<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 27, 1998
REGISTRATION NO. 333-51123
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CONSECO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
INDIANA 6719 35-1468632
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
11825 N. PENNSYLVANIA ST., CARMEL, INDIANA 46032, (317) 817-6100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------
JOHN J. SABL
CONSECO, INC.
11825 N. PENNSYLVANIA ST.
CARMEL, INDIANA 46032
(317) 817-6092
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
Copies to:
<TABLE>
<S> <C> <C>
PAUL L. CHOI JOEL H. GOTTESMAN WILLIAM B. PAYNE
Sidley & Austin 1100 Landmark Towers Dorsey & Whitney LLP
One First National Plaza 345 Saint Peter Street 220 South Sixth Street
Chicago, Illinois 60603 Saint Paul, Minnesota 55102-1639 Minneapolis, MN 55402-1498
(312) 853-7000 (612) 293-3423 (612) 340-2600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the Registration Statement becomes
effective and all other conditions to the merger (the "Merger") of a wholly
owned subsidiary of Conseco, Inc. ("Conseco") with and into Green Tree Financial
Corporation ("Green Tree") pursuant to an Agreement and Plan of Merger described
in the enclosed Joint Proxy Statement/Prospectus have been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
CONSECO HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL CONSECO SHALL FILE A FURTHER
AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
GREEN TREE LOGO
May 27, 1998
Dear Green Tree Stockholder:
You are cordially invited to attend a special meeting of stockholders of
Green Tree Financial Corporation which will be held at The Saint Paul Hotel, 350
Market Street, Saint Paul, Minnesota on June 30, 1998 at 10:00 a.m., local time
(including any adjournments or postponements thereof).
At the special meeting, you will be asked to vote on a proposal to approve
the merger between Green Tree and Conseco, Inc. The proposed merger will be a
stock-for-stock transaction whereby each of your shares of Green Tree common
stock will be converted into 0.9165 shares of Conseco common stock. As a result
of the merger, you and the Green Tree stockholders will become the owners of
approximately 38% of the combined company. After the merger, I will continue to
manage Green Tree's business, which will operate as a new subsidiary of Conseco.
Your Board of Directors has unanimously approved the merger and recommends
that you vote FOR approval and adoption of the merger agreement.
In a time of increasing consolidation in the financial services industry,
we are excited about this opportunity to join forces with Conseco to create the
nation's largest public company, based on market capitalization, engaged
exclusively in life/health insurance and consumer finance.
We have carefully reviewed and considered the terms of the merger agreement
and believe that they are fair to, and in the best interests of, the
stockholders of Green Tree. In arriving at our recommendation, we gave careful
consideration to a number of factors as described in the accompanying Joint
Proxy Statement/ Prospectus. Under the Delaware General Corporation Law,
stockholders are not entitled to any appraisal rights with respect to the
merger.
Please give this Joint Proxy Statement/Prospectus your careful attention.
It is important that your shares be represented and voted at the special
meeting, regardless of the size of your holdings. Accordingly, whether or not
you plan to attend the special meeting, please promptly mark, sign and date the
enclosed proxy and return it in the enclosed postage-paid envelope to assure
that your shares will be represented at the special meeting.
Your prompt cooperation is greatly appreciated during this important and
exciting time for Green Tree.
Sincerely,
/s/ Lawrence M. Coss
Lawrence M. Coss
Chairman of the Board
and Chief Executive Officer
<PAGE> 3
[CONSECO LOGO]
May 27, 1998
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders of
Conseco, Inc. ("Conseco") to be held on June 30, 1998 at 10:00 a.m., local time,
at the Conseco Conference Center, 530 North College Drive, Carmel, Indiana
(including any adjournments or postponements thereof, the "Conseco Special
Meeting").
At the Conseco Special Meeting, holders of shares of common stock, no par
value per share, of Conseco ("Conseco Common Stock") and holders of shares of
Preferred Redeemable Increased Dividend Equity Securities, 7% PRIDES,
Convertible Preferred Stock of Conseco ("Conseco PRIDES") will be asked to
consider and vote upon a proposal to approve the issuance of Conseco Common
Stock pursuant to an Agreement and Plan of Merger, dated as of April 6, 1998 (as
amended, the "Merger Agreement"), by and among Conseco, Marble Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of Conseco ("Merger
Sub"), and Green Tree Financial Corporation, a Delaware corporation ("Green
Tree"). Pursuant to the terms of the Merger Agreement, among other things, (i)
Merger Sub will be merged with and into Green Tree (the "Merger") and Green Tree
will become a wholly owned subsidiary of Conseco, and (ii) each outstanding
share of the common stock of Green Tree will be canceled and converted into
0.9165 shares of Conseco Common Stock.
Details of the proposed Merger and other important information concerning
Green Tree and Conseco appear in the accompanying Joint Proxy
Statement/Prospectus. Please give this material your careful attention. Details
regarding the background of and reasons for the proposed Merger, among other
things, may be found in the section of the Joint Proxy Statement/Prospectus
entitled "The Merger."
Your Board of Directors believes that the terms of the proposed Merger are
fair to, and in the best interests of, the holders of Conseco Common Stock and
Conseco PRIDES and has unanimously approved the Merger Agreement and the
transactions contemplated thereby. The Board of Directors of Conseco unanimously
recommends that shareholders vote FOR approval of the issuance of Conseco Common
Stock pursuant to the Merger Agreement.
Only holders of record of shares of Conseco Common Stock and Conseco PRIDES
as of the close of business on May 21, 1998 are entitled to notice of, and to
vote at, the Conseco Special Meeting.
YOUR VOTE IS IMPORTANT. Whether or not you are able to attend the Conseco
Special Meeting, please complete, sign, date and return the enclosed proxy card
as soon as possible. A postage-paid envelope is enclosed for your convenience.
If you attend the Conseco Special Meeting, you may revoke your proxy and, if you
wish, vote your shares of Conseco Common Stock and Conseco PRIDES in person.
Sincerely,
/s/ Stephen C. Hilbert
Stephen C. Hilbert
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 4
GREEN TREE FINANCIAL CORPORATION
1100 LANDMARK TOWERS
SAINT PAUL, MINNESOTA 55102-1639
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 30, 1998
To the Stockholders of Green Tree Financial Corporation:
Notice is hereby given that a Special Meeting of the Stockholders of Green
Tree Financial Corporation, a Delaware corporation ("Green Tree"), will be held
at The Saint Paul Hotel, 350 Market Street, Saint Paul, Minnesota 55102, on June
30, 1998, at 10:00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger (as amended, the "Merger Agreement"), dated as
of April 6, 1998, among Conseco, Inc., an Indiana corporation ("Conseco"),
Marble Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Conseco ("Merger Sub"), and Green Tree, pursuant to which,
among other things, Merger Sub will be merged with and into Green Tree (the
"Merger") and Green Tree will become a wholly owned subsidiary of Conseco.
If the Merger Agreement is approved and adopted and the Merger becomes
effective, each issued and outstanding share of common stock, par value
$.01 per share, of Green Tree ("Green Tree Common Stock") will be converted
into 0.9165 of a share of Common Stock of Conseco ("Conseco Common Stock").
2. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
The close of business on May 21, 1998 has been fixed as the "Record Date"
for the determination of the stockholders of Green Tree entitled to notice of
and to vote at the Special Meeting and any adjournments or postponements
thereof. Accordingly, only holders of record of outstanding shares of Green Tree
Common Stock at the close of business on the Record Date shall be entitled to
notice of and to vote at the Special Meeting and any adjournments or
postponements thereof. The Merger Agreement is required to be approved and
adopted by the affirmative vote of the holders of a majority of the outstanding
shares of Green Tree Common Stock. The meeting may be postponed or adjourned
from time to time without notice other than such notice as may be given at the
meeting or any postponement or adjournment thereof, and any business for which
notice is hereby given may be transacted at any such postponed or adjourned
meeting.
Whether or not you plan to attend the Special Meeting, please promptly
mark, sign and date the enclosed proxy and return it in the enclosed
postage-paid envelope to assure that your shares will be represented at the
Special Meeting. If you attend the Special Meeting, you may revoke such proxy
and vote in person if you wish, even if you have previously returned your proxy
card. If you do not attend the Special Meeting, you may still revoke such proxy
at any time prior to the Special Meeting by providing written notice of such
revocation to Joel H. Gottesman, Secretary of Green Tree.
To assure your representation at the Special Meeting, please complete, sign
and date your proxy card and return it promptly in the enclosed envelope. Do not
send any stock certificates with the enclosed proxy card. The procedure for the
exchange of your shares after the Merger is consummated is set forth in the
attached Joint Proxy Statement/Prospectus.
By order of the Board of Directors,
SIG
Joel H. Gottesman
Senior Vice President, General Counsel
and Secretary
Saint Paul, Minnesota
May 27, 1998
<PAGE> 5
CONSECO, INC.
11825 NORTH PENNSYLVANIA STREET
CARMEL, INDIANA 46032
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 30, 1998
NOTICE IS HEREBY GIVEN THAT a Special Meeting of the shareholders of
Conseco, Inc. ("Conseco"), will be held at the Conseco Conference Center, 530
North College Drive, Carmel, Indiana 46032 at 10:00 a.m., local time, on June
30, 1998, for the following purposes:
1. To consider and vote upon a proposal to approve the issuance of
common stock, no par value per share, of Conseco ("Conseco Common Stock")
pursuant to the Agreement and Plan of Merger, dated as of April 6, 1998, as
amended, by and among Green Tree Financial Corporation, a Delaware
corporation ("Green Tree"), Conseco and Marble Acquisition Corp., a
Delaware corporation and wholly owned subsidiary of Conseco ("Merger Sub"),
pursuant to which, among other things, (i) Merger Sub will be merged with
and into Green Tree and Green Tree will become a wholly owned subsidiary of
Conseco and (ii) each outstanding share of the common stock, par value $.01
per share, of Green Tree will be converted into 0.9165 of a share of
Conseco Common Stock; and
2. To consider such other matters as may properly come before the
meeting or any adjournments or postponements thereof.
