<PAGE> 1
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL
THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 14, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 22, 1998)
[CONSECO LOGO]
8,000,000 PREFERRED SECURITIES CONSECO.
CONSECO FINANCING TRUST V
% TRUST ORIGINATED PREFERRED SECURITIESSM ("TOPRSSM")
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED BY
CONSECO, INC.
------------------------
The % Trust Originated Preferred Securities (the "Preferred Securities")
offered hereby represent preferred undivided beneficial interests in the assets
of Conseco Financing Trust V, a statutory business trust formed under the laws
of the State of Delaware (the "Trust"). Conseco, Inc., an Indiana corporation
("Conseco" or the "Company"), will directly or indirectly own all the common
securities (the "Common Securities" and, together with the Preferred Securities,
the "Trust Securities") representing common undivided beneficial interests in
the assets of the Trust. The Trust exists for the sole purpose of issuing the
Preferred Securities and Common
(continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE S-4 FOR CERTAIN INFORMATION RELEVANT TO
AN INVESTMENT IN THE PREFERRED SECURITIES, INCLUDING THE PERIOD AND
CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS OF DISTRIBUTIONS ON THE PREFERRED
SECURITIES MAY BE DEFERRED AND THE RELATED UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF SUCH DEFERRAL.
------------------------
Prior to the offering made hereby there has been no public market for the
Preferred Securities. Application will be made to list the Preferred Securities
on the New York Stock Exchange, Inc. (the "New York Stock Exchange"). Trading of
the Preferred Securities on the New York Stock Exchange is expected to commence
within a 30-day period after the initial delivery of the Preferred Securities.
See "Underwriting."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
INITIAL PUBLIC UNDERWRITING PROCEEDS TO THE
OFFERING PRICE(1) COMMISSION(2) TRUST(3)(4)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Preferred Security............... $25.00 (3) $25.00
- -----------------------------------------------------------------------------------------------------------------
Total................................ $200,000,000 (3) $200,000,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued distributions, if any, from August , 1998.
(2) The Trust and the Company have each agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(3) In view of the fact that the proceeds of the sale of the Preferred
Securities will be invested in Subordinated Debentures, the Company has
agreed to pay to the Underwriters as compensation ("Underwriters'
Compensation") for their arranging the investment therein of such proceeds
$ per Preferred Security (or $ in the aggregate). See
"Underwriting."
(4) Expenses of the offering, which are payable by the Company, are estimated to
be $ .
------------------------
The Preferred Securities offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that delivery of the Preferred Securities will be made only in book-entry form
through the facilities of The Depository Trust Company, on or about August ,
1998.
------------------------
MERRILL LYNCH & CO.
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SALOMON SMITH BARNEY
------------------------
The date of this Prospectus Supplement is August , 1998.
(SM) "Trust Originated Preferred Securities" and "TOPrS" are service marks of
Merrill Lynch & Co., Inc.
<PAGE> 2
(continued from previous page)
Securities and investing the proceeds thereof in an equivalent amount of %
Subordinated Deferrable Interest Debentures due , 2028 (the
"Subordinated Debentures") of the Company. Upon a Declaration Event of Default
(as defined herein), the holders of the Preferred Securities will have a
preference over the holders of the Common Securities with respect to payments in
respect of distributions and payments upon redemption, liquidation and
otherwise.
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of % of the liquidation amount of $25 per
Preferred Security, accruing from the date of original issuance and payable
quarterly in arrears on , , and of each
year, commencing , 1998 ("distributions"). The distribution rate and
the distribution and other payment dates for the Preferred Securities will
correspond to the interest rate and interest and other payment dates on the
Subordinated Debentures, which will be the sole assets of the Trust. As a
result, if principal or interest is not paid on the Subordinated Debentures, no
amounts will be paid on the Preferred Securities. The payment of distributions
out of moneys held by the Trust and payments on liquidation of the Trust or the
redemption of Preferred Securities, as set forth below, are guaranteed by the
Company (the "Trust Guarantee") if and to the extent the Trust has funds
available therefor. The Company's obligations under the Trust Guarantee, taken
together with its back-up undertakings, consisting of obligations of the Company
as set forth in the Declaration of Trust of the Trust (including the obligation
to pay expenses of the Trust), the Indenture (as defined in "Description of the
Subordinated Debentures" herein) and any applicable supplemental indentures
thereto, and the Subordinated Debentures issued to the Trust, provide a full and
unconditional guarantee by the Company of payments due on the Preferred
Securities. See "Description of the Trust Guarantee" and "Effect of Obligations
Under the Subordinated Debentures and the Trust Guarantee" herein and
"Description of the Trust Guarantees" in the accompanying prospectus (the
"Prospectus"). If the Company does not make principal or interest payments on
the Subordinated Debentures, including as a result of the Company's election to
extend the interest payment period on the Subordinated Debentures as described
below, the Trust will not have sufficient funds to make distributions on the
Preferred Securities, in which event, the Trust Guarantee will not apply to such
distributions until the Company has made such principal or interest payments.
The obligations of the Company under the Subordinated Debentures are unsecured
and will be subordinate and junior in right of payment, to the extent set forth
herein, to all existing and future Senior Indebtedness (as defined herein) of
the Company and will be effectively subordinated to all existing and future
liabilities and obligations of the Company's subsidiaries, including liabilities
and obligations to policyholders. At June 30, 1998, the aggregate amount of
Senior Indebtedness and liabilities and obligations of the Company's
subsidiaries that would have effectively ranked senior to the Subordinated
Debentures was approximately $37 billion.
The Company has the right to defer payments of interest on the Subordinated
Debentures by extending the interest payment period on the Subordinated
Debentures at any time for up to 20 consecutive quarters (each, an "Extension
Period") provided that no Extension Period may extend beyond the Maturity Date
(as defined herein). If interest payments are so deferred, distributions on the
Preferred Securities will also be deferred. During such Extension Period,
distributions will continue to accrue with interest thereon (to the extent
permitted by applicable law) at an annual rate of % per annum compounded
quarterly, and during any Extension Period, holders of Preferred Securities will
be required to include deferred interest income in their gross income for United
States federal income tax purposes in advance of receipt of the cash
distributions with respect to such deferred interest payments. There could be
multiple Extension Periods of varying lengths throughout the term of the
Subordinated Debentures. See "Risk Factors -- Option to Extend Interest Payment
Period or Change Maturity Date," "Risk Factors -- Tax Consequences of Extension
of Interest Payment Period," "Description of the Subordinated Debentures --
Option to Extend Interest Payment Period," and "United States Federal Income
Taxation -- U.S. Holders -- Interest Income and Original Issue Discount."
The Subordinated Debentures are redeemable prior to maturity at the option
of the Company, subject to the receipt of any consent required by the terms of
any indebtedness of the Company which may be outstanding from time to time, (i)
in whole or in part, from time to time, on or after August , 2003, or (ii) at
any time in whole (but not in part) upon the occurrence and continuation of a
Special Event (as
S-2
<PAGE> 3
defined herein). If the Company redeems Subordinated Debentures, the Trust must
redeem Trust Securities having an aggregate liquidation amount equal to the
aggregate principal amount of the Subordinated Debentures so redeemed at $25 per
Trust Security plus accrued and unpaid distributions thereon to the date fixed
for redemption (the "Redemption Price"). See "Description of the Preferred
Securities -- Mandatory Redemption." The outstanding Preferred Securities will
be redeemed upon maturity of the Subordinated Debentures. The Subordinated
Debentures mature on , 2028, which date may be extended at any time at
the election of the Company for one or more periods, but in no event to a date
later than the earlier of (i) , 2047 or (ii) the Interest Deduction
Date (as defined herein), provided certain financial conditions are met, and may
be shortened to a date not earlier than August , 2003 if the Company exercises
its right to liquidate the Trust and distribute the Subordinated Debentures,
subject to the receipt of any consent required by the terms of any indebtedness
of the Company which may be outstanding from time to time. See "Description of
the Subordinated Debentures -- Option to Change Scheduled Maturity Date."
At any time, the Company will have the right, subject to the receipt of any
consent required by the terms of any indebtedness of the Company which may be
outstanding from time to time, to liquidate the Trust and cause the Subordinated
Debentures to be distributed to the holders of the Trust Securities in
liquidation of the Trust. If the Company elects to liquidate the Trust and
thereby causes the Subordinated Debentures to be distributed to holders of the
Trust Securities in liquidation of the Trust, the Company shall have the right,
subject to the receipt of any consent required by the terms of any indebtedness
of the Company which may be outstanding from time to time, to shorten the
maturity of such Subordinated Debentures, to a date not earlier than August ,
2003, or extend the maturity of such Subordinated Debentures to a date not later
than the earlier of (i) , 2047 or (ii) the Interest Deduction Date,
provided that it can extend the maturity only if certain conditions are met. If
the Subordinated Debentures are distributed to the holders of the Preferred
Securities, the Company will use its best efforts to have the Subordinated
Debentures listed on the New York Stock Exchange or on such other exchange as
the Preferred Securities are then listed. See "Description of the Preferred
Securities -- Distribution of the Subordinated Debentures."
In the event of the involuntary or voluntary liquidation, dissolution,
winding up or termination of the Trust, the holders of the Preferred Securities
will be entitled to receive for each Preferred Security a liquidation amount of
$25 plus accrued and unpaid distributions thereon (including interest thereon)
to the date of payment, unless, in connection with such dissolution, the
Subordinated Debentures are distributed to the holders of the Preferred
Securities. See "Description of the Preferred Securities -- Liquidation
Distribution Upon Dissolution."
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED
SECURITIES. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF PREFERRED
SECURITIES TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-3
<PAGE> 4
The following information concerning the Company, the Trust, the Preferred
Securities, the Trust Guarantee and the Subordinated Debentures supplements, and
should be read in conjunction with, the information contained in the
accompanying Prospectus. Capitalized terms used in this Prospectus Supplement
have the same meaning as in the accompanying Prospectus.
RISK FACTORS
Prospective purchasers of Preferred Securities should carefully review the
information contained in other sections of this Prospectus Supplement and in the
accompanying Prospectus and should in particular consider the following matters.
RANKING OF SUBORDINATE OBLIGATIONS UNDER THE TRUST GUARANTEE AND SUBORDINATED
DEBENTURES
The Company's obligations under the Trust Guarantee are unsecured and will
rank (i) subordinate and junior in right of payment to all other liabilities of
the Company except those made pari passu or subordinate by their terms, (ii)
pari passu with the most senior preferred or preference stock now or hereafter
issued by the Company, and with any guarantee now or hereafter issued by the
Company in respect of any preferred stock or preference stock of any affiliate
of the Company, and (iii) senior to the common stock of the Company, no par
value (the "Company Common Stock"). The obligations of the Company under the
Subordinated Debentures are unsecured and will rank subordinate and junior in
right of payment, to the extent set forth herein, to all present and future
Senior Indebtedness of the Company and will be effectively subordinated to all
existing and future liabilities and obligations of the Company's subsidiaries,
including liabilities and obligations to policyholder. At June 30, 1998, the
aggregate amount of Senior Indebtedness and liabilities and obligations of the
Company's subsidiaries that would have effectively ranked senior to the
Subordinated Debentures was approximately $37 billion. There are no terms in the
Preferred Securities, the Subordinated Debentures or the Trust Guarantee that
limit the ability of the Company or any of its subsidiaries to incur additional
indebtedness, liabilities or obligations, including indebtedness, liabilities or
obligations that rank senior to the Subordinated Debentures and the Trust
Guarantee. See "Description of the Trust Guarantees -- Status of the Trust
Guarantees" in the accompanying Prospectus, and "Description of the Subordinated
Debentures -- Subordination" herein.
RIGHTS UNDER THE TRUST GUARANTEE
The Trust Guarantee will be qualified as an indenture under the Trust
Indenture Act. The Property Trustee (as defined herein) will act as indenture
trustee under the Trust Guarantee for the purposes of compliance with the
provisions of the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The Preferred Securities Guarantee Trustee (as defined herein) will hold
the Trust Guarantee on behalf of the Trust for the benefit of the holders of the
Preferred Securities.
The Trust Guarantee guarantees to the holders of the Preferred Securities
the payment of (i) any accrued and unpaid distributions that are required to be
paid on the Preferred Securities, to the extent the Trust has funds available
therefor, (ii) the Redemption Price, including all accrued and unpaid
distributions with respect to Preferred Securities called for redemption by the
Trust, to the extent the Trust has funds available therefor, and (iii) upon a
voluntary or involuntary dissolution, winding-up or termination of the Trust
(other than in connection with the distribution of Subordinated Debentures to
the holders of Preferred Securities or a redemption of all the Preferred
Securities), the lesser of (a) the aggregate of the liquidation amount and all
accrued and unpaid distributions on the Preferred Securities to the date of the
payment to the extent the Trust has funds available therefor, or (b) the amount
of assets of the Trust remaining available for distribution to holders of the
Preferred Securities in liquidation of the Trust. The holders of a majority in
liquidation amount of the Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Preferred Securities Guarantee Trustee or to direct the exercise of any
trust or power conferred upon the Preferred Securities Guarantee Trustee under
the Trust Guarantee. If the Preferred Securities Guarantee Trustee fails to
enforce the Trust Guarantee, any record holder of Preferred Securities may
institute a legal proceeding directly against the Company to enforce the
Preferred Securities Guarantee Trustee's rights under the Trust Guarantee
without first instituting a legal proceeding against the Trust, the Preferred
Securities Guarantee Trustee or any other person or entity.
S-4
<PAGE> 5
Notwithstanding the foregoing, if the Company has failed to make a payment under
the Trust Guarantee, a record holder of Preferred Securities may directly
institute a proceeding against the Company for enforcement of the Trust
Guarantee with respect to payment to the record holder of the Preferred
Securities of the principal of or interest on the Subordinated Debentures held
by the Trust on or after the respective due dates specified in the Subordinated
Debentures, and the amount of the payment will be based on the holder's pro rata
share of the amount due and owing on all of the Preferred Securities. The
Company has waived any right or remedy to require that any such action be
brought first against the Trust or any other person or entity before proceeding
directly against the Company. The record holder in the case of the issuance of
one or more global Preferred Securities certificates will be The Depository
Trust Company acting at the direction of the beneficial owners of the Preferred
Securities. If the Company were to default on its obligation to pay amounts
payable on the Subordinated Debentures, the Trust would lack available funds for
the payment of distributions or amounts payable on redemption of the Preferred
Securities or otherwise, and, in such event, holders of the Preferred Securities
would not be able to rely upon the Trust Guarantee for payment of such amounts.
Instead, holders of the Preferred Securities would rely on the enforcement (i)
by the Property Trustee of its rights as registered holder of the Subordinated
Debentures against the Company pursuant to the terms of the Subordinated
Debentures or (ii) by such holder of the holder's rights against the Company to
enforce payments on the Subordinated Debentures. See "Description of the
Subordinated Debentures -- Indenture Events of Default" and "Effect of
Obligations Under the Subordinated Debentures and the Trust Guarantee" in this
Prospectus Supplement and "Description of the Trust Guarantees" in the
accompanying Prospectus. The Declaration (as defined herein) provides that each
holder of Preferred Securities, by acceptance thereof, agrees to the provisions
of the Trust Guarantee and the Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF THE PREFERRED SECURITIES
If a Declaration Event of Default (as defined herein) occurs and is
continuing, then the holders of Preferred Securities would rely on the
enforcement by the Property Trustee of its rights as a holder of the
Subordinated Debentures against the Company. In addition, the holders of a
majority in liquidation amount of the Preferred Securities will have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Property Trustee or to direct the exercise of any trust or
power conferred upon the Property Trustee under the Declaration, including the
right to direct the Property Trustee to exercise the remedies available to it as
a holder of the Subordinated Debentures. If the Property Trustee fails to
enforce its rights with respect to the Subordinated Debentures held by the
Trust, any record holder of Preferred Securities may institute legal proceedings
directly against the Company to enforce the Property Trustee's rights under such
Subordinated Debentures without first instituting any legal proceedings against
such Property Trustee or any other person or entity. Notwithstanding the
foregoing, if an Event of Default under the Declaration has occurred and is
continuing and such event is attributable to the failure of the Company to pay
interest or principal on the Subordinated Debentures issued to the Trust on the
date such interest or principal is otherwise payable, then a record holder of
Preferred Securities may institute a proceeding directly against the Company for
enforcement of payment to the record holder of the Preferred Securities of the
principal of or interest on the Subordinated Debentures on or after the
respective due dates specified in the Subordinated Debentures, and the amount of
the payment will be based on the holder's pro rata share of the amount due and
owing on all of the Preferred Securities. The record holder in the case of the
issuance of one or more global Preferred Securities certificates will be The
Depository Trust Company acting at the direction of the beneficial owners of the
Preferred Securities. The holders of Preferred Securities will not be able to
exercise directly any other remedy available to the holders of the Subordinated
Debentures unless the Property Trustee fails to do so. See "Description of the
Preferred Securities -- Declaration Events of Default" and "Description of the
Subordinated Debentures -- Indenture Events of Default."
THE TRUST DISTRIBUTIONS DEPEND ON THE COMPANY'S PAYMENTS ON SUBORDINATED
DEBENTURES
The Trust's ability to make distributions and other payments on the
Preferred Securities is solely dependent upon the Company making interest and
other payments on the Subordinated Debentures. If the Company were not to make
payments on the Subordinated Debentures for any reason, including as a result of
the Company's election to defer the payment of interest on the Subordinated
Debentures by extending the interest payment period on the Subordinated
Debentures or as a result of the Company's election to extend the
S-5
<PAGE> 6
maturity of the Subordinated Debentures, the Trust will not make payments on the
Trust Securities. In such an event, holders of the Preferred Securities would
not be able to rely on the Trust Guarantee since distributions and other
payments on the Preferred Securities are subject to such Trust Guarantee only if
and to the extent that the Trust has funds available therefor. Holders of the
Preferred Securities have the right to proceed first and directly against the
Company to enforce the Company's obligations to make payments under the Trust
Guarantee. However, if the Trust's failure to make distributions on the
Preferred Securities is a consequence of the Company's exercise of its right to
extend the interest payment period for the Subordinated Debentures, the Trust
Guarantee does not provide that any payment shall be made on the Preferred
Securities. See "Description of the Trust Guarantees -- General" in the
accompanying Prospectus.
