees or
officers of or who are affiliated with the Company. One Conseco Trustee of each
Conseco Trust will be a financial institution that is not affiliated with the
Company and has a minimum amount of combined capital and surplus of not less
than $50,000,000, which shall act as property trustee and as indenture trustee
for the purposes of compliance with the provisions of Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"), pursuant to the terms set forth in
the applicable Prospectus Supplement (the "Institutional Trustee"). In addition,
unless the Institutional Trustee maintains a principal place of business in the
State of Delaware and otherwise meets the requirements of applicable law, one
Conseco Trustee of each Conseco Trust will be an entity having a principal place
of business in, or a natural person resident of, the State of Delaware (the
"Delaware Trustee"). The Company will pay all fees and expenses related to the
Conseco Trust and the offering of the Trust Securities.
Unless otherwise specified in the applicable Prospectus Supplement, the
Institutional Trustee for each Conseco Trust shall be State Street Bank and
Trust Company. Unless otherwise specified in the applicable Prospectus
Supplement, the Delaware Trustee for each Conseco Trust shall be First Union
Trust Company, National Association, and its address in the State of Delaware is
One Rodney Square, 920 King Street, Wilmington, Delaware 19801. The principal
place of business of each Conseco Trust shall be c/o Conseco, Inc., 11825 N.
Pennsylvania Street, Carmel, Indiana 46032; telephone (317) 817-6100.
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<PAGE> 90
USE OF PROCEEDS
Unless otherwise indicated in the accompanying Prospectus Supplement, the
net proceeds received by the Company from the sale of the Securities offered
hereby are expected to be used for general corporate purposes. The proceeds from
the sale of Preferred Securities by the Conseco Trusts will be invested in the
Subordinated Debt Securities of the Company. Except as may otherwise be
described in the Prospectus Supplement relating to such Preferred Securities,
the Company expects to use the net proceeds from the sale of such Subordinated
Debt Securities to the Conseco Trusts for general corporate purposes. Any
specific allocation of the proceeds to a particular purpose that has been made
at the date of any Prospectus Supplement will be described therein.
RATIOS OF EARNINGS TO FIXED CHARGES, EARNINGS TO FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
AND EARNINGS TO FIXED CHARGES, PREFERRED STOCK DIVIDENDS
AND DISTRIBUTIONS ON COMPANY-OBLIGATED MANDATORILY
REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUSTS
The following table sets forth the Company's ratios of earnings to fixed
charges, earnings to fixed charges and preferred stock dividends and earnings to
fixed charges, preferred stock dividends and distributions on Company-obligated
mandatorily redeemable preferred securities of subsidiary trusts for each of the
five years ended December 31, 1996 and for the nine months ended September 30,
1996 and 1997.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- -------------
1992 1993 1994 1995 1996 1996 1997
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges:
As reported............................ 1.54X 2.19X 2.26X 1.57X 1.61X 1.64X 2.13X
Excluding interest on annuities and
financial products(1)(2)............ 6.24X 8.85X 4.55X 3.80X 4.55X 4.32X 7.94X
Ratio of earnings to fixed charges and
preferred dividends:
As reported......................... 1.50X 2.04X 1.95X 1.50X 1.50X 1.51X 2.01X
Excluding interest on annuities and
financial products(1)(2).......... 5.09X 6.00X 3.14X 3.06X 3.14X 2.97X 5.81X
Ratio of earnings to fixed charges,
preferred dividends and distributions
on Company-obligated mandatorily
redeemable preferred securities of
subsidiary trusts:
As reported......................... 1.50X 2.04X 1.95X 1.50X 1.49X 1.51X 1.86X
Excluding interest on annuities and
financial products(1)(2).......... 5.09X 6.00X 3.14X 3.06X 3.06X 2.97X 4.20X
</TABLE>
- ---------------
(1) These ratios are included to assist the reader in analyzing the impact of
interest on annuities and financial products (which is not generally
required to be paid in cash in the period it is recognized). Such ratios are
not intended to, and do not, represent the following ratios prepared in
accordance with generally accepted accounting principles ("GAAP"): the ratio
of earnings to fixed charges; the ratio of earnings to fixed charges and
preferred dividends; or the ratio of earnings to fixed charges, preferred
dividends and distributions on Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts.
(2) Excludes interest credited to annuity and financial products of $506.8
million, $408.5 million, $134.7 million, $585.4 million and $668.6 million
for the years ended December 31, 1992, 1993, 1994, 1995 and 1996,
respectively, and $445.9 million and $518.0 million for the nine months
ended September 30, 1996 and 1997, respectively.
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<PAGE> 91
DESCRIPTION OF DEBT SECURITIES
The Debt Securities offered hereby, consisting of notes, debentures and
other evidences of indebtedness, are to be issued in one or more series
constituting either senior Debt Securities ("Senior Debt Securities") or
subordinated Debt Securities ("Subordinated Debt Securities"). Unless otherwise
specified in the applicable Prospectus Supplement, the Debt Securities will be
issued pursuant to indentures described below (as applicable, the "Senior
Indenture" or the "Subordinated Indenture", each, an "Indenture" and, together,
the "Indentures"), in each case between the Company and the trustee identified
therein (the "Trustee"), the forms of which have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part. Except for the
subordination provisions of the Subordinated Indenture, for which there are no
counterparts in the Senior Indenture, the provisions of the Subordinated
Indenture are substantially identical in substance to the provisions of the
Senior Indenture that bear the same section numbers.
The statements herein relating to the Debt Securities and the following
summaries of certain general provisions of the Indentures do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the Indentures (as they may be amended or supplemented
from time to time), including the definitions therein of certain terms
capitalized in this Prospectus. All article and section references appearing
herein are to articles and sections of the applicable Indenture and whenever
particular Sections or defined terms of the Indentures (as they may be amended
or supplemented from time to time) are referred to herein or in a Prospectus
Supplement, such Sections or defined terms are incorporated herein or therein by
reference.
GENERAL
The Debt Securities will be unsecured obligations of the Company. The
Indentures do not limit the aggregate amount of Debt Securities which may be
issued thereunder, nor do they limit the incurrence or issuance of other secured
or unsecured debt of the Company. The Debt Securities issued under the Senior
Indenture will be unsecured and will rank pari passu with all other unsecured
and unsubordinated obligations of the Company. The Debt Securities issued under
the Subordinated Indenture will be subordinate and junior in right of payment,
to the extent and in the manner set forth in the Subordinated Indenture, to all
Senior Indebtedness of the Company. See "-- Subordination under the Subordinated
Indenture."
Reference is made to the applicable Prospectus Supplement which will
accompany this Prospectus for a description of the specific series of Debt
Securities being offered thereby, including, but not limited to, the following:
(1) the title, designation and purchase price, of such Debt Securities,
including whether the Debt Securities are Senior Debt Securities or Subordinated
Debt Securities and whether such Debt Securities will be issued under the Senior
Indenture, the Subordinated Indenture or other indenture set forth in the
Prospectus Supplement; (2) any limit upon the aggregate principal amount of such
Debt Securities; (3) the date or dates on which the principal of and premium, if
any, on such Debt Securities will mature or the method of determining such date
or dates; (4) the rate or rates (which may be fixed or variable) at which such
Debt Securities will bear interest, if any, or the method of calculating such
rate or rates; (5) the date or dates from which interest, if any, will accrue or
the method by which such date or dates will be determined; (6) the date or dates
on which interest, if any, will be payable and the record date or dates
therefor; (7) the place or places where principal of, premium, if any, and
interest, if any, on such Debt Securities will be payable; (8) the right, if
any, of the Company to defer payment of interest on Debt Securities and the
maximum length of any such deferral period; (9) the period or periods within
which, the price or prices at which, the currency or currencies (including
currency unit or units) in which, and the terms and conditions upon which, such
Debt Securities may be redeemed, in whole or in part, at the option of the
Company; (10) the obligation, if any, of the Company to redeem or purchase such
Debt Securities pursuant to any sinking fund or analogous provisions or upon the
happening of a specified event and the period or periods within which, the price
or prices at which and the other terms and conditions upon which, such Debt
Securities shall be redeemed or purchased, in whole or in part, pursuant to such
obligations; (11) the denominations in which such Debt Securities are authorized
to be issued; (12) the currency or currency unit for which Debt Securities may
be purchased or in which Debt Securities may be denominated and/or the currency
or currencies (including currency unit or units) in which principal of, premium,
if any, and interest, if
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<PAGE> 92
any, on such Debt Securities will be payable and whether the Company or the
holders of any such Debt Securities may elect to receive payments in respect of
such Debt Securities in a currency or currency unit other than that in which
such Debt Securities are stated to be payable; (13) if other than the principal
amount thereof, the portion of the principal amount of such Debt Securities
which will be payable upon declaration of the acceleration of the maturity
thereof or the method by which such portion shall be determined; (14) the person
to whom any interest on any such Debt Security shall be payable if other than
the person in whose name such Debt Security is registered on the applicable
record date; (15) any addition to, or modification or deletion of, any Event of
Default or any covenant of the Company specified in the Indenture with respect
to such Debt Securities; (16) the application, if any, of such means of
defeasance or covenant defeasance as may be specified for such Debt Securities;
(17) whether such Debt Securities are to be issued in whole or in part in the
form of one or more temporary or permanent global securities and, if so, the
identity of the depositary for such global security or securities; (18) any
Federal income tax considerations applicable to holders of the Debt Securities;
and (19) any other special terms pertaining to such Debt Securities. Unless
otherwise specified in the applicable Prospectus Supplement, the Debt Securities
will not be listed on any securities exchange. (Section 3.1.)
Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities will be issued in fully-registered form without coupons. Where Debt
Securities of any series are issued in bearer form, the special restrictions and
considerations, including special offering restrictions and special Federal
income tax considerations, applicable to any such Debt Securities and to payment
on and transfer and exchange of such Debt Securities will be described in the
applicable Prospectus Supplement. Bearer Debt Securities will be transferable by
delivery. (Section 3.5.)
Debt Securities may be sold at a substantial discount below their stated
principal amount, bearing no interest or interest at a rate which at the time of
issuance is below market rates. Certain Federal income tax consequences and
special considerations applicable to any such Debt Securities, or to Debt
Securities issued at par that are treated as having been issued at a discount,
will be described in the applicable Prospectus Supplement.
If the purchase price of any of the Debt Securities is payable in one or
more foreign currencies or currency units or if any Debt Securities are
denominated in one or more foreign currencies or currency units or if the
principal of, premium, if any, or interest, if any, on any Debt Securities is
payable in one or more foreign currencies or currency units, or by reference to
commodity prices, equity indices or other factors, the restrictions, elections,
certain Federal income tax considerations, specific terms and other information
with respect to such issue of Debt Securities and such foreign currency or
currency units or commodity prices, equity indices or other factors will be set
forth in the applicable Prospectus Supplement. In general, holders of such
series of Debt Securities may receive a principal amount on any principal
payment date, or a payment of premium, if any, on any premium interest payment
date or a payment of interest on any interest payment date, that is greater than
or less than the amount of principal, premium, if any, or interest otherwise
payable on such dates, depending on the value on such dates of the applicable
currency, commodity, equity index or other factor.
PAYMENT, REGISTRATION, TRANSFER AND EXCHANGE
Unless otherwise provided in the applicable Prospectus Supplement, payments
in respect of the Debt Securities will be made in the designated currency at the
office or agency of the Company maintained for that purpose as the Company may
designate from time to time, except that, at the option of the Company, interest
payments, if any, on Debt Securities in registered form may be made (i) by
checks mailed to the holders of Debt Securities entitled thereto at their
registered addresses or (ii) by wire transfer to an account maintained by the
person entitled thereto as specified in the Register. (Sections 3.7(a) and 9.2.)