Holders of record of outstanding shares of Conseco Common Stock and
Preferred Redeemable Increased Dividend Equity Securities, 7% PRIDES,
Convertible Preferred Stock of Conseco ("Conseco PRIDES") as of the close of
business on May 21, 1998, are entitled to notice of and to vote at the meeting.
Holders of Conseco Common Stock and Conseco PRIDES will vote together as a
single class at the meeting. Holders of shares of Conseco Common Stock have one
vote for each share held of record, and holders of shares of Conseco PRIDES have
4/5 of one vote for each share held of record.
Whether or not you plan to be present at the meeting, please complete, sign
and return the enclosed form of proxy. No postage is required to return the form
of proxy in the enclosed envelope. The proxies of shareholders who attend the
meeting in person may be withdrawn and such shareholders may vote personally at
the meeting.
By Order of the Board of Directors
SIG
John J. Sabl
Executive Vice President,
General Counsel and Secretary
May 27, 1998
Carmel, Indiana
<PAGE> 6
CONSECO, INC.
AND
GREEN TREE FINANCIAL CORPORATION
------------------------
JOINT PROXY STATEMENT
------------------------
CONSECO, INC. PROSPECTUS
This Joint Proxy Statement/Prospectus is being furnished to holders of
shares of Common Stock, no par value per share ("Conseco Common Stock"), and to
holders of shares of Preferred Redeemable Increased Dividend Equity Securities,
7% PRIDES, Convertible Preferred Stock ("Conseco PRIDES" and, together with the
Conseco Common Stock, the "Conseco Stock") of Conseco, Inc., an Indiana
corporation ("Conseco"), in connection with the solicitation of proxies by the
Board of Directors of Conseco (the "Conseco Board of Directors") for use at a
Special Meeting of Conseco shareholders to be held on June 30, 1998, at the
Conseco Conference Center, 530 North College Drive, Carmel, Indiana 46032,
commencing at 10:00 a.m., local time, and at any adjournments or postponements
thereof (the "Conseco Special Meeting").
This Joint Proxy Statement/Prospectus is also being furnished to holders of
shares of common stock, par value $.01 per share ("Green Tree Common Stock"), of
Green Tree Financial Corporation, a Delaware corporation ("Green Tree"), in
connection with the solicitation of proxies by the Board of Directors of Green
Tree (the "Green Tree Board of Directors") for use at a Special Meeting of Green
Tree shareholders to be held on June 30, 1998 at The Saint Paul Hotel, 350
Market Street, Saint Paul, Minnesota, commencing at 10:00 a.m., local time, and
at any adjournments or postponements thereof (the "Green Tree Special Meeting"
and, together with the Conseco Special Meeting, the "Special Meetings").
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of
Conseco, filed as part of a Registration Statement on Form S-4 (together with
all amendments, supplements, exhibits and schedules thereto, the "Registration
Statement") with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Securities Act"), relating to the
shares of Conseco Common Stock issuable in connection with the Merger (as
defined below). All information concerning Conseco contained in this Joint Proxy
Statement/Prospectus has been furnished by Conseco, and all information
concerning Green Tree contained in this Joint Proxy Statement/Prospectus has
been furnished by Green Tree.
The Conseco Special Meeting has been called to consider and vote upon a
proposal to approve the issuance (the "Merger Consideration Stock Issuance") of
shares of Conseco Common Stock pursuant to the Agreement and Plan of Merger
dated as of April 6, 1998 (as amended, the "Merger Agreement") among Conseco,
Marble Acquisition Corp., a Delaware corporation and a wholly owned subsidiary
of Conseco ("Merger Sub"), and Green Tree.
The Green Tree Special Meeting has been called to consider and vote upon a
proposal to approve and adopt the Merger Agreement.
The Merger Agreement contemplates, among other things, that Merger Sub will
be merged with and into Green Tree (the "Merger"), with the result that (i)
Green Tree will become a wholly owned subsidiary of Conseco and (ii) each
outstanding share of Green Tree Common Stock, other than shares held by Green
Tree as treasury stock or by its wholly owned subsidiaries or Conseco, will be
converted into 0.9165 of a share of Conseco Common Stock.
The consummation of the Merger is subject, among other things, to: (i) the
approval of the Merger Consideration Stock Issuance by the affirmative vote of a
majority of the votes cast on such proposal at the Conseco Special Meeting,
provided that the total number of votes cast on such proposal represents more
than 50% in interest of the outstanding shares of Conseco Stock entitled to vote
thereon at the Conseco Special Meeting; (ii) the approval and adoption of the
Merger Agreement by a majority of the voting power of the outstanding Green Tree
Common Stock entitled to vote thereon at the Green Tree Special Meeting; and
(iii) the receipt of certain regulatory approvals.
The Conseco Common Stock is quoted on the New York Stock Exchange, Inc. (the
"NYSE") under the symbol "CNC". On May 26, 1998 the closing price of the Conseco
Common Stock as reported on the NYSE was $47 9/16.
The Green Tree Common Stock is quoted on the NYSE and the Pacific Stock
Exchange (the "PSE") under the symbol "GNT". On May 26, 1998, the closing price
of the Green Tree Common Stock as reported on the NYSE was $40 11/16.
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BEFORE EXECUTING A PROXY SOLICITED HEREBY.
This Joint Proxy Statement/Prospectus and the related forms of proxy are
first being mailed to shareholders of Conseco and Green Tree on or about May 29,
1998.
------------------------
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 JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Joint Proxy Statement/Prospectus is May 27, 1998.
<PAGE> 7
State insurance holding company laws and regulations applicable to Conseco
generally provide that no person may acquire control of Conseco, 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 Conseco Stock
would be presumed to have acquired such control, unless the appropriate
insurance regulatory authorities upon advance application determine otherwise.
AVAILABLE INFORMATION
Conseco and Green Tree are each subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file periodic reports, proxy statements and other
information with the Commission. The periodic reports, proxy statements and
other information filed by Conseco and Green Tree with the Commission may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission at 7 World Trade
Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
also can be obtained, at prescribed rates, from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the
Commission maintains a Web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants,
including Conseco and Green Tree, that file electronically with the Commission.
The Conseco Common Stock is listed on the NYSE and such reports and other
information may be inspected at the offices of the NYSE, 20 Broad Street, New
York, New York 10005. The Green Tree Common Stock is listed on the NYSE and the
PSE and such reports and such other information may be inspected at the offices
of the NYSE, 20 Broad Street, New York, New York 10005 or the PSE, 301 Pine
Street, San Francisco, California 94104.
Conseco has filed the Registration Statement with the Commission with
respect to the Conseco Common Stock to be issued pursuant to or as contemplated
by the Merger Agreement. This Joint Proxy Statement/ Prospectus does not contain
all the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. Statements contained in this Joint Proxy Statement/Prospectus as to
the contents of any contract or other document filed as an exhibit to the
Registration Statement are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement. Each such statement is qualified in its
entirety by such reference. The Registration Statement and any amendments
thereto, including exhibits filed as a part thereof, are available for
inspection and copying as set forth above.
------------------------
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH
DOCUMENTS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE THEREIN, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS
DELIVERED, UPON WRITTEN OR ORAL REQUEST. WRITTEN REQUESTS FOR SUCH DOCUMENTS
RELATING TO CONSECO SHOULD BE DIRECTED TO JAMES W. ROSENSTEELE, SENIOR VICE
PRESIDENT, CORPORATE COMMUNICATIONS, CONSECO, INC., 11825 NORTH PENNSYLVANIA
STREET, CARMEL, INDIANA 46032, AND TELEPHONE REQUESTS MAY BE DIRECTED TO MR.
ROSENSTEELE AT (317) 817-2893. WRITTEN REQUESTS FOR SUCH DOCUMENTS RELATING TO
GREEN TREE SHOULD BE DIRECTED TO JOHN A. DOLPHIN, VICE PRESIDENT AND DIRECTOR OF
INVESTOR RELATIONS, GREEN TREE FINANCIAL CORPORATION, 1100 LANDMARK TOWERS,
SAINT PAUL, MINNESOTA 55102, AND TELEPHONE REQUESTS MAY BE DIRECTED TO MR.
DOLPHIN AT (612) 293-3400. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BEFORE JUNE 23, 1998.
i
<PAGE> 8
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Conseco and Green Tree,
respectively, with the Commission pursuant to the Exchange Act are incorporated
herein by this reference:
1. Conseco's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 ("Conseco's Annual Report"); Conseco's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998; Conseco's Current
Reports on Form 8-K dated February 4, 1998 and April 6, 1998; and the
description of Conseco Common Stock in Conseco's Registration Statements
filed pursuant to Section 12 of the Exchange Act, and any amendment or
report filed for the purpose of updating any such description.
2. Green Tree's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 ("Green Tree's Annual Report"); Green Tree's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998; and Green Tree's
Current Reports on Form 8-K dated January 15, 1998 (total of 20 separate
reports), January 22, 1998, January 27, 1998, January 30, 1998 (total of 2
separate reports), February 10, 1998, February 17, 1998 (total of 6
separate reports), February 18, 1998, February 19, 1998, March 10, 1998,
March 16, 1998 (total of 8 separate reports), March 18, 1998 (total of 3
separate reports including Form 8-K/A), March 19, 1998, March 23, 1998,
March 24, 1998, March 31, 1998 (total of 3 separate reports including Form
8-K/A), April 6, 1998, April 15, 1998 (total of 9 separate reports), April
21, 1998, April 27, 1998, April 28, 1998, May 7, 1998, May 18, 1998 and May
19, 1998.