OPTION TO EXTEND INTEREST PAYMENT PERIOD OR CHANGE MATURITY DATE
The Company has the right under the Indenture to (a) defer payments of
interest on the Subordinated Debentures by extending the interest payment period
at any time, and from time to time, on the Subordinated Debentures or (b) to
extend the maturity date of the Subordinated Debentures. See "Description of the
Subordinated Debentures -- Option to Change Scheduled Maturity Date" and
"Description of the Subordinated Debentures -- Option to Extend Interest Payment
Period." As a consequence of an extension of the interest payment period,
quarterly distributions on the Preferred Securities would be deferred (but
despite such deferral, to the extent permitted by law, would continue to accrue
with interest thereon compounded quarterly) by the Trust during any such
Extension Period. Such right to extend the interest payment period for the
Subordinated Debentures is limited at any time to a period not exceeding 20
consecutive quarters, provided that no Extension Period may extend beyond the
Maturity Date (as defined herein). In the event that the Company exercises this
right to defer interest payments, then, prior to the payment of all accrued
interest on outstanding Subordinated Debentures, (a) the Company shall not
declare or pay dividends on, or make a distribution with respect to, or redeem,
purchase or acquire, or make a liquidation payment with respect to, any of its
capital stock, (b) the Company shall not make any payment of interest, principal
or premium, if any, on or repay, repurchase or redeem any debt securities issued
by the Company that rank pari passu with or junior to the Subordinated
Debentures and (c) the Company shall not make guarantee payments with respect to
the foregoing (other than pursuant to the Trust Guarantee); provided, however,
that the restriction in clause (a) above does not apply to (i) any stock
dividends paid by the Company where the dividend stock is the same stock as that
on which the dividend is being paid or (ii) purchases or acquisitions of shares
of Company Common Stock in connection with the satisfaction by the Company of
its obligations under any employee benefit plans. Prior to the termination of
any such Extension Period, the Company may further extend the interest payment
period; provided that such Extension Period, together with all such previous and
further extensions thereof, may not exceed 20 consecutive quarters or extend
beyond the Maturity Date. Upon the termination of any Extension Period and the
payment of all amounts then due, the Company may commence a new Extension
Period, subject to the above requirements. Consequently, there could be multiple
Extension Periods of varying lengths prior to the Maturity Date. See
"Description of the Preferred Securities -- Distributions" and "Description of
the Subordinated Debentures -- Option to Extend Interest Payment Period."
TAX CONSEQUENCES OF EXTENSION OF INTEREST PAYMENT PERIOD
Should the Company exercise its right to defer payments of interest on the
Subordinated Debentures, each holder of Preferred Securities will accrue income
(as original issue discount ("OID")) in respect of the deferred interest
allocable to its Preferred Securities for United States federal income tax
purposes. As a result, each such holder of the Preferred Securities will
recognize income for United States federal income tax purposes in advance of the
receipt of cash and will not receive the cash from the Trust related to such
income if such holder disposes of its Preferred Securities prior to the record
date for the date on which distributions of such amounts are made. The Company
has no current intention of exercising its right to defer payments of interest
on the Subordinated Debentures. However, should the Company determine to
exercise such right in the future, the market price of the Preferred Securities
is likely to be adversely affected. A holder that disposes of its Preferred
Securities during an Extension Period, therefore, might not receive the same
return on its investment as a holder that continues to hold its Preferred
Securities. In addition, as a result of the existence of the Company's right to
defer interest payments, the market price of the Preferred Securities
S-6
<PAGE> 7
(which represent an undivided beneficial interest in the Subordinated
Debentures) may be more volatile than the market price of other securities on
which OID accrues that do not have such rights. See "United States Federal
Income Taxation -- US Holders -- Interest Income and Original Issue Discount."
SPECIAL EVENT REDEMPTION
Upon the occurrence of a Special Event (as defined herein), the Company
shall have the right, subject to the receipt of any consent required by the
terms of any indebtedness of the Company which may be outstanding from time to
time, to redeem the Subordinated Debentures, in whole (but not in part), in
which event the Trust will redeem the Trust Securities on a pro rata basis to
the same extent as the Subordinated Debentures are redeemed by the Company. See
"Description of the Preferred Securities -- Special Event Redemption."
DISTRIBUTION OF THE SUBORDINATED DEBENTURES
At any time, subject to the receipt of any consent required by the terms of
any indebtedness of the Company which may be outstanding from time to time, the
Company will have the right to terminate the Trust and, after satisfaction of
the liabilities of creditors of the Trust as provided by applicable law, cause
the Subordinated Debentures to be distributed to the holders of the Preferred
Securities in liquidation of the Trust. Under current United States federal
income tax law and interpretation and assuming, as expected, the Trust is
treated as a grantor trust, a distribution of the Subordinated Debentures should
not be a taxable event to holders of the Preferred Securities. Should there be a
change in law, a change in legal interpretation, a Special Event or other
circumstances, however, the distribution could be a taxable event to the holders
of the Preferred Securities. See "United States Federal Income Taxation -- US
Holders -- Receipt of Subordinated Debentures or Cash Upon Liquidation of the
Trust."
If the Company elects to liquidate the Trust and thereby causes the
Subordinated Debentures to be distributed to holders of the Preferred Securities
in liquidation of the Trust, the Company shall have the right to shorten the
maturity of such Subordinated Debentures to a date not earlier than August ,
2003, subject to the receipt of any consent required by the terms of any
indebtedness of the Company which may be outstanding from time to time, or
extend the maturity of such Subordinated Debentures to a date which is not later
than the earlier of (i) , 2047 or (ii) the Interest Deduction
Date, provided that it can extend the maturity only if certain conditions are
met. See "Description of the Subordinated Debentures -- Option to Change
Scheduled Maturity Date."
There can be no assurance as to the market prices for the Preferred
Securities or the Subordinated Debentures that may be distributed in exchange
for Preferred Securities if a dissolution or liquidation of the Trust were to
occur. Accordingly, the Preferred Securities that an investor may purchase,
whether pursuant to the offer made hereby or in the secondary market, or the
Subordinated Debentures that a holder of Preferred Securities may receive on
dissolution and liquidation of the Trust, may trade at a discount to the price
that the investor paid to purchase the Preferred Securities offered hereby. In
addition, because the Company has the right to shorten or extend the maturity of
the Subordinated Debentures upon the termination of the Trust and the
distribution of the Subordinated Debentures to the holders of the Preferred
Securities, there can be no assurance that the Company will not exercise its
option to change the maturity of the Subordinated Debentures upon such an event,
subject to the receipt of any consent required by the terms of any indebtedness
of the Company which may be outstanding from time to time. Because holders of
Preferred Securities may receive Subordinated Debentures upon the occurrence of
a liquidation of the Trust, prospective purchasers of Preferred Securities are
also making an investment decision with regard to the Subordinated Debentures
and should carefully review all the information regarding the Subordinated
Debentures and the Company contained herein and in the accompanying Prospectus.
See "Description of the Preferred Securities -- Distribution of the Subordinated
Debentures" and "Description of the Subordinated Debentures."
PROPOSED TAX LAW CHANGES
From time to time, the Clinton Administration has proposed certain tax law
changes that would, among other things, generally deny interest deductions to a
corporate issuer if the debt instrument has a term
S-7
<PAGE> 8
exceeding 15 years (earlier proposed tax law changes would have denied interest
deductions if the debt instrument had a term exceeding 20 years) and if such
debt instrument is not reflected as indebtedness on such issuer's consolidated
balance sheet. Because the term of the Subordinated Debentures exceeds 15 years,
if a proposal of this sort were to become effective, the Company could be
precluded from deducting interest on the Subordinated Debentures. Enactment of
any such proposal might in turn give rise to a Tax Event which, if the Company
were to exercise its optional right to redeem the Subordinated Debentures, would
thereby result in a mandatory redemption of the Preferred Securities, as
described under "Description of the Preferred Securities -- Mandatory
Redemption."
Prospective investors should also be aware that a petition was recently
filed in the United States Tax Court as a result of a challenge by the Internal
Revenue Service ("IRS") of a taxpayer's treatment as indebtedness of a loan
issued in circumstances with similarities to the issuance of the Subordinated
Debentures. If this matter is in fact litigated and the Tax Court were to
sustain the IRS's position on this matter, such judicial decision could
constitute a Tax Event which could result in an early redemption of the
Preferred Securities.
PREPAYMENT CONSIDERATIONS; OPTION TO CHANGE SCHEDULED MATURITY DATE
At the option of the Company, subject to the receipt of any consent
required by the terms of any indebtedness of the Company which may be
outstanding from time to time, the Subordinated Debentures may be redeemed, in
whole or in part, at any time on or after August , 2003, at a redemption price
equal to 100% of the principal amount to be redeemed plus any accrued and unpaid
interest to the redemption date. See "Description of the Subordinated Debentures
- -- Optional Redemption." Investors in the Preferred Securities should assume
that the Company will exercise its redemption option if the Company is able to
refinance at a lower interest rate or it is otherwise in the interest of the
Company to redeem the Subordinated Debentures. If Subordinated Debentures are
redeemed, the Trust must redeem Trust Securities having an aggregate liquidation
amount equal to the aggregate principal amount of Subordinated Debentures so
redeemed. See "Description of the Preferred Securities -- Mandatory Redemption."
The Company also has the option to extend the maturity date of the
Subordinated Debentures for one or more periods, but in no event to a date later
than the earlier of (i) , 2047 or (ii) the Interest Deduction Date,
provided certain financial conditions are met. See "Description of the
Subordinated Debentures -- Option to Change Scheduled Maturity Date." Investors
in the Preferred Securities should assume that the Company will exercise its
option to extend the term if the Company is unable to refinance at a lower
interest rate or it is otherwise in the interest of the Company to defer the
maturity of the Subordinated Debentures. The Preferred Securities will not be
redeemed until the Subordinated Debentures have been repaid or redeemed. See
"Description of the Preferred Securities -- Mandatory Redemption."
LIMITED VOTING RIGHTS
Holders of Preferred Securities will have only limited voting rights
primarily in connection with directing the activities of the Property Trustee as
the holder of the Subordinated Debentures. Such holders will not be entitled to
vote to appoint, remove or replace, or to increase or decrease the number of,
Conseco Trustees (as defined herein), which voting rights are vested exclusively
in the holder of the Common Securities. See "Description of the Preferred
Securities -- Voting Rights."
TRADING PRICE
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying
Subordinated Debentures. If the Company exercises its option to defer payments
of interest, the Subordinated Debentures will become and remain OID instruments.
In that event, a holder who disposes of Preferred Securities between record
dates for payments of distributions thereon will be required to include in such
holders' gross income, as ordinary interest income, such holder's pro rata share
of OID on the Subordinated Debentures accrued through the date of disposition,
and to add such amount to the holder's adjusted tax basis in its pro rata share
of the underlying Subordinated Debentures deemed disposed of. To the extent the
selling price is less than the holder's adjusted tax basis (which will include,
in the form of OID, all accrued but unpaid interest), a holder will recognize a
capital loss. Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal income tax purposes.
See "United States Federal Income Taxation -- US Holders -- Interest Income and
Original Issue Discount" and "United States Federal Income Taxation -- US
Holders -- Sales of Preferred Securities."
S-8
<PAGE> 9
CONSECO FINANCING TRUST V
GENERAL
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) a declaration of trust, executed by the Company, as sponsor (the
"Sponsor"), and the trustees of the Trust (the "Conseco Trustees"), and (ii) the
filing of a certificate of trust with the Secretary of State of the State of
Delaware on May 23, 1997. Such declaration will be amended and restated in its
entirety (as so amended and restated, the "Declaration") substantially in a form
to be filed as an exhibit to a Current Report on Form 8-K filed by the Company
and incorporated by reference into the Registration Statement of which this
Prospectus Supplement and the accompanying Prospectus form a part. The
Declaration will be qualified as an indenture under the Trust Indenture Act.
Upon issuance of the Preferred Securities, the purchasers thereof will own all
of the Preferred Securities. See "Description of the Preferred Securities --
Book-Entry Issuance -- The Depository Trust Company." The Company will directly
or indirectly acquire Common Securities in an aggregate liquidation amount equal
to at least 3% of the total capital of the Trust and will own all of the issued
and outstanding Common Securities. The Trust exists for the exclusive purposes
of (i) issuing the Trust Securities representing undivided beneficial interests
in the assets of the Trust, (ii) investing the gross proceeds of the Trust
Securities in the Subordinated Debentures and (iii) engaging in only those other
activities necessary, appropriate, convenient or incidental thereto. The Trust
has a term of approximately 55 years, but may be terminated earlier as provided
in the Declaration.
Pursuant to the Declaration, the number of Conseco Trustees initially is
four. Two of the Conseco Trustees (the "Regular Trustees") will be persons who
are employees or officers of or who are affiliated with the Company. The third
trustee will be a financial institution unaffiliated with the Company that will
serve as property trustee under the Declaration and as indenture trustee for the
purposes of the Trust Indenture Act (the "Property Trustee"). The fourth trustee
will be a natural person who is a resident of the State of Delaware or a legal
entity which maintains its principal place of business in the State of Delaware
and meets the requirements of applicable law (the "Delaware Trustee"). State
Street Bank and Trust Company will act as the Property Trustee and First Union
Bank of Delaware will act as the Delaware Trustee, in each case until removed or
replaced by the holder of the Common Securities. For purposes of compliance with
the provisions of the Trust Indenture Act, State Street Bank and Trust Company
will also act as indenture trustee under the Trust Guarantee (the "Preferred
Securities Guarantee Trustee"). See "Description of the Trust Guarantees" in the
accompanying Prospectus.
The Property Trustee will hold title to the Subordinated Debentures for the
benefit of the Trust and the holders of the Trust Securities and, so long as the
Subordinated Debentures are held by the Trust, the Property Trustee will have
the power to exercise all rights, powers, and privileges of a holder of
Subordinated Debentures under the Indenture. In addition, the Property Trustee
will maintain exclusive control of a segregated non-interest bearing bank
account (the "Property Account") to hold all payments made in respect of the
Subordinated Debentures for the benefit of the holders of the Trust Securities.
The Property Trustee will make payments of distributions and payments on
liquidation, redemption and otherwise to the holders of the Trust Securities out
of funds from the Property Account. The Preferred Securities Guarantee Trustee
will hold the Trust Guarantee for the benefit of the holders of the Preferred
Securities. The Company, as the direct or indirect holder of all the Common
Securities, will have the right to appoint, remove or replace any Conseco
Trustee (subject to the limitations set forth in the Declaration) and to
increase or decrease the number of Conseco Trustees. The Company will pay all
fees, expenses, debts and obligations (other than with respect to the Trust
Securities) related to the Trust and the offering of the Trust Securities. See
"Description of the Preferred Securities."
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are set forth in the
Declaration, the Delaware Business Trust Act, as amended (the "Trust Act"), the
Indenture and the Trust Indenture Act. See "Description of the Preferred
Securities."
ACCOUNTING TREATMENT
The financial statements of the Trust will be reflected in the Company's
consolidated financial statements, with the Preferred Securities shown as
"Company-obligated mandatorily redeemable preferred securities of subsidiary
trusts" under minority interest in consolidated subsidiaries. In a footnote to
the Company's audited financial statements there will be included a statement
that the Trust is wholly-owned by the Company and that the sole asset of the
Trust is the Subordinated Debentures (indicating the principal amount, interest
rate and maturity date thereof). See "Capitalization."
S-9
<PAGE> 10
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company at June 30, 1998, as reported, and to reflect the Offering. See "Use
of Proceeds." The capitalization of the Company at June 30, 1998 in the column
headed "Pro forma for the Offering" reflects certain adjustments as if the
Offering had occurred on June 30, 1998. This table should be read in conjunction
with the Quarterly Report on Form 10-Q of the Company for the quarter ended June
30, 1998 and the supplemental consolidated financial statements included in
Exhibit 99.1 to the Current Report on Form 8-K of the Company dated June 30,
1998, as amended, both of which are incorporated by reference herein. Such
supplemental consolidated financial statements have been prepared to give
retroactive effect to the Merger (the "Green Tree Merger") of a subsidiary of
the Company with and into Green Tree Financial Corporation ("Green Tree"), which
was completed June 30, 1998 and is accounted for as a pooling of interests. See
"Incorporation of Certain Documents by Reference" in the accompanying
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------------------
PRO FORMA FOR
AS REPORTED THE OFFERING(A)
----------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Commercial paper and notes payable:
Consumer and commercial finance........................... $ 2,735.0 $ 2,635.0
Commercial paper.......................................... 814.3 814.3
Bank debt................................................. 475.0 378.0
Notes payable to Leucadia National Corporation............ 400.0 400.0
Mandatory Par Put Remarketed Securities Notes............. 550.0 550.0
Notes due 2003............................................ 250.0 250.0
Senior notes due 2003..................................... 63.5 63.5
Senior notes due 2004..................................... 25.0 25.0
Senior notes due 2005..................................... 250.0 250.0
Subordinated notes due 2004............................... 8.1 8.1
Convertible subordinated debentures due 2005.............. 22.1 22.1
Convertible subordinated notes due 2003................... 86.0 86.0
Other..................................................... 16.8 16.8
--------- ---------
Total principal amount.................................. 5,695.8 5,498.8
Unamortized net discount.................................... (14.9) (14.9)
--------- ---------
Total commercial paper and notes payable................ 5,680.9 5,483.9
Minority interest:
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts......................... 1,388.8 1,585.8
Common stock of subsidiary................................ .7 .7
Shareholders' equity:
7% PRIDES, convertible preferred stock, no par value;
4,370,000 shares authorized; 1,895,250 shares
outstanding............................................. 105.6 105.6
Common stock and additional paid-in capital, no par value;
1,000,000,000 shares authorized; 309,717,887 shares
outstanding............................................. 2,661.2 2,661.2
Accumulated other comprehensive income:
Unrealized appreciation of fixed maturity securities.... 198.0 198.0
Unrealized appreciation of interest-only securities and
other investments...................................... 5.5 5.5
Minimum pension liability adjustment.................... (3.2) (3.2)
Retained earnings........................................... 2,017.1 2,017.1
--------- ---------
Total shareholders' equity.............................. 4,984.2 4,984.2
--------- ---------
Total capitalization.................................... $12,054.6 $12,054.6
========= =========
</TABLE>
- -------------------------
(a) Subsequent to the completion of the Offering, the assets of the Trust will
consist solely of approximately $206.2 million in aggregate principal amount
of the Subordinated Debentures with an interest rate of % and a maturity
date of , 2028. 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; assets of Conseco
Financing Trust III consist solely of $309.3 million aggregate principal
amount of subordinated deferrable interest debentures of the Company with an
interest rate of 8.796% and a maturity date of April 1, 2027; and the assets
of Conseco Financing Trust IV consist solely of $519.2 million aggregate
principal amount of subordinated deferrable interest debentures of the
Company with an interest rate of 6.75% and a maturity date of February 16,
2001; which assets, in each case, will not be available to meet the
obligations of the Trust.