Unless otherwise indicated in the applicable Prospectus Supplement, payment of
any installment of interest on Debt Securities in registered form will be made
to the person in whose name such Debt Security is registered at the close of
business on the regular record date for such interest. (Section 3.7(a).)
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<PAGE> 93
Payment in respect of Debt Securities in bearer form will be made in the
currency and in the manner designated in the Prospectus Supplement, subject to
any applicable laws and regulations, at such paying agencies outside the United
States as the Company may appoint from time to time. The paying agents outside
the United States initially appointed by the Company for a series of Debt
Securities will be named in the Prospectus Supplement. The Company may at any
time designate additional paying agents or rescind the designation of any paying
agents, except that, if Debt Securities of a series are issuable as Registered
Securities, the Company will be required to maintain at least one paying agent
in each Place of Payment for such series and, if Debt Securities of a series are
issuable as Bearer Securities, the Company will be required to maintain a paying
agent in a Place of Payment outside the United States where Debt Securities of
such series and any coupons appertaining thereto may be presented and
surrendered for payment. (Section 9.2.)
Unless otherwise provided in the applicable Prospectus Supplement, Debt
Securities in registered form will be transferable or exchangeable at the agency
of the Company maintained for such purpose as designated by the Company from
time to time. (Sections 3.5 and 9.2.) Debt Securities may be transferred or
exchanged without service charge, other than any tax or other governmental
charge imposed in connection therewith. (Section 3.5.)
GLOBAL DEBT SECURITIES
Unless otherwise specified in the applicable Prospectus Supplement, the
Debt Securities of a series may be issued in whole or in part in the form of one
or more fully registered global securities (a "Registered Global Security") that
will be deposited with a depository (the "Depository") or with a nominee for the
Depository identified in the applicable Prospectus Supplement. In such a case,
one or more Registered Global Securities will be issued in a denomination or
aggregate denominations equal to the portion of the aggregate principal amount
of outstanding Debt Securities of the series to be represented by such
Registered Global Security or Securities. (Section 3.3.) Unless and until it is
exchanged in whole or in part for Debt Securities in definitive certificated
form, a Registered Global Security may not be registered for transfer or
exchange except as a whole by the Depository for such Registered Global Security
to a nominee of such Depository or by a nominee of such Depository to such
Depository or another nominee of such Depository or by such Depository or any
such nominee to a successor Depository for such series or a nominee of such
successor Depository and except in the circumstances described in the applicable
Prospectus Supplement. (Section 3.5.)
The specific terms of the depository arrangement with respect to any
portion of a series of Debt Securities to be represented by a Registered Global
Security will be described in the applicable Prospectus Supplement. Unless
otherwise specified in the applicable Prospectus Supplement, the Company expects
that the following provisions will apply to such depository arrangements.
Ownership of beneficial interests in a Registered Global Security will be
limited to participants or persons that may hold interests through participants
(as such term is defined below). Upon the issuance of any Registered Global
Security, and the deposit of such Registered Global Security with or on behalf
of the Depository for such Registered Global Security, the Depository will
credit, on its book-entry registration and transfer system, the respective
principal amounts of the Debt Securities represented by such Registered Global
Security to the accounts of institutions ("participants") that have accounts
with the Depository or its nominee. The accounts to be credited will be
designated by the underwriters or agents engaging in the distribution of such
Debt Securities or by the Company, if such Debt Securities are offered and sold
directly by the Company. Ownership of beneficial interests by participants in
such Registered Global Security will be shown on, and the transfer of such
beneficial interests will be effected only through, records maintained by the
Depository for such Registered Global Security or by its nominee. Ownership of
beneficial interests in such Registered Global Security by persons that hold
through participants will be shown on, and the transfer of such beneficial
interests within such participants will be effected only through, records
maintained by such participants. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
certificated form. The foregoing limitations and such laws may impair the
ability to transfer beneficial interests in such Registered Global Security.
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<PAGE> 94
So long as the Depository for a Registered Global Security, or its nominee,
is the registered owner of such Registered Global Security, such Depository or
such nominee, as the case may be, will be considered the sole owner or holder of
the Debt Securities represented by such Registered Global Security for all
purposes under the applicable Indenture. Unless otherwise specified in the
applicable Prospectus Supplement and except as specified below, owners of
beneficial interests in such Registered Global Security will not be entitled to
have Debt Securities of the series represented by such Registered Global
Security registered in their names, will not receive or be entitled to receive
physical delivery of Debt Securities of such series in certificated form and
will not be considered the holders thereof for any purposes under the relevant
Indenture. (Section 3.8.) Accordingly, each person owning a beneficial interest
in such Registered Global Security must rely on the procedures of the Depository
and, if such person is not a participant, on the procedures of the participant
through which such person owns its interest, to exercise any rights of a holder
under the relevant Indenture. The Depository may grant proxies and otherwise
authorize participants to give or take any request, demand, authorization,
direction, notice, consent, waiver or other action which a holder is entitled to
give or take under the relevant Indenture. The Company understands that, under
existing industry practices, if the Company requests any action of holders or if
any owner of a beneficial interest in such Registered Global Security desires to
give any notice or take any action which a holder is entitled to give or take
under the relevant Indenture, the Depository would authorize the participants to
give such notice or take such action, and such participants would authorize
beneficial owners owning through such participants to give such notice or take
such action or would otherwise act upon the instructions of beneficial owners
owning through them.
Unless otherwise specified in the applicable Prospectus Supplement,
payments with respect to principal, premium, if any, and interest, if any, on
Debt Securities represented by a Registered Global Security registered in the
name of a Depository or its nominee will be made to such Depository or its
nominee, as the case may be, as the registered owner of such Registered Global
Security.
The Company expects that the Depository for any Debt Securities represented
by a Registered Global Security, upon receipt of any payment of principal,
premium or interest, will immediately credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Registered Global Security as shown on the records
of such Depository. The Company also expects that payments by participants to
owners of beneficial interests in such Registered Global Security held through
such participants will be governed by standing instructions and customary
practices, as is now the case with the securities held for the accounts of
customers registered in "street names," and will be the responsibility of such
participants. None of the Company, the respective Trustees or any agent of the
Company or the respective Trustees shall have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial interests of a Registered Global Security, or for maintaining,
supervising or reviewing any records relating to such beneficial interests.
(Section 3.8.)
Unless otherwise specified in the applicable Prospectus Supplement, if the
Depository for any Debt Securities represented by a Registered Global Security
is at any time unwilling or unable to continue as Depository or ceases to be a
clearing agency registered under the Exchange Act and a duly registered
successor Depository is not appointed by the Company within 90 days, the Company
will issue such Debt Securities in definitive certificated form in exchange for
such Registered Global Security. In addition, the Company may at any time and in
its sole discretion determine not to have any of the Debt Securities of a series
represented by one or more Registered Global Securities and, in such event, will
issue Debt Securities of such series in definitive certificated form in exchange
for all of the Registered Global Security or Securities representing such Debt
Securities. (Section 3.5.)
The Debt Securities of a series may also be issued in whole or in part in
the form of one or more bearer global securities (a "Bearer Global Security")
that will be deposited with a depository, or with a nominee for such depository,
identified in the applicable Prospectus Supplement. Any such Bearer Global
Security may be issued in temporary or permanent form. (Section 3.4.) The
specific terms and procedures, including the specific terms of the depository
arrangement, with respect to any portion of a series of Debt Securities to be
represented by one or more Bearer Global Securities will be described in the
applicable Prospectus Supplement.
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<PAGE> 95
CONSOLIDATION, MERGER OR SALE BY THE COMPANY
Unless otherwise specified in the applicable Prospectus Supplement, the
Company shall not consolidate with or merge into any other corporation or sell
its assets substantially as an entirety, unless: (i) the corporation formed by
such consolidation or into which the Company is merged or the corporation which
acquires its assets is organized in the United States; (ii) the corporation
formed by such consolidation or into which the Company is merged or which
acquires the Company's assets substantially as an entirety expressly assumes all
of the obligations of the Company under each Indenture; (iii) immediately after
giving effect to such transaction, no Default or Event of Default shall have
happened and be continuing, and (iv) if, as a result of such transaction,
properties or assets of the Company would become subject to an encumbrance which
would not be permitted by the terms of any series of Debt Securities, the
Company or the successor corporation, as the case may be, shall take such steps
as are necessary to secure such Debt Securities equally and ratably with all
indebtedness secured thereunder. Upon any such consolidation, merger or sale,
the successor corporation formed by such consolidation, or into which the
Company is merged or to which such sale is made, shall succeed to, and be
substituted for the Company under each Indenture. (Section 7.1.)
EVENTS OF DEFAULT, NOTICE AND CERTAIN RIGHTS ON DEFAULT
Each Indenture provides that, if an Event of Default specified therein
occurs with respect to the Debt Securities of any series and is continuing, the
Trustee for such series or the holders of 25% in aggregate principal amount of
all of the outstanding Debt Securities of that series, by written notice to the
Company (and to the Trustee for such series, if notice is given by such holders
of Debt Securities), may declare the principal of (or, if the Debt Securities of
that series are Original Issue Discount Securities or Indexed Securities, such
portion of the principal amount specified in the Prospectus Supplement) and
accrued interest on all the Debt Securities of that series to be due and payable
(provided, with respect to any Debt Securities issued under the Subordinated
Indenture, that the payment of principal and interest on such Debt Securities
shall remain subordinated to the extent provided in Article 12 of the
Subordinated Indenture). (Section 5.2.)
Unless otherwise specified in the applicable Prospectus Supplement, Events
of Default with respect to Debt Securities of any series are defined in each
Indenture as being: (a) default for 30 days in payment of any interest on any
Debt Security of that series or any coupon appertaining thereto or any
additional amount payable with respect to Debt Securities of such series as
specified in the applicable Prospectus Supplement when due; (b) default in
payment of principal, or premium, if any, at maturity or on redemption or
otherwise, or in the making of a mandatory sinking fund payment of any Debt
Securities of that series when due; (c) default for 60 days after notice to the
Company by the Trustee for such series, or by the holders of 25% in aggregate
principal amount of the Debt Securities of such series then outstanding, in the
performance of any other agreement in the Debt Securities of that series, in the
Indenture or in any supplemental indenture or board resolution referred to
therein under which the Debt Securities of that series may have been issued; (d)
default resulting in acceleration of other indebtedness of the Company for
borrowed money where the aggregate principal amount so accelerated exceeds $25
million and such acceleration is not rescinded or annulled within 30 days after
the written notice thereof to the Company by the Trustee or to the Company and
the Trustee by the holders of 25% in aggregate principal amount of the Debt
Securities of such series then outstanding, provided that such Event of Default
will be remedied, cured or waived if the default that resulted in the
acceleration of such other indebtedness is remedied, cured or waived; and (e)
certain events of bankruptcy, insolvency or reorganization of the Company.
(Section 5.1.) The definition of "Event of Default" in each Indenture
specifically excludes a default under a secured debt under which the obligee has
recourse (exclusive of recourse for ancillary matters such as environmental
indemnities, misapplication of funds, costs of enforcement, etc.) only to the
collateral pledged for repayment, and where the fair market value of such
collateral does not exceed two percent of Total Assets (as defined in the
Indenture) at the time of the default. Events of Default with respect to a
specified series of Debt Securities may be added to the Indenture and, if so
added, will be described in the applicable Prospectus Supplement. (Sections 3.1
and 5.1(7).)