In addition, the Merger Agreement and the Stock Option Agreement (as
hereinafter defined), copies of which are attached hereto as Annex A and Annex
B, respectively, are incorporated herein by reference.
All documents filed by Conseco and Green Tree pursuant to Section 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 of any securities offered hereby shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date any such document is filed. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes hereof to the extent that a statement
contained herein (or in any other subsequently filed document that also is
incorporated by reference herein) modifies or supersedes such statement. Any
statement so modified or superseded shall be deemed, except as so modified or
superseded, to constitute a part hereof. All information appearing in this Joint
Proxy Statement/Prospectus is qualified in its entirety by the information and
financial statements (including notes thereto) appearing in the documents
incorporated herein by reference, except to the extent set forth in the
immediately preceding statement.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements, trend analyses and other information contained in this
Joint Proxy Statement/Prospectus or any document incorporated by reference
herein relative to markets for Conseco's or Green Tree's products and trends in
Conseco'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
Conseco to sell its products, the ability of Green Tree to make loans and access
capital resources, the market value of Conseco's or Green Tree's investments,
the lapse rate and profitability of policies and the level of defaults and
prepayments of loans made by Green Tree; (2) Conseco's ability to achieve
anticipated levels of operational efficiencies at recently acquired companies,
as well as through other cost-saving initiatives; (3) customer response to new
products, distribution channels and marketing initiatives; (4) mortality,
morbidity, usage of health care services and other factors which may affect the
profitability of Conseco's insurance products; (5) changes in the Federal income
tax laws and
ii
<PAGE> 9
regulations which may affect the relative tax advantages of some of Conseco'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 Conseco's supplemental health insurance products; (8) the availability
and terms of future acquisitions; and (9) the risk factors or uncertainties
listed in this Joint Proxy Statement/Prospectus and from time to time in 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 Merger.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN. ANY INFORMATION OR REPRESENTATIONS WITH
RESPECT TO SUCH MATTERS NOT CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY CONSECO OR GREEN TREE. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY SECURITIES OR THE SOLICITATION OF ANY PROXY IN ANY JURISDICTION
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF CONSECO OR GREEN TREE SINCE THE
DATE HEREOF OR THAT THE INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS OR
IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THEREOF.
As used herein, unless the context otherwise clearly requires, "Conseco"
refers to Conseco, Inc. and its consolidated subsidiaries and "Green Tree"
refers to Green Tree Financial Corporation and its consolidated subsidiaries.
Capitalized terms not defined herein have the respective meanings specified in
the Merger Agreement.
iii
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION....................................... i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. ii
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........... ii
TABLE OF CONTENTS........................................... iv
SUMMARY..................................................... 1
Risk Factors.............................................. 1
The Companies............................................. 1
Meetings of Shareholders.................................. 2
The Merger................................................ 4
Selected Historical Consolidated Financial Data of
Conseco................................................ 10
Selected Historical Consolidated Financial Data of Green
Tree................................................... 12
Selected Unaudited Pro Forma Combined Financial Data...... 13
Comparative Unaudited Per Share Data of Conseco and Green
Tree................................................... 15
Market Price Information.................................. 17
RISK FACTORS................................................ 18
INFORMATION CONCERNING CONSECO AND MERGER SUB............... 19
INFORMATION CONCERNING GREEN TREE........................... 20
SHAREHOLDER MEETINGS........................................ 21
General................................................... 21
Matters to be Considered at the Meetings.................. 21
Voting at the Meetings; Record Date; Quorum............... 21
Proxies................................................... 23
THE MERGER.................................................. 25
Background of the Merger.................................. 25
Conseco's Reasons for the Merger; Recommendation of the
Conseco Board of Directors............................. 27
Opinion of Conseco's Financial Advisor.................... 28
Green Tree's Reasons for the Merger; Recommendation of the
Green Tree Board of Directors.......................... 33
Opinion of Green Tree's Financial Advisor................. 34
Certain Consequences of the Merger........................ 39
Conduct of the Business of Conseco and Green Tree After
the Merger............................................. 39
Interests of Certain Persons in the Merger................ 40
Accounting Treatment...................................... 41
Certain Federal Income Tax Consequences................... 41
Regulatory Approvals...................................... 42
NYSE Listing of Conseco Common Stock...................... 43
Federal Securities Law Consequences....................... 43
Absence of Appraisal Rights............................... 43
THE MERGER AGREEMENT........................................ 43
Terms of the Merger....................................... 43
Surrender and Payment..................................... 44
Fractional Shares......................................... 45
Conditions to the Merger.................................. 45
Representations and Warranties............................ 46
Conduct of Business Pending the Merger.................... 47
Green Tree Stock Options.................................. 48
Employee Benefit Plans.................................... 48
No Solicitation........................................... 49
Indemnification; Directors and Officers Insurance......... 49
</TABLE>
iv
<PAGE> 11
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Termination............................................... 50
Fees and Expenses......................................... 51
Amendment................................................. 52
Waiver.................................................... 52
THE STOCK OPTION AGREEMENT.................................. 52
CONSECO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS... 54
DESCRIPTION OF CONSECO CAPITAL STOCK........................ 62
Conseco Common Stock...................................... 62
Conseco PRIDES............................................ 63
COMPARISON OF SHAREHOLDERS' RIGHTS.......................... 65
Certain Provisions Relating to Acquisitions............... 65
Amendment of Bylaws....................................... 67
Right to Bring Business Before an Annual or Special
Meeting of Shareholders; Notice of Director
Nominations............................................ 67
Director Liability........................................ 68
Indemnification........................................... 68
Dividends and Repurchases................................. 69
Dissenters' Rights........................................ 69
Director and Officer Discretion........................... 69
MANAGEMENT OF THE SURVIVING CORPORATION UPON CONSUMMATION OF
THE MERGER................................................ 70
LEGAL MATTERS............................................... 70
EXPERTS..................................................... 70
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS AND AUDITORS...... 70
SHAREHOLDER PROPOSALS....................................... 70
OTHER MATTERS............................................... 71
Annex A -- Agreement and Plan of Merger
Annex B -- Stock Option Agreement
Annex C -- Opinion of Merrill Lynch & Co.
Annex D -- Opinion of Lehman Brothers Inc.
</TABLE>
v
<PAGE> 12
SUMMARY
The following is a summary of certain important terms of the proposed
Merger and related information contained elsewhere in this Joint Proxy
Statement/Prospectus. This summary is not intended to be complete and is
qualified in its entirety by reference to the more detailed information and
financial statements, including the notes thereto, contained elsewhere, or
incorporated by reference, in this Joint Proxy Statement/Prospectus and the
Annexes hereto. Except as otherwise indicated, all financial information in this
Joint Proxy Statement/Prospectus is presented in accordance with generally
accepted accounting principles ("GAAP"). Shareholders are urged to read this
Joint Proxy Statement/Prospectus, the Annexes hereto and the documents
incorporated herein by reference in their entirety. Unless otherwise defined
herein, capitalized terms used in this summary have the respective meanings
ascribed to them elsewhere in this Joint Proxy Statement/ Prospectus.
Shareholders of Conseco and Green Tree are urged to read this Joint Proxy
Statement/Prospectus and the Annexes hereto in their entirety and should
consider carefully the information set forth herein under "Risk Factors."
RISK FACTORS
In considering whether to approve the various matters pertaining to the
Merger, the shareholders of Conseco and Green Tree should consider, among other
things, that: (i) the Exchange Ratio is expressed in the Merger Agreement as a
fixed ratio and will not be adjusted in the event of any increase or decrease in
the price of the Conseco Common Stock or the price or value of Green Tree Common
Stock, nor will either party have the right to terminate the Merger Agreement or
elect not to consummate the Merger as a result of such changes; (ii) there can
be no assurance that synergies (such as potential cross-marketing of products)
and cost savings (primarily from lowering the cost of capital) currently
expected to result from the consummation of the Merger will be achieved or the
extent to which they will be achieved; (iii) there is uncertainty as to one-
time Merger-related costs and factors affecting valuation of certain assets and
(iv) certain directors and executive officers of Conseco and Green Tree have
interests in the Merger that are in addition to their interests as holders of
Conseco Common Stock or Green Tree Common Stock generally. See "Risk Factors."
THE COMPANIES
Conseco, Inc............... Conseco is a financial services holding company.
Conseco develops, markets and administers
supplemental health insurance, annuity, life
insurance, individual and group major medical
insurance and other insurance products. Since 1982,
Conseco has acquired 19 insurance groups. 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
acquisition of companies that have profitable niche
products and strong distribution systems. Once an
insurance 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 North
Pennsylvania Street, Carmel, Indiana 46032, and its
telephone number is (317) 817-6100. See
"Information Concerning Conseco and the Merger
Sub."
1
<PAGE> 13
Marble Acquisition Corp.... Merger Sub, a wholly owned subsidiary of Conseco,
was formed for the purposes of effecting the
Merger. To date, Merger Sub has not engaged in any
activities other than those incident to its
organization and the consummation of the Merger.
See "Information Concerning Conseco and Merger
Sub."
Green Tree Financial
Corporation................ 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 Green Tree 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.
Green Tree was originally incorporated under the
laws of the State of Minnesota in 1975. In 1995
Green Tree reincorporated under the laws of the
State of Delaware. Green Tree's principal executive
offices are located at 1100 Landmark Towers, 345
Saint Peter Street, Saint Paul, Minnesota
55102-1639, and its telephone number is (612)
293-3400. See "Information Concerning Green Tree."
MEETINGS OF SHAREHOLDERS
Time, Date and Place....... Conseco. The Conseco Special Meeting will be held
at 10:00 a.m., local time, on June 30, 1998 at the
Conseco Conference Center, 530 North College Drive,
Carmel, Indiana 46032 and at any adjournments or
postponements thereof.