S-10
<PAGE> 11
RATIOS OF EARNINGS TO FIXED CHARGES
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, 1997 and for the six months ended June 30, 1997
and 1998. Such ratios are based on the financial information contained in the
Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 1998
and the supplemental consolidated financial statements included in Exhibit 99.1
to the Current Report on Form 8-K of the Company dated June 30, 1998, as
amended, both of which are incorporated by reference herein. Such supplemental
consolidated financial statements have been prepared to give retroactive effect
to the Green Tree Merger, which was completed June 30, 1998 and is accounted for
as a pooling of interests.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------- ---------------------------------------
1998 1997 1997 1996 1995 1994 1993
------ ------- ------ ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges:
As reported............................... 1.20X 2.57X 2.45X 1.93X 2.04X 3.24X 2.45X
Excluding interest on annuities and
financial product policyholder account
balances and interest on debt related to
finance receivables and other
investments(a)(b)....................... 2.43X 13.95X 13.00X 7.80X 7.36X 9.28X 13.09X
Ratio of earnings (excluding nonrecurring
charge related to the Green Tree Merger)
to fixed charges)(c):
As reported............................. 2.36X
Excluding interest on annuities and
financial product policyholder account
balances and interest on debt related
to finance receivables and other
investments(a)(b)..................... 10.70X
Ratio of earnings to fixed charges,
preferred stock dividends and distributions
on Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts:
As reported............................... 1.08X 2.26X 2.20X 1.80X 1.94X 2.84X 2.30X
Excluding interest on annuities and
financial product policyholder account
balances and interest on debt related to
finance receivables and other
investments(a)(b)....................... 1.36X 6.53X 6.72X 5.11X 5.61X 6.14X 8.44X
Ratio of earnings (excluding nonrecurring
charge related to the Green Tree Merger)
to fixed charges and preferred stock
dividends and distributions on
Company-obligated mandatory redeemable
preferred securities of subsidiary
trusts(c):
As reported............................. 2.13X
Excluding interest on annuities and
financial product policyholder account
balances and interest expense on debt
related to finance receivables and
other investments(a)(b)............... 6.00X
</TABLE>
- ---------------
(a) 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) and interest on
debt related to finance receivables and other investments. 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 or the ratio of earnings to fixed charges,
preferred dividends and distributions on Company-obligated mandatorily
redeemable preferred securities of subsidiary trusts.
(b) Excludes interest credited to annuity and financial products of $408.5
million, $134.7 million, $585.4 million, $668.6 million and $697.1 million
for the years ended December 31, 1993, 1994, 1995, 1996 and 1997,
S-11
<PAGE> 12
respectively, and $344.3 million and $370.6 million for the six months ended
June 30, 1997 and 1998, respectively.
(c) These ratios are included to assist the reader in analyzing the impact of
the $688 million nonrecurring charge (before taxes) recognized in the six
month period ended June 30, 1998 related to the Green Tree Merger. Such
nonrecurring charge was comprised of $148 million of merger-related costs
(including investment banking, accounting, legal and regulatory fees) and
non-cash charges of $540 million to writedown the carrying value of Green
Tree's interest-only securities and servicing rights. Such ratios are not
intended to, and do not, represent the following ratios prepared in
accordance with GAAP: the ratio of earnings to fixed charges or the ratio of
earnings to fixed charges, preferred dividends and distributions on
Company-obligated mandatorily redeemable preferred securities of subsidiary
trusts.
USE OF PROCEEDS
The proceeds from the sale of the Preferred Securities will be invested by
the Trust in Subordinated Debentures of the Company issued pursuant to the
Indenture described herein. The Company intends to use a portion of the net
proceeds from the Subordinated Debentures to repay approximately $100 million of
the amount outstanding under a credit facility which Green Tree entered into in
February 1998 to provide funds for its financing activities. The weighted
average interest rate of borrowings under such credit facility as of the date of
this Prospectus Supplement is 7.66%. Borrowings under such facility are due in
February 2000. The balance of the net proceeds from the Subordinated Debentures
will be used to repay amounts outstanding under a credit agreement which the
Company entered into in March 1998 to provide working capital. The weighted
average interest rate of borrowings under such credit agreement as of the date
of this Prospectus Supplement is 5.875%. Borrowings under such credit agreement
must be repaid by September 30, 1998.
S-12
<PAGE> 13
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for Conseco are based on and
derived from, and should be read in conjunction with the Quarterly Report on
Form 10-Q of the Company for the quarter ended June 30, 1998 and the
supplemental consolidated financial statements and the related notes thereto of
Conseco, which give retroactive effect to the Green Tree Merger. Conseco's
supplemental consolidated balance sheets at December 31, 1997 and 1996, and
supplemental consolidated statements of operations, shareholders' equity and
cash flows for the years ended December 31, 1997, 1996 and 1995 and notes
thereto were audited by PricewaterhouseCoopers LLP, independent accountants,
except for the consolidated financial statements of Green Tree for such periods
(which financial statements are consolidated with those of Conseco and for which
separate financial data are not presented herein) which were audited by KPMG
Peat Marwick LLP. Conseco's supplemental consolidated financial statements as of
December 31, 1997 and 1996, and for each of the three years ended December 31,
1997 are included in Exhibit 99.1 of Conseco's Current Report on Form 8-K dated
June 30, 1998, as amended, which is incorporated by reference herein. The
selected consolidated financial data for Conseco set forth for the six months
ended June 30, 1998 and 1997 are unaudited; however, in the opinion of Conseco's
management, the accompanying selected financial data contain all adjustments,
consisting only of normal recurring items, necessary to present fairly the
selected financial data for such periods. The results of operations for the six
months ended June 30, 1998 may not be indicative of the results of operations to
be expected for a full year. See "Incorporation of Certain Documents by
Reference" in the accompanying Prospectus.
The comparison of selected consolidated financial data in the table below
is significantly affected by: (i) the acquisitions consummated by Conseco
Capital Partners, L.P. 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 of
Life Partners Group, Inc. ("LPG"); (v) the acquisition of American Travellers
Corporation (the "ATC Merger"); (vi) the acquisition of Transport Holdings Inc.
(the "THI Merger"); (vii) the acquisition of Capitol American Financial
Corporation (the "CAF Merger"); (viii) the acquisition of Pioneer Financial
Services, Inc. (the "PFS Merger"); (ix) the acquisition (the "Colonial Penn
Purchase") of Colonial Penn Life Insurance Company and Providential Life
Insurance Company and certain other assets (collectively referred to as
"Colonial Penn"); and (x) the acquisition of Washington National Corporation
(the "WNIC Merger"). Conseco did not have unilateral control to direct all of
CCP's activities during 1993 and 1994 and, therefore, did not consolidate the
financial statements of CCP with the financial statements of Conseco. As a
result of the purchase by Conseco of all the shares of common stock of CCP it
did not already own on August 31, 1995, the financial statements of CCP's
subsidiaries are consolidated with the financial statements of Conseco,
effective January 1, 1995. Conseco has included BLH in its financial statements
since November 1, 1992. Through December 31, 1993, the financial statements of
Western National were consolidated with the financial statements of Conseco.
Following the completion of the initial public offering of Western National (and
subsequent disposition of Conseco's remaining equity interest in Western
National), the financial statements of Western National were no longer
consolidated with the financial statements of Conseco. As of September 29, 1994,
Conseco began to include in its financial statements the newly acquired
Partnership II subsidiary, American Life Holdings, Inc. As of July 1, 1996,
Conseco began to include in its financial statements its newly acquired
subsidiary, LPG. Effective December 31, 1996, Conseco began to include in its
financial statements its subsidiaries acquired in the ATC Merger and the THI
Merger. As of January 1, 1997 Conseco began to include in its financial
statements its subsidiaries acquired in the CAF Merger. As of April 1, 1997,
Conseco began to include in its financial statements its subsidiaries acquired
in the PFS Merger. Effective September 30, 1997, Conseco began to include in its
financial statements its subsidiaries acquired in the Colonial Penn Purchase.
Effective December 1, 1997, Conseco began to include in its financial statements
its subsidiaries acquired in the WNIC Merger. Such business combinations are
described in the notes to the consolidated financial statements included in
Conseco's supplemental consolidated financial statements included in Exhibit
99.1 of the Current
S-13
<PAGE> 14
Report on Form 8-K of the Company dated June 30, 1998, as amended, which is
incorporated herein by reference.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Insurance policy income....................... $ 1,979.9 $ 1,555.1 $ 3,410.8 $ 1,654.2 $ 1,465.0 $ 1,285.6 $ 1,293.8
Net investment income:
Assets held by insurance subsidiaries....... 1,087.5 854.1 1,825.3 1,302.5 1,142.6 385.7 896.2
Finance receivables......................... 135.9 96.6 214.5 138.1 124.7 78.1 57.7
Interest-only securities.................... 69.6 56.2 130.3 77.2 51.3 33.3 54.8
Gain on sale of finance receivables........... 272.4 348.6 569.1 388.1 443.3 318.6 201.5
Net investment gains (losses)................. 117.1 20.9 266.5 60.8 204.1 (30.5) 242.6
Total revenues............................ 3,824.1 3,042.0 6,656.4 3,789.8 3,561.2 2,357.6 3,002.3
Interest expense:
Corporate................................... 75.3 51.3 109.4 108.1 119.4 59.3 58.0
Finance and investment borrowings........... 140.0 74.5 202.9 92.1 79.5 49.3 61.8
Total benefits and expenses............... 3,705.2 2,294.8 5,170.7 2,974.0 2,738.5 1,732.9 2,192.0
Income before income taxes, minority interest
and extraordinary charge.................... 118.9 747.2 1,485.7 815.8 822.7 624.7 810.3
Minority interest:
Distributions on Company-obligated
mandatorily redeemable preferred
securities of subsidiary trusts........... 38.2 21.6 49.0 3.6 -- -- --
Extraordinary charge on extinguishment of
debt, net of tax............................ 30.3 5.5 6.9 26.5 2.1 4.0 11.9
Net income (loss)(a).......................... (67.5) 440.8 866.4 452.2 470.9 330.5 413.1
Preferred stock dividends and charge related
to induced conversions of convertible
preferred stock............................. 4.2 17.7 21.9 27.4 18.4 18.6 20.6
Net income (loss) applicable to common
stock....................................... (71.7) 423.1 844.5 424.8 452.5 311.9 392.5
PER SHARE DATA(b)
Net income (loss), basic...................... (.23) 1.37 2.72 1.85 2.19 1.39 1.82
Net income (loss), diluted(a)................. (.23) 1.27 2.52 1.69 2.03 1.32 1.63
Dividends declared per common share........... .25 .063 .313 .083 .046 .125 .075
Book value per common share outstanding....... 15.62 14.87 16.45 13.47 8.52 5.58 6.27
Shares outstanding at period end.............. 312.4 311.7 310.0 293.4 205.2 212.7 224.1
Weighted average shares outstanding for
diluted earnings or losses.................. 309.6 338.0 338.7 267.7 232.3 250.5 251.8
</TABLE>
S-14
<PAGE> 15
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET -- AT PERIOD END
Total assets.............................. $42,474.9 $34,142.4 $40,686.0 $28,692.7 $19,510.1 $12,302.3 $15,266.3
Notes payable and commercial paper:
Corporate................................... 2,952.1 1,773.7 2,354.9 1,094.9 871.4 191.8 413.0
Consumer and commercial finance............. 2,728.8 1,474.9 1,866.3 762.5 383.6 309.3 515.0
Notes payable of affiliates, not direct
obligations of Conseco.................... -- -- -- -- 584.7 611.1 290.3
Total liabilities............................. 36,101.2 28,417.3 34,087.5 23,778.2 17,075.1 10,509.2 13,350.8
Minority interest in consolidated
subsidiaries:
Company-obligated mandatorily redeemable
preferred securities of subsidiary
trusts.................................... 1,388.8 900.0 1,383.9 600.0 -- -- --
Preferred stock............................. -- 67.7 -- 97.0 110.7 130.1 --
Common stock................................ .7 .7 .7 .7 292.6 191.6 223.8
Shareholders' equity.......................... 4,984.2 4,756.7 5,213.9 4,216.8 2,031.7 1,471.4 1,691.7
OTHER FINANCIAL DATA(c)
Premiums collected(d)......................... 3,004.9 2,349.6 5,055.7 3,280.2 3,106.5 1,879.1 2,140.1
Operating earnings(e)......................... 469.4 454.4 874.0 467.5 381.8 331.8 278.1
Operating earnings per diluted common
share(b)(e)................................. 1.50 1.45 2.58 1.75 1.64 1.33 1.10
Assets under management and managed
receivables (at fair value)(f).............. 68,440.4 58,317.0 60,036.0 51,182.0 38,613.0 32,934.0 25,454.0
Shareholders' equity, excluding unrealized
appreciation (depreciation) of fixed
maturity securities at period end(g)........ 4,786.2 4,731.1 5,036.7 4,177.0 1,919.1 1,609.1 1,604.3
Book value per common share, excluding
unrealized appreciation (depreciation) of
fixed maturity securities at period
end(b)(g)................................... 14.99 14.79 15.88 13.33 7.97 6.23 5.88
</TABLE>
- -------------------------
(a) The net loss of $67.5 million for the six month period ended June 30, 1998,
or 23 cents per diluted share, included a nonrecurring charge (net of taxes)
of $498.0 million, or $1.61 per share, related to the Green Tree Merger.
Such nonrecurring charge was comprised of $148 million of merger-related
costs, (including investment banking, accounting, legal and regulatory fees)
and non-cash charges of $350 million to writedown the carrying value of
Green Tree's interest-only securities and servicing rights.
(b) All share and per share amounts have been restated to reflect the
two-for-one stock splits paid on April 1, 1996 and February 11, 1997.
(c) Amounts under this heading are included to assist the reader in analyzing
Conseco's financial position and results of operations. Such amounts are not
intended to, and do not, represent insurance policy income, net income, net
income per share, invested assets, shareholders' equity or book value per
share prepared in accordance with GAAP.
(d) Includes premiums received from universal life and products without
mortality or morbidity risk. Such premiums are not reported as revenues
under GAAP and were $1,148.0 million and $956.4 million in the six months
ended June 30, 1998 and 1997, respectively, and $2,099.4 million, $1,881.3
million, $1,757.5 million, $634.6 million and $891.9 million in the years
ended December 31, 1997, 1996, 1995, 1994 and 1993, respectively.
(e) 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 nonrecurring activities
(net of income taxes).
(f) Represents: (i) the total market value of the investment portfolios managed
by Conseco Capital Management, Inc. ("CCM") including assets of Conseco's
subsidiaries of $28.1 billion and $23.2 billion at June 30, 1998 and 1997,
respectively, and of $27.0 billion, $18.5 billion, $13.7 billion, $11.5
billion and $7.4 billion at December 31, 1997, 1996, 1995, 1994 and 1993,
respectively, and assets of unaffiliated parties of $9.0 billion and $12.6
billion at June 30, 1998 and 1997, respectively, and of $5.1 billion, $12.6
billion, $11.0 billion, $11.6 billion and $10.9 billion at December 31,
1997, 1996, 1995, 1994 and 1993, respectively; and (ii) the total fixed and
revolving credit receivables that Green Tree manages, including receivables
on its balance sheet and receivables applicable to the holders of asset-
backed securities sold by Green Tree.
(g) 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 are
in accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115"), as described in the notes to the consolidated financial statements
included in Conseco's Annual Report on Form 10-K for the year ended December
31, 1997, which is incorporated herein by reference.
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THE COMPANY
BACKGROUND
Conseco is a financial services holding company. Conseco develops, markets
and administers supplemental health insurance, annuity, life insurance,
individual and group major medical insurance, other insurance products and
consumer and commercial finance products and services. Since 1982, Conseco has
made 20 acquisitions. Conseco'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. Conseco
has supplemented such growth by acquiring companies that have profitable niche
products and strong distribution systems. Once a company has been acquired,
Conseco's operating strategy has been to consolidate and streamline management
and administrative functions where appropriate, 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.
Conseco was organized in 1979 as an Indiana corporation and commenced
operations in 1982. Its executive offices are located at 11825 N. Pennsylvania
Street, Carmel, Indiana 46032, and its telephone number is (317) 817-6100.
Conseco continues to regularly investigate acquisition opportunities in the
insurance industry, the financial services industry and other industries in
which it operates. Conseco evaluates potential acquisitions based on 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 its existing business
opportunities. No assurances can be given as to when, if at all, or upon what
terms Conseco will make any such acquisition.
Prior to the Green Tree Merger, Conseco conducted and managed its business
through five segments, reflecting Conseco's major lines of insurance business
and target markets: (i) supplemental health insurance; (ii) annuities; (iii)
life insurance; (iv) individual and group major medical insurance; and (v)
other.
Supplemental health insurance. This segment includes Medicare supplement,
long-term care and specified disease insurance. Medicare is a 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 health care, or a combination of both nursing home and home health
care expenses. Beginning in 1997, the supplemental health insurance 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 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.
Annuities. This segment includes fixed annuities, equity-indexed annuities
and variable annuities sold through both career agents and professional
independent producers. A fixed annuity is a savings vehicle in which the policy
holder, or annuitant, makes one or more premium payments to the insurance
company; the insurer guarantees the principal and accrues a stated rate of
interest (which may vary over time) or, in the case of an equity-indexed
annuity, a stated rate plus potentially additional amounts determined by
reference to an equity index. 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.
Life insurance. This segment includes traditional life, universal life and
other life insurance products. This segment's products are currently sold
through career agents, professional independent producers and direct response
marketing. 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 Conseco on a limited basis, combine insurance
protection with a savings component that increases in amount gradually over
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<PAGE> 17
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. in May 1997. The profitability of this business depends
largely on the overall persistency of the business in force, 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. This segment also includes other health insurance business not
included in the segments listed above.
For additional information concerning Conseco, see Conseco's Annual Report
on Form 10-K for the year ended December 31, 1997 and other documents filed with
the Commission and listed or described under "Incorporation of Certain Documents
by Reference" in the accompanying Prospectus.
GREEN TREE
On June 30, 1998, Conseco completed the Green Tree Merger. Green Tree is a
diversified financial services company that provides financing for manufactured
homes, home equity, home improvements, consumer products and equipment and
provides consumer and commercial revolving credit. Green Tree's insurance
agencies market physical damage and term mortgage life insurance and other
credit protection relating to the customers' contracts it services. Green Tree
is the largest servicer of manufactured housing contracts in the United States.
Through its principal offices in Saint Paul, Minnesota and service centers
throughout the United States, Green Tree serves all 50 states.
Green Tree pools and securitizes substantially all of the contracts it
originates, retaining the servicing on the contracts. Such pools are structured
into asset-backed securities which are sold in the public securities markets. In
servicing the contracts, Green Tree collects payments from the borrower and
remits principal and interest payments to the holder of the contract or investor
certificate backed by the contracts.
For additional information concerning Green Tree, see the Company's Current
Report on Form 8-K dated June 30, 1998, as amended, and other documents filed
with the Commission and listed or described under "Incorporation of Certain
Documents by Reference" in the accompanying Prospectus.