Each Indenture provides that the Trustee will, within 90 days after the
occurrence of a Default with respect to the Debt Securities of any series, give
to the holders of the Debt Securities of that series notice of all Defaults
known to it unless such Default shall have been cured or waived; provided that
except in the case of
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<PAGE> 96
a Default in payment on the Debt Securities of that series, the Trustee may
withhold the notice if and so long as a committee of its Responsible Officers in
good faith determines that withholding such notice is in the interests of the
holders of the Debt Securities of that series. (Section 6.6.) "Default" means
any event which is, or after notice or passage of time or both, would be, an
Event of Default. (Section 1.1.)
Each Indenture provides that the holders of a majority in aggregate
principal amount of the Debt Securities of each series affected (with each such
series voting as a class) may, subject to certain limited conditions, direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee for such series, or exercising any trust or power conferred on such
Trustee. (Section 5.8.)
Each Indenture includes a covenant that the Company will file annually with
the Trustee a certificate as to the Company's compliance with all conditions and
covenants of such Indenture. (Section 9.5.)
The holders of a majority in aggregate principal amount of any series of
Debt Securities by notice to the Trustee for such series may waive, on behalf of
the holders of all Debt Securities of such series, any past Default or Event of
Default with respect to that series and its consequences except a Default or
Event of Default in the payment of the principal of, premium, if any, or
interest, if any, on any Debt Security, and except in respect of an Event of
Default resulting from the breach of a covenant or provision of either Indenture
which, pursuant to the applicable Indenture, cannot be amended or modified
without the consent of the holders of each outstanding Debt Security of such
series affected. (Section 5.7.)
OPTION TO DEFER INTEREST PAYMENTS
If provided in the applicable Prospectus Supplement, the Company shall have
the right at any time and from time to time during the term of the series of
Debt Securities to defer the payment of interest for such number of consecutive
interest payment periods as may be specified in the applicable Prospectus
Supplement (each, an "Extension Period"), subject to the terms, conditions and
covenants, if any, specified in such Prospectus Supplement, provided that such
Extension Period may not extend beyond the stated maturity of the Debt
Securities. Certain material United States Federal income tax consequences and
special considerations applicable to any such Debt Securities will be described
in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, at the
end of such Extension Period, the Company shall pay all interest then accrued
and unpaid together with interest thereon compounded semiannually at the rate
specified for the Debt Securities to the extent permitted by applicable law
("Compound Interest"); provided, that during any such Extension Period, (a) the
Company shall not declare or pay dividends on, make distributions with respect
to, or redeem, purchase, acquire or make a liquidation payment with respect to,
any of its capital stock (other than (i) purchases or acquisitions of capital
stock of the Company in connection with the satisfaction by the Company of its
obligations under any employee or agent benefit plans or the satisfaction by the
Company of its obligations pursuant to any contract or security outstanding on
the date of such event requiring the Company to purchase capital stock of the
Company, (ii) as a result of a reclassification of the Company's capital stock
or the exchange or conversion of one class or series of the Company's capital
stock for another class or series of the Company's capital stock, (iii) the
purchase of fractional interests in shares of the Company's capital stock
pursuant to the conversion of exchange provisions of such capital stock or the
security being conversed or exchanged, (iv) dividends or distributions in
capital stock of the Company (or rights to acquire capital stock) or repurchases
or redemptions of capital stock solely from the issuance or exchange of capital
stock or (v) redemptions or repurchases of any rights outstanding under a
shareholder rights plan), (b) the Company shall not make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by the Company that rank junior to the Debt Securities,
and (c) the Company shall not make any guarantee payments with respect to the
foregoing (other than payments pursuant to the Trust Guarantee or the Common
Guarantee (as defined herein)). Prior to the termination of any such Extension
Period, the Company may further defer payments of interest by extending the
interest payment period; provided, however, that, such Extension Period,
including all such previous and further extensions, may not extend beyond the
maturity of the Debt Securities. Upon the termination of any Extension Period
and the payment of all amounts then due, the Company may commence a new
Extension Period, subject to the terms set forth in this section. No
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interest during an Extension Period, except at the end thereof, shall be due and
payable, but the Company may prepay at any time all or any portion of the
interest accrued during an Extension Period. The Company has no present
intention of exercising its right to defer payments of interest by extending the
interest payment period on the Debt Securities. If the Institutional Trustee
shall be the sole holder of the Debt Securities, the Company shall give the
Regular Trustees and the Institutional Trustee notice of its selection of such
Extension Period one Business Day prior to the earlier of (i) the date
distributions on the Preferred Securities are payable or (ii) the date the
Regular Trustees are required to give notice to the New York Stock Exchange (or
other applicable self-regulatory organization) or to holders of the Preferred
Securities of the record or payment date of such distribution. The Regular
Trustees shall give notice of the Company's selection of such Extension Period
to the holders of the Preferred Securities. If the Institutional Trustee shall
not be the sole holder of the Debt Securities, the Company shall give the
holders of the Debt Securities notice of its selection of such Extension Period
ten Business Days prior to the earlier of (i) the Interest Payment Date or (ii)
the date upon which the Company is required to give notice to the New York Stock
Exchange (or other applicable self-regulatory organization) or to holders of the
Debt Securities of the record or payment date of such related interest payment.
MODIFICATION OF THE INDENTURES
Unless otherwise specified in the applicable Prospectus Supplement, each
Indenture contains provisions permitting the Company and the Trustee to enter
into one or more supplemental indentures without the consent of the holders of
any of the Debt Securities in order (i) to evidence the succession of another
corporation to the Company and the assumption of the covenants of the Company by
a successor to the Company; (ii) to add to the covenants of the Company or
surrender any right or power of the Company; (iii) to add additional Events of
Default with respect to any series of Debt Securities; (iv) to add or change any
provisions to such extent as necessary to permit or facilitate the issuance of
Debt Securities in bearer form; (v) to change or eliminate any provision
affecting only Debt Securities not yet issued; (vi) to secure the Debt
Securities; (vii) to establish the form or terms of Debt Securities; (viii) to
evidence and provide for successor Trustees; (ix) if allowed without penalty
under applicable laws and regulations, to permit payment in respect of Debt
Securities in bearer form in the United States; (x) to correct any defect or
supplement any inconsistent provisions or to make any other provisions with
respect to matters or questions arising under such Indenture, provided that such
action does not adversely affect the interests of any holder of Debt Securities
of any series; or (xi) to cure any ambiguity or correct any mistake. The
Subordinated Indenture also permits the Company and the Trustee thereunder to
enter into such supplemental indentures to modify the subordination provisions
contained in the Subordinated Debenture except in a manner adverse to any
outstanding Debt Securities. (Section 8.1.)
Unless otherwise specified in the applicable Prospectus Supplement, each
Indenture also contains provisions permitting the Company and the Trustee, with
the consent of the holders of a majority in aggregate principal amount of the
outstanding Debt Securities affected by such supplemental indenture (with the
Debt Securities of each series voting as a class), to execute supplemental
indentures adding any provisions to or changing or eliminating any of the
provisions of such Indenture or any supplemental indenture or modifying the
rights of the holders of Debt Securities of such series, except that, without
the consent of the holder of each Debt Security so affected, no such
supplemental indenture may: (i) change the time for payment of principal or
premium, if any, or interest on any Debt Security; (ii) reduce the principal of,
or any installment of principal of, or premium, if any, or interest on any Debt
Security, or change the manner in which the amount of any of the foregoing is
determined; (iii) reduce the amount of premium, if any, payable upon the
redemption of any Debt Security; (iv) reduce the amount of principal payable
upon acceleration of the maturity of any Original Issue Discount or Index
Security; (v) change the currency or currency unit in which any Debt Security or
any premium or interest thereon is payable; (vi) impair the right to institute
suit for the enforcement of any payment on or with respect to any Debt Security;
(vii) reduce the percentage in principal amount of the outstanding Debt
Securities affected thereby the consent of whose holders is required for
modification or amendment of such Indenture or for waiver of compliance with
certain provisions of the Indenture or for waiver of certain defaults; (viii)
change the obligation of the Company to maintain an office or agency in the
places and for the purposes specified in such Indenture; (ix) modify the
provisions relating to
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the subordination of outstanding Debt Securities of any series in a manner
adverse to the holders thereof; or (x) modify the provisions relating to waiver
of certain defaults or any of the foregoing provisions. (Section 8.2.)
SUBORDINATION UNDER THE SUBORDINATED INDENTURE
The Subordinated Indenture provides that any Subordinated Debt Securities
issued thereunder are subordinate and junior in right of payment to all Senior
Indebtedness to the extent provided in the Subordinated Indenture. (Section 12.1
of the Subordinated Indenture.) The Subordinated Indenture defines the term
"Senior Indebtedness" as: (i) all indebtedness of the Company, whether
outstanding on the date of the Subordinated Indenture or thereafter created,
incurred or assumed, which is for money borrowed, or evidenced by a note or
similar instrument given in connection with the acquisition of any business,
properties or assets, including securities; (ii) any indebtedness of others of
the kinds described in the preceding clause (i) for the payment of which the
Company is responsible or liable as guarantor or otherwise; and (iii)
amendments, renewals, extensions and refundings of any such indebtedness, unless
in any instrument or instruments evidencing or securing such indebtedness or
pursuant to which the same is outstanding. The Senior Indebtedness shall
continue to be Senior Indebtedness and entitled to the benefits of the
subordination provisions irrespective of any amendment, modification or waiver
of any term of the Senior Indebtedness or extension or renewal of the Senior
Indebtedness. Senior Indebtedness does not include (A) any indebtedness of the
Company to any of its subsidiaries, (B) indebtedness incurred for the purchase
of goods or materials or for services obtained in the ordinary course of
business and (C) any indebtedness which by its terms is expressly made pari
passu with or subordinated to the Subordinated Debt Securities. (Section 12.2 of
the Subordinated Indenture.)
If (i) the Company defaults in the payment of any principal, or premium, if
any, or interest on any Senior Indebtedness when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or declaration or
otherwise or (ii) an event of default occurs with respect to any Senior
Indebtedness permitting the holders thereof to accelerate the maturity thereof
and written notice of such event of default (requesting that payments on
Subordinated Debt Securities cease) is given to the Company by the holders of
Senior Indebtedness, then unless and until such default in payment or event of
default shall have been cured or waived or shall have ceased to exist, no direct
or indirect payment (in cash, property or securities, by set-off or otherwise)
shall be made or agreed to be made on account of the Subordinated Debt
Securities or interest thereon or in respect of any repayment, redemption,
retirement, purchase or other acquisition of Subordinated Debt Securities.
(Section 12.4 of the Subordinated Indenture.)
In the event of (i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to the Company, its creditors or its property, (ii) any proceeding for the
liquidation, dissolution or other winding-up of the Company, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings,
(iii) any assignment by the Company for the benefit of creditors or (iv) any
other marshalling of the assets of the Company, all Senior Indebtedness
(including, without limitation, interest accruing after the commencement of any
such proceeding, assignment or marshalling of assets) shall first be paid in
full before any payment or distribution, whether in cash, securities or other
property, shall be made by the Company on account of Subordinated Debt
Securities. In any such event, any payment or distribution, whether in cash,
securities or other property (other than securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinate, at least to the extent provided in the
subordination provisions of the Subordinated Indenture with respect to the
indebtedness evidenced by Subordinated Debt Securities, to the payment of all
Senior Indebtedness at the time outstanding and to any securities issued in
respect thereof under any such plan of reorganization or readjustment), which
would otherwise (but for the subordination provisions) be payable or deliverable
in respect of Subordinated Debt Securities (including any such payment or
distribution which may be payable or deliverable by reason of the payment of any
other indebtedness of the Company being subordinated to the payment of
Subordinated Debt Securities) shall be paid or delivered directly to the holders
of Senior Indebtedness, or to their representative or trustee, in accordance
with the priorities then existing among such holders until all Senior
Indebtedness shall have been paid in full.