Green Tree. The Green Tree Special Meeting will be
held at 10:00 a.m., local time, on June 30, 1998 at
The Saint Paul Hotel, 350 Market Street, Saint
Paul, Minnesota 55102 and at any adjournments or
postponements thereof.
Purpose of the Meetings.... Conseco. The purpose of the Conseco Special Meeting
is to consider and vote upon (i) a proposal to
approve the Merger Consideration Stock Issuance and
(ii) such other business as may properly come
before the Conseco Special Meeting or any
adjournments or postponements thereof. See
"Shareholder Meetings -- Matters to be Considered
at the Meetings -- Conseco."
Green Tree. The purpose of the Green Tree Special
Meeting is to consider and vote upon (i) a proposal
to approve and adopt the Merger Agreement and (ii)
such other business as may properly come before the
Green Tree Special Meeting or any adjournments or
postponements thereof. See "Shareholder
Meetings -- Matters to be Considered at the
Meetings -- Green Tree."
2
<PAGE> 14
Record Date, Shares
Entitled to Vote, Quorum... Conseco. Holders of record of Conseco Common Stock
and Conseco PRIDES at the close of business on May
21, 1998 (the "Conseco Record Date"), are entitled
to notice of and to vote, together as a single
class, at the Conseco Special Meeting. As of the
Conseco Record Date, there were 187,126,301 shares
of Conseco Common Stock outstanding and entitled to
vote and 1,889,400 shares of Conseco PRIDES
outstanding and entitled to vote. Each holder of
record of shares of Conseco Common Stock on the
Conseco Record Date is entitled to cast, either in
person or by properly executed proxy, one vote per
share of Conseco Common Stock on the Merger
Consideration Stock Issuance and such other
matters, if any, properly submitted for the vote of
the Conseco shareholders at the Conseco Special
Meeting. Each holder of record of shares of Conseco
PRIDES on the Conseco Record Date is entitled to
cast, either in person or by properly executed
proxy, four-fifths (4/5) of one vote per share of
Conseco PRIDES on the Merger Consideration Stock
Issuance and such other matters, if any, properly
submitted for the vote of the Conseco shareholders
at the Conseco Special Meeting. See "Shareholder
Meetings."
The presence, in person or by properly executed
proxy, of holders of Conseco Common Stock and
Conseco PRIDES representing a majority of the
voting power of all outstanding Conseco Stock at
the Conseco Special Meeting is necessary to
constitute a quorum at the Conseco Special Meeting.
See "Shareholder Meetings."
Green Tree. Holders of record of shares of Green
Tree Common Stock at the close of business on May
21, 1998 (the "Green Tree Record Date"), are
entitled to notice of and to vote at the Green Tree
Special Meeting. As of the Green Tree Record Date,
there were 134,058,353 shares of Green Tree Common
Stock outstanding and entitled to vote. Each holder
of record of shares of Green Tree Common Stock on
the Green Tree Record Date is entitled to cast,
either in person or by properly executed proxy, one
vote per share on the approval and adoption of the
Merger Agreement and the other matters, if any,
properly submitted for the vote of the Green Tree
shareholders at the Green Tree Special Meeting. See
"Shareholder Meetings."
The presence, in person or by properly executed
proxy, of the holders of stock representing a
majority of the voting power of all outstanding
shares of the Green Tree Common Stock at the Green
Tree Special Meeting is necessary to constitute a
quorum at the Green Tree Special Meeting. See
"Shareholder Meetings."
Vote Required.............. Conseco. Although approval of the Merger and the
Merger Agreement by the shareholders of Conseco is
not required under Indiana law because Conseco is
not a constituent corporation to the Merger, under
the rules of the NYSE, on which the Conseco Common
Stock is listed, the affirmative vote of a majority
of the voting power of the outstanding shares of
voting stock present and voting thereon (in person
or by proxy) is required for approval of the Merger
Consideration Stock Issuance, provided that the
total number of votes cast on such proposal must
represent more than 50% of the voting power of
Conseco Stock entitled to vote thereon at the
Conseco Special Meeting. See "Shareholder
3
<PAGE> 15
Meetings -- Voting at the Meetings; Record Date;
Quorum -- Conseco."
Green Tree. The approval and adoption by Green Tree
of the Merger Agreement will require the
affirmative vote of the holders of a majority of
the voting power of the outstanding shares of Green
Tree Common Stock entitled to vote thereon at the
Green Tree Special Meeting. See "Shareholder
Meetings -- Voting at the Meetings; Record Date;
Quorum -- Green Tree."
Share Ownership
of Management.............. Conseco. At the close of business on the Conseco
Record Date, directors and executive officers of
Conseco and their affiliates were the beneficial
owners of an aggregate of 19,055,474 shares of
Conseco Common Stock (excluding any shares subject
to options) and 1,000 shares of Conseco PRIDES. See
"Shareholder Meetings -- Voting at the Meetings;
Record Date; Quorum -- Conseco."
Green Tree. At the close of business on the Green
Tree Record Date, directors and executive officers
of Green Tree and their affiliates were the
beneficial owners of an aggregate of 5,357,775
shares of Green Tree Common Stock (excluding any
shares subject to options). See "Shareholder
Meetings -- Voting at the Meetings; Record Date;
Quorum -- Green Tree."
THE MERGER
Effect of Merger........... Upon consummation of the Merger, (i) Merger Sub
will be merged with and into Green Tree, with Green
Tree being the surviving corporation (the
"Surviving Corporation") and a wholly owned
subsidiary of Conseco; (ii) each outstanding share
of Green Tree Common Stock (other than shares of
Green Tree Common Stock held by Green Tree as
treasury stock or by its wholly owned subsidiaries
or Conseco) will be canceled and converted into
0.9165 (the "Exchange Ratio") of a share of Conseco
Common Stock; and (iii) each outstanding share of
common stock of Merger Sub will be converted into
one share of the common stock of the Surviving
Corporation. A copy of the Merger Agreement is
attached as Annex A to this Joint Proxy
Statement/Prospectus and is incorporated by
reference herein. See "The Merger Agreement."
Merger Consideration....... The Conseco Common Stock to be issued to holders of
shares of Green Tree Common Stock in accordance
with the Merger and any cash to be paid in lieu of
fractional shares of Conseco Common Stock are
referred to collectively as the "Merger
Consideration." Conseco will apply to have the
additional shares of Conseco Common Stock issued
pursuant to the Merger listed on the NYSE. See "The
Merger Agreement -- Conditions to the Merger."
No fractional shares of Conseco Common Stock will
be issued in the Merger. Each Green Tree
shareholder who otherwise would have been entitled
to a fraction of a share of Conseco Common Stock
will receive in lieu thereof cash in accordance
with the terms of the Merger Agreement. See "The
Merger Agreement -- Fractional Shares."
As soon as reasonably practicable after
consummation of the Merger, a letter of transmittal
(including instructions setting forth the
procedures
4
<PAGE> 16
for exchanging such holder's certificates
representing Green Tree Common Stock
("Certificates") for the Merger Consideration
payable to such holder pursuant to the Merger
Agreement) will be sent to each holder of record,
as of the Effective Time, of shares of Green Tree
Common Stock. Upon surrender of such Certificates
to the Exchange Agent (as defined herein) together
with a duly completed and executed letter of
transmittal, such holder will promptly receive the
Merger Consideration for each share of Green Tree
Common Stock previously represented by the
Certificates so surrendered. See "The Merger
Agreement -- Surrender and Payment."
Treatment of Existing
Options.................... From and after the Effective Time, each outstanding
unexpired option to purchase shares of Green Tree
Common Stock (a "Green Tree Stock Option") other
than the Conseco Option (as defined below), by
virtue of the terms of each such option, shall be
fully vested and shall represent an option to
purchase the number of shares of Conseco Common
Stock (a "Substitute Option") determined by
multiplying (i) the number of shares of Green Tree
Common Stock subject to such Green Tree Stock
Option immediately prior to the Effective Time by
(ii) the Exchange Ratio, at an exercise price per
share of Conseco Common Stock equal to the exercise
price per share of Green Tree Common Stock provided
therein divided by the Exchange Ratio, and
otherwise on the same terms and conditions as were
applicable under the Green Tree Stock Option
immediately prior to the Effective Time. See "The
Merger Agreement -- Green Tree Stock Options."
Board Recommendations
Regarding the Merger....... Conseco. The Conseco Board of Directors has
unanimously determined that the Merger is in the
best interests of Conseco and its shareholders and
has approved the Merger Agreement. THE CONSECO
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF CONSECO VOTE IN FAVOR OF THE MERGER
CONSIDERATION STOCK ISSUANCE AT THE CONSECO SPECIAL
MEETING. For a discussion of the relevant factors
considered by the Conseco Board of Directors in
making its recommendation and approving the Merger
Agreement, see "The Merger -- Conseco's Reasons for
the Merger; Recommendation of the Conseco Board of
Directors."
Green Tree. The Green Tree Board of Directors has
unanimously determined that the Merger is in the
best interests of Green Tree and its shareholders
and has approved the Merger Agreement. THE GREEN
TREE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
THE SHAREHOLDERS OF GREEN TREE VOTE IN FAVOR OF
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AT
THE GREEN TREE SPECIAL MEETING. For a discussion of
the interests that certain executive officers and
directors of Green Tree have with respect to the
Merger in addition to their interests as
shareholders of Green Tree generally and
information regarding the treatment of Green Tree
Stock Options and other rights of certain members
of the Green Tree Board, see "The
Merger -- Interests of Certain Persons in the
Merger." Such interests, together with other
relevant factors, were considered by the Green Tree
Board of Directors
5
<PAGE> 17
in making its recommendation and approving the
Merger Agreement. See "The Merger -- Green Tree's
Reasons for the Merger; Recommendation of the Green
Tree Board of Directors."