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<PAGE> 18
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the
Declaration. The Declaration will be qualified as an indenture under the Trust
Indenture Act. The Property Trustee will act as the indenture trustee for
purposes of compliance with the provisions of the Trust Indenture Act. The terms
of the Preferred Securities will include those stated in the Declaration,
including those required to be made part of the Declaration by the Trust
Indenture Act. The following summary of the principal terms and provisions of
the Preferred Securities does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the Declaration (a copy of which is
filed as an exhibit to the Registration Statement of which this Prospectus
Supplement and the accompanying Prospectus form a part), the Trust Act and the
Trust Indenture Act.
GENERAL
The Declaration authorizes the Regular Trustees to issue, on behalf of the
Trust, the Trust Securities, which represent undivided beneficial interests in
the assets of the Trust. All of the Common Securities will be owned by the
Company. The Common Securities will have equivalent terms to and will rank pari
passu, and payments will be made thereon on a pro rata basis, with the Preferred
Securities, except as described under "-- Subordination of Common Securities."
In addition, holders of the Common Securities have the exclusive right (subject
to the terms of the Declaration) to appoint, replace or remove the Conseco
Trustees and to increase or decrease the number of Conseco Trustees. The
Declaration does not permit the issuance by the Trust of any securities other
than the Trust Securities or the incurrence of any indebtedness by the Trust.
Pursuant to the Declaration, the Property Trustee will hold the Subordinated
Debentures purchased by the Trust for the benefit of the holders of the Trust
Securities. The payment of distributions out of money held by the Trust, and
payments upon redemption of the Preferred Securities or liquidation of the
Trust, are guaranteed by the Company to the extent described under "Description
of the Trust Guarantees" in the accompanying Prospectus. The Trust Guarantee,
when taken together with the back-up undertakings, consisting of obligations of
the Company as set forth in the Declaration (including the obligation to pay
expenses of the Trust), the Indenture and any applicable supplemental indentures
thereto, and the Subordinated Debentures issued to the Trust, provide a full and
unconditional guarantee by the Company of the amounts due on the Preferred
Securities. The Trust Guarantee will be held by State Street Bank and Trust
Company, the Preferred Securities Guarantee Trustee, for the benefit of the
holders of the Preferred Securities. The Trust Guarantee only covers payment of
distributions when the Company has made the corresponding payment of interest or
principal on the Subordinated Debentures held by the Trust. In the absence of
such payment of interest or principal, the remedy of a holder of Preferred
Securities is to direct the Property Trustee to enforce the Property Trustee's
rights as the holder of the Subordinated Debentures except in the limited
circumstances where the holder may take direct action against the Company. See
"-- Voting Rights."
DISTRIBUTIONS
Distributions on the Preferred Securities will be fixed at a rate per annum
of % of the stated liquidation amount of $25 per Preferred Security.
Distributions in arrears for more than one quarter will (to the extent permitted
by applicable law) accrue interest at the rate per annum of % thereof
compounded quarterly. The term "distributions" as used herein includes any such
interest payable unless otherwise stated. The amount of distributions payable
for any period will be computed on the basis of a 360-day year of twelve 30-day
months, and for any period shorter than a full quarter, on the basis of the
actual number of days elapsed in such 90-day quarter.
Distributions on the Preferred Securities will be cumulative, will accrue
from August , 1998 and will be payable quarterly in arrears on
, , and
of each year, commencing , 1998 when, as
and if available for payment by the Property Trustee, except as otherwise
described below.
The Company has the right under the Indenture to defer payments of interest
on the Subordinated Debentures by extending the interest payment period from
time to time on the Subordinated Debentures, which, if exercised, would defer
quarterly distributions on the Preferred Securities (although to the extent
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<PAGE> 19
permitted by law, such distributions would continue to accrue with interest
since interest would continue to accrue on the Subordinated Debentures) during
any such Extension Period. Such right to extend the interest payment period for
the Subordinated Debentures is limited to a period not exceeding 20 consecutive
quarters or extending beyond the Maturity Date of the Subordinated Debentures.
In the event that the Company exercises this right, then during any Extension
Period (a) the Company shall not declare or pay dividends on, make distributions
with respect to, or redeem, purchase or acquire, or make a liquidation payment
with respect to, any of its capital stock, (b) the Company shall not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by the Company that rank pari passu with or
junior to the Subordinated Debentures and (c) the Company shall not make
guarantee payments with respect to the foregoing (other than pursuant to the
Trust Guarantee); provided, however, that the restriction in clause (a) above
does not apply to (i) any stock dividends paid by the Company where the dividend
stock is the same stock as that on which the dividend is being paid or (ii)
purchases or acquisitions of shares of Company Common Stock in connection with
the satisfaction by the Company of its obligations under any employee benefit
plans. Prior to the termination of any such Extension Period, the Company may
further extend the interest payment period; provided that such Extension Period,
together with all such previous and further extensions thereof, may not exceed
20 consecutive quarters and may not extend beyond the Maturity Date of the
Subordinated Debentures. Upon the termination of any Extension Period and the
payment of all amounts then due, the Company may commence a new Extension
Period, subject to the above requirements. See "Description of the Subordinated
Debentures -- Interest" and "Description of the Subordinated Debentures --
Option to Extend Interest Payment Period." If distributions are deferred, the
deferred distributions and accrued interest thereon shall be paid to holders of
record of the Preferred Securities as they appear on the books and records of
the Trust on the record date for distributions due at the end of such deferral
period.
Distributions on the Preferred Securities must be paid on the dates payable
to the extent that the Trust has funds available for the payment of such
distributions in the Property Account. The Trust's funds available for
distribution to the holders of the Preferred Securities will be limited to
payments received from the Company under the Subordinated Debentures. See
"Description of the Subordinated Debentures." The payment of distributions out
of moneys held by the Trust is guaranteed by the Company to the extent set forth
under "Description of Trust Guarantees" in the accompanying Prospectus. The
Trust Guarantee, when taken together with the back-up undertakings, consisting
of obligations of the Company as set forth in the Declaration (including the
obligation to pay expenses of the Trust), the Indenture and any applicable
supplemental indentures thereto, and the Subordinated Debentures issued to the
Trust, provide a full and unconditional guarantee by the Company of the amounts
due on the Preferred Securities.
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the books and records of the Trust on the relevant
record dates, which, as long as the Preferred Securities remain in global form,
will be one Business Day (as defined below) prior to the relevant payment dates.
Such distributions will be paid through the Property Trustee, who will hold
amounts received in respect of the Subordinated Debentures in the Property
Account for the benefit of the holders of the Trust Securities. Subject to any
applicable laws and regulations and the provisions of the Declaration, each such
payment will be made as described under "-- Book-Entry Issuance -- The
Depository Trust Company" below. In the event that the Preferred Securities do
not continue to remain in global form, the relevant record dates for the
Preferred Securities shall conform to the rules of any securities exchange on
which the Preferred Securities are listed and, if none, shall be selected by the
Regular Trustees, which dates shall be at least one Business Day but less than
60 Business Days prior to the relevant payment dates. Distributions payable on
any Preferred Securities that are not punctually paid on any distribution
payment date will cease to be payable to the person in whose name such Preferred
Securities are registered on the relevant record date, and such defaulted
distribution will instead be payable to the person in whose name such Preferred
Securities are registered on the special record date or other specified date
determined in accordance with the Indenture. In the event that any date on which
distributions are to be made on the Preferred Securities is not a Business Day,
then payment of the distributions payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the immediately
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<PAGE> 20
preceding Business Day, in each case with the same force and effect as if made
on such record date. A "Business Day" shall mean any day other than a day on
which banking institutions in New York, New York are authorized or required by
law to close.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the Redemption Price of, the Preferred
Securities and Common Securities, as applicable, shall be made pro rata based on
the Liquidation Amount of the Preferred Securities and Common Securities;
provided, however, that if on any payment date for distributions or the
Redemption Price an Indenture Event of Default shall have occurred and be
continuing, no payment of any distribution on, or applicable Redemption Price
of, any of the Common Securities, and no other payment on account of the
redemption, liquidation or other acquisition of the Common Securities, shall be
made unless payment in full in cash of all accumulated and unpaid distributions
on all of the outstanding Preferred Securities for all distribution periods
terminating on or prior thereto, or in the case of payment of the Redemption
Price the full amount of such Redemption Price, shall have been made or provided
for, and all funds available to the Property Trustee shall first be applied to
the payment in full in cash of all distributions on, or Redemption Price of, the
Preferred Securities then due and payable.
In the case of any Declaration Event of Default (as defined herein), the
Company as holder of the Common Securities will be deemed to have waived any
right to act with respect to such Declaration Event of Default until the effect
of such Declaration Event of Default shall have been cured, waived or otherwise
eliminated. Until any such Declaration Event of Default has been so cured,
waived or otherwise eliminated, the Property Trustee shall act solely on behalf
of the holders of the Preferred Securities and not on behalf of the Company as
holder of the Common Securities, and only the holders of the Preferred
Securities will have the right to direct the Property Trustee to act on their
behalf.
MANDATORY REDEMPTION
Upon the repayment of the Subordinated Debentures, whether at maturity or
upon redemption, the proceeds from such repayment or redemption shall
simultaneously be applied to redeem Trust Securities having an aggregate
liquidation amount equal to the aggregate principal amount of the Subordinated
Debentures so repaid or redeemed, subject to the receipt of any consent required
by the terms of any indebtedness of the Company which may be outstanding from
time to time, at the Redemption Price; provided that, holders of Trust
Securities shall be given not less than 30 nor more than 60 days notice of such
redemption. See "-- Special Event Redemption." The Subordinated Debentures will
mature on August , 2028 unless the maturity date is changed at the option of
the Company (provided in the case of an extension of the maturity date that
certain financial conditions are met), and may be redeemed, in whole or in part,
at any time on or after August , 2003 or at any time, in whole (but not in
part) upon the occurrence of a Special Event. See "Description of the
Subordinated Debentures -- Optional Redemption." In the event that fewer than
all of the outstanding Trust Securities are to be redeemed, the Trust Securities
will be redeemed pro rata to each holder according to the aggregate liquidation
amount of Trust Securities held by the relevant holder in relation to the
aggregate liquidation amount of all Trust Securities outstanding. See "--
Book-Entry Issuance -- The Depository Trust Company" below for a description of
DTC's (as hereinafter defined) procedures in the event of redemption.
SPECIAL EVENT REDEMPTION
"Tax Event" means that the Regular Trustees shall have received an opinion
of an independent tax counsel experienced in such matters to the effect that, as
a result of (a) any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein or (b) any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or such
pronouncement or decision is announced on or after the date of original issuance
of the Preferred Securities, there is more than an insubstantial risk that (i)
the Trust is, or will be within 90 days after the date thereof, subject to
United States federal income tax with respect to interest accrued or received on
the Subordinated Debentures, (ii) the Trust is, or will be within 90 days after
the date thereof, subject to
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<PAGE> 21
more than a de minimis amount of taxes, duties or other governmental charges, or
(iii) interest payable to the Trust on the Subordinated Debentures is not, or
within 90 days of the date thereof will not be, deductible, in whole or in part,
by the Company for United States federal income tax purposes.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of an independent counsel experienced in practice under the
Investment Company Act of 1940, as amended (the "1940 Act"), to the effect that,
as a result of the occurrence of a change in law or regulation or a change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act Law"),
there is more than insubstantial risk that the Trust is or will be considered an
"investment company" which is required to be registered under the 1940 Act,
which Change in 1940 Act Law becomes effective on or after the date of original
issuance of the Preferred Securities.
If, at any time, a Tax Event or an Investment Company Event (each, as
defined above, a "Special Event") shall occur and be continuing, the Company
shall have the right, subject to the receipt of any consent required by the
terms of any indebtedness of the Company which might be outstanding from time to
time, upon not less than 30 nor more than 60 days notice, to redeem the
Subordinated Debentures, in whole (but not in part), for cash within 90 days
following the occurrence of such Special Event, and, following such redemption,
Trust Securities with an aggregate liquidation amount equal to the aggregate
principal amount of the Subordinated Debentures so redeemed shall be redeemed by
the Trust at the Redemption Price on a pro rata basis.
DISTRIBUTION OF THE SUBORDINATED DEBENTURES
At any time, subject to the receipt of any consent required by the terms of
any indebtedness of the Company which may be outstanding from time to time, the
Company will have the right to terminate the Trust and, after satisfaction of
the liabilities of creditors of the Trust as provided by applicable law, cause
the Subordinated Debentures to be distributed to the holders of the Trust
Securities in liquidation of the Trust. Under current United States federal
income tax law and interpretations and assuming, as expected, the Trust is
treated as a grantor trust, a distribution of the Subordinated Debentures should
not be a taxable event to holders of the Preferred Securities. Should there be a
change in such law, a change in the legal interpretation thereof, a Special
Event or other circumstances, however, the distribution of the Subordinated
Debentures could be a taxable event to the holders of the Preferred Securities.
In addition, a dissolution of the Trust in which holders of the Preferred
Securities receive cash would be a taxable event to such holders. See "United
States Federal Income Taxation -- US Holders -- Receipt of Subordinated
Debentures or Cash Upon Liquidation of the Trust."
If the Subordinated Debentures are distributed to the holders of the
Preferred Securities, the Company will use its best efforts to cause the
Subordinated Debentures to be listed on the New York Stock Exchange or on such
other exchange as the Preferred Securities are then listed.
After the date for any distribution of Subordinated Debentures upon
dissolution of the Trust, (i) the Preferred Securities will no longer be deemed
to be outstanding, (ii) the Depository or its nominee, as the record holder of
the Preferred Securities, will receive a registered global certificate or
certificates representing the Subordinated Debentures to be delivered upon such
distribution, and (iii) any certificates representing Capital Securities not
held by the Depository or its nominee will be deemed to represent Subordinated
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 Preferred Securities until such certificates are presented to the Company
or its agent for transfer or reissuance.
If the Company elects to liquidate the Trust and thereby causes the
Subordinated Debentures to be distributed to holders of the Preferred Securities
in liquidation of the Trust, the Company shall have the right, subject to the
receipt of any consent required by the terms of any indebtedness of the Company
which may be outstanding from time to time, to shorten the maturity of such
Subordinated Debentures to a date not earlier than August , 2003 or extend the
maturity of such Subordinated Debentures to a date not later than the earlier of
(i) , 2047 or (ii) the Interest Deduction Date, provided that it
can extend the
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<PAGE> 22
maturity only if certain conditions are met. See "Description of the
Subordinated Debentures -- Option to Change Scheduled Maturity Date."
There can be no assurance as to the market prices for either the Preferred
Securities or the Subordinated Debentures that may be distributed in exchange
for the Preferred Securities if a dissolution and liquidation of the Trust were
to occur. Accordingly, the Preferred Securities that an investor may purchase,
whether pursuant to the offer made hereby or in the secondary market, or the
Subordinated Debentures that an investor may receive if a dissolution and
liquidation of the Trust were to occur, may trade at a discount to the price
that the investor paid to purchase the Preferred Securities offered hereby.
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all of the outstanding Preferred
Securities unless all accrued and unpaid distributions have been paid on all
Preferred Securities for all quarterly distribution periods terminating on or
prior to the date of redemption.
If the Trust gives a notice of redemption in respect of Preferred
Securities (which notice will be irrevocable), then, by 12:00 noon, New York
City time, on the redemption date, provided that the Company has paid to the
Property Trustee a sufficient amount of cash in connection with the related
redemption or maturity of the Subordinated Debentures, the Trust will
irrevocably deposit with the securities depository funds sufficient to pay the
applicable Redemption Price and will give the securities depository irrevocable
instructions to pay the Redemption Price to the holders of the Preferred
Securities. If notice of redemption shall have been given and funds deposited as
required, then immediately prior to the close of business on the date of such
deposit, distributions will cease to accrue and all rights of holders of such
Preferred Securities so called for redemption will cease, except the right of
the holders of such Preferred Securities to receive the Redemption Price, but
without interest on such Redemption Price. In the event that any date fixed for
redemption of Preferred Securities is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the next succeeding day
that is a Business Day (without any interest or other payment in respect of any
such delay), except that, if such Business Day falls in the next calendar year,
such payment will be made on the immediately preceding Business Day. In the
event that the Company fails to repay the Subordinated Debentures on maturity or
payment of the Redemption Price in respect of Preferred Securities is improperly
withheld or refused and not paid either by the Trust or by the Company pursuant
to the Trust Guarantee, distributions on such Preferred Securities will continue
to accrue at the then applicable rate from the original redemption date to the
actual date of payment, in which case the actual payment date will be considered
the date fixed for redemption for purposes of calculating the Redemption Price.
In the event that fewer than all of the outstanding Preferred Securities
are to be redeemed, the Preferred Securities will be redeemed as described below
under "-- Book-Entry Issuance -- The Depository Trust Company."
If a partial redemption of the Preferred Securities would result in the
delisting of the Preferred Securities by a national securities exchange or other
organization on which the Preferred Securities are then listed, the Company
pursuant to the Indenture will only redeem the Subordinated Debentures in whole
and, as a result, the Trust may only redeem the Preferred Securities in whole.
Subject to the foregoing and to the receipt of any consent required by the
terms of any indebtedness of the Company which may be outstanding from time to
time and applicable law (including, without limitation, United States federal
securities laws), the Company or its subsidiaries may at any time, and from time
to time, purchase outstanding Preferred Securities by tender, in the open market
or by private agreement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each a "Liquidation"), the then holders
of the Preferred Securities will be entitled to receive on a pro rata basis
solely out of the assets of the Trust, after satisfaction of liabilities to
creditors of the Trust as provided by applicable law, distributions in an amount
equal to the aggregate of the stated liquidation amount of $25 per Preferred
Security plus accrued and unpaid distributions thereon to the date of payment
(the "Liquidation Distribution"), unless, in connection with such Liquidation,
Subordinated Debentures in an
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aggregate stated principal amount equal to the aggregate stated liquidation
amount of, with an interest rate identical to the distribution rate of, and
accrued and unpaid interest equal to accrued and unpaid distributions on, the
Preferred Securities have been distributed on a pro rata basis to the holders of
the Preferred Securities.
If, upon any such Liquidation, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Preferred Securities shall be paid on a pro rata basis. The holders
of the Common Securities will be entitled to receive distributions upon any such
dissolution pro rata with the holders of the Preferred Securities, except that
if a Declaration Event of Default has occurred and is continuing, the Preferred
Securities shall have a preference over the Common Securities with regard to
such distributions.
TERMINATION
Pursuant to the Declaration, the Trust shall terminate upon the earliest of
(i) , 2052, (ii) the bankruptcy of the Company, (iii) the filing
of a certificate of dissolution or its equivalent with respect to the Company,
the filing of a certificate of cancellation with respect to the Trust, or the
revocation of the charter of the Company and the expiration of 90 days after the
date of revocation without a reinstatement thereof, (iv) the distribution of the
Subordinated Debentures from the Trust, (v) the entry of a decree of a judicial
dissolution of the Company or the Trust, or (vi) the redemption of all the Trust
Securities.