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(Section 12.3 of the Subordinated Indenture.) No present or future holder of any
Senior Indebtedness shall be prejudiced in the right to enforce subordination of
the indebtedness evidenced by Subordinated Debt Securities by any act or failure
to act on the part of the Company. (Section 12.9 of the Subordinated Indenture.)
Senior Indebtedness shall not be deemed to have been paid in full unless
the holders thereof shall have received cash, securities or other property equal
to the amount of such Senior Indebtedness then outstanding. Upon the payment in
full of all Senior Indebtedness, the holders of Subordinated Debt Securities
shall be subrogated to all the rights of any holders of Senior Indebtedness to
receive any further payments or distributions applicable to the Senior
Indebtedness until all Subordinated Debt Securities shall have been paid in
full, and such payments or distributions received by any holder of Subordinated
Debt Securities, by reason of such subrogation, of cash, securities or other
property which otherwise would be paid or distributed to the holders of Senior
Indebtedness, shall, as between the Company and its creditors other than the
holders of Senior Indebtedness, on the one hand, and the holders of Subordinated
Debt Securities, on the other, be deemed to be a payment by the Company on
account of Senior Indebtedness, and not on account of Subordinated Debt
Securities. (Section 12.7 of the Subordinated Indenture.)
The Subordinated Indenture provides that the foregoing subordination
provisions, insofar as they relate to any particular issue of Subordinated Debt
Securities, may be changed prior to such issuance. Any such change would be
described in the applicable Prospectus Supplement relating to such Subordinated
Debt Securities.
DEFEASANCE AND COVENANT DEFEASANCE
If indicated in the applicable Prospectus Supplement, the Company may elect
either (i) to defease and be discharged from any and all obligations with
respect to the Debt Securities of or within any series (except as otherwise
provided in the relevant Indenture) ("defeasance") or (ii) to be released from
its obligations with respect to certain covenants applicable to the Debt
Securities of or within any series ("covenant defeasance"), upon the deposit
with the relevant Trustee (or other qualifying trustee), in trust for such
purpose, of money and/or Government Obligations which through the payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient, without reinvestment, to pay the principal of and any premium
or interest on such Debt Securities to Maturity or redemption, as the case may
be, and any mandatory sinking fund or analogous payments thereon. As a condition
to defeasance or covenant defeasance, the Company must deliver to the Trustee an
Opinion of Counsel to the effect that the Holders of such Debt Securities will
not recognize income, gain or loss for Federal income tax purposes as a result
of such defeasance or covenant defeasance and will be subject to Federal income
tax on the same amounts and in the same manner and at the same times as would
have been the case if such defeasance or covenant defeasance had not occurred.
Such Opinion of Counsel, in the case of defeasance under clause (i) above, must
refer to and be based upon a ruling of the Internal Revenue Service or a change
in applicable Federal income tax law occurring after the date of the relevant
Indenture. (Article 4.) If indicated in the applicable Prospectus Supplement, in
addition to obligations of the United States or an agency or instrumentality
thereof, Government Obligations may include obligations of the government or an
agency or instrumentality of the government issuing the currency or currency
unit in which Debt Securities of such series are payable. (Section 3.1.)
In addition, with respect to the Subordinated Indenture, in order to be
discharged no event or condition shall exist that, pursuant to certain
provisions described under "-- Subordination under the Subordinated Indenture"
above, would prevent the Company from making payments of principal of (and
premium, if any) and interest on Subordinated Debt Securities at the date of the
irrevocable deposit referred to above. (Section 4.6(j) of the Subordinated
Indenture.)
The Company may exercise its defeasance option with respect to such Debt
Securities notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its defeasance option, payment of such Debt Securities
may not be accelerated because of a Default or an Event of Default. (Section
4.4.) If the Company exercises its covenant defeasance option, payment of such
Debt Securities may not be accelerated by reason of a Default or an Event of
Default with respect to the covenants to which such covenant defeasance
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is applicable. However, if such acceleration were to occur by reason of another
Event of Default, the realizable value at the acceleration date of the money and
Government Obligations in the defeasance trust could be less than the principal
and interest then due on such Debt Securities, in that the required deposit in
the defeasance trust is based upon scheduled cash flow rather than market value,
which will vary depending upon interest rates and other factors.
THE TRUSTEES
Unless otherwise specified in the applicable Prospectus Supplement, LTCB
Trust Company will be the Trustee under the Senior Indenture, and State Street
Bank and Trust Company will be the Trustee under the Subordinated Indenture. The
Company may also maintain banking and other commercial relationships with each
of the Trustees and their affiliates in the ordinary course of business.
DESCRIPTION OF CAPITAL STOCK
At November 1, 1997 the authorized capital stock of the Company was
1,020,000,000 shares, consisting of:
(a) 20,000,000 shares of Preferred Stock, of which 1,995,300 shares of
Preferred Redeemable Increased Dividend Equity Securities, 7% PRIDES
("PRIDES"), were outstanding; and
(b) 1,000,000,000 shares of Common Stock, of which 188,414,550 shares were
outstanding.
In general, the classes of authorized capital stock are afforded
preferences with respect to dividends and liquidation rights in the order listed
above. The Board of Directors of the Company is empowered, without approval of
the shareholders, to cause the Preferred Stock to be issued in one or more
series, with the numbers of shares of each series and the rights, preferences
and limitations of each series to be determined by it including, without
limitation, the dividend rights, conversion rights, redemption rights and
liquidation preferences, if any, of any wholly unissued series of Preferred
Stock (or of the entire class of Preferred Stock if none of such shares have
been issued), the number of shares constituting each such series and the terms
and conditions of the issue thereof. The descriptions set forth below do not
purport to be complete and are qualified in their entirety by reference to the
Amended and Restated Articles of Incorporation of the Company, as amended (the
"Articles of Incorporation").
The Prospectus Supplement relating to an offering of Common Stock will
describe terms relevant thereto, including the number of shares offered, the
initial offering price, market price and dividend information.
PREFERRED STOCK
The applicable Prospectus Supplement will describe the following terms of
any Preferred Stock in respect of which this Prospectus is being delivered (to
the extent applicable to such Preferred Stock): (i) the specific designation,
number of shares, seniority and purchase price; (ii) any liquidation preference
per share; (iii) any date of maturity; (iv) any redemption, repayment or sinking
fund provisions; (v) any dividend rate or rates and the dates on which any such
dividends will be payable (or the method by which such rates or dates will be
determined); (vi) any voting rights; (vii) if other than the currency of the
United States of America, the currency or currencies, including composite
currencies, in which such Preferred Stock is denominated and/or in which
payments will or may be payable; (viii) the method by which amounts in respect
of such Preferred Stock may be calculated and any commodities, currencies or
indices, or value, rate or price, relevant to such calculation; (ix) whether the
Preferred Stock is convertible or exchangeable and, if so, the securities or
rights into which such Preferred Stock is convertible or exchangeable (which may
include other Preferred Stock, Debt Securities, Common Stock or other securities
or rights of the Company (including rights to receive payment in cash or
securities based on the value, rate or price of one or more specified
commodities, currencies or indices) or a combination of the foregoing), and the
terms and conditions upon which such conversions or exchanges will be effected,
including the initial conversion or exchange prices or rates, the conversion or
exchange period and any other related provisions; (x) the place or places where
dividends and other payments on the Preferred Stock will be payable; and (xi)
any additional voting, dividend, liquidation, redemption and other rights,
preferences, privileges, limitations and restrictions.
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As described under "Description of Depositary Shares", the Company may, at
its option, elect to offer Depositary Shares evidenced by depositary receipts
("Depositary Receipts"), each representing an interest (to be specified in the
applicable Prospectus Supplement relating to the particular series of the
Preferred Stock) in a share of the particular series of the Preferred Stock
issued and deposited with a Preferred Stock Depositary (as defined herein).
All shares of Preferred Stock offered hereby, or issuable upon conversion,
exchange or exercise of Securities, will, when issued, be fully paid and
non-assessable.
COMMON STOCK
Dividends. Except as provided below, holders of Common Stock are entitled
to receive dividends and other distributions in cash, stock or property of the
Company, when, as and if declared by the Board of Directors out of assets or
funds of the Company legally available therefor and shall share equally on a per
share basis in all such dividends and other distributions (subject to the rights
of holders of Preferred Stock).
Voting Rights. At every meeting of shareholders, every holder of Common
Stock is entitled to one vote per share. Subject to any voting rights which may
be granted to holders of Preferred Stock any action submitted to shareholders is
approved if the number of votes cast in favor of such action exceeds the number
of votes against, except where other provision is made by law and subject to
applicable quorum requirements.
Liquidation Rights. In the event of any liquidation, dissolution or
winding-up of the business of the Company, whether voluntary or involuntary (any
such event, a "Liquidation"), the holders of Common Stock are entitled to share
equally in the assets available for distribution after payment of all
liabilities and provision for the liquidation preference of any shares of
Preferred Stock then outstanding.
Miscellaneous. The holders of Common Stock have no preemptive rights,
cumulative voting rights, subscription rights, or conversion rights and the
Common Stock is not subject to redemption.
The transfer agent and registrar with respect to the Common Stock and the
PRIDES is First Union National Bank.
All shares of Common Stock offered hereby, or issuable upon conversion,
exchange or exercise of Securities, will, when issued, be fully paid and
non-assessable. The Common Stock is traded on the New York Stock Exchange under
the symbol "CNC".
PRIDES
General. The PRIDES are shares of convertible preferred stock and rank
prior to the Common Stock as to payment of dividends and distribution of assets
upon liquidation. The shares of PRIDES mandatorily convert into shares of Common
Stock on February 1, 2000, (the "Mandatory Conversion Date"), and the Company
has the option to redeem the shares of PRIDES, in whole or in part, at any time
and from time to time on or after February 1, 1999 and prior to the Mandatory
Conversion Date pursuant to the terms described below and payable in shares of
Common Stock. In addition, the shares of PRIDES are convertible into shares of
Common Stock at the option of the holder at any time prior to the Mandatory
Conversion Date as set forth below.
Dividends. Holders of shares of PRIDES are entitled to receive annual
cumulative dividends at a rate per annum of 7% of the stated liquidation
preference (equivalent to $4.279 per each share of PRIDES) payable quarterly in
arrears on each February 1, May 1, August 1, and November 1.
Mandatory Conversion. On the Mandatory Conversion Date, unless previously
redeemed or converted, each outstanding share of PRIDES will mandatorily convert
into (i) four shares of Common Stock, subject to adjustment in certain events,
and (ii) the right to receive cash in an amount equal to all accrued and unpaid
dividends thereon (other than previously declared dividends payable to a holder
of record as of a prior date).
Optional Redemption. Shares of PRIDES are not redeemable prior to February
1, 1999. At any time and from time to time on or after February 1, 1999 and
ending immediately prior to the Mandatory Conversion Date, the Company may
redeem any or all of the outstanding shares of PRIDES. Upon any such
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redemption, each holder will receive, in exchange for each share of PRIDES, the
number of shares of Common Stock equal to the Call Price (which is the sum of
(i) $62.195, declining after February 1, 1999 to $61.125 until the Mandatory
Conversation Date and (ii) all accrued and unpaid dividends thereon (other than
previously declared dividends payable to a holder of record as of a prior date))
divided by the current market price on the applicable date of determination, but
in no event less than 3.42 shares of Common Stock, subject to adjustment. The
number of shares of Common Stock to be delivered in payment of the applicable
Call Price will be determined on the basis of the current market price of the
Common Stock prior to the announcement of the redemption.