Opinion of Conseco's
Financial Advisor.......... Merrill Lynch & Co. ("Merrill Lynch") has delivered
its written opinion to the Board of Directors of
Conseco that, as of April 6, 1998, the Exchange
Ratio is fair, from a financial point of view, to
Conseco.
The full text of the written opinion of Merrill
Lynch, which sets forth assumptions made,
procedures followed, other matters considered and
limits of the review undertaken in connection with
the opinion, is attached hereto as Annex C and is
incorporated herein by reference. Holders of
Conseco Stock are urged to, and should, read such
opinion in its entirety. See "The Merger -- Opinion
of Conseco's Financial Advisor."
Opinion of Green Tree's
Financial Advisor.......... Lehman Brothers Inc. ("Lehman Brothers") has
delivered its written opinion to the Board of
Directors of Green Tree that, as of April 6, 1998,
the Exchange Ratio is fair, from a financial point
of view, to the shareholders of Green Tree.
The full text of the written opinion of Lehman
Brothers, which sets forth assumptions made,
procedures followed, other matters considered and
limits of the review undertaken in connection with
the opinion, is attached hereto as Annex D and is
incorporated herein by reference. Holders of Green
Tree Common Stock are urged to, and should, read
such opinion in its entirety. See "The
Merger -- Opinion of Green Tree's Financial
Advisor."
Certain Consequences of the
Merger..................... Upon consummation of the Merger, the Green Tree
shareholders will become shareholders of Conseco,
and each share of Green Tree Common Stock issued
and outstanding immediately prior to the
consummation of the Merger (other than shares held
by Green Tree as treasury stock or by its wholly
owned subsidiaries or Conseco) shall be converted
into the Merger Consideration. See "-- Merger
Consideration," "The Merger Agreement -- Terms of
the Merger" and "-- Fractional Shares." In
addition, Green Tree Stock Options will become
Substitute Options to purchase a number of shares
of Conseco Common Stock determined as described
under "The Merger Agreement -- Green Tree Stock
Options."
After consummation of the Merger, the current
Conseco shareholders will own approximately 62% of
the shares of Conseco Common Stock to be
outstanding after consummation of the Merger, and
the current Green Tree shareholders will own
approximately 38% of such shares. See "The
Merger -- Certain Consequences of the Merger."
Conduct of the Business of
Conseco and Green Tree
After the Merger........... Conseco plans for the operations of Green Tree in
general to remain in current locations after
consummation of the Merger. Conseco intends to
support and encourage Green Tree's continued growth
and product expansion. Conseco and Green Tree have
a similar "Middle America"
6
<PAGE> 18
customer focus, and they plan to cross-market their
products to the customer base of the combined
company. In addition, Conseco intends to seek to
finance the combined entity on a more efficient
basis and achieve other cost efficiencies where
possible. There can be no assurance that these
benefits will be realized from the Merger. See "The
Merger -- Conduct of the Business of Conseco and
Green Tree After the Merger."
The Merger Agreement provides that prior to or
concurrently with the Effective Time, Conseco's
Board of Directors will be expanded to add Mr.
Lawrence M. Coss, Chairman of the Board and Chief
Executive Officer of Green Tree, and one or two
additional persons at Conseco's option, selected by
Conseco among the individuals who were directors of
Green Tree as of April 6, 1998, as new directors of
Conseco. Conseco plans to add Mr. Robert S.
Nickoloff, a current director of Green Tree, as a
new director of Conseco. Pursuant to the Merger
Agreement, (i) the members of the Board of
Directors of Merger Sub immediately prior to the
consummation of the Merger shall become the
directors of the Surviving Corporation following
the consummation of the Merger, and (ii) the
officers of Green Tree immediately prior to the
consummation of the Merger shall be the officers of
the Surviving Corporation following the
consummation of the Merger. See "Management of the
Surviving Corporation Upon Consummation of the
Merger."
Effective Time of the
Merger..................... The Merger will become effective upon the filing of
a Certificate of Merger with the Secretary of State
of the State of Delaware or at such time thereafter
as is provided in the Certificate of Merger (the
"Effective Time"). See "The Merger
Agreement -- Terms of the Merger."
Conditions to the Merger... The obligations of Conseco and Green Tree to
consummate the Merger are subject to the
satisfaction of certain conditions, including,
without limitation, obtaining requisite Conseco and
Green Tree shareholder approvals, delivery to
Conseco and Green Tree of tax opinions, delivery to
Conseco and Green Tree of accountant "comfort
letters," delivery to Conseco of certain accountant
letters regarding pooling of interest accounting
treatment of the Merger, the continued accuracy of
the representations and warranties contained in the
Merger Agreement and the receipt of certain
governmental consents and approvals, including,
without limitation, certain consents and approvals
required under applicable banking and finance laws
and the expiration (or earlier termination) of the
relevant waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the
"HSR Act"). See "The Merger -- Regulatory
Approvals" and "The Merger Agreement -- Conditions
to the Merger." On May 5, 1998, Conseco and Green
Tree received notice of early termination of the
waiting period under the HSR Act.
Termination of the Merger
Agreement; Fees and
Expenses................... The Merger Agreement may be terminated at any time
prior to the Effective Time under certain
circumstances, including, among others: (i) by
mutual written consent of Conseco and Green Tree;
(ii) by either Conseco or Green Tree if the other
fails to comply in any material respect with any of
its covenants or agreements contained in the Merger
Agreement required to be complied with prior to the
date of such termination or materially breaches any
representation or warranty that is not qualified as
to materiality or breaches any representation or
warranty
7
<PAGE> 19
that is so qualified (in each case after a 30
business day cure period following notice of such
breach); (iii) by either Conseco or Green Tree if
the Merger has not been effected prior to the close
of business on December 31, 1998, subject to
certain limitations; (iv) by either Conseco or
Green Tree if the requisite shareholder approvals
are not obtained; (v) by Conseco or Green Tree if
Green Tree enters into a merger, acquisition or
other agreement to effect a Superior Proposal (as
defined below); (vi) by Conseco if the Board of
Directors of Green Tree, in breach of the Merger
Agreement, withdraws or modifies its recommendation
of the Merger, recommends a competing transaction
or fails to recommend against a tender or exchange
offer by a third party; and (vii) by Green Tree if
the Board of Directors of Conseco withdraws or
modifies its recommendation of the Merger. See "The
Merger Agreement -- Termination." The Merger
Agreement provides for the payment of termination
fees, not to exceed $200 million plus expenses,
following a termination of the Merger Agreement
under certain circumstances. See "The Merger
Agreement -- Fees and Expenses" and "The Stock
Option Agreement."
Stock Option Agreement..... In connection with the execution of the Merger
Agreement, Conseco and Green Tree entered into the
Stock Option Agreement, dated as of April 6, 1998
(the "Stock Option Agreement"), pursuant to which
Green Tree granted Conseco an option (the "Conseco
Option") to purchase up to 26,668,399 shares of
Green Tree Common Stock (or approximately 19.9% of
the outstanding shares of Green Tree Common Stock
as of the Green Tree Record Date, without including
any shares subject to or issued pursuant to the
Conseco Option) at an exercise price of $52.93 per
share (i.e., the closing sale price of Conseco
Common Stock on April 6, 1998 multiplied by the
Exchange Ratio). The Conseco Option is exercisable
only upon the occurrence of certain events and
provides Conseco the right, under certain
circumstances, to require Green Tree to purchase
for cash the unexercised portion of the Conseco
Option. The Conseco Option was a condition to
Conseco's entering into the Merger Agreement and it
might increase the likelihood of consummation of
the Merger by discouraging competing offers for
Green Tree. Certain aspects of the Stock Option
Agreement may have the effect of discouraging
persons who may now, or prior to the Effective
Time, be interested in acquiring all of or a
significant interest in Green Tree from considering
or proposing such an acquisition, even if such
persons were prepared to offer to pay consideration
to shareholders of Green Tree that had a higher
current market price than the shares of Conseco
Common Stock to be received for each share of Green
Tree Common Stock pursuant to the Merger Agreement.
A copy of the Stock Option Agreement is attached
hereto as Annex B to this Joint Proxy
Statement/Prospectus and is incorporated by
reference herein. See "The Stock Option Agreement."
Absence of Appraisal
Rights..................... Holders of Conseco Stock will not be entitled to
appraisal rights under the Indiana Business
Corporation Law (the "Indiana Corporation Law") in
connection with the Merger. Holders of Green Tree
Common Stock will not be entitled to appraisal
rights under the Delaware General
8
<PAGE> 20
Corporation Law (the "DGCL") in connection with the
Merger. See "The Merger -- Absence of Appraisal
Rights."
Certain Federal Income Tax
Consequences............... It is expected that the Merger will constitute a
reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), for
federal income tax purposes and, accordingly, no
gain or loss will be recognized by Green Tree
shareholders upon their exchange of Green Tree
Common Stock for Conseco Common Stock (except to
the extent of any cash received in lieu of a
fractional share interest in Conseco Common Stock).
See "The Merger -- Certain Federal Income Tax
Consequences."
Accounting Treatment....... The Merger is expected to be accounted for as a
"pooling of interests" in accordance with GAAP. See
"The Merger -- Accounting Treatment."
Comparison of Shareholders'
Rights..................... Upon consummation of the Merger, the Green Tree
shareholders will become shareholders of Conseco.
See "Comparison of Shareholders' Rights" for a
summary of the material differences between the
rights of holders of Conseco Common Stock and Green
Tree Common Stock. These differences arise from the
distinctions between the laws of the jurisdictions
in which Conseco and Green Tree are incorporated
(Indiana and Delaware, respectively) and the
distinctions between the articles of incorporation
and bylaws of Conseco and the certificate of
incorporation and bylaws of Green Tree.