DECLARATION EVENTS OF DEFAULT
An Event of Default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Declaration with respect to the Trust
Securities (a "Declaration Event of Default"), provided that pursuant to the
Declaration, the holder of the Common Securities will be deemed to have waived
any Declaration Event of Default with respect to the Common Securities until all
Declaration Events of Default with respect to the Preferred Securities have been
cured, waived or otherwise eliminated. Until such Declaration Event of Default
with respect to the Preferred Securities has been so cured, waived, or otherwise
eliminated, the Property Trustee will be deemed to be acting solely on behalf of
the holders of the Preferred Securities and only the holders of the Preferred
Securities will have the right to direct the Property Trustee with respect to
certain matters under the Declaration, and therefore the Indenture.
Upon the occurrence of a Declaration Event of Default, the Indenture
Trustee (as defined herein) or the Property Trustee as the holder of the
Subordinated Debentures will have the right under the Indenture to declare the
principal of and interest on the Subordinated Debentures to be immediately due
and payable. The Company and the Trust are each required to file annually with
the Property Trustee an officer's certificate as to its compliance with all
conditions and covenants under the Declaration.
VOTING RIGHTS
Except as described herein, under the Trust Act, the Trust Indenture Act
and under "Description of the Trust Guarantees -- Modification of the Trust
Guarantees; Assignment" in the accompanying Prospectus, and as otherwise
required by law and the Declaration, the holders of the Preferred Securities
will have no voting rights.
Subject to the requirement of the Property Trustee obtaining a tax opinion
in certain circumstances set forth in the last sentence of this paragraph, the
holders of a majority in aggregate liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee, or direct the
exercise of any trust or power conferred upon the Property Trustee under the
Declaration, including the right to direct the Property Trustee, as holder of
the Subordinated Debentures, to (i) exercise the remedies available under the
Indenture with respect to the Subordinated Debentures, (ii) waive any past
Indenture Event of Default that is waivable under the Indenture, or (iii)
exercise any right to rescind or annul a declaration that the principal of all
the Subordinated Debentures shall be due and payable, or consent to any
amendment, modification or termination of the Indenture or the Subordinated
Debentures, where such consent should be required; provided, however, that,
where a consent or action under the Indenture would require the consent or act
of the holders of greater than a majority in principal amount of Subordinated
Debentures affected thereby (a "Super-Majority"), the Property Trustee may only
give such consent or take such action at the written direction of the holders of
at least the proportion in liquidation amount of the Preferred Securities which
the relevant Super-Majority
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represents of the aggregate principal amount of the Subordinated Debentures
outstanding. The Property Trustee shall notify all holders of the Preferred
Securities of any notice of default received from the Indenture Trustee with
respect to the Subordinated Debentures. Except with respect to directing the
time, method and place of conducting a proceeding for a remedy, the Property
Trustee shall not take any of the actions described in clauses (i), (ii) or
(iii) above unless the Property Trustee has obtained an opinion of tax counsel
to the effect that, as a result of such action, the Trust will not be classified
as other than a grantor trust for United States federal income tax purposes.
In the event the consent of the Property Trustee, as the holder of the
Subordinated Debentures, is required under the Indenture with respect to any
amendment, modification or termination of the Indenture or the Subordinated
Debentures, the Property Trustee shall request the direction of the holders of
the Trust Securities with respect to such amendment, modification or termination
and shall vote with respect to such amendment, modification or termination as
directed by a majority in liquidation amount of the Trust Securities voting
together as a single class; provided, however, that where a consent under the
Indenture would require the consent of a Super-Majority, the Property Trustee
may only give such consent at the direction of the holders of at least the
proportion in liquidation amount of the Trust Securities which the relevant
Super-Majority represents of the aggregate principal amount of the Subordinated
Debentures outstanding. The Property Trustee shall not take any such action in
accordance with the directions of the holders of the Trust Securities unless the
Property Trustee has obtained an opinion of tax counsel to the effect that the
Trust will not be classified as other than a grantor trust for United States
federal income tax purposes on account of such action.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Preferred Securities may
be given at a separate meeting of holders of Preferred Securities convened for
such purpose, at a meeting of all of the holders of Trust Securities or pursuant
to written consent. The Regular Trustees will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be
mailed to each holder of record of Preferred Securities. Each such notice will
include a statement setting forth the following information: (i) the date of
such meeting or the date by which such action is to be taken; (ii) a description
of any resolution proposed for adoption at such meeting on which such holders
are entitled to vote or of such matter upon which written consent is sought; and
(iii) instructions for the delivery of proxies or consents. No vote or consent
of the holders of Preferred Securities will be required for the Trust to redeem
and cancel Preferred Securities or distribute Subordinated Debentures in
accordance with the Declaration.
Notwithstanding that holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
Securities that are owned at such time by the Company or any entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, the Company, shall not be entitled to vote or consent and shall,
for purposes of such vote or consent, be treated as if such Preferred Securities
were not outstanding.
The procedures by which holders of Preferred Securities may exercise their
voting rights are described below. See "--Book-Entry Issuance -- The Depository
Trust Company" below.
Holders of the Preferred Securities will have no rights to appoint or
remove the Conseco Trustees, who may be appointed, removed or replaced solely by
the Company as the indirect or direct holder of all of the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by a majority of
the Regular Trustees (and in certain circumstances the Property Trustee and/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, winding-up or termination of the Trust other than pursuant to
the terms of the Declaration, then the holders of the Trust Securities voting
together as a single class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall
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not be effective except with the approval of at least a majority in liquidation
amount of the Trust Securities affected thereby; provided that, if any amendment
or proposal referred to in clause (i) above would adversely affect only the
Preferred Securities or the Common Securities, then only the affected class will
be entitled to vote on such amendment or proposal and such amendment or proposal
shall not be effective except with the approval of a majority in liquidation
amount of such class of Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified as other than a grantor trust for United States federal income tax
purposes, (ii) reduce or otherwise adversely affect the powers of the Property
Trustee or (iii) cause the Trust to be deemed an "investment company" which is
required to be registered under the 1940 Act.
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust may not consolidate, amalgamate, merge with or into or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any corporation or other body, except as
described below. The Trust may, with the consent of a majority of the Regular
Trustees and without the consent of the holders of the Trust Securities, the
Property Trustee or the Delaware Trustee, consolidate, amalgamate, merge with or
into, or be replaced by a trust organized as such under the laws of any State;
provided that, (i) such successor entity either (A) expressly assumes all of the
obligations of the Trust under the Trust Securities or (B) substitutes for the
Trust Securities other securities having substantially the same terms as the
Trust Securities (the "Successor Securities"), so long as the Successor
Securities rank the same as the Trust Securities rank with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii) the
Company expressly acknowledges a trustee of such successor entity possessing the
same powers and duties as the Property Trustee as the holder of the Subordinated
Debentures, (iii) the Preferred Securities or any Successor Securities with
respect to the Preferred Securities are listed, or any such Successor Securities
will be listed upon notification of issuance, on any national securities
exchange or with another organization on which the Preferred Securities are then
listed or quoted, (iv) such merger, consolidation, amalgamation or replacement
does not cause the Preferred Securities (including any Successor Securities with
respect to the Preferred Securities) to be downgraded by any nationally
recognized statistical rating organization, (v) such merger, consolidation,
amalgamation or replacement does not adversely affect the rights, preferences
and privileges of the holders of the Trust Securities (including any Successor
Securities) in any material respect (other than with respect to any dilution of
the holders' interest in the new entity), (vi) such successor entity has a
purpose identical to that of the Trust, (vii) prior to such merger,
consolidation, amalgamation or replacement, the Company has received an opinion
of an independent counsel to the Trust experienced in such matters to the effect
that, (A) such merger, consolidation, amalgamation or replacement does not
adversely affect the rights, preferences and privileges of the holders of the
Trust Securities (including any Successor Securities) in any material respect
(other than with respect to any dilution of the holders' interest in the new
entity), (B) following such merger, consolidation, amalgamation or replacement,
neither the Trust nor such successor entity will be required to register as an
investment company under the 1940 Act and (C) the Trust will continue to be
classified as a grantor trust for federal income tax purposes, and (viii) the
Company guarantees the obligations of such successor entity under the Successor
Securities at least to the extent provided by the Trust Guarantee.
Notwithstanding the foregoing, the Trust shall not, except with the consent of
holders of 100% in liquidation amount of the Trust Securities, consolidate,
amalgamate, merge with or into, or be replaced by any other entity or permit any
other entity to consolidate, amalgamate, merge with or into, or replace it, if
such consolidation, amalgamation, merger or replacement would cause the Trust or
the Successor Entity to be classified as other than a grantor trust for United
States federal income tax purposes and each holder of the Trust Securities not
to be treated as owning an undivided interest in the Subordinated Debentures.
BOOK-ENTRY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depository
("depository") for the Preferred Securities. The Preferred Securities initially
will be issued only as fully-registered securities registered in the name of
Cede & Co. (DTC's nominee). One or more fully-registered global Preferred
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Securities certificates, representing the total aggregate number of Preferred
Securities, will be issued and will be delivered to DTC.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the global Preferred
Securities as represented by a global certificate.
DTC has advised the Company and the Trust that DTC is a limited-purpose
trust company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). DTC holds securities that its participants ("Participants") deposit with
DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations ("Direct Participants").
DTC is owned by a number of its Direct Participants and by the New York Stock
Exchange, the American Stock Exchange, Inc., and the National Association of
Securities Dealers, Inc. Access to the DTC system is also available to others,
such as securities brokers and dealers, banks and trust companies that clear
transactions through or maintain a direct or indirect custodial relationship
with a Direct Participant ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the Commission.
Purchases of Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser of
each Preferred Security ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the transactions,
as well as periodic statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased Preferred Securities.
Transfers of ownership interests in the Preferred Securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in the Preferred Securities, except in the event that
use of the book-entry system for the Preferred Securities is discontinued.
To facilitate subsequent transfers, all the Preferred Securities deposited
by Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of Preferred Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Preferred Securities. DTC's records reflect
only the identity of the Direct Participants to whose accounts such Preferred
Securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements
that may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Preferred Securities are being redeemed, DTC will reduce pro rata the amount of
the interest of each Direct Participant in such Preferred Securities to be
redeemed in accordance with its procedures.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to the Trust as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Direct Participants to whose accounts the Preferred
Securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy). The Company and the Trust believe that the arrangements
among DTC, Direct and Indirect
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Participants, and Beneficial Owners will enable the Beneficial Owners to
exercise rights equivalent in substance to the rights that can be directly
exercised by a holder of a beneficial interest in the Trust.
Distribution payments on the Preferred Securities will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on the relevant
payment date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payments on such
payment date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with securities
held for the account of customers in bearer form or registered in "street name,"
and such payments will be the responsibility of such Participant and not of DTC,
the Trust or the Company, subject to any statutory or regulatory requirements
that may be in effect from time to time. Payment of distributions to DTC is the
responsibility of the Trust, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Preferred
Security certificate will not be entitled to receive physical delivery of
Preferred Securities. Accordingly, each Beneficial Owner must rely on the
procedures of DTC to exercise any rights under the Preferred Securities.
DTC may discontinue providing its services as depository with respect to
the Preferred Securities at any time by giving reasonable notice to the Trust.
Under such circumstances, in the event that a successor securities depository is
not obtained, Preferred Securities certificates are required to be printed and
delivered. Additionally, the Regular Trustees (with the consent of the Company)
may decide to discontinue use of the system of book-entry transfers through DTC
(or any successor depository) with respect to the Preferred Securities. In that
event, certificates for the Preferred Securities will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company and the Trust believe to be
reliable, but neither the Company nor the Trust takes responsibility for the
accuracy thereof.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a default with respect to
the Trust Securities, undertakes to perform only such duties as are specifically
set forth in the Declaration, in the terms of the Trust Securities or in the
Trust Indenture Act and, after default, shall exercise the same degree of care
as a prudent individual would exercise in the conduct of his or her own affairs.
Subject to such provisions, the Property Trustee is under no obligation to
exercise any of the powers vested in it by the Declaration at the request of any
holder of Preferred Securities, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities which might be incurred
thereby. The holders of Preferred Securities will not be required to offer such
indemnity in the event such holders, by exercising their voting rights, direct
the Property Trustee to take any action following a Declaration Event of
Default. The Property Trustee also serves as Preferred Securities Guarantee
Trustee.
PAYING AGENT
In the event that the Preferred Securities do not remain in book-entry
form, the following provisions would apply:
The Property Trustee will act as paying agent, and may designate an
additional or substitute paying agent at any time.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of the Trust, but upon payment (with the giving of such
indemnity as the Trust or the Company may require) in respect of any tax or
other government charges that may be imposed in relation to it.
The Trust will not be required to register or cause to be registered the
transfer of Preferred Securities after such Preferred Securities have been
called for redemption.
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GOVERNING LAW
The Declaration and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate the Trust in
such a way so that the Trust will not be required to register as an "investment
company" under the 1940 Act or be characterized as other than a grantor trust
for United States federal income tax purposes. The Company is authorized and
directed to conduct its affairs so that the Subordinated Debentures will be
treated as indebtedness of the Company for United States federal income tax
purposes. In this connection, the Company and the Regular Trustees are
authorized to take any action, not inconsistent with applicable law, the
certificate of trust of the Trust or the articles of incorporation of the
Company, that each of the Company and the Regular Trustees determines in their
discretion to be necessary or desirable to achieve such end, as long as such
action does not adversely affect the interests of the holders of the Preferred
Securities or vary the terms thereof.
Holders of the Preferred Securities have no preemptive rights.
DESCRIPTION OF THE SUBORDINATED DEBENTURES
Set forth below is a description of the specific terms of the Subordinated
Debentures in which the Trust will invest the proceeds from the issuance and
sale of the Trust Securities. This description supplements the description of
the general terms and provisions of the Subordinated Debentures set forth in the
accompanying Prospectus under the caption "Description of Debt Securities." The
following description does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the description in the accompanying
Prospectus and the Indenture, dated as of November 14, 1996 (as supplemented by
the First Supplemental Indenture dated November 14, 1996, the Second
Supplemental Indenture dated November 22, 1996 and the Third Supplemental
Indenture dated as of March 26, 1997 hereinafter referred to as the "Base
Indenture"), between the Company and State Street Bank and Trust Company, as
successor to Fleet National Bank, as Trustee, as supplemented by a Fourth
Supplemental Indenture, to be dated as of August , 1998 (the Base Indenture,
as so supplemented, is hereinafter referred to as the "Indenture"), the forms of
which are filed either as Exhibits to the Registration Statement of which this
Prospectus Supplement and the accompanying Prospectus form a part, or as
Exhibits to a Current Report on Form 8-K to be filed by the Company and
incorporated by reference into the Registration Statement, of which this
Prospectus Supplement and the accompanying Prospectus form a part, and the Trust
Indenture Act. Certain capitalized terms used herein are defined in the
Indenture.
At any time, the Company will have the right to liquidate the Trust and
cause Subordinated Debentures to be distributed to the holders of the Trust
Securities in liquidation of the Trust, subject to the receipt of any consent
required by the terms of any indebtedness of the Company which may be
outstanding from time to time. See "Description of the Preferred Securities --
Distribution of the Subordinated Debentures."
If the Subordinated Debentures are distributed to the holders of the
Preferred Securities, the Company will use its best efforts to have the
Subordinated Debentures listed on the New York Stock Exchange or on such other
exchange on which the Preferred Securities are then listed.
GENERAL
The Subordinated Debentures will be issued as unsecured subordinated debt
securities under the Indenture. The Subordinated Debentures will be limited in
aggregate principal amount to approximately $206.2 million, such amount being
the sum of the aggregate stated liquidation amount of the Preferred Securities
and the capital contributed by the Company in exchange for the Common Securities
(the "Company Payment"). The Subordinated Debentures are not subject to a
sinking fund provision. The entire principal of the Subordinated Debentures will
mature and become due and payable, together with any accrued and unpaid interest
thereon including Compounded Interest (as hereinafter defined), if any, on
, 2028, subject to the election of the Company to shorten
or extend the scheduled maturity date of the Subordinated Debentures, which
election in the case of an extension of the scheduled
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maturity date is subject to the Company's satisfying certain financial
conditions and in the case of shortening the maturity date, the receipt of any
consent required by the terms of any indebtedness of the Company which may be
outstanding from time to time. See "-- Option to Change Scheduled Maturity
Date."
If Subordinated Debentures are distributed to holders of Preferred
Securities in liquidation of such holders' interests in the Trust, it is
presently anticipated that such Subordinated Debentures will initially be issued
in the form of one or more Global Securities (as defined below). As described
herein, under certain limited circumstances, Subordinated Debentures may be
issued in definitive certificated form in exchange for a Global Security. See
"-- Book-Entry and Settlement" below. In the event that Subordinated Debentures
are issued in definitive certificated form, such Subordinated Debentures will be
in denominations of $25 and integral multiples thereof and may be transferred or
exchanged at the offices described below. Payments on Subordinated Debentures
issued as a Global Security will be made to DTC or its nominee, a successor
depository or its nominee. In the event Subordinated Debentures are issued in
definitive certificated form, principal and interest will be payable, the
transfer of the Subordinated Debentures will be registrable and Subordinated
Debentures will be exchangeable for Subordinated Debentures of other
denominations of a like aggregate principal amount at the corporate trust
offices of the Indenture Trustee in Hartford, Connecticut and New York, New
York; provided that payment of interest may be made at the option of the Company
by check mailed to the address of the persons entitled thereto.
The Indenture does not contain provisions that afford the holders of the
Subordinated Debentures protection in the event of a highly leveraged
transaction involving the Company or other similar transaction that may
adversely affect such holders.
SUBORDINATION
The Indenture provides that the Subordinated Debentures are subordinated
and junior in right of payment to the prior payment in full of all Senior
Indebtedness of the Company whether now existing or hereafter incurred. In the
event and during the continuation of any default by the Company in the payment
of principal, premium, interest or any other payment due on any Senior
Indebtedness of the Company, or in the event that the maturity of any Senior
Indebtedness of the Company has been accelerated because of a default, then in
either case, no payment will be made by the Company with respect to the
principal (including redemption payments) of or interest on the Subordinated
Debentures. Upon any distribution of assets of the Company to creditors upon any
dissolution, winding-up, liquidation or reorganization, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or other proceedings,
all principal, premium, if any, and interest due or to become due on all Senior
Indebtedness of the Company must be paid in full before the holders of
Subordinated Debentures are entitled to receive or retain any payment. In the
event that the Subordinated Debentures are declared due and payable before the
Maturity Date, then all amounts due or to become due on all Senior Indebtedness
shall have been paid in full before holders of the Subordinated Debentures are
entitled to receive or retain any payment. Upon satisfaction of all claims of
all Senior Indebtedness then outstanding, the rights of the holders of the
Subordinated Debentures will be subrogated to the rights of the holders of
Senior Indebtedness of the Company to receive payments or distributions
applicable to Senior Indebtedness until all amounts owing on the Subordinated
Debentures are paid in full.