Conversion at the Option of the Holder. At any time prior to the Mandatory
Conversion Date, unless previously redeemed, each share of PRIDES is convertible
at the option of the holder thereof into 3.42 shares of Common Stock (the
"Optional Conversion Rate"), equivalent to the conversion price of $17.8728 per
share of Common Stock, subject to adjustment as described herein. The right of
holders to convert shares of PRIDES called for redemption will terminate
immediately prior to the close of business on the redemption date.
Voting Rights. The holders of shares of PRIDES have the right with the
holders of Common Stock to vote in the election of directors and upon each other
matter coming before any meeting of the holders of Common Stock on the basis of
4/5 of one vote for each share of PRIDES. On such matters, the holders of shares
of PRIDES and the holders of Common Stock vote together as one class except as
otherwise provided by law or the Articles of Incorporation. In addition, (i)
whenever dividends on the shares of PRIDES or any other series of Preferred
Stock with like voting rights are in arrears and unpaid for six quarterly
dividend periods, and in certain other circumstances, the holders of the shares
of PRIDES (voting separately as a class with the holders of all other series of
Preferred Stock with like voting rights that are exercisable) will be entitled
to vote, on the basis of one vote for each share of PRIDES, for the election of
two directors of the Company, such directors to be in addition to the number of
directors constituting the Board of Directors immediately prior to the accrual
of such right, and (ii) the holders of the shares of PRIDES may have voting
rights with respect to certain alterations of the Articles of Incorporation and
certain other matters, voting on the same basis or separately as a series.
Liquidation Preference and Ranking. The shares of PRIDES rank prior to the
Common Stock as to payment of dividends and distribution of assets upon
liquidation. The liquidation preference of each share of PRIDES is an amount
equal to the sum of (i) $61.125 per share and (ii) all accrued and unpaid
dividends thereon.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BY-LAWS OF CONSECO
Certain provisions of the Articles of Incorporation and the Code of By-laws
of the Company (the "By-laws") may make it more difficult to effect a change in
control of the Company if the Board of Directors determines that such action
would not be in the best interests of the shareholders. It could be argued,
contrary to the belief of the Board of Directors, that such provisions are not
in the best interests of the shareholders to the extent that they will have the
effect of tending to discourage possible takeover bids, which might be at prices
involving a premium over then recent market quotations for the Common Stock. The
most important of those provisions are described below.
The Articles of Incorporation authorize the establishment of a classified
Board of Directors pursuant to the By-laws. The By-laws, in turn, provide that
the Directors serve staggered three-year terms, with the members of only one
class being elected in any year.
A classified Board of Directors may increase the difficulty of removing
incumbent directors, providing such directors with enhanced ability to retain
their positions. A classified Board of Directors may also make the acquisition
of control of the Company by a third party by means of a proxy contest more
difficult. In addition, the classification may make it more difficult to replace
a majority of directors for business reasons unrelated to a change in control.
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The Articles of Incorporation provide that holders of the Company's voting
stock shall not be entitled to vote on certain business transactions (defined to
include, among other things, certain mergers, consolidations, sales, leases,
transfers or other dispositions of a substantial part of the Company's assets)
with certain related persons (which includes persons beneficially owning more
than 10% of the Company's outstanding voting stock), nor may such business
combination transactions be effected, unless (i) the relevant business
combination shall have been approved by two-thirds of the continuing directors
or (ii) the aggregate amount of the cash and the fair value of any consideration
other than cash to be received by any holder of the Common Stock or Preferred
Stock in the business combination for each such share of Common Stock or
Preferred Stock shall be at least equal to the highest per share price paid by
the related person in order to acquire any shares of Common Stock or Preferred
Stock, as the case may be, beneficially owned by such related person.
As discussed above, Preferred Stock may be issued from time to time in one
or more series with such rights, preferences, limitations and restrictions as
may be determined by the Board of Directors. The issuance of Preferred Stock
could be used, under certain circumstances, as a method of delaying or
preventing a change of control of the Company and could have a detrimental
effect on the rights of holders of Common Stock, including loss of voting
control.
The provisions of the Articles of Incorporation regarding the classified
Board of Directors and certain business combination transactions may not be
amended without the affirmative approval of holders of not less than 80% of the
outstanding voting stock of the Company.
The By-laws may be amended by majority vote of the Board of Directors.
CERTAIN PROVISIONS OF CORPORATE AND INSURANCE LAWS
In addition to the Articles of Incorporation and By-laws, certain
provisions of Indiana law may delay, deter or prevent a merger, tender offer or
other takeover attempt of the Company.
Under the Indiana Business Corporation Law (the "IBCL"), a director may, in
considering the best interests of a corporation, consider the effects of any
action on shareholders, employees, suppliers and customers of the corporation,
on communities in which offices or other facilities of the corporation are
located, and any other factors the director considers pertinent.
The IBCL provides that no business combination (defined to include certain
mergers, sales of assets, sales of 5% or more of outstanding stock, loans,
recapitalizations or liquidations or dissolutions) involving a corporation and
an interested shareholder (defined to include any holder of 10% or more of such
corporation's voting stock) may be entered into unless (1) it has been approved
by the board of directors of the corporation or (2) (a) five years have expired
since the acquisition of shares of the corporation by the interested
shareholder, (b) all requirements of the corporation's articles of incorporation
relating to business combinations have been satisfied and (c) either (i) a
majority of shareholders of the corporation (excluding the interested
shareholder) approve the business combination or (ii) all shareholders are paid
fair value (as defined in the statute) for their stock. However, such law does
not restrict any offer to purchase all of a corporation's shares.
The IBCL also provides that when a target corporation (such as the
Company), incorporated in Indiana and having its principal place of business,
principal office or substantial assets in Indiana, has a certain threshold of
ownership by Indiana residents, any acquisition which, together with its
previous holdings, gives the acquiror at least 20% of the target's voting stock
triggers a shareholder approval mechanism. If the acquiror files a statutorily
required disclosure statement, the target's management has 50 days within which
to hold a special meeting of shareholders at which all disinterested
shareholders of the target (those not affiliated with the acquiror or any
officer or inside director of the target) consider and vote upon whether the
acquiror shall have voting rights with respect to the shares of the target held
by it. Without shareholder approval, the shares acquired by the acquiror have no
voting rights. If the acquiror fails to file the statutorily required disclosure
statement, the target can redeem the acquiror's shares at a price to be
determined according to
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procedures devised by the target. In order for these provisions of the IBCL not
to apply to a particular Indiana company, the company must affirmatively so
provide in its articles of incorporation or bylaws.
In addition, the insurance laws and regulations of the jurisdictions in
which the Company's insurance subsidiaries do business may impede or delay a
business combination involving the Company.
DESCRIPTION OF DEPOSITARY SHARES
The description set forth below of certain provisions of the Deposit
Agreement (as defined below) and of the Depositary Shares and Depositary
Receipts summarizes the material terms of the Deposit Agreement and of the
Depositary Shares and Depositary Receipts and is qualified in its entirety by
reference to the form of Deposit Agreement and form of Depositary Receipts
relating to each series of the Preferred Stock, as well as the Articles of
Incorporation or any required amendment thereto describing the applicable series
of Preferred Stock.
GENERAL
The Company may, as its option, elect to have shares of Preferred Stock be
represented by Depositary Shares. The shares of any series of the Preferred
Stock underlying the Depositary Shares will be deposited under a separate
deposit agreement (the "Deposit Agreement") to be entered into by the Company
and a bank or trust company selected by the Company (the "Preferred Stock
Depositary"). The Prospectus Supplement relating to a series of Depositary
Shares will set forth the name and address of the Preferred Stock Depositary.
Subject to the terms of the Deposit Agreement, each owner of a Depositary Share
will be entitled, proportionately, to all the rights, preferences and privileges
of the Preferred Stock represented thereby (including dividend, voting,
redemption, conversion, exchange and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the Deposit Agreement, each of which will represent the fractional
interest in the number of shares of a particular series of the Preferred Stock
described in the applicable Prospectus Supplement.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions in respect of the series of Preferred Stock represented by
the Depositary Shares to the record holders of Depositary Receipts in
proportion, insofar as possible, to the number of Depositary Shares owned by
such holders. The Depositary, however, will distribute only such amount as can
be distributed without attributing to any Depositary Share a fraction of one
cent, and any balance not so distributed will be added to and treated as part of
the next sum received by the Depositary for distribution to record holders of
Depositary Receipts then outstanding.
In the event of a distribution other than in cash in respect of the
Preferred Stock, the Preferred Stock Depositary will distribute property
received by it to the record holders of Depositary Receipts in proportion,
insofar as possible, to the number of Depositary Shares owned by such holders,
unless the Preferred Stock Depositary determines (after consultation with the
Company) that it is not feasible to make such distribution, in which case the
Preferred Stock Depositary may, with the approval of the Company, adopt such
method as it deems equitable and practicable for the purpose of effecting such
distribution, including a public or private sale, of such property, and
distribution of the net proceeds from such sale to such holders.
The amount so distributed to record holders of Depositary Receipts in any
of the foregoing cases will be reduced by any amount required to be withheld by
the Company or the Preferred Stock Depositary on account of taxes.
CONVERSION AND EXCHANGE
If any series of Preferred Stock underlying the Depositary Shares is
subject to provisions relating to its conversion or exchange, as set forth in
the applicable Prospectus Supplement relating thereto, each record
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holder of Depositary Receipts will have the right or obligation to convert or
exchange the Depositary Shares represented by such Depositary Receipts pursuant
to the terms thereof.
REDEMPTION OF DEPOSITARY SHARES
If any series of Preferred Stock underlying the Depositary Shares is
subject to redemption, the Depositary Shares will be redeemed from the proceeds
received by the Preferred Stock Depositary resulting from the redemption, in
whole or in part, of the Preferred Stock held by the Preferred Stock Depositary.
Whenever the Company redeems Preferred Stock from the Preferred Stock
Depositary, the Preferred Stock Depositary will redeem as of the same redemption
date a proportionate number of Depositary Shares representing the shares of
Preferred Stock that were redeemed. If less than all the Depositary Shares are
to be redeemed, the Depositary Shares to be redeemed will be selected by lot or
pro rata as may be determined by the Company.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Shares will cease, except the right to receive the
redemption price upon such redemption. Any funds deposited by the Company with
the Preferred Stock Depositary for any Depositary Shares which the holders
thereof fail to redeem shall be returned to the Company after a period of two
years from the date such funds are so deposited.
VOTING
Upon receipt of notice of any meeting at which the holders of any shares of
Preferred Stock underlying the Depositary Shares are entitled to vote, the
Preferred Stock Depositary will mail the information contained in such notice to
the record holders of the Depositary Receipts. Each record holder of such
Depositary Receipts on the record date (which will be the same date as the
record date for the Preferred Stock) will be entitled to instruct the Preferred
Stock Depositary as to the exercise of the voting rights pertaining to the
number of shares of Preferred Stock underlying such holder's Depositary Shares.