9
<PAGE> 21
SELECTED FINANCIAL DATA
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF CONSECO
The selected consolidated financial data for Conseco are based on and
derived from, and should be read in conjunction with, the historical
consolidated financial statements and the related notes thereto of Conseco.
Conseco's consolidated balance sheets at December 31, 1997 and 1996, and the
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 Coopers & Lybrand L.L.P., independent accountants, and are included in
Conseco's Annual Report which is incorporated by reference herein. The selected
consolidated financial data for Conseco should be read in conjunction with
Conseco's Annual Report. The selected consolidated financial data for Conseco
set forth for the three months ended March 31, 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 three months ended March 31, 1998 may not be
indicative of the results of operations to be expected for a full year. See
"Incorporation of Certain Documents by Reference."
The comparison of selected historical financial information in the table
below is significantly affected by: (i) the acquisitions consummated by Conseco
Capital Partners, L.P. 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 Annual Report, which is incorporated herein by reference.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 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.................... $ 990.1 $ 670.1 $ 3,410.8 $ 1,654.2 $ 1,465.0 $ 1,285.6 $ 1,293.8
Net investment income...................... 583.3 409.2 1,825.3 1,302.5 1,142.6 385.7 896.2
Net investment gains (losses).............. 104.8 5.1 266.5 60.8 204.1 (30.5) 242.6
Total revenues............................. 1,699.0 1,099.0 5,568.4 3,067.3 2,855.3 1,862.0 2,636.0
Interest expense on notes payable.......... 39.0 25.8 109.4 108.1 119.4 59.3 58.0
Total benefits and expenses................ 1,380.8 903.6 4,565.3 2,573.7 2,436.8 1,537.6 2,025.8
Income before income taxes, minority
interest and extraordinary charge........ 318.2 195.4 1,003.1 493.6 418.5 324.4 610.2
Extraordinary charge on extinguishment of
debt, net of tax......................... 16.4 3.3 6.9 26.5 2.1 4.0 11.9
Net income................................. 151.1 111.5 567.3 252.4 220.4 150.4 297.0
Preferred stock dividends and charge
related to induced conversions of
convertible preferred stock.............. 2.0 14.6 21.9 27.4 18.4 18.6 20.6
Net income applicable to common stock...... 149.1 96.9 545.4 225.0 202.0 131.8 276.4
</TABLE>
10
<PAGE> 22
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 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>
PER SHARE DATA(A)
Net income, basic.......................... $ .80 $ .55 $ 2.94 $ 2.15 $ 2.48 $ 1.31 $ 2.74
Net income, diluted........................ .73 .49 2.64 1.82 2.12 1.22 2.20
Dividends declared per common share........ .125 .031 .313 .083 .046 .125 .075
Book value per common share outstanding.... 20.26 17.15 20.22 16.86 10.22 5.22 8.45
Shares outstanding at period end........... 186.8 183.2 186.7 167.1 81.0 88.7 101.2
Weighted average shares outstanding for
diluted earnings......................... 207.9 203.6 210.2 138.9 103.9 123.4 133.8
BALANCE SHEET -- AT PERIOD END
Total assets............................... $35,923.9 $27,477.2 $35,861.5 $25,612.7 $17,297.5 $10,811.9 $13,749.3
Notes payable for which Conseco is directly
liable and commercial paper.............. 2,435.1 1,268.1 2,354.9 1,094.9 871.4 191.8 413.0
Notes payable of affiliates, not direct
obligations of Conseco................... -- -- -- -- 584.7 611.1 290.3
Total liabilities.......................... 30,634.8 23,228.8 30,586.8 21,829.7 15,782.5 9,743.2 12,382.9
Minority interest in consolidated
subsidiaries:
Company-obligated mandatorily redeemable
preferred securities of subsidiary
trusts................................. 1,388.1 900.0 1,383.9 600.0 -- -- --
Preferred stock.......................... -- 72.6 -- 97.0 110.7 130.1 --
Common stock............................. .7 .7 .7 .7 292.6 191.6 223.8
Shareholders' equity....................... 3,900.3 3,275.1 3,890.1 3,085.3 1,111.7 747.0 1,142.6
OTHER FINANCIAL DATA(B)
Premiums collected(c)...................... $ 1,469.8 $ 1,057.0 $ 5,055.7 $ 3,280.2 $ 3,106.5 $ 1,879.1 $ 2,140.1
Operating earnings(d)...................... 167.5 119.1 574.9 267.7 131.3 151.7 162.0
Operating earnings per diluted common
share(a)(d).............................. .81 .59 2.74 1.93 1.26 1.23 1.20
Assets under management (at fair
value)(e)................................ 35,263.5 32,229.7 32,079.0 31,109.0 24,725.0 23,113.0 18,260.0
Shareholders' equity, excluding unrealized
appreciation (depreciation) of fixed
maturity securities at period end(f)..... 3,741.3 3,399.9 3,712.9 3,045.5 999.1 884.7 1,055.2
Book value per common share, excluding
unrealized appreciation (depreciation) of
fixed maturity securities at period
end(a)(f)................................ 19.41 17.83 19.27 16.62 8.83 6.77 7.58
</TABLE>
- -------------------------
(a) 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.
(b) Amounts under this heading are included to assist the reader in analyzing
Conseco's financial position and results of operations. Such amounts are not
intended to, and do not, represent insurance policy income, net income, net
income per share, invested assets, shareholders' equity or book value per
share prepared in accordance with GAAP.
(c) Includes premiums received from universal life and products without
mortality or morbidity risk. Such premiums are not reported as revenues
under GAAP and were $533.1 million and $456.8 million in the three months
ended March 31, 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.
(d) Represents income before extraordinary charge, excluding net investment
gains (losses) (less that portion of change in future policy benefits,
amortization of cost of policies purchased and cost of policies produced and
income taxes relating to such gains (losses)) and nonrecurring activities
(net of income taxes).
(e) Represents the total market value of the investment portfolios managed by
Conseco Capital Management, Inc. ("CCM") including assets of Conseco's
subsidiaries of $27.0 billion and $20.0 billion at March 31, 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 $8.3 billion and $12.2
billion at March 31, 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.
(f) Excludes the effect of reporting fixed maturities at fair value and
recording the unrealized gain or loss on such securities as a component of
shareholders' equity, net of tax and other adjustments. Such adjustments are
in accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115"), as described in the notes to the consolidated financial statements
included in Conseco's Annual Report, which is incorporated herein by
reference.
11
<PAGE> 23
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF GREEN TREE
The selected consolidated financial data for Green Tree are based on and
derived from, and should be read in conjunction with, the historical
consolidated financial statements and the related notes thereto of Green Tree.
Green Tree's consolidated balance sheets at December 31, 1997 and 1996, and the
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 1997, 1996 and 1995 and notes thereto were audited
by KPMG Peat Marwick LLP, independent auditors, and are included in Green Tree's
Annual Report which is incorporated by reference herein. The selected
consolidated financial data for Green Tree should be read in conjunction with
Green Tree's Annual Report. The selected consolidated financial data for Green
Tree set forth for the three months ended March 31, 1998 and 1997 are unaudited;
however, in the opinion of Green Tree'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 three months ended March 31, 1998 may not be
indicative of the results of operations to be expected for a full year. See
"Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------------- -----------------------------------------------------------
1998 1997(A) 1997 1996(A) 1995 1994 1993
---- ------- ---- ------- ---- ---- ----
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Interest income..................... $ 101.0 $ 75.4 $ 370.6 $ 215.3 $ 176.0 $ 111.4 $ 112.5
Gain on sale of receivables......... 129.1 153.4 546.8 389.7 448.7 320.4 201.9
Total revenues...................... 285.8 267.2 1,091.5 724.1 711.3 497.4 366.7
Interest expense on notes payable... 48.5 29.8 160.9 70.1 57.3 41.6 51.2
Total expenses...................... 183.4 119.1 605.4 400.3 301.7 195.3 166.1
Income before income taxes.......... 102.4 148.1 486.1 323.8 409.6 302.1 200.6
Net income.......................... 63.5 91.8 301.4 200.8 254.0 181.3 116.4
PER SHARE DATA
Net income, basic................... $ .47 $ .66 $ 2.20 $ 1.47 $ 1.86 $ 1.34 $ .93
Net income, diluted................. .47 .65 2.15 1.43 1.81 1.31 .90
Dividends declared per common
share............................. .088 .075 .330 .260 .200 .120 .085
Book value per common share
outstanding....................... 10.06 8.55 9.90 8.26 6.83 5.37 4.10
Shares outstanding at period end.... 134.1 141.1 134.6 137.7 135.5 135.3 134.1
Weighted average shares outstanding
for diluted earnings.............. 135.8 142.2 140.3 140.6 140.1 138.7 128.8
BALANCE SHEET -- AT PERIOD END
Total assets........................ $ 5,255.2 $ 3,563.3 $ 4,866.8 $ 3,098.0 $ 2,220.2 $1,687.8 $1,517.4
Notes payable and commercial
paper............................. 2,059.1 1,024.3 1,866.3 762.5 383.5 309.3 515.0
Total liabilities................... 3,906.0 2,357.2 3,534.7 1,960.5 1,295.2 961.9 968.0
Stockholders' equity................ 1,349.2 1,206.1 1,332.1 1,137.5 925.0 725.9 549.4
OTHER FINANCIAL DATA(B)
Managed receivables at period
end(c)............................ $29,902.0 $21,343.0 $27,957.0 $20,073.0 $13,888.0 $9,821.0 $7,194.0
Securitized assets sold............. 2,917.8 1,820.1 10,749.2 8,413.7 5,334.9 4,370.2 2,345.8
</TABLE>
- -------------------------
(a) As more fully described in the consolidated financial statements and the
related notes thereto of Green Tree included in Green Tree's Annual Report,
which is incorporated herein by reference, financial data for the year ended
December 31, 1996 and balance sheet data at March 31, 1997 have been
restated to correct the December 31, 1996 valuation of Green Tree's excess
servicing rights and the expense related to the Chief Executive Officer's
stock bonus plan.