The term "Senior Indebtedness" means all indebtedness of the Company,
whether now existing or hereafter created, but excluding trade accounts payable
arising in the ordinary course of business. Without limiting the generality of
the foregoing, "Senior Indebtedness" shall include the principal of, premium, if
any, and interest on: (i) all indebtedness of the Company outstanding, created,
incurred or assumed, which is for money borrowed, or evidenced by a note or
similar instrument given in connection with the acquisition of any business,
properties or assets, including securities; (ii) any indebtedness of others of
the kinds described in the preceding clause (i) for the payment of which the
Company is responsible or liable as guarantor or otherwise; and (iii)
amendments, renewals, extensions and refundings of any such indebtedness, unless
in any instrument or instruments evidencing or securing such indebtedness or
pursuant to which the same is outstanding, or in any such amendment, renewal,
extension or refunding, it is expressly provided that such indebtedness is not
superior in right of payment to Subordinated Debt Securities. "Senior
Indebtedness" does not include any indebtedness of the Company to any of its
Subsidiaries. The Senior Indebtedness shall continue to be Senior Indebtedness
and entitled to the benefits of the subordination provisions irrespective of any
amendment,
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modification or waiver of any term of the Senior Indebtedness or extension or
renewal of the Senior Indebtedness.
The Indenture does not limit the aggregate amount of Senior Indebtedness
that may be issued by the Company. At June 30, 1998 the aggregate amount of
Senior Indebtedness and liabilities and obligations of the Company's
subsidiaries that would have effectively ranked senior to the Subordinated
Debentures was approximately $37 billion.
OPTIONAL REDEMPTION
The Company shall have the right to redeem the Subordinated Debentures,
subject to the receipt of any consent required by the terms of any indebtedness
of the Company which may be outstanding from time to time, (i) at any time, in
whole or in part, from time to time, on or after August , 2003 or (ii) at any
time in whole (but not in part) upon the occurrence of a Special Event as
described under "Description of the Preferred Securities -- Special Event
Redemption," upon not less than 30 nor more than 60 days notice, at a redemption
price equal to 100% of the principal amount to be redeemed plus any accrued and
unpaid interest thereon to the redemption date. If a partial redemption of the
Preferred Securities resulting from a partial redemption of the Subordinated
Debentures would result in the delisting of the Preferred Securities, the
Company may only redeem the Subordinated Debentures in whole.
INTEREST
Each Subordinated Debenture shall bear interest at the rate of % per
annum from the original date of issuance, or from the most recent interest
payment date to which interest has been paid or provided for, payable quarterly
in arrears on , , and of each year (each
an "Interest Payment Date"), commencing , 1998, to the
person in whose name such Subordinated Debenture is registered, subject to
certain exceptions, at the close of business on the Business Day next preceding
such Interest Payment Date. In the event the Subordinated Debentures shall not
continue to remain in book-entry form, the Company shall have the right to
select record dates, which shall be more than one Business Day but less than 60
Business Days prior to the Interest Payment Date. Any installment of interest
not punctually paid will cease to be payable to the holders of the Subordinated
Debentures on the regular record date and may be paid to the person in whose
name the Subordinated Debentures are registered at the close of business on a
special record date to be fixed by the Indenture Trustee for the payment of such
defaulted interest, notice of which shall be given to the holders of the
Subordinated Debentures not less than 10 days prior to such special record date,
or may be paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange, interdealer quotation system or other
organization on which the Subordinated Debentures may be listed, and upon such
notice as may be required by such exchange, system or organization.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. The amount of interest payable for
any period shorter than a full quarterly period for which interest is computed,
will be computed on the basis of the actual number of days elapsed per 90-day
quarter. In the event that any date on which interest is payable on the
Subordinated Debentures is not a Business Day, then payment of the interest
payable on such date will be made on the next succeeding day that is a Business
Day (and without any interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year, then
such payment shall be made on the immediately preceding Business Day, in each
case with the same force and effect as if made on such date.
OPTION TO CHANGE SCHEDULED MATURITY DATE
The "Scheduled Maturity Date" of the Subordinated Debentures is ,
2028. The Company, however, may, extend such maturity date ( , 2028 or
the maturity date then in effect, as the case may be, is referred to herein as
the "Maturity Date") for one or more periods but in no event later than the
earlier of (i) , 2047 or (ii) the Interest Deduction Date. The
"Interest Deduction Date" shall mean the date which is six months earlier than
the ending date of the maximum term (beginning on the date of issue of the
Subordinated Debentures and including any extensions thereof), as determined
under any federal statute applicable by its terms to the Subordinated Debentures
which is enacted at any time after the issuance of the
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Subordinated Debentures (including, but not limited to, at any time after an
extension of the Maturity Date), of a debt instrument for which interest is
deductible for federal income tax purposes. In no event shall the extended
Maturity Date be later than the Interest Deduction Date even if the Maturity
Date has previously been extended to a date beyond the Interest Deduction Date.
The Company must exercise its right to extend the term at least 90 days prior to
the Maturity Date then in effect and must satisfy the following conditions on
the date the Company exercises such right and on the Maturity Date then in
effect prior to such proposed extension; (a) the Company is not in bankruptcy or
otherwise insolvent, (b) the Company is not in default on any Subordinated
Debenture issued to the Trust or to any trustee of the Trust in connection with
an issuance of Trust Securities by the Trust, (c) the Company has made timely
payments on the Subordinated Debentures for the immediately preceding six
quarters without deferrals, (d) the Trust is not in arrears on payments of
distributions on the Trust Securities, (e) the Subordinated Debentures or
Preferred Securities are rated investment grade by any one of Standard & Poor's
Corporation, Moody's Investors Service, Inc., Fitch Investor Services, Duff &
Phelps Credit Rating Company or any other nationally recognized statistical
rating organization, and (f) the final maturity of such Subordinated Debentures
is not later than , 2047. Pursuant to the Declaration, the Regular
Trustees are required to give notice of the Company's election to change the
Maturity Date to the holders of the Preferred Securities.
In addition, if the Company exercises its right to liquidate the Trust and
distribute the Subordinated Debentures as discussed above under "Description of
the Preferred Securities -- Distribution of the Subordinated Debentures,"
effective upon such exercise the Maturity Date of the Subordinated Debentures
may be changed to (i) any date elected by the Company that is no earlier than
August , 2003, subject to the receipt of any consent required by the terms of
any indebtedness of the Company which may be outstanding from time to time, and
(ii) any date elected by the Company which is not later than the earlier of (a)
, 2047 or (b) the Interest Deduction Date; provided that on the date
the Company exercises such right and on the Maturity Date in effect prior to
such proposed extension the conditions specified in the previous paragraph are
satisfied.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company has the right at any time, and from time to time, during the
term of the Subordinated Debentures to defer payments of interest by extending
the interest payment period for a period not exceeding 20 consecutive quarters,
at the end of which Extension Period, the Company shall pay all interest then
accrued and unpaid, together with interest thereon compounded quarterly at the
rate specified for the Subordinated Debentures to the extent permitted by
applicable law ("Compounded Interest"); provided that no Extension Period shall
extend beyond the Maturity Date; and provided further that, during any such
Extension Period, (a) the Company shall not declare or pay any dividends on,
make any distribution with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to any of its capital stock, (b) the Company
shall not make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities issued by the Company that rank
pari passu with or junior to the Subordinated Debentures and (c) the Company
shall not make guarantee payments with respect to the foregoing (other than
pursuant to the Trust Guarantee); provided, however, that, the restriction in
clause (a) above does not apply to (i) any stock dividends paid by the Company
where the dividend stock is the same as that on which the dividend is paid or
(ii) purchases or acquisitions of shares of Company Common Stock in connection
with the satisfaction by the Company of its obligations under any employee
benefit plans. Prior to the termination of any such Extension Period, the
Company may further defer payments of interest by extending the interest payment
period; provided, however, that such Extension Period, including all such
previous and further extensions, may not exceed 20 consecutive quarters or
extend beyond the Maturity Date. Upon the termination of any Extension Period
and the payment of all amounts then due, the Company may commence a new
Extension Period, subject to the terms set forth in this section. No interest
during an Extension Period, except at the end thereof, shall be due and payable.
The Company has no present intention of exercising its right to defer payments
of interest by extending the interest payment period on the Subordinated
Debentures. If the Property Trustee shall be the sole holder of the Subordinated
Debentures, the Company shall give the Regular Trustees and the Property Trustee
notice of its selection of such Extension Period one Business Day prior to the
earlier of (i) the date distributions on the Preferred Securities are payable or
(ii) the date the Regular Trustees are
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required to give notice to holders of the Preferred Securities (or to any
national securities exchange or other organization on which the Preferred
Securities are listed) of the record date or the date such distribution is
payable. The Regular Trustees shall give notice of the Company's selection of
such Extension Period to the holders of the Preferred Securities. If the
Property Trustee shall not be the sole holder of the Subordinated Debentures,
the Company shall give the holders of the Subordinated Debentures notice of its
selection of such Extension Period ten Business Days prior to the earlier of (i)
the applicable Interest Payment Date or (ii) the date upon which the Company is
required to give notice to holders of the Subordinated Debentures (or to any
national securities exchange or other organization on which the Subordinated
Debentures are listed) of the record or payment date of such related interest
payment.
INDENTURE EVENTS OF DEFAULT
If any Indenture Event of Default shall occur and be continuing, the
Property Trustee, as the holder of the Subordinated Debentures, will have the
right to declare the principal of and the interest on the Subordinated
Debentures (including any Compounded Interest and any other amounts payable
under the Indenture) to be forthwith due and payable and to enforce its other
rights as a creditor with respect to the Subordinated Debentures subject to the
subordination provisions in the Indenture. See "Description of Debt Securities
- -- Events of Default, Notice and Certain Rights on Default" in the accompanying
Prospectus for a description of the Indenture Events of Default. An Indenture
Event of Default also constitutes a Declaration Event of Default. If the
Property Trustee fails to enforce its rights with respect to the Subordinated
Debentures held by the Trust, any record holder of Preferred Securities may
institute legal proceedings directly against the Company to enforce the Property
Trustee's rights under such Subordinated Debentures without first instituting
any legal proceedings against such Property Trustee or any other person or
entity. Notwithstanding the foregoing, if an Event of Default under the
Declaration has occurred and is continuing and such event is attributable to the
failure of the Company to pay interest or principal on the Subordinated
Debentures issued to the Trust on the date such interest or principal is
otherwise payable, then a record holder of Preferred Securities may institute a
proceeding directly against the Company for enforcement of payment to the record
holder of the Preferred Securities for payment of the principal of or interest
on the Subordinated Debentures on or after the respective due dates specified in
the Subordinated Debentures (taking into account any Extension Periods), and the
amount of the payment will be based on the holder's pro rata share of the amount
due and owing on all of the Preferred Securities. The record holder in the case
of the issuance of one or more global Preferred Securities certificates will be
DTC acting at the direction of the beneficial owners of the Preferred
Securities. The holders of Preferred Securities in certain circumstances have
the right to direct the Property Trustee to exercise its rights, with respect to
other than principal and interest payments on the Subordinated Debentures, as
the holder of the Subordinated Debentures. See "Description of the Preferred
Securities -- Declaration Events of Default" and "Description of the Preferred
Securities -- Voting Rights."
ADDITIONAL COVENANTS
In addition to the covenants contained in the Base Indenture, but subject
to the exceptions described below in this paragraph, the Company has also
covenanted, with respect to the Subordinated Debentures, that for so long as the
Preferred Securities and the Common Securities remain outstanding the Company
will (i) maintain 100% direct or indirect ownership of the Common Securities,
provided, however, that any permitted successor of the Company under the
Indenture may succeed to the Company's ownership of the Common Securities, (ii)
not voluntarily dissolve, wind-up or terminate the Trust, except in connection
with the distribution of Subordinated Debentures or certain mergers,
consolidations or amalgamations, each as permitted by the Declaration, (iii)
timely perform its duties as sponsor of the Trust, (iv) use its reasonable
efforts to cause the Trust (a) to remain a business trust, except in connection
with a distribution of the Subordinated Debentures, the redemption of all of the
Preferred Securities and Common Securities of the Trust or certain mergers,
consolidations or amalgamations, each as permitted by the Declaration, and (b)
otherwise continue not to be treated as an association taxable as a corporation
or partnership for United States federal income tax purposes, and (v) to use its
reasonable efforts to cause each holder of Preferred Securities and Common
Securities to be treated as owning an individual beneficial interest in the
Subordinated Debentures. Further, the defeasance provisions of the Base
Indenture do not apply to the Subordinated
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Debentures. See "Description of Debt Securities -- Defeasance and Covenant
Defeasance in the accompanying Prospectus.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Preferred Securities in connection with the
involuntary or voluntary dissolution, winding-up or liquidation of the Trust, it
is presently anticipated that the Subordinated Debentures will be issued in the
form of one or more global certificates (each a "Global Security") registered in
the name of a securities depository or its nominee. Except under the limited
circumstances described below, Subordinated Debentures represented by the Global
Security will not be exchangeable for, and will not otherwise be issuable as,
Subordinated Debentures in definitive form. The Global Securities described
above may not be transferred except by the depository to a nominee of the
depository or by a nominee of the depository to the depository or another
nominee of the depository or to a successor depository or its nominee.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in such a Global
Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Subordinated
Debentures in definitive form and will not be considered the Holders (as defined
in the Indenture) thereof for any purpose under the Indenture, and no Global
Security representing Subordinated Debentures shall be exchangeable, except for
another Global Security of like denomination and tenor to be registered in the
name of the depository or its nominee or to a successor depository or its
nominee. Accordingly, each beneficial owner must rely on the procedures of the
depository or if such person is not a Participant, on the procedures of the
Participant through which such person owns its interest to exercise any rights
of a Holder under the Indenture.
THE DEPOSITORY
If Subordinated Debentures are distributed to holders of Preferred
Securities in liquidation of such holders' interests in the Trust, DTC will act
as securities depository for the Subordinated Debentures. For a description of
DTC and the specific terms of the depository arrangements, see "Description of
the Preferred Securities -- Book-Entry Issuance -- The Depository Trust
Company." As of the date of this Prospectus Supplement, the description therein
of DTC's book-entry system and DTC's practices as they relate to purchases,
transfers, notices and payments with respect to the Preferred Securities apply
in all material respects to any debt obligations represented by one or more
Global Securities held by DTC. The Company may appoint a successor to DTC or any
successor depository in the event DTC or such successor depository is unable or
unwilling to continue as the depository for the Global Securities.
None of the Company, the Trust, the Indenture Trustee, any paying agent and
any other agent of the Company or the Indenture Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Security
for such Subordinated Debentures or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
DISCONTINUANCE OF THE DEPOSITORY'S SERVICES
A Global Security shall be exchangeable for Subordinated Debentures in
definitive certificated form registered in the names of persons other than the
depository or its nominee only if (i) the depository notifies the Company that
it is unwilling or unable to continue as a depository for such Global Security
and no successor depository shall have been appointed, (ii) the depository, at
any time, ceases to be a clearing agency registered under the Exchange Act at
which time the depository is required to be so registered to act as such
depository and no successor depository shall have been appointed, or (iii) the
Company, in its sole discretion, determines that such Global Security shall be
so exchangeable. Any Global Security that is exchangeable pursuant to the
preceding sentence shall be exchangeable for Subordinated Debentures registered
in such names as the depository shall direct. It is expected that such
instructions will be based upon directions received by the depository from its
Participants with respect to ownership of beneficial interests in such Global
Security.
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MISCELLANEOUS
The Company will pay all fees and expenses related to (i) the offering of
the Trust Securities and the Subordinated Debentures, (ii) the organization,
maintenance and dissolution of the Trust, (iii) the retention of the Conseco
Trustees and (iv) the enforcement by the Property Trustee of the rights of the
holders of the Preferred Securities.
DESCRIPTION OF THE TRUST GUARANTEE
Pursuant to the Trust Guarantee, the Company will irrevocably and
unconditionally agree, to the extent set forth therein, to pay in full, to the
holders of the Preferred Securities issued by the Trust, the Guarantee Payments
(as defined in the accompanying Prospectus) (except to the extent paid by the
Trust), as and when due, regardless of any defense, right of set-off or
counterclaim which the Trust may have or assert. The Company's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Company to the holders of Preferred Securities or by causing the
Trust to pay such amounts to such holders. The Trust Guarantee will be qualified
as an indenture under the Trust Indenture Act. State Street Bank and Trust
Company National Bank will act as indenture trustee under the Trust Guarantee.
The terms of the Trust Guarantee will be those set forth in such Trust Guarantee
and those made part of such Trust Guarantee by the Trust Indenture Act. The
Trust Guarantee will be held by the Preferred Securities Guarantee Trustee for
the benefit of the holders of the Preferred Securities. Notwithstanding the
foregoing, if the Company has failed to make a payment under the Trust
Guarantee, any holder of Preferred Securities may institute a legal proceeding
directly against the Company for enforcement of the Trust Guarantee with respect
to payment to the record holder of the Preferred Securities of the principal or
interest on the Subordinated Debentures held by the Trust on or after the
respective due dates specified in the Subordinated Debentures (taking into
account any Extension Period), without first instituting a legal proceeding
directly against the Trust, the Preferred Securities Guarantee Trustee or any
other person or entity. A summary description of the Trust Guarantee appears in
the accompanying Prospectus under the caption "Description of the Trust
Guarantees."
EFFECT OF OBLIGATIONS UNDER THE SUBORDINATED
DEBENTURES AND THE TRUST GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to (i)
issue the Trust Securities evidencing undivided beneficial interests in the
assets of the Trust, (ii) invest the proceeds from such issuance and sale in the
Subordinated Debentures and (iii) engage in only those other activities
necessary or incidental thereto.
As long as payments of interest and other payments are made when due on the
Subordinated Debentures, such payments will be sufficient to cover distributions
and payments due on the Trust Securities because: (i) the aggregate principal
amount of Subordinated Debentures will be equal to the sum of the aggregate
stated liquidation amount of the Trust Securities; (ii) the interest rate and
the interest and other payment dates on the Subordinated Debentures will match
the distribution rate and distribution and other payment dates for the Preferred
Securities; (iii) the Company shall pay all, and the Trust shall not be
obligated to pay, directly or indirectly, any, costs, expenses, debts and
obligations (other than with respect to the Trust Securities) related to the
Trust; and (iv) the Declaration provides that the Conseco Trustees shall not
cause or permit the Trust to, among other things, engage in any activity that is
not consistent with the purposes of the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Preferred Securities (to the extent funds therefor are
available) are guaranteed by the Company as and to the extent set forth under
"Description of Trust Guarantees" in the accompanying Prospectus. If the Company
does not make interest and/or principal payments on the Subordinated Debentures
purchased by the Trust, the Trust will not have sufficient funds to pay
distributions on the Preferred Securities. The Trust Guarantee will not apply to
the payment of distributions and other payments on the Preferred Securities when
the Trust does not have sufficient funds to make such distributions or other
payments.