The Preferred Stock Depositary will endeavor, insofar as practicable, to vote
the number of shares of Preferred Stock underlying such Depositary Shares in
accordance with such instructions, and the Company will agree to take all
reasonable action which may be deemed necessary by the Preferred Stock
Depositary in order to enable the Preferred Stock Depositary to do so. The
Preferred Stock Depositary will abstain from voting any of the Preferred Stock
to the extent it does not receive specific written instructions from holders of
Depositary Receipts representing such Preferred Stock.
RECORD DATE
Whenever (i) any cash dividend or other cash distribution shall become
payable, any distribution other than cash shall be made, or any rights,
preferences or privileges shall be offered with respect to the Preferred Stock,
or (ii) the Preferred Stock Depositary shall receive notice of any meeting at
which holders of Preferred Stock are entitled to vote or of which holders of
Preferred Stock are entitled to notice, or of the mandatory conversion of, or
any election on the part of the Company to call for the redemption of, any
Preferred Stock, the Preferred Stock Depositary shall in each such instance fix
a record date (which shall be the same as the record date for the Preferred
Stock) for the determination of the holders of Depositary Receipts (x) that
shall be entitled to receive such dividend, distribution, rights, preferences or
privileges or the net proceeds of the sale thereof or (y) that shall be entitled
to give instructions for the exercise of voting rights at any such meeting or to
receive notice of such meeting or of such redemption or conversion, subject to
the provisions of the Deposit Agreement.
WITHDRAWAL OF PREFERRED STOCK
Upon surrender of Depositary Receipts at the principal office of the
Preferred Stock Depositary, upon payment of any unpaid amount due the Preferred
Stock Depositary, and subject to the terms of the Deposit Agreement, the owner
of the Depositary Shares evidenced thereby is entitled to delivery of the number
of whole shares of Preferred Stock and all money and other property, if any,
represented by such Depositary Shares. Partial shares of Preferred Stock will
not be issued. If the Depositary Receipts delivered by the holder
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evidence a number of Depositary Shares in excess of the number of Depositary
Shares representing the number of whole shares of Preferred Stock to be
withdrawn, the Preferred Stock Depositary will deliver to such holder at the
same time a new Depositary Receipt evidencing such excess number of Depositary
Shares. Holders of Preferred Stock thus withdrawn will not thereafter be
entitled to deposit such shares under the Deposit Agreement or to receive
Depositary Receipts evidencing Depositary Shares therefor.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The Deposit Agreement will provide that the form of Depositary Receipt and
any provision of the Deposit Agreement may at any time be amended by agreement
between the Company and the Preferred Stock Depositary. However, any amendment
which imposes or increases any fees, taxes or other charges payable by the
holders of Depositary Receipts (other than taxes and other governmental charges,
fees and other expenses payable by such holders as stated under "Charges of
Preferred Stock Depositary"), or which otherwise prejudices any substantial
existing right of holders of Depositary Receipts, will not take effect as to
outstanding Depositary Receipts until the expiration of 90 days after notice of
such amendment has been mailed to the record holders of outstanding Depositary
Receipts.
Whenever so directed by the Company, the Preferred Stock Depositary will
terminate the Deposit Agreement by mailing notice of such termination to the
record holders of all Depositary Receipts then outstanding at least 30 days
prior to the date fixed in such notice for such termination. The Preferred Stock
Depositary may likewise terminate the Deposit Agreement if at any time 45 days
shall have expired after the Preferred Stock Depositary shall have delivered to
the Company a written notice of its election to resign and a successor
depositary shall not have been appointed and accepted its appointment. If any
Depositary Receipts remain outstanding after the date of termination, the
Preferred Stock Depositary thereafter will discontinue the transfer of
Depositary Receipts, will suspend the distribution of dividends to the holders
thereof, and will not give any further notices (other than notice of such
termination) or perform any further acts under the Deposit Agreement except as
provided below and except that the Preferred Stock Depositary will continue (i)
to collect dividends on the Preferred Stock and any other distributions with
respect thereto and (ii) to deliver the Preferred Stock together with such
dividends and distributions and the net proceeds of any sales of rights,
preferences, privileges or other property, without liability for interest
thereon, in exchange for Depositary Receipts surrendered. At any time after the
expiration of two years from the date of termination, the Preferred Stock
Depositary may sell the Preferred Stock then held by it at public or private
sales, at such place or places and upon such terms as it deems proper, and may
thereafter hold the net proceeds of any such sale, together with any money and
other property then held by it, without liability for interest thereon, for the
pro rata benefit of the holders of Depositary Receipts which have not been
surrendered.
CHARGES OF PREFERRED STOCK DEPOSITARY
The Company will pay all charges of the Preferred Stock Depositary
including charges in connection with the initial deposit of the Preferred Stock,
the initial issuance of the Depositary Receipts, the distribution of information
to the holders of Depositary Receipts with respect to matters on which Preferred
Stock is entitled to vote, withdrawals of the Preferred Stock by the holders of
Depositary Receipts or redemption or conversion of the Preferred Stock, except
for taxes (including transfer taxes, if any) and other governmental charges and
such other charges as are expressly provided in the Deposit Agreement to be at
the expense of holders of Depositary Receipts or persons depositing Preferred
Stock.
MISCELLANEOUS
The Preferred Stock Depositary will make available for inspection by
holders of Depositary Receipts, at its Corporate Office and its New York Office,
all reports and communications from the Company which are delivered to the
Preferred Stock Depositary as the holder of Preferred Stock.
Neither the Preferred Stock Depositary nor the Company will be liable if it
is prevented or delayed by law or any circumstance beyond its control in
performing its obligations under the Deposit Agreement. The obligations of the
Preferred Stock Depositary under the Deposit Agreement are limited to performing
its
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duties thereunder without negligence or bad faith. The obligations of the
Company under the Deposit Agreement are limited to performing its duties
thereunder in good faith. Neither the Company nor the Preferred Stock Depositary
is obligated to prosecute or defend any legal proceeding in respect of any
Depositary Shares or Preferred Stock unless satisfactory indemnity is furnished.
The Company and the Preferred Stock Depositary are entitled to rely upon advice
of or information from counsel, accountants or other persons believed to be
competent and on documents believed to be genuine.
The Preferred Stock Depositary may resign at any time or be removed by the
Company, effective upon the acceptance by its successor of its appointment;
provided, that if a successor Preferred Stock Depositary has not been appointed
or accepted such appointment within 45 days after the Preferred Stock Depositary
has delivered a notice of election to resign to the Company, the Preferred Stock
Depositary may terminate the Deposit Agreement. See "Amendment and Termination
of the Deposit Agreement" above.
DESCRIPTION OF WARRANTS
GENERAL
The Company may issue Warrants to purchase Debt Securities, Preferred
Stock, Common Stock or any combination thereof, and such Warrants may be issued
independently or together with any such Securities and may be attached to or
separate from such Securities. Each series of Warrants will be issued under a
separate warrant agreement (each a "Warrant Agreement") to be entered into
between the Company and a warrant agent ("Warrant Agent"). The Warrant Agent
will act solely as an agent of the Company in connection with the Warrants of
each such series and will not assume any obligation or relationship of agency
for or with holders or beneficial owners of Warrants. The following sets forth
certain general terms and provisions of the Warrants offered hereby. Further
terms of the Warrants and the applicable Warrant Agreement will be set forth in
the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of any
Warrants in respect of which this Prospectus is being delivered, including the
following: (i) the title of such Warrants; (ii) the aggregate number of such
Warrants; (iii) the price or prices at which such Warrants will be issued; (iv)
the currency or currencies, including composite currencies, in which the price
of such Warrants may be payable; (v) the designation and terms of the Securities
(other than Preferred Securities and Common Securities) purchasable upon
exercise of such Warrants; (vi) the price at which and the currency or
currencies, including composite currencies, in which the Securities (other than
Preferred Securities and Common Securities) purchasable upon exercise of such
Warrants may be purchased; (vii) the date on which the right to exercise such
Warrants shall commence and the date on which such right shall expire; (viii)
whether such Warrants will be issued in registered form or bearer form; (ix) if
applicable, the minimum or maximum amount of such Warrants which may be
exercised at any one time; (x) if applicable, the designation and terms of the
Securities (other than Preferred Securities and Common Securities) with which
such Warrants are issued and the number of such Warrants issued with each such
Security; (xi) if applicable, the date on and after which such Warrants and the
related Securities (other than Preferred Securities and Common Securities) will
be separately transferable; (xii) information with respect to book-entry
procedures, if any; (xiii) if applicable, a discussion of certain United States
Federal income tax considerations; and (xiv) any other terms of such Warrants,
including terms, procedures and limitations relating to the exchange and
exercise of such Warrants.
DESCRIPTION OF PREFERRED SECURITIES OF THE CONSECO TRUSTS
GENERAL
Each Conseco Trust may issue, from time to time, only one series of
Preferred Securities having terms described in the Prospectus Supplement
relating thereto. The Declaration of each Conseco Trust authorizes the Regular
Trustees of such Conseco Trust to issue on behalf of such Conseco Trust one
series of Preferred Securities. Each Declaration will be qualified as an
indenture under the Trust Indenture Act. The Institutional Trustee, an
independent trustee, will act as indenture trustee for the Preferred Securities
for purposes of compliance with the provisions of the Trust Indenture Act. The
Preferred Securities will have such terms,
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including distributions, redemption, voting, liquidation rights and such other
preferred, deferred or other special rights or such restrictions as shall be
established by the Regular Trustees in accordance with the applicable
Declaration or as shall be set forth in the Declaration or made part of the
Declaration by the Trust Indenture Act. Reference is made to any Prospectus
Supplement relating to the Preferred Securities of a Conseco Trust for specific
terms of the Preferred Securities, including, to the extent applicable, (i) the
distinctive designation of such Preferred Securities, (ii) the number of
Preferred Securities issued by such Conseco Trust, (iii) the annual distribution
rate (or method of determining such rate) for Preferred Securities issued by
such Conseco Trust and the date or dates upon which such distributions shall be
payable (provided, however, that distributions on such Preferred Securities
shall, subject to any deferral provisions, and any provisions for payment of
defaulted distributions, be payable on a quarterly basis to holders of such
Preferred Securities as of a record date in each quarter during which such
Preferred Securities are outstanding), (iv) any right of such Conseco Trust to
defer quarterly distributions on the Preferred Securities as a result of an
interest deferral right exercised by the Company on the Subordinated Debt
Securities held by such Conseco Trust; (v) whether distributions on Preferred
Securities shall be cumulative, and, in the case of Preferred Securities having
such cumulative distribution rights, the date or dates or method of determining
the date or dates from which distributions on Preferred Securities shall be
cumulative, (vi) the amount or amounts which shall be paid out of the assets of
such Conseco Trust to the holders of Preferred Securities upon voluntary or
involuntary dissolution, winding-up or termination of such Conseco Trust, (vii)
the obligation or option, if any, of such Conseco Trust to purchase or redeem
Preferred Securities and the price or prices at which, the period or periods
within which and the terms and conditions upon which Preferred Securities shall
be purchased or redeemed, in whole or in part, pursuant to such obligation or
option with such redemption price to be specified in the applicable Prospectus
Supplement, (viii) the voting rights, if any, of Preferred Securities in
addition to those required by law, including the number of votes per Preferred
Security and any requirement for the approval by the holders of Preferred
Securities as a condition to specified action or amendments to the Declaration,
(ix) the terms and conditions, if any, upon which Subordinated Debt Securities
held by such Conseco Trust may be distributed to holders of Preferred
Securities, and (x) any other relevant rights, preferences, privileges,
limitations or restrictions of Preferred Securities consistent with the
Declaration or with applicable law. All Preferred Securities offered hereby will
be guaranteed by the Company to the extent set forth below under "Description of
Trust Guarantees." The Trust Guarantee issued to each Conseco Trust, when taken
together with the Company's back-up undertakings, consisting of its obligations
under each Declaration (including the obligation to pay expenses of each Conseco
Trust), the applicable Indenture and any applicable supplemental indentures
thereto and the Subordinated Debt Securities issued to any Conseco Trust will
provide a full and unconditional guarantee by the Company of amounts due on the
Preferred Securities issued by each Conseco Trust. The payment terms of the
Preferred Securities will be the same as the Subordinated Debt Securities issued
to the applicable Conseco Trust by the Company.