(b) Amounts under this heading are included to assist the reader in analyzing
Green Tree's financial position and results of operations. Such amounts are
not intended to, and do not, represent the receivables or revenues of Green
Tree prepared in accordance with GAAP.
(c) Represents the total fixed term 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.
12
<PAGE> 24
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The unaudited pro forma combined financial data have been prepared giving
effect to the Merger as a pooling of interests. See "The Merger -- Accounting
Treatment." The unaudited pro forma combined statement of operations data for
the three months ended March 31, 1998 and 1997, and for each of the five years
in the period ended December 31, 1997, assume that the Merger had been
consummated at the beginning of the earliest period presented. The selected
unaudited pro forma combined balance sheet data at March 31, 1998 assume the
Merger had been consummated at March 31, 1998. The selected unaudited pro forma
combined statement of operations data, net income per basic share, net income
per diluted share, operating earnings and operating earnings per diluted share
do not reflect any anticipated reorganization or restructuring expenses
resulting from the Merger. The information set forth in the unaudited pro forma
combined financial data should be read in connection with the unaudited pro
forma combined financial statements and notes thereto appearing elsewhere
herein. See "Conseco Unaudited Pro Forma Combined Financial Statements." The pro
forma amounts are not necessarily indicative of the results of operations or the
combined financial position that would have resulted had the Merger been
consummated at the beginning of the period indicated, nor are they necessarily
indicative of future results of operations or financial position.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, 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..................... $ 990.1 $ 670.1 $ 3,410.8 $1,654.2 $1,465.0 $1,285.6 $1,293.8
Net investment income....................... 684.3 484.6 2,195.9 1,517.8 1,318.6 497.1 1,008.7
Gain on sale of receivables................. 129.1 153.4 546.8 389.7 448.7 320.4 201.9
Net investment gains (losses)............... 104.8 5.1 266.5 60.8 204.1 (30.5) 242.6
Total revenues.............................. 1,984.8 1,366.2 6,659.9 3,791.4 3,566.6 2,359.4 3,002.7
Interest expense on notes payable........... 87.5 55.6 270.3 178.2 176.7 100.9 109.2
Total benefits and expenses................. 1,564.2 1,022.7 5,170.7 2,974.0 2,738.5 1,732.9 2,192.0
Income before income taxes, minority
interest and extraordinary charge......... 420.6 343.5 1,489.2 817.4 828.1 626.5 810.7
Extraordinary charge on extinguishment of
debt, net of tax.......................... 16.4 3.3 6.9 26.5 2.1 4.0 11.9
Net income.................................. 214.6 203.3 868.7 453.2 474.4 331.7 413.4
Preferred stock dividends and charge related
to induced conversions of convertible
preferred stock........................... 2.0 14.6 21.9 27.4 18.4 18.6 20.6
Net income applicable to common stock....... 212.6 188.7 846.8 425.8 456.0 313.1 392.8
PER SHARE DATA
Net income, basic........................... $ .69 $ .62 $ 2.72 $ 1.85 $ 2.21 $ 1.40 $ 1.82
Net income, diluted......................... .65 .57 2.53 1.69 2.04 1.32 1.63
Book value per common share
outstanding(a)............................ 15.80
Shares outstanding at period end............ 309.7 309.8 310.0 293.3 205.2 212.7 224.1
Weighted average shares outstanding for
diluted earnings.......................... 332.4 334.0 338.7 267.7 232.3 250.5 251.8
BALANCE SHEET -- AT PERIOD END
Total assets................................ $41,136.7
Notes payable and commercial paper:
Corporate................................. 2,435.1
Related to finance receivables............ 2,059.1
Total liabilities........................... 34,738.4
Minority interest in consolidated
subsidiaries:
Company-obligated mandatorily redeemable
preferred securities of subsidiary
trusts.................................. 1,388.1
Common stock.............................. .7
Shareholders' equity(a)..................... 5,009.5
OTHER FINANCIAL DATA(B)
Operating earnings(c)....................... $ 231.0 $ 210.9 $ 876.3 $ 468.5 $ 385.3 $ 333.0 $ 278.4
Operating earnings per diluted common
share(c).................................. .69 .63 2.59 1.75 1.66 1.33 1.10
Assets under management and managed
receivables(d)............................ 65,165.5
Shareholders' equity, excluding unrealized
appreciation (depreciation) of fixed
maturity securities at period end(e)...... 4,850.5
Book value per common share, excluding
unrealized appreciation (depreciation) of
fixed maturity securities at period
end(e).................................... 15.29
</TABLE>
(footnotes
on next page)
13
<PAGE> 25
(footnotes from previous page)
- -------------------------
(a) Pro forma shareholders' equity and book value per share are shown after
deducting Merger-related costs of $240 million, net of income tax.
(b) Amounts under this heading are included to assist the reader in analyzing
the pro forma combined financial position and results of operations of
Conseco and Green Tree. Such amounts are not intended to, and do not,
represent net income, net income per share, invested assets and receivables,
shareholders' equity or book value per share prepared in accordance with
GAAP.
(c) 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).
(d) Represents the total market value of the investment portfolios managed by
CCM, including assets of Conseco subsidiaries of $27.0 billion and assets of
unaffiliated parties of $8.3 billion, and 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.
(e) Excludes the effect of reporting fixed maturities at fair value and
recording the unrealized gain or loss on such securities as a component of
shareholders' equity, net of tax and other adjustments. Such adjustments are
in accordance with SFAS 115, as described in the notes to the consolidated
financial statements included in Conseco's Annual Report, which is
incorporated herein by reference.
14
<PAGE> 26
COMPARATIVE UNAUDITED PER SHARE DATA
OF CONSECO AND GREEN TREE
The following table presents: (i) the selected comparative per share data
for each of Conseco and Green Tree on a historical basis and (ii) the selected
unaudited pro forma comparative per share data reflecting the consummation of
the Merger. The unaudited pro forma comparative per share data assume the Merger
had been consummated at the beginning of the periods presented. The unaudited
pro forma data have been prepared giving effect to the Merger as a pooling of
interests.
Under the pooling of interests method of accounting, the historical bases
of the assets and liabilities of Conseco and Green Tree will be combined at the
Effective Time and carried forward at their previously recorded amounts. The
shareholders' equity accounts of Conseco and Green Tree will be combined on
Conseco's consolidated balance sheet and no goodwill or other intangible assets
will be created. Financial statements of Conseco issued after the Merger will be
restated retroactively to reflect the consolidated operations of Conseco and
Green Tree as if the Merger had taken place prior to the periods covered by such
financial statements.
The unaudited pro forma basic earnings per share and diluted earnings per
share data do not reflect any expenses associated with the Merger such as
investment banking, accounting, legal and regulatory filing fees and other
merger related expenses. The Green Tree pro forma equivalent amounts are
presented with respect to each set of pro forma information, and have been
calculated by multiplying the corresponding pro forma combined amounts per share
of Conseco Common Stock by the Exchange Ratio.
Conseco and Green Tree expect that the combined company will achieve
benefits from the Merger in the form of synergies and cost savings. However, the
unaudited pro forma comparative per share data do not reflect any synergies and
cost savings which are expected to result from the consolidation of operations
of Conseco and Green Tree, and therefore, do not purport to be indicative of the
results of future operations.
The comparative per share data presented herein are based on and derived
from, and should be read in conjunction with, the historical consolidated
financial statements and the related notes thereto of each of Conseco and Green
Tree included in the documents incorporated by reference herein. See
"Incorporation of Certain Documents by Reference." Pro forma amounts are not
necessarily indicative of the results of operations or the combined financial
position that would have resulted had the Merger been consummated at the
beginning of the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, ------------------------
1998 1997 1996 1995
------------ ---- ---- ----
<S> <C> <C> <C> <C>
Basic earnings per share
Conseco(1)
Historical........................................... $ .80 $ 2.94 $2.15 $2.48
Pro forma combined................................... .69 2.72 1.85 2.21
Green Tree
Historical........................................... .47 2.20 1.47 1.86
Pro forma equivalent(2).............................. .63 2.49 1.70 2.03
Diluted earnings per share
Conseco(1)
Historical........................................... .73 2.64 1.82 2.12
Pro forma combined................................... .65 2.53 1.69 2.04
Green Tree
Historical........................................... .47 2.15 1.43 1.81
Pro forma equivalent(2).............................. .60 2.32 1.55 1.87
</TABLE>
15
<PAGE> 27
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, ------------------------
1998 1997 1996 1995
------------ ---- ---- ----
<S> <C> <C> <C> <C>
Dividends declared per common share
Conseco(1)
Historical........................................... $ .125 $ .313 $.083 $.046
Pro forma combined(3)................................ .125 .313 .083 .046
Green Tree
Historical........................................... .088 .330 .260 .200
Pro forma equivalent(2).............................. .115 .286 .076 .042
Book value per common share at period end
Conseco(1)
Historical........................................... $ 20.26 $20.22
Pro forma combined................................... 15.80 15.70
Green Tree
Historical........................................... 10.06 9.90
Pro forma equivalent(2).............................. 14.48 14.39
</TABLE>
- -------------------------
(1) Per share information has been restated to reflect the 2-for-1 stock splits
of Conseco distributed April 1, 1996, and February 11, 1997.
(2) Pro forma equivalent amounts for Green Tree are calculated by multiplying
the pro forma combined amounts by the Exchange Ratio.
(3) Pro forma combined dividends per share represent historical dividends per
share paid by Conseco.