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The Trust Guarantee will constitute an unsecured obligation of the Company
and will rank (i) subordinate and junior in right of payment to all other
liabilities of the Company except those made pari passu or subordinate by their
terms, (ii) pari passu with the most senior preferred or preference stock now or
hereafter issued by the Company and with any guarantee now or hereafter entered
into by the Company in respect of any preferred or preference stock of any
affiliate of the Company, and (iii) senior to the Company Common Stock.
The Trust Guarantee, when taken together with the back-up undertakings,
consisting of obligations of the Company as set forth in the Declaration
(including the obligation to pay expenses of the Trust), the Indenture and any
applicable supplemental indentures thereto, and the Subordinated Debentures
issued to the Trust, provide a full and unconditional guarantee by the Company
of the amounts due on the Preferred Securities. If the Company fails to make
interest or other payments on the Subordinated Debentures when due (taking
account of any Extension Period), the Declaration provides a mechanism whereby
the holders of the Preferred Securities, using the procedures described in
"Description of the Preferred Securities -- Book-Entry Issuance -- The
Depository Trust Company" and "Description of the Preferred Securities -- Voting
Rights," may direct the Property Trustee to enforce its rights under the
Subordinated Debentures. If the Property Trustee fails to enforce its right
under the Subordinated Debentures, a holder of Preferred Securities may
institute a legal proceeding against the Company to enforce the Property
Trustee's rights under the Subordinated Debentures without first instituting any
legal proceeding against the Property Trustee or any other person or entity.
Notwithstanding the foregoing, if a Declaration Event of Default has occurred
and is continuing and such event is attributable to the failure of the Company
to pay interest or principal on the Subordinated Debentures on the date such
interest or principal is otherwise payable (taking into account any Extension
Periods), then a holder of Preferred Securities may directly institute a legal
proceeding against the Company for payment. The Company, under the Trust
Guarantee, acknowledges that the Preferred Securities Guarantee Trustee shall
enforce the Trust Guarantee on behalf of the holders of the Preferred
Securities. If the Company fails to make payments under the Trust Guarantee, the
Trust Guarantee provides a mechanism whereby the holders of the Preferred
Securities may direct the Preferred Securities Guarantee Trustee to enforce its
rights thereunder. Notwithstanding the foregoing, if the Company has failed to
make a payment under the Trust Guarantee, any holder of Preferred Securities may
institute a legal proceeding directly against the Company for enforcement of the
Trust Guarantee with respect to payment to the record holder of the Preferred
Securities of the principal or interest on the Subordinated Debentures held by
the Trust on or after the respective due dates specified in the Subordinated
Debentures (taking into account any Extension Periods), without first
instituting a legal proceeding against the Trust, the Preferred Securities
Guarantee Trustee, or any other person or entity.
UNITED STATES FEDERAL INCOME TAXATION
GENERAL
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations thereunder, and administrative and judicial
interpretations thereof, each as of the date hereof, all of which are subject to
change, possibly on a retroactive basis. The authorities on which this summary
is based are subject to various interpretations, and the opinions expressed
herein are not binding on the IRS or the courts, either of which could take a
contrary position. Moreover, no rulings have been or will be sought from the IRS
with respect to the transactions described herein. Accordingly, there can be no
assurance that the IRS will not challenge the opinions expressed herein or that
a court would not sustain such a challenge.
Except as otherwise stated, this summary deals only with Preferred
Securities held as a capital asset (within the meaning of section 1221 of the
Code) by a holder who or which (i) purchased the Preferred Securities upon
original issuance at their original offering price and (ii) is a US Holder (as
defined below). This summary does not address all the tax consequences that may
be relevant to a US Holder, nor does it address the tax consequences, except as
stated below, to holders that are not US Holders ("Non-US Holders") or to
holders that may be subject to special tax treatment (such as banks, thrift
institutions, real estate investment trusts, regulated investment companies,
insurance companies, brokers and dealers in securities or currencies, other
financial institutions, tax-exempt organizations, persons holding the Preferred
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Securities as a position in a "straddle," or as part of a "synthetic security,"
"hedging," as part of a "conversion" transaction or other integrated investment,
persons having a functional currency other than the U.S. Dollar, and certain
United States expatriates). Further, this summary does not address (a) the
income tax consequences to shareholders in, or partners or beneficiaries of, a
holder of the Preferred Securities, (b) the United States federal alternative
minimum tax consequences of the purchase, ownership or disposition of the
Preferred Securities, or (c) any state, local or foreign tax consequences of the
purchase, ownership and disposition of Preferred Securities.
A "US Holder" is a holder of the Preferred Securities who or which is (i) a
citizen or individual resident (or is treated as a citizen or individual
resident) of the United States for income tax purposes, (ii) a corporation or
partnership created or organized (or treated as created or organized for federal
income tax purposes) in or under the laws of the United States or any political
subdivision thereof, (iii) an estate the income of which is includible in its
gross income for United States federal income tax purposes without regard to its
source, or (iv) a trust if (a) a court within the United States is able to
exercise primary supervision over the administration of the trust and (b) one or
more United States persons have the authority to control all substantial
decisions of the trust.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL
OR OTHER TAX LAWS.
Classification of the Subordinated Debentures. Locke Reynolds Boyd &
Weisell, legal counsel for the Company and the Trust, will render its opinion
generally to the effect that, under then current law and assuming full
compliance with the terms of the Indenture (and certain other documents), the
Subordinated Debentures will be classified for all United States federal income
tax purposes as indebtedness of the Company.
Classification of the Trust. Locke Reynolds Boyd & Weisell will render its
opinion generally to the effect that, under then current law and assuming full
compliance with the terms of the Declaration, the Trust will be classified for
United States federal income tax purposes as a grantor trust and not as an
association taxable as a corporation. Accordingly, for United States federal
income tax purposes, each holder of Capital Securities generally will be
considered the owner of an undivided interest in the Subordinated Debentures and
each US Holder will be required to include in gross income all interest on
(including OID accrued, if any) or gain recognized for United States federal
income tax purposes with respect to its allocable share of the Subordinated
Debentures.
US HOLDERS
Interest Income and Original Issue Discount. Under applicable Treasury
regulations (the "Regulations"), remote contingencies that stated interest will
not be timely paid are ignored in determining whether a debt instrument is
issued with OID. If the Subordinated Debentures are treated as issued with OID,
such OID must be included in income by all holders as it accrues economically on
a daily basis, without regard to when it is paid in cash or whether a particular
holder generally uses the cash method of accounting. The Company has concluded
that the likelihood of its exercising its option to defer payments of interest
is remote. This conclusion is based on the Company's analysis, as of the date of
issue of the Subordinated Debentures, of various facts and circumstances deemed
relevant to exercising such deferral option, including, among other things, the
inability of the Company (a) to declare or pay a dividend, or engage in certain
other capital transactions, with respect to its capital stock, or (b) to make
any payment of principal of or interest or premium, if any, on, or repay,
repurchase or redeem, any debt of the Company that ranks pari passu with or
junior to the Subordinated Debentures if the deferral option is exercised. Based
upon this conclusion and in the absence of any specific definition of "remote"
in the applicable Regulations, in the opinion of Locke Reynolds Boyd & Weisell,
although the matter is not entirely free from doubt, the Subordinated Debentures
will not be subject to the OID rules unless the Company exercises its option to
extend the interest payment
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period. As a consequence, holders of the Preferred Securities should report
interest under their own methods of accounting (e.g., cash or accrual) instead
of under the daily economic accrual rules for OID instruments.
Under the Regulations, if the Company exercises its option to defer
payments of interest, the Subordinated Debentures would be treated as redeemed
and reissued for OID purposes and the sum of the remaining interest payments on
the Subordinated Debentures would thereafter be treated as OID, which would
accrue, and be includible in a US Holder's taxable income, on an economic
accrual basis (regardless of the US Holder's method of accounting for income tax
purposes) over the remaining term of the Subordinated Debentures (including any
period of interest deferral), without regard to the timing of payments under the
Subordinated Debentures.
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 purposes of the OID rules, in which case, the Subordinated Debentures would
be treated as initially issued with OID in an amount equal to the aggregate
stated interest over the term of the Subordinated Debentures. That OID would
generally be includible in a US Holder's taxable income, over the term of the
Subordinated Debentures, on an economic accrual basis.
Characterization of Income. Because the income underlying the Preferred
Securities will not be classified as dividends for income tax purposes,
corporate US Holders of Preferred Securities will not be entitled to a
dividends-received deduction for any income recognized with respect to the
Preferred Securities.
Sales of Preferred Securities. A US Holder that sells Preferred Securities
will recognize gain or loss equal to the difference between the amount realized
on the sale of the Preferred Securities and such holder's adjusted tax basis in
such Preferred Securities. To the extent of any accrued but unpaid interest, the
amount realized on the sale of such Preferred Securities will be treated as
ordinary income. Assuming the Company does not defer interest on the
Subordinated Debentures by extending the interest payment period, a US Holder's
"adjusted tax basis" in the Preferred Securities generally will equal its
initial purchase price. If the Company elects to defer interest payments, a US
Holder's adjusted tax basis in the Preferred Securities generally will be its
initial purchase price increased by any OID previously included in such holder's
gross income to the date of disposition and decreased by payments received on
the Preferred Securities to the date of disposition. Any gain or loss recognized
generally will be a capital gain or loss. The highest marginal individual
federal income tax rate (which applies to ordinary income and gain from sales or
exchanges of capital assets held for one year or less) is 39.6%. The maximum
regular federal income tax rate on capital gains derived by individual taxpayers
is 20% for sales and exchanges of capital assets held for more than one year.
All net capital gain of a corporate taxpayer is subject to tax at ordinary
corporate income tax rates of up to 35%.
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
Subordinated Debentures. A holder who disposes of Preferred Securities between
record dates for payments of distributions thereon will be required to include
in income (to the extent not previously included in income) as ordinary income
amounts attributable to accrued and unpaid interest on the Subordinated
Debentures through the date of disposition and the amount realized on
disposition excludes the portion of the sales price treated as interest. To the
extent the selling price is less than the holder's adjusted tax basis, a holder
will recognize a capital loss. Subject to certain limited exceptions, capital
losses cannot be applied to offset ordinary income for United States federal
income tax purposes.
If the Company elects to defer payments of interest, the market value of
the Preferred Securities will likely fall. Furthermore, the market value of the
Preferred Securities may not reflect the accumulated distribution that will be
paid at the end of the Extension Period. A US Holder who disposes of Preferred
Securities during an Extension Period will be required to include as ordinary
income the accrued OID on the Subordinated Debentures through the date of
disposition as ordinary income and add such amount to the US Holder's adjusted
basis in the Preferred Securities disposed of. To the extent the selling price
is less than the US Holder's adjusted tax basis, the US Holder will recognize
capital loss. Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal income tax purposes.
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<PAGE> 38
Receipt of Subordinated Debentures or Cash Upon Liquidation of the
Trust. Under certain circumstances described herein (see "Description of the
Preferred Securities -- Distribution of the Subordinated Debentures"), the Trust
may distribute the Subordinated Debentures to holders in exchange for the
Preferred Securities and in liquidation of the Trust. Except as discussed below,
such a distribution would not be a taxable event for United States federal
income tax purposes, and each US Holder would have an aggregate adjusted basis
in its Subordinated Debentures for United States federal income tax purposes
equal to such holder's aggregate adjusted basis in its Preferred Securities.
(For a description of adjusted basis in the Preferred Securities, see discussion
above in "-- Sales of Preferred Securities.") For United States federal income
tax purposes, a US Holder's holding period in the Subordinated Debentures
received in such a liquidation of the Trust would include the period during
which the Preferred Securities were held by the holder.
Under certain circumstances described herein (see "Description of the
Preferred Securities" and "Description of the Subordinated Debentures"), the
Subordinated Debentures may be redeemed for cash and the proceeds of such
redemption distributed to holders in redemption of their Preferred Securities.
Such a redemption would be taxable for United States federal income tax
purposes, and a US Holder would recognize gain or loss as if it had sold the
Preferred Securities for cash. See "-- Sales of Preferred Securities" above.
PROPOSED TAX LAW CHANGES
From time to time, the Clinton Administration has proposed certain tax law
changes that would, among other things, generally deny interest deductions to a
corporate issuer if the debt instrument has a term exceeding 15 years (earlier
proposed tax law changes would have denied interest deductions if the debt
instrument had a term exceeding 20 years) and if such debt instrument is not
reflected as indebtedness on such issuer's consolidated balance sheet. Because
the term of the Subordinated Debentures exceeds 15 years, if a proposal of this
sort were to become effective, the Company could be precluded from deducting
interest on the Subordinated Debentures. Enactment of any such proposal might in
turn give rise to a Tax Event which, if the Company were to exercise its
optional right to redeem the Subordinated Debentures, would thereby result in a
mandatory redemption of the Preferred Securities, as described under
"Description of the Preferred Securities -- Mandatory Redemption."
Prospective investors should also be aware that a petition was recently
filed in the United States Tax Court as a result of a challenge by the IRS of a
taxpayer's treatment as indebtedness of a loan issued in circumstances with
similarities to the issuance of the Subordinated Debentures. If this matter is
in fact litigated and the Tax Court were to sustain the IRS's position on this
matter, such judicial decision could constitute a Tax Event which could result
in an early redemption of the Preferred Securities.
NON-US HOLDERS
Payments to a Non-US holder will generally not be subject to withholding of
income tax, provided that such holder of the Preferred Securities (a) does not
(directly or indirectly, actually or constructively) own 10% or more of the
total combined voting power of all classes of stock of the Company entitled to
vote, (b) is not a controlled foreign corporation that is related to the Company
through stock ownership and (c) is not a bank receiving interest described in
section 881(c)(3)(A) of the Code. To qualify for this exemption from withholding
taxation, the last United States payor in the chain of payment prior to payment
to a Non-US Holder (the "Withholding Agent") must have received in the year in
which a payment of interest or principal occurs, or in either of the two
preceding calendar years, a statement that (i) is signed by the holder of the
Preferred Securities under penalties of perjury, (ii) certifies that such holder
is not a US Holder and (iii) provides the name and address of the holder. The
statement may be made on an IRS Form W-8 or a substantially similar form, and
the holder must inform the Withholding Agent of any change in the information on
the statement within 30 days of such change. If the Preferred Securities are
held through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent. However, in such case, the signed statement must be
accompanied by a copy of the IRS Form W-8 or the substitute form provided by the
holder to the organization or institution.
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<PAGE> 39
As discussed above (see "-- Proposed Tax Law Changes"), changes in
legislation, if any, affecting the income tax consequences of the Subordinated
Debentures could adversely affect the ability of the Company to deduct the
interest payable on the Subordinated Debentures. Moreover, any such legislation
could adversely affect Non-US Holders by characterizing income derived from the
Subordinated Debentures as dividends, generally subject to a 30% income tax (on
a withholding basis) when paid to a Non-US Holder, rather than as interest
which, as discussed above, is generally exempt from income tax in the hands of a
Non-US Holder.
A Non-US Holder of a Preferred Security will generally not be subject to
withholding of income tax on any gain realized upon the sale or other
disposition of Preferred Securities.
A Non-US Holder that holds Preferred Securities in connection with the
active conduct of a United States trade or business will be subject to income
tax on all income and gains recognized with respect to its proportionate share
of the Subordinated Debentures.
BACKUP WITHHOLDING
Backup withholding of United States federal income tax at a rate of 31% may
apply to payments made in respect of the Preferred Securities to registered
owners who are not "exempt recipients" and who fail to provide certain
identifying information (such as the registered owner's taxpayer identification
number) in the required manner. Generally, individuals are not exempt
recipients, whereas corporations and certain other entities generally are exempt
recipients. Payments made in respect of the Preferred Securities to a US Holder
must be reported to the IRS, unless the US Holder is an exempt recipient or
establishes an exemption. Compliance with the identification procedures
described in the preceding section would establish an exemption from backup
withholding for those Non-US Holders who are not exempt recipients.
In addition, upon the sale of the Preferred Securities to (or through) a
broker, the broker must withhold 31% of the entire purchase price, unless either
(i) the broker determines that the seller is a corporation or other exempt
recipient or (ii) the seller provides, in the required manner, certain
identifying information and, in the case of a Non-US Holder, certifies that such
seller is a Non-US Holder (and certain other conditions are met). Such a sale
must also be reported by the broker to the IRS, unless either (i) the broker
determines that the seller is an exempt recipient or (ii) the seller certifies
its Non-U.S. status (and certain other conditions are met). Certification of the
registered owner's Non-U.S. status would be made normally on an IRS Form W-8
under penalties of perjury, although in certain cases it may be possible to
submit other documentary evidence.
FINAL WITHHOLDING REGULATIONS
Recently promulgated Treasury regulations (the "Final Regulations"),
effective for payments made after December 31, 1999, provide alternative methods
for satisfying the certification requirements described above under "Non-US
Holders" and "Backup Withholding." The Final Regulations also will require, in
the case of Preferred Securities held by foreign partnerships, that (i) the
certification described above be provided by the partners rather than the
foreign partnership (unless the foreign partnership agrees to become a
"withholding foreign partnership") and (ii) the partnership provides certain
information, including a US taxpayer identification number. A look-through rule
will apply in the case of tiered partnerships. Prospective investors are urged
to consult their own tax advisors regarding the Final Regulations.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL
OR OTHER TAX LAWS.
S-39
<PAGE> 40
ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee benefit plan
subject to Title I of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") (a "Plan"), should consider the fiduciary standards of ERISA
in the context of the Plan's particular circumstances before authorizing an
investment in the Preferred Securities with assets of the Plan. 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 Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit Plans, as well
as individual retirement accounts and Keogh plans subject to Section 4975 of the
Code (also "Plans"), from engaging in certain transactions involving "plan
assets" with persons who are "parties in interest" under ERISA or "disqualified
persons" under the Code ("Parties in Interest") with respect to such Plan. A
violation of these "prohibited transaction" rules may result in an excise tax or
other liabilities under ERISA and/or Section 4975 of the Code for such persons,
unless exemptive relief is available under an applicable statutory or
administrative exemption.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA), certain church plans (as defined in Section 3(33) of ERISA) and
foreign plans (as described in Section 4(b)(5) of ERISA) are not subject to the
requirements of ERISA or Section 4975 of the Code; however, such plans may be
subject to federal, state or local laws or regulations which affect their
ability to invest in the Preferred Securities. Any fiduciary of such a
governmental, church or foreign plan considering an investment in the Preferred
Securities should determine the need for, and, if necessary, the availability
of, any exemptive relief under such laws or regulations.
Under a regulation (the "Plan Assets Regulation") issued by the U.S.
Department of Labor (the "DOL"), the assets of the Trust would be deemed to be
"plan assets" of a Plan for purposes of ERISA and Section 4975 of the Code if
"plan assets" of the Plan were used to acquire an equity interest in the Trust
and no exception were applicable under the Plan Assets Regulation. An "equity
interest" is defined under the Plan Assets Regulation as any interest in an
entity other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features and
specifically includes a beneficial interest in a trust.