Each Declaration authorizes the Regular Trustees to issue on behalf of the
applicable Trust one series of Common Securities having such terms including
distributions, redemption, voting, liquidation rights or such restrictions as
shall be established by the Regular Trustees in accordance with the Declaration
or as shall otherwise be set forth therein. The terms of the Common Securities
issued by each Conseco Trust will be substantially identical to the terms of the
Preferred Securities issued by such Conseco Trust, and the Common Securities
will rank pari passu, and payments will be made thereon pro rata, with the
Preferred Securities except that, if an event of default under such Declaration
has occurred and is continuing, the rights of the holders of the Common
Securities to payment in respect of distributions and payments upon liquidation,
redemption and otherwise will be subordinated to the rights of the holders of
the Preferred Securities. The Common Securities will also carry the right to
vote and to appoint, remove or replace any of the Conseco Trustees of such
Conseco Trust. All of the Common Securities of each Conseco Trust will be
directly or indirectly owned by the Company.
The financial statements of any Conseco Trust that issues Preferred
Securities will be reflected in the Company's consolidated financial statements
with the Preferred Securities shown as Company-obligated mandatorily-redeemable
preferred securities of a subsidiary trust under minority interest in
consolidated subsidiaries. In a footnote to the Company's audited financial
statements there will be included statements that the applicable Conseco Trust
is wholly-owned by the Company and that the sole asset of such Conseco
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Trust is the Subordinated Debt Securities (indicating the principal amount,
interest rate and maturity date thereof).
DESCRIPTION OF TRUST GUARANTEES
Set forth below is a summary of information concerning the Trust Guarantees
that will be executed and delivered by the Company for the benefit of the
holders, from time to time, of Preferred Securities. Each Trust Guarantee will
be qualified as an indenture under the Trust Indenture Act. Unless otherwise
specified in the applicable Prospectus Supplement, State Street Bank and Trust
Company will act as independent indenture trustee for Trust Indenture Act
purposes under each Trust Guarantee (the "Preferred Securities Guarantee
Trustee"). The terms of each Trust Guarantee will be those set forth in such
Trust Guarantee and those made part of such Trust Guarantee by the Trust
Indenture Act. The following summary does not purport to be complete and is
subject to and qualified in its entirety by reference to the provisions of the
form of Trust Guarantee, a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part, and the Trust
Indenture Act. Each Trust Guarantee will be held by the Preferred Securities
Guarantee Trustee for the benefit of the holders of the Preferred Securities of
the applicable Conseco Trust.
GENERAL
Unless otherwise specified in the applicable Prospectus Supplement,
pursuant to each Trust Guarantee, the Company will agree, to the extent set
forth therein, to pay in full to the holders of the Preferred Securities, the
Guarantee Payments (as defined below) (except to the extent paid by such Conseco
Trust), as and when due, regardless of any defense, right of set-off or
counterclaim which such Conseco Trust may have or assert. The following payments
or distributions with respect to the Preferred Securities (the "Guarantee
Payments"), to the extent not paid by such Conseco Trust, will be subject to the
Trust Guarantee (without duplication): (i) any accrued and unpaid distributions
that are required to be paid on such Preferred Securities, to the extent such
Conseco Trust shall have funds available therefor, (ii) the redemption price,
including all accrued and unpaid distributions to the date of redemption (the
"Redemption Price"), to the extent such Conseco Trust has funds available
therefor, with respect to any Preferred Securities called for redemption by such
Conseco Trust and (iii) upon a voluntary or involuntary dissolution, winding-up
or termination of such Conseco Trust (other than in connection with such
distribution of Subordinated Debt Securities to the holders of Preferred
Securities or the redemption of all of the Preferred Securities upon maturity or
redemption of the Subordinated Debt Securities) the lesser of (a) the aggregate
of the liquidation amount and all accrued and unpaid distributions on such
Preferred Securities to the date of payment, to the extent such Conseco Trust
has funds available therefor or (b) the amount of assets of such Conseco Trust
remaining for distribution to holders of such Preferred Securities in
liquidation of such Conseco Trust. The Company's obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by the
Company to the holders of Preferred Securities or by causing the applicable
Conseco Trust to pay such amounts to such holders.
Each Trust Guarantee will not apply to any payment of distributions except
to the extent the applicable Conseco Trust shall have funds available therefor.
If the Company does not make interest or principal payments on the Subordinated
Debt Securities purchased by such Conseco Trust, such Conseco Trust will not pay
distributions on the Preferred Securities issued by such Conseco Trust and will
not have funds available therefore.
The Company has also agreed to guarantee the obligations of each Conseco
Trust with respect to the Common Securities (the "Common Guarantee") issued by
such Conseco Trust to the same extent as the Trust Guarantee, except that, if an
Event of Default under the Subordinated Indenture has occurred and is
continuing, holders of Preferred Securities under the Trust Guarantee shall have
priority over holders of the Common Securities under the Common Guarantee with
respect to distributions and payments on liquidation, redemption or otherwise.
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CERTAIN COVENANTS OF THE COMPANY
Unless otherwise specified in the applicable Prospectus Supplement, in each
Trust Guarantee, the Company will covenant that, so long as any Preferred
Securities issued by the applicable Conseco Trust remain outstanding, if there
shall have occurred any event of default under such Trust Guarantee or under the
Declaration of such Conseco Trust, then (a) the Company will not declare or pay
any dividend on, make any distributions with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital stock
(other than (i) purchases or acquisitions of capital stock of the Company in
connection with the satisfaction by the Company of its obligations under any
employee or agent benefit plans or the satisfaction by the Company of its
obligations pursuant to any contract or security outstanding on the date of such
event requiring the Company to purchase capital stock of the Company, (ii) as a
result of a reclassification of the Company's capital stock or the exchange or
conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock, (iii) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being converted or
exchanged, (iv) dividends or distributions in capital stock of the Company (or
rights to acquire capital stock) or repurchases or redemptions of capital stock
solely from the issuance or exchange of capital stock or (v) redemptions or
repurchases of any rights outstanding under a shareholder rights plan); (b) the
Company shall not make any payment of interest, principal or premium, if any, on
or repay, repurchase or redeem any debt securities issued by the Company which
rank junior to the Subordinated Debt Securities issued to the applicable Conseco
Trust and (c) the Company shall not make any guarantee payments with respect to
the foregoing (other than pursuant to a Trust Guarantee).
MODIFICATION OF THE TRUST GUARANTEES; ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of Preferred Securities (in which case no consent of such holders
will be required), each Trust Guarantee may be amended only with the prior
approval of the holders of not less than a majority in liquidation amount of the
outstanding Preferred Securities of such Conseco Trust. The manner of obtaining
any such approval of holders of such Preferred Securities will be set forth in
accompanying Prospectus Supplement. All guarantees and agreements contained in a
Trust Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the holders of
the Preferred Securities of the applicable Conseco Trust then outstanding.
EVENTS OF DEFAULT
An event of default under a Trust Guarantee will occur upon the failure of
the Company to perform any of its payment or other obligations thereunder. The
holders of a majority in liquidation amount of the Preferred Securities to which
such Trust Guarantee relates have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Preferred
Securities Guarantee Trustee in respect of such Trust Guarantee or to direct the
exercise of any trust or power conferred upon the Preferred Securities Guarantee
Trustee under such Trust Guarantee.
If the Preferred Securities Guarantee Trustee fails to enforce such Trust
Guarantee, any record holder of Preferred Securities to which such Trust
Guarantee relates may institute a legal proceeding directly against the Company
to enforce the Preferred Securities Guarantee Trustee's rights under such Trust
Guarantee without first instituting a legal proceeding against the applicable
Conseco Trust, the Preferred Securities Guarantee Trustee or any other person or
entity. Notwithstanding the foregoing, if the Company has failed to make a
Guarantee Payment under a Trust Guarantee, a record holder of Preferred
Securities to which such Trust Guarantee relates may directly institute a
proceeding against the Company for enforcement of such Trust Guarantee for such
payment to the record holder of the Preferred Securities to which such Trust
Guarantee relates of the principal of or interest on the applicable Subordinated
Debt Securities on or after the respective due dates specified in the
Subordinated Debt Securities, and the amount of the payment will be based on the
holder's pro rata share of the amount due and owing on all of the Preferred
Securities to which such Trust Guarantee relates. The Company has waived any
right or remedy to require that any action be brought first against the
applicable Conseco Trust or any other person or entity before proceeding
directly
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against the Company. The record holder in the case of the issuance of one or
more global Preferred Securities certificates will be The Depository Trust
Company acting at the direction of the beneficial owners of the Preferred
Securities.
The Company will be required to provide annually to the Preferred
Securities Guarantee Trustee a statement as to the performance by the Company of
certain of its obligations under each outstanding Trust Guarantee and as to any
default in such performance.
INFORMATION CONCERNING THE PREFERRED SECURITIES GUARANTEE TRUSTEE
The Preferred Securities Guarantee Trustee, prior to the occurrence of a
default to a Trust Guarantee, undertakes to perform only such duties as are
specifically set forth in such Trust Guarantee and, after default with respect
to such Trust Guarantee, shall exercise the same degree of care as a prudent
individual would exercise in the conduct of his or her own affairs. Subject to
such provision, the Preferred Securities Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by a Trust Guarantee at
the request of any holder of Preferred Securities to which such Trust Guarantee
relates unless it is offered reasonable indemnity against the costs, expenses
and liabilities that might be incurred thereby.
TERMINATION
Each Trust Guarantee will terminate as to the Preferred Securities issued
by the applicable Conseco Trust upon full payment of the Redemption Price of all
Preferred Securities of such Conseco Trust, upon distribution of the
Subordinated Debt Securities held by such Conseco Trust to the holders of all of
the Preferred Securities of such Conseco Trust or upon full payment of the
amounts payable in accordance with the Declaration of such Conseco Trust upon
liquidation of such Conseco Trust. Each Trust Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of Preferred Securities issued by the applicable Conseco Trust must restore
payment of any sums paid under such Preferred Securities or such Trust
Guarantee.
STATUS OF THE TRUST GUARANTEES
The Trust Guarantees will constitute an unsecured obligation of the Company
and will rank (i) subordinate and junior in right of payment to all other
liabilities of the Company, including the Subordinated Debt Securities, except
those liabilities of the Company made pari passu or subordinate by their terms,
(ii) pari passu with the most senior preferred or preference stock now or
hereafter issued by the Company and with any guarantee now or hereafter entered
into by the Company in respect of any preferred or preference stock of any
affiliate of the Company and (iii) senior to the Common Stock. The terms of the
Preferred Securities provide that each holder of Preferred Securities by
acceptance thereof agrees to the subordination provisions and other terms of the
Trust Guarantee relating thereto.
Each Trust Guarantee will constitute a guarantee of payment and not of
collection (that is, the guaranteed party may institute a legal proceeding
directly against the Company to enforce its rights under such Trust Guarantee
without instituting a legal proceeding against any other person or entity).
GOVERNING LAW
The Trust Guarantees will be governed by and construed in accordance with
the law of the State of New York.
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
The Company may issue Stock Purchase Contracts, including contracts
obligating holders to purchase from the Company, and the Company to sell to the
holders, a specified number of shares of Common Stock, Preferred Stock or
Depositary Shares at a future date or dates. The consideration per share of
Common Stock, Preferred Stock or Depositary Shares may be fixed at the time the
Stock Purchase Contracts are issued or may be determined by reference to a
specific formula set forth in the Stock Purchase Contracts. The Stock
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Purchase Contracts may be issued separately or as a part of units ("Stock
Purchase Units") consisting of a Stock Purchase Contract and Debt Securities,
Preferred Securities or debt obligations of third parties, including U.S.
Treasury securities, securing the holders' obligations to purchase the Common
Stock, Preferred Stock or Depositary Shares under the Stock Purchase Contracts.
The Stock Purchase Contracts may require the Company to make periodic payments
to the holders of the Stock Purchase Units or vice versa, and such payments may
be unsecured or prefunded on some basis. The Stock Purchase Contracts may
require holders to secure their obligations thereunder in a specified manner.
The applicable Prospectus Supplement will describe the terms of any Stock
Purchase Contracts or Stock Purchase Units. The description in the Prospectus
Supplement will not necessarily be complete, and reference will be made to the
Stock Purchase Contracts, and, if applicable, collateral arrangements and
depositary arrangements, relating to such Stock Purchase Contracts or Stock
Purchase Units.
PLAN OF DISTRIBUTION
The Company and/or any Conseco Trust may sell any of the Securities being
offered hereby in any one or more of the following ways from time to time: (i)
through agents; (ii) to or through underwriters; (iii) through dealers; or (iv)
directly to purchasers.
The Prospectus Supplement with respect to the Securities will set forth the
terms of the offering of the Securities, including the name or names of any
underwriters, dealers or agents; the purchase price of the Securities and the
proceeds to the Company and/or a Conseco Trust from such sale; any underwriting
discounts and commissions or agency fees and other items constituting
underwriters' or agents' compensation; any initial public offering price and any
discounts or concessions allowed or reallowed or paid to dealers and any
securities exchange on which such Securities may be listed. Any initial public
offering price, discounts or concessions allowed or reallowed or paid to dealers
may be changed from time to time.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices.
Offers to purchase Securities may be solicited by agents designated by the
Company from time to time. Any such agent involved in the offer or sale of the
Securities in respect of which this Prospectus is delivered will be named, and
any commissions payable by the Company and/or the applicable Conseco Trust to
such agent will be set forth, in the applicable Prospectus Supplement. Unless
otherwise indicated in such Prospectus Supplement, any such agent will be acting
on a reasonable best efforts basis for the period of its appointment. Any such
agent may be deemed to be an underwriter, as that term is defined in the
Securities Act, of the Securities so offered and sold.
If Securities are sold by means of an underwritten offering, the Company
and/or the applicable Conseco Trust will execute an underwriting agreement with
an underwriter or underwriters at the time an agreement for such sale is
reached, and the names of the specific managing underwriter or underwriters, as
well as any other underwriters, and the terms of the transaction, including
commissions, discounts and any other compensation of the underwriters and
dealers, if any, will be set forth in the Prospectus Supplement which will be
used by the underwriters to make resales of the Securities in respect of which
this Prospectus is delivered to the public. If underwriters are utilized in the
sale of the Securities in respect of which this Prospectus is delivered, the
Securities will be acquired by the underwriters for their own account and may be
resold from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices determined by
the underwriter at the time of sale. Securities may be offered to the public
either through underwriting syndicates represented by managing underwriters or
directly by the managing underwriters. If any underwriter or underwriters are
utilized in the sale of the Securities, unless otherwise indicated in the
Prospectus Supplement, the underwriting agreement will provide that the
obligations of the underwriters are subject to certain conditions precedent and
that the underwriters with respect to a sale of Securities will be obligated to
purchase all such Securities of a series if any are purchased.
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<PAGE> 113
If a dealer is utilized in the sales of the Securities in respect of which
this Prospectus is delivered, the Company and/or the applicable Conseco Trust
will sell such Securities to the dealer as principal. The dealer may then resell
such Securities to the public at varying prices to be determined by such dealer
at the time of resale. Any such dealer may be deemed to be an underwriter, as
such term is defined in the Securities Act, of the Securities so offered and
sold. The name of the dealer and the terms of the transaction will be set forth
in the Prospectus Supplement relating thereto.
Offers to purchase Securities may be solicited directly by the Company
and/or the applicable Conseco Trust and the sale thereof may be made by the
Company and/or the applicable Conseco Trust directly to institutional investors
or others, who may be deemed to be underwriters within the meaning of the
Securities Act with respect to any resale thereof. The terms of any such sales
will be described in the Prospectus Supplement relating thereto.
Agents, underwriters and dealers may be entitled under relevant agreements
to indemnification or contribution by the Company and/or the applicable Conseco
Trust against certain liabilities, including liabilities under the Securities
Act.
Agents, underwriters and dealers may be customers of, engage in
transactions with, or perform services for, the Company and its subsidiaries in
the ordinary course of business.
Securities may also be offered and sold, if so indicated in the applicable
Prospectus Supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or otherwise,
by one or more firms ("remarketing firms"), acting as principals for their own
accounts or as agents for the Company and/or the applicable Conseco Trust. Any
remarketing firm will be identified and the terms of its agreement, if any, with
its compensation will be described in the applicable Prospectus Supplement.
Remarketing firms may be deemed to be underwriters, as such term is defined in
the Securities Act, in connection with the Securities remarketed thereby.
Remarketing firms may be entitled under agreements which may be entered into
with the Company and/or the applicable Conseco Trust to indemnification or
contribution by the Company and/or the applicable Conseco Trust against certain
civil liabilities, including liabilities under the Securities Act, and may be
customers of, engage in transactions with or perform services for Conseco and
its subsidiaries in the ordinary course of business.
If so indicated in the applicable Prospectus Supplement, the Company and/or
the applicable Conseco Trust may authorize agents, underwriters or dealers to
solicit offers by certain types of institutions to purchase Securities from the
Company and/or the applicable Conseco Trust at the public offering prices set
forth in the applicable Prospectus Supplement pursuant to delayed delivery
contracts ("Contracts") providing for payment and delivery on a specified date
or dates in the future. A commission indicated in the applicable Prospectus
Supplement will be paid to underwriters, dealers and agents soliciting purchases
of Securities pursuant to Contracts accepted by the Company and/or the
applicable Conseco Trust.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements, trend analyses and other information contained in this
Prospectus, any Prospectus Supplement or any document incorporated by reference
herein relative to markets for the Company's products and trends in the
Company's operations or financial results, as well as other statements including
words such as "anticipate," "believe," "plan," "estimate," "expect," "intend,"
and other similar expressions, constitute forward-looking statements under the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to known and unknown risks, uncertainties and other
factors which may cause actual results to be materially different from those
contemplated by the forward-looking statements. Such factors include, among
other things: (1) general economic conditions and other factors, including
prevailing interest rate levels, stock market performance and health care
inflation, which may affect the ability of the Company to sell its products, the
market value of the Company's investments and the lapse rate and profitability
of the Company's policies; (2) the Company's ability to achieve anticipated
levels of operational efficiencies at recently acquired companies, as well as
through other cost-saving initiatives; (3) customer response to new products,
distribution channels and marketing initiatives; (4) mortality, morbidity, usage
of
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<PAGE> 114
health care services and other factors which may affect the profitability of the
Company's insurance products; (5) changes in the Federal income tax laws and
regulations which may affect the relative tax advantages of some of the
Company's products; (6) increasing competition in the sale of the Company's
products; (7) regulatory changes or actions, including those relating to
regulation of financial services affecting (among other things) bank sales and
underwriting of insurance products, regulation of the sale, underwriting and
pricing of insurance products, and health care regulation affecting the
Company's supplemental health insurance products; (8) the availability and terms
of future acquisitions; and (9) the risk factors or uncertainties listed from
time to time in any Prospectus Supplement or any document incorporated by
reference herein.
LEGAL MATTERS
Unless otherwise indicated in the applicable Prospectus Supplement, the
legal validity of Securities (other than the Preferred Securities) will be
passed upon for the Company by Karl W. Kindig, Senior Vice President, Legal of
Conseco Services, LLC, a subsidiary of the Company. Mr. Kindig is a full-time
employee and owns shares and holds options to purchase shares of Common Stock.
Certain matters of Delaware law relating to the validity of the Preferred
Securities will be passed upon for the Conseco Trusts by Richards, Layton &
Finger, P.A., Wilmington, Delaware, special Delaware counsel to the Conseco
Trusts.
EXPERTS
The consolidated financial statements and schedules of the Company as of
December 31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996 incorporated by reference in this Prospectus, have been
audited by Coopers & Lybrand L.L.P., independent accountants, as set forth in
their reports thereon included therein and are incorporated herein by reference
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
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<PAGE> 115
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITERS. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, NOR ANY SALE MADE
HEREUNDER AND THEREUNDER, SHALL UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary..................... S-6
Risk Factors...................................... S-19
The Company....................................... S-26
Selected Historical Financial Information of the
Company......................................... S-29
The Trust......................................... S-32
Price Range of Common Stock and Dividends......... S-33
Capitalization.................................... S-34
Accounting Treatment.............................. S-35
Use of Proceeds................................... S-36
Description of the FELINE PRIDES.................. S-36
Description of the Purchase Contracts............. S-39
Certain Provisions of the Purchase Contract
Agreement and the Pledge Agreement.............. S-48
Description of the Trust Preferred Securities..... S-51
Description of the Guarantee...................... S-62
Description of the Debentures..................... S-65
Effect of Obligations Under the Debentures and the
Guarantee....................................... S-72
Certain Federal Income Tax Consequences........... S-73
ERISA Considerations.............................. S-79
Underwriting...................................... S-80
Legal Opinions.................................... S-82
Index of Terms for Prospectus Supplement.......... A-1
PROSPECTUS
Available Information............................. 3
Incorporation of Certain Documents by Reference... 4
The Company....................................... 5
The Conseco Trusts................................ 5
Use of Proceeds................................... 6
Ratios of Earnings to Fixed Charges,
Earnings to Fixed Charges and Preferred Stock
Dividends and Earnings to Fixed Charges,
Preferred Stock Dividends and Distributions on
Company-obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trusts....... 6
Description of Debt Securities.................... 7
Description of Capital Stock...................... 16
Description of Depositary Shares.................. 20
Description of Warrants........................... 23
Description of Preferred Securities of the Conseco
Trusts.......................................... 23
Description of Trust Guarantees................... 25
Description of Stock Purchase Contracts and Stock
Purchase Units.................................. 27
Plan of Distribution.............................. 28
Special Note Regarding Forward-Looking
Statements...................................... 29
Legal Matters..................................... 30
Experts........................................... 30
</TABLE>
======================================================
======================================================
10,000,000
FELINE PRIDES(SM)
CONSECO, INC.
CONSECO FINANCING
TRUST IV
------------------------
PROSPECTUS SUPPLEMENT
------------------------
MERRILL LYNCH & CO.
CREDIT SUISSE FIRST BOSTON
FURMAN SELZ
PAINEWEBBER INCORPORATED
SBC WARBURG DILLON READ INC.
SANDS BROTHERS & CO., LTD.
DECEMBER 8, 1997
(SM)SERVICE MARK OF MERRILL LYNCH & CO., INC.
======================================================