Pursuant to an exception contained in the Plan Assets Regulation, the
assets of the Trust would not be deemed to be "plan assets" of investing Plans
if, immediately after the most recent acquisition of any equity interest in the
Trust, less than 25% of the value of each class of equity interests in the Trust
were held by Plans, other employee benefit plans not subject to ERISA or Section
4975 of the Code (such as governmental, church and foreign plans), and entities
holding assets deemed to be "plan assets" of any Plan (collectively, "Benefit
Plan Investors"), or if the Preferred Securities were "publicly-offered
securities" for purposes of the Plan Assets Regulation. No assurance can be
given that the value of the Preferred Securities held by Benefit Plan Investors
will be less than 25% of the total value of such Preferred Securities at the
completion of the initial offering or thereafter, and no monitoring or other
measures will be taken with respect to the satisfaction of the conditions of
this exception. In addition, no assurance can be given that the Preferred
Securities would be considered to be "publicly-offered securities" under the
Plan Assets Regulation. All of the Common Securities will be purchased and held
by the Company.
Certain transactions involving the Trust could be deemed to constitute
direct or indirect prohibited transactions under ERISA and Section 4975 of the
Code with respect to a Plan if the Preferred Securities were acquired with "plan
assets" of such Plan and the assets of the Trust were deemed to be "plan assets"
of Plans investing in the Trust. For example, if the Company were a Party in
Interest with respect to a Plan (either directly or by reason of ownership of
its subsidiaries), extensions of credit between the Company and the Trust (as
represented by the Subordinated Debentures and the Trust Guarantee) would likely
be prohibited by Section 406(a)(1)(B) of ERISA and Section 4975(c)(1)(B) of the
Code, unless exemptive relief were available under an applicable administrative
exemption (see below). In addition, if the Company were considered to be a
fiduciary with respect to the Trust as a result of certain powers it holds (such
as the powers to remove and replace the Property Trustee and the Regular
Trustees), certain operations of the Trust, including the optional redemption or
acceleration of the Subordinated Debentures, could be considered to be
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<PAGE> 41
prohibited transactions under Section 406(b) of ERISA and Section 4975(c)(1)(E)
of the Code. In order to avoid such prohibited transactions, each investing
plan, by purchasing Preferred Securities, will be deemed to have directed the
Trust to invest in the Subordinated Debentures and to have appointed the
Property Trustee.
The DOL has issued five prohibited transaction class exemptions ("PTCEs")
that may provide exemptive relief if required for direct or indirect prohibited
transactions that may arise from the purchase or holding of the Preferred
Securities if assets of the Trust were deemed to be "plan assets" of Plans
investing in the Trust as described above. Those class exemptions are PTCE 96-23
(for certain transactions determined by in-house asset managers), PTCE 95-60
(for certain transactions involving insurance company general accounts), PTCE
91-38 (for certain transactions involving bank collective investment funds),
PTCE 90-1 (for certain transactions involving insurance company separate
accounts), and PTCE 84-14 (for certain transactions determined by independent
qualified asset managers).
Because the Preferred Securities may be deemed to be equity interests in
the Trust for purposes of ERISA and Section 4975 of the Code, the Preferred
Securities may not be purchased and should not be held by any Plan, any entity
whose underlying assets include "plan assets" by reason of any Plan's investment
in the entity (a "Plan Asset Entity") or any person investing "plan assets" of
any Plan, unless such purchaser or holder is eligible for the exemptive relief
available under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or another applicable
exemption. Any purchaser or holder of the Preferred Securities or any interest
therein will be deemed to have represented by its purchase and holding thereof
that it either (a) is not a Plan or a Plan Asset Entity and is not purchasing
such securities on behalf of or with "plan assets" of any Plan, or (b) is
eligible for the exemptive relief available under PTCE 96-23, 95-60, 91-38, 90-1
or 84-14 or another applicable exemption with respect to such purchase or
holding.
Due to the complexity of these rules and the penalties that may be imposed
upon persons involved in non-exempt prohibited transactions, it is particularly
important that fiduciaries or other persons considering purchasing the Preferred
Securities on behalf of or with "plan assets" of any Plan consult with their
counsel regarding the potential consequences if the assets of the Trust were
deemed to be "plan assets" and the availability of exemptive relief under PTCE
96-23, 95-60, 91-38, 90-1 or 84-14 or any other applicable exemption.
THE DISCUSSION HEREIN OF ERISA IS GENERAL IN NATURE AND IS NOT INTENDED TO
BE COMPLETE. ANY FIDUCIARY OF A PLAN, GOVERNMENTAL PLAN OR CHURCH PLAN
CONSIDERING AN INVESTMENT IN THE PREFERRED SECURITIES SHOULD CONSULT WITH ITS
LEGAL ADVISORS REGARDING THE CONSEQUENCES AND ADVISABILITY OF SUCH INVESTMENT.
Insurance companies considering an investment in the Preferred Securities
should note that the Small Business Job Protection Act of 1996 added new Section
401(c) of ERISA relating to the status of the assets of insurance company
general accounts under ERISA and Section 4975 of the Code. Pursuant to Section
401(c), the DOL issued proposed regulations (the "Proposed General Account
Regulations") in December, 1997 with respect to insurance policies that are
supported by an insurer's general account. The Proposed General Account
Regulations are intended to provide guidance on which assets held by the insurer
constitute "plan assets" of an ERISA Plan for purposes of the fiduciary
responsibility provisions of ERISA and Section 4975 of the Code.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement") among the Company, the Trust and each of the
underwriters named below (collectively, the "Underwriters"), the Trust has
agreed to sell to each of the Underwriters named herein, and each of the
Underwriters for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, A.G.
Edwards & Sons, Inc., PaineWebber Incorporated, Prudential Securities
Incorporated and Smith Barney Inc. are acting as representatives (the
"Representatives"), has severally agreed to purchase from the Trust, the
respective number of Preferred Securities set forth below opposite its name. In
the Underwriting Agreement, the several Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all the Preferred Securities
offered hereby if any of the Preferred Securities are purchased. In the event of
default by an
S-41
<PAGE> 42
Underwriter, the Underwriting Agreement provides that, in certain circumstances,
the purchase commitments of the nondefaulting Underwriters may be increased or
the Underwriting Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED SECURITIES
UNDERWRITERS --------------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..........................
A.G. Edwards & Sons, Inc...........................
PaineWebber Incorporated...........................
Prudential Securities Incorporated.................
Smith Barney Inc. .................................
---------
Total................................. 8,000,000
=========
</TABLE>
The Underwriters propose initially to offer the Preferred Securities to the
public at the public offering price, as set forth on the cover page of this
Prospectus Supplement, and to certain dealers at such price less a concession
not in excess of $ per Preferred Security. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per Preferred
Security to certain other dealers. After the initial public offering, the public
offering price, concession and discount may from time to time be varied by the
Representatives.
In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Subordinated Debentures of the Company,
the Underwriting Agreement provides that the Company will agree to pay as
compensation to the Underwriters arranging the investment therein of such
proceeds, an amount in same day funds of $ per Preferred Security (or
$ in the aggregate).
During a period of 30 days from the date of this Prospectus Supplement,
neither the Trust nor the Company will, without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated on behalf of the
Underwriters, directly or indirectly, sell, offer to sell, grant any option for
the sale of, or otherwise dispose of, any Preferred Securities, any security
convertible into or exchangeable into or exercisable for Preferred Securities or
the Subordinated Debentures or any debt securities substantially similar to the
Subordinated Debentures or any equity securities substantially similar to the
Preferred Securities (except for the Subordinated Debentures and the Preferred
Securities offered hereby).
Prior to this offering, there has been no public market for the Preferred
Securities. Application will be made to list the Preferred Securities on the New
York Stock Exchange. Trading of the Preferred Securities on the New York Stock
Exchange is expected to commence within a 30-day period after the initial
delivery of the Preferred Securities. The Representatives have advised the Trust
that they intend to make a market in the Preferred Securities prior to the
commencement of trading on the New York Stock Exchange. The Representatives have
no obligation to make a market in the Preferred Securities, however, and may
cease market making activities, if commenced, at any time. No assurance can be
given as to the liquidity of the trading market for the Preferred Securities.
In order to meet one of the requirements for listing the Preferred
Securities on the New York Stock Exchange, the Underwriters will undertake to
sell lots of 100 or more Preferred Securities to a minimum of 400 beneficial
holders.
Until the distribution of the Preferred Securities is completed, the rules
of the Securities and Exchange Commission may limit the ability of the
Underwriters to bid for and purchase the Preferred Securities. As an exception
to these rules, the Underwriters will be permitted to engage in certain
transactions that stabilize the
S-42
<PAGE> 43
price of the Preferred Securities. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Preferred Securities.
If the Underwriters create a short position in the Preferred Securities in
connection with this offering, i.e., if they sell more Preferred Securities than
are set forth on the cover page of this Prospectus Supplement, the
Representatives may reduce that short position by purchasing Preferred
Securities in the open market.
The Representatives also may impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
Preferred Securities in the open market to reduce the Underwriters' short
position or to stabilize the price of the Preferred Securities they may reclaim
the amount of the selling concession from the Underwriters and selling group
members who sold those Preferred 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 nor the Underwriters make 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 Preferred Securities. In addition,
neither the Company nor the Underwriters make any representation that the
Underwriters will engage in such transactions. Any such transactions, once
commenced, may be discontinued at any time without notice.
The Company and the Trust have agreed to indemnify the Underwriters
against, or contribute to payments that the Underwriters may be required to make
in respect of, certain liabilities, including liabilities under the Securities
Act.
In the ordinary course of their respective businesses, certain of the
Underwriters have performed, and may in the future perform, investment banking
or commercial banking services for the Company and certain of its affiliates.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Preferred
Securities will be passed upon on behalf of the Trust by Richards, Layton &
Finger, P.A., Wilmington, Delaware, special Delaware counsel to the Trust. The
validity of the Subordinated Debentures, the Trust Guarantee and certain matters
relating thereto, will be passed upon on behalf of the Company and the Trust by
John J. Sabl, Executive Vice President and General Counsel of the Company. Mr.
Sabl is a full-time employee and an officer of the Company and owns 75,000
shares of Company Common Stock and holds options to purchase 450,000 shares of
Company Common Stock. Locke Reynolds Boyd & Weisell, Indianapolis, Indiana, will
pass upon certain legal matters on behalf of the Company and the Trust. Certain
legal matters will be passed upon for the Underwriters by LeBoeuf, Lamb, Greene
& MacRae, L.L.P., a limited liability partnership including professional
corporations, New York, New York. LeBoeuf, Lamb, Greene & MacRae, L.L.P. has
represented the Company from time to time in connection with certain legal
matters.
EXPERTS
The supplemental consolidated financial statements of the Company (included
in Exhibit 99.1 of Conseco's Current Report on Form 8-K dated June 30, 1998, as
amended) as of December 31, 1997 and 1996, and for each of the three years ended
December 31, 1997, which are incorporated by reference in this Prospectus
Supplement, have been audited by PricewaterhouseCoopers LLP, independent
accountants, as set forth in their report thereon, except for the consolidated
financial statements of Green Tree for such periods (which financial statements
are consolidated with those of Conseco and for which separate financial data are
not presented herein) which were audited by KPMG Peat Marwick LLP. The report of
PricewaterhouseCoopers LLP on the supplemental consolidated financial statements
as of December 31, 1997 and 1996, and for each of the three years ended December
31, 1997, is incorporated herein by reference in reliance upon such report,
given upon the authority of such firm as experts in accounting and auditing.
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<PAGE> 44
The consolidated financial statements of Green Tree as of December 31, 1997
and 1996, and for each of the three years in the period ended December 31, 1997,
(included in Conseco's Current Report on Form 8-K dated June 30, 1998, as
amended), which is incorporated by reference in this Prospectus Supplement, have
been audited by KPMG Peat Marwick LLP, independent certified public accountants,
as set forth in their report thereon incorporated by reference herein, and are
incorporated by reference in reliance upon such report, given upon the authority
of such firm as experts in accounting and auditing.
S-44
<PAGE> 45
PROSPECTUS
$2,000,000,000
CONSECO, INC.
DEBT SECURITIES, PREFERRED STOCK, DEPOSITARY SHARES, COMMON STOCK, STOCK
PURCHASE CONTRACTS, STOCK PURCHASE UNITS AND WARRANTS
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 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 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
<PAGE> 46
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.
$2,000,000,000 in the aggregate (or its equivalent (based on the applicable
exchange rate at the time of issue), if Securities are offered for consideration
denominated in one or more foreign currencies or currency units as shall be
designated by the Company). The Debt Securities may be denominated in United
States dollars or, at the option of the Company if so specified in the
applicable Prospectus Supplement, in one or more foreign currencies or currency
units. The Debt Securities may be issued in registered form or bearer form, or
both. If so specified in the applicable Prospectus Supplement, 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 June 22, 1998.
2
<PAGE> 47
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 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
3
<PAGE> 48
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, 1997
including Part III thereof which is incorporated by reference from the Company's
proxy statement dated April 10, 1998 for its annual meeting of shareholders (the
"Company's Annual Report");
2. Quarterly Reports on Form 10-Q for the quarter ended March 31, 1998;
3. Current Reports on Form 8-K dated February 4, 1998, April 6, 1998,
June 3, 1998, and June 4, 1998; 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> 49
THE COMPANY
The Company is a financial services holding company. The Company develops,
markets and administers supplemental health insurance, annuity, life insurance,
individual and group major medical insurance and other insurance products. Since
1982, the Company has acquired 19 insurance groups. 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 an insurance company has been acquired, the Company's operating strategy
has been to consolidate and streamline management and administrative functions
where appropriate, 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 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.
5
<PAGE> 50
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, 1997 and for the three months ended March 31, 1997
and 1998.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------- ---------------
1993 1994 1995 1996 1997 1997 1998
----- ----- ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges:
As reported............................ 2.19X 2.26X 1.57X 1.61X 2.04X 1.96X 2.28X
Excluding interest on annuities and
financial product policyholder
account balances(1)(2).............. 8.85X 4.55X 3.80X 4.55X 7.21X 7.36X 6.26X
Ratio of earnings to fixed charges and
preferred dividends:
As reported......................... 2.04X 1.95X 1.50X 1.50X 1.95X 1.74X 2.25X
Excluding interest on annuities and
financial product policyholder
account balances(1)(2)............ 6.00X 3.14X 3.06X 3.14X 5.77X 4.07X 5.93X
Ratio of earnings to fixed charges,
preferred dividends and distributions
on Company-obligated mandatorily
redeemable preferred securities of
subsidiary trusts:
As reported......................... 2.04X 1.95X 1.50X 1.49X 1.82X 1.65X 2.01X
Excluding interest on annuities and
financial product policyholder
account balances(1)(2)............ 6.00X 3.14X 3.06X 3.06X 4.20X 3.28X 4.05X
</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 $408.5
million, $134.7 million, $585.4 million, $668.6 million and $806.7 million
for the years ended December 31, 1993, 1994, 1995, 1996 and 1997,
respectively, and $173.7 million and $188.4 million for the three months
ended March 31, 1997 and 1998, respectively.
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<PAGE> 51
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
7
<PAGE> 52
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).)
8
<PAGE> 53
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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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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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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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 subordinated 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. 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. (Section 12.3 of the Subordinated
Indenture.) No present or future holder of any Senior Indebtedness shall be
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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 is
applicable. However, if such acceleration were to occur by reason of another
Event of Default, the realizable
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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 May 21, 1998 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 1,889,400 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 187,126,301 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 BYLAWS OF CONSECO
Certain provisions of the Articles of Incorporation and the Bylaws of the
Company (the "Bylaws") 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 Bylaws. The Bylaws, 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 Bylaws 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 Bylaws, 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
24
<PAGE> 69
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 therefor.
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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<PAGE> 70
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
26
<PAGE> 71
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
27
<PAGE> 72
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> 73
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 products of the Company or Green Tree
Financial Corporation ("Green Tree") and trends in the Company's or Green Tree'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, short-term interest rate fluctuations, stock
market performance and health care inflation, which may affect the ability of
the Company to sell its products, the ability of Green Tree to make loans and
access capital resources, the market value of the Company's or Green Tree's
investments, the lapse rate and profitability of the Company's policies and the
level of defaults and prepayments of loans made by Green Tree; (2) the Company's
ability to
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<PAGE> 74
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 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 insurance and annuities and in the consumer finance business; (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.
In addition to the above, these statements are subject to uncertainties related
to the synergies, charges and expenses associated with the Green Tree Merger.
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 John J. Sabl, Executive Vice President, General
Counsel and Secretary of the Company. Mr. Sabl is a full-time employee of the
Company and owns 75,000 shares and holds options to purchase 450,000 shares of
Common Stock.
Unless otherwise indicated in the applicable Prospectus Supplement, 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, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997 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.
The consolidated financial statements of Green Tree at December 31, 1997
and 1996, and for each of the three years in the period ended December 31, 1997,
included in the Current Report on Form 8-K dated June 3, 1998, which is
incorporated by reference in this Prospectus, have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, as set forth in their
report thereon incorporated by reference herein, and are incorporated by
reference in reliance upon such report, given upon authority of such firm as
experts in accounting and auditing.
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Risk Factors............................. S-4
Conseco Financing Trust V................ S-9
Capitalization........................... S-10
Ratios of Earnings to Fixed Charges and
Earnings to Fixed Charges, Preferred
Stock Dividends and Distributions on
Company-obligated Mandatorily
Redeemable Preferred Securities of
Subsidiary Trusts...................... S-11
Use of Proceeds.......................... S-12
Selected Consolidated Financial Data..... S-13
The Company.............................. S-16
Description of the Preferred
Securities............................. S-18
Description of the Subordinated
Debentures............................. S-28
Description of the Trust Guarantee....... S-34
Effect of Obligations Under the
Subordinated Debentures and the Trust
Guarantee.............................. S-34
United States Federal Income Taxation.... S-35
ERISA Considerations..................... S-40
Underwriting............................. S-41
Legal Matters............................ S-43
Experts.................................. S-43
PROSPECTUS
Available Information.................... 3
Incorporation of Certain Documents by
Reference.............................. 4
The Company.............................. 5
The Conseco Trusts....................... 5
Use of Proceeds.......................... 6
Ratios of Earnings to Fixed Charges and
Earnings to Fixed Charges and Preferred
Stock Dividends 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 the 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>
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8,000,000
PREFERRED SECURITIES
CONSECO FINANCING
TRUST V
% TRUST ORIGINATED
PREFERRED SECURITIES
("TOPRS(SM)")
FULLY AND UNCONDITIONALLY
GUARANTEED BY
CONSECO, INC.
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
MERRILL LYNCH & CO.
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SALOMON SMITH BARNEY
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