16
<PAGE> 28
MARKET PRICE INFORMATION
Conseco Common Stock is traded on the NYSE under the symbol "CNC". Green
Tree Common Stock is traded on the NYSE and the PSE under the symbol "GNT". The
table below sets forth for the periods indicated the high and low sale prices
per share of Conseco Common Stock and Green Tree Common Stock and the dividends
paid per share of Conseco Common Stock and Green Tree Common Stock. For current
price information with respect to the Conseco Common Stock and Green Tree Common
Stock, shareholders are urged to consult publicly available sources. No
assurance can be given as to future prices of, or markets for, Conseco Common
Stock or Green Tree Common Stock.
<TABLE>
<CAPTION>
CONSECO COMMON STOCK GREEN TREE COMMON STOCK
----------------------------- -----------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
---- --- --------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
1996
First Quarter........................... $18.16 $14.94 $.00500 $36.00 $23.25 $.0625
Second Quarter.......................... $20.38 $17.38 $.01000 $35.13 $30.38 $.0625
Third Quarter........................... $24.69 $17.63 $.01000 $39.25 $30.13 $.0625
Fourth Quarter.......................... $33.13 $24.44 $.03125 $41.88 $36.63 $.0750
1997
First Quarter........................... $43.88 $30.75 $.03125 $41.88 $33.75 $.0750
Second Quarter.......................... $42.88 $34.25 $.03125 $38.38 $26.75 $.0750
Third Quarter........................... $50.00 $35.13 $.03125 $48.63 $35.06 $.0875
Fourth Quarter.......................... $50.06 $39.88 $.12500 $50.25 $19.00 $.0875
1998
First Quarter........................... $57.88 $38.50 $.12500 $30.75 $17.50 $.0875
Second Quarter (through May 26, 1998)... $58.13 $47.44 $.12500 $44.31 $27.63 $ --
</TABLE>
Set forth below are the last reported sale prices of the Conseco Common
Stock and the Green Tree Common Stock on April 6, 1998, the last trading day
prior to the public announcement of the Merger Agreement, and on May 26, 1998,
the last trading day prior to the date of this Joint Proxy Statement/
Prospectus, as well as the equivalent pro forma sale prices of the Green Tree
Common Stock on such dates, as determined by multiplying the applicable last
reported sale price of the Conseco Common Stock on the NYSE by the Exchange
Ratio.
<TABLE>
<CAPTION>
CONSECO GREEN TREE GREEN TREE
COMMON STOCK COMMON STOCK EQUIVALENT
------------ ------------ ----------
<S> <C> <C> <C>
April 6, 1998.......................................... $57.75 $29.00 $52.88
May 26, 1998........................................... 47.56 40.69 43.59
</TABLE>
Listing on the NYSE of the shares of Conseco Common Stock issuable in
connection with the Merger is a condition to consummation of the Merger. See
"The Merger Agreement -- Conditions to the Merger."
17
<PAGE> 29
RISK FACTORS
In addition to the other information contained in this Joint Proxy
Statement/Prospectus, shareholders of each of Conseco and Green Tree should
consider the following factors before voting on matters pertaining to the
Merger.
FIXED EXCHANGE RATIO DESPITE CHANGES IN RELATIVE STOCK PRICES
The Exchange Ratio establishing the percentage of a share of Conseco Common
Stock into which each share of Green Tree Common Stock will be converted is
expressed in the Merger Agreement as a fixed ratio. Accordingly, the Exchange
Ratio will not be adjusted in the event of any increase or decrease in the price
of Conseco Common Stock or the price or value of Green Tree Common Stock. In
addition, neither party will have the right to terminate the Merger Agreement or
elect not to consummate the Merger as a result of the changes in the prices of
such stocks. The price of Conseco Common Stock at the Effective Time may vary
from its price at the date of execution of the Merger Agreement, the date of
this Joint Proxy Statement/ Prospectus and at the date of the Special Meetings.
Such variations may be the result of changes in the business, operations or
prospects of Conseco or Green Tree, market assessments of the likelihood that
the Merger will be consummated and the timing thereof, regulatory
considerations, general market and economic conditions and other factors.
Because the Effective Time may occur at a date later than the Special Meetings,
there can be no assurance that the price of Conseco Common Stock on the date of
the Special Meetings will be indicative of its price at the Effective Time. The
Effective Time will occur as soon as practicable following the Special Meetings
and the satisfaction or waiver of the other conditions set forth in the Merger
Agreement. Shareholders of Conseco and Green Tree are urged to obtain current
market quotations for Conseco Common Stock. See "The Merger Agreement -- Terms
of the Merger" and "-- Conditions to the Merger."
UNCERTAINTIES IN REALIZING SYNERGIES OF MERGER
In determining that the Merger is advisable and in the best interests of
its shareholders, each of the Conseco Board of Directors and the Green Tree
Board of Directors considered, among other things, certain synergies, such as
potential cross-marketing of products, and cost savings, primarily from lowering
the cost of capital, expected to result from the consummation thereof. The
cross-marketing of products and the other synergies anticipated from the Merger
present significant management challenges. There can be no assurance that such
actions will be successfully accomplished, or accomplished as expeditiously as
currently expected. Moreover, there can be no assurance of the extent to which
such synergies and cost savings will be achieved.
UNCERTAINTY AS TO THE AMOUNT OF ONE-TIME MERGER-RELATED COSTS; FACTORS AFFECTING
VALUATION OF CERTAIN ASSETS
In connection with the Merger, Conseco expects to incur costs of
approximately $240 million (net of income taxes). Such costs include investment
banking, accounting, legal and regulatory fees, severance and retention costs
and other costs associated with the Merger. There can be no assurance that the
amount of such costs will not increase as more accurate estimates become
possible. See "Unaudited Pro Forma Combined Financial Information."
Green Tree pools and securitizes substantially all of the loan contracts it
originates, retaining: (i) investments in interest-only securities that are
subordinated to the rights of other investors and (ii) the servicing on the
contracts. The valuation of interest-only securities and servicing rights is
determined by discounting the projected cash flows over the expected life of the
finance receivables sold using prepayment, default, loss, servicing cost and
discount rate assumptions. Impairment in the value of interest-only securities
considered other than temporary is recognized as a reduction to earnings, while
impairment that is temporary is recognized as a reduction to shareholders'
equity. Impairment in the value of servicing rights is recognized as a reduction
in earnings. The assumptions used in calculating the value of interest-only
securities and servicing rights are subject to volatility. Prepayments resulting
from competition, obligor mobility, general and regional economic conditions,
and prevailing interest rates, as well as actual losses incurred, may vary from
the performance projected in future periods. Assumptions with respect to future
prepayments, defaults, losses, servicing costs and discount rates are reviewed
periodically. As disclosed in its Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998, Green Tree realized a material writedown of its interest-
18
<PAGE> 30
only securities due to higher than expected prepayments. Prepayments have
continued to exceed expectations in April 1998. If prepayments continue above
expectations, or upon review certain other assumptions are revised, it is likely
that there will be a further material writedown in the value of the
interest-only securities and servicing rights and this reduction in value could
materially affect operating results. Any adjustments to be made in future
periods will depend on circumstances existing at that time.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Merger, the shareholders of both
Conseco and Green Tree should be aware that certain executive officers and
directors of Conseco and Green Tree may have interests in the Merger that are in
addition to their interests as shareholders of Conseco and Green Tree generally.
See "The Merger -- Interests of Certain Persons." Such interests, together with
other relevant factors, were considered by the Boards of Directors of Conseco
and Green Tree in recommending the Merger to their respective shareholders and
approving the Merger Agreement.
INFORMATION CONCERNING CONSECO AND MERGER SUB
Conseco is a financial services holding company. Conseco develops, markets
and administers supplemental health insurance, annuity, life insurance,
individual and group major medical insurance and other insurance products. Since
1982, Conseco has acquired 19 insurance groups. 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 an insurance
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.
Conseco conducts and manages 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 two-part federal
health insurance program for disabled persons and senior citizens (age 65 and
older). Medicare supplement policies provide coverage for many of the medical
expenses which the Medicare program does not cover, such as deductibles and
coinsurance costs (in which the insured and Medicare share the costs of medical
expenses) and specified losses which exceed the federal program's maximum
benefits. Long-term care products provide coverage, within prescribed limits,
for nursing home, home health care, or a combination of both nursing home and
home health care expenses. Beginning in 1997, the supplemental health segment
includes specified disease products such as cancer and heart/stroke insurance.
These policies generally provide fixed or limited benefits. Payments under
cancer insurance policies are generally made 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.
19
<PAGE> 31
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 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
and other documents filed with the Commission and listed or described under
"Incorporation of Certain Documents by Reference."
Merger Sub, a wholly owned subsidiary of Conseco, was formed for the
purposes of effecting the Merger. To date, the Merger Sub has not engaged in any
activities other than those incident to its organization and the consummation of
the Merger.
INFORMATION CONCERNING GREEN TREE
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.
Green Tree was originally incorporated under the laws of the State of
Minnesota in 1975. In 1995 Green Tree reincorporated under the laws of the State
of Delaware. Green Tree's principal executive offices are located at 1100
Landmark Towers, 345 Saint Peter Street, Saint Paul, Minnesota 55102-1639, and
its telephone number is (612) 293-3400.
For additional information concerning Green Tree, see Green Tree's Annual
Report and other documents filed with the Commission and listed or described
under "Incorporation of Certain Documents by Reference."
20
<PAGE> 32
SHAREHOLDER MEETINGS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of
shares of Conseco Stock in connection with the solicitation of proxies by the
Conseco Board of Directors for use at the Conseco Special Meeting to be held on
June 30, 1998, at the Conseco Conference Center, 530 North College Drive,
Carmel, Indiana, commencing at 10:00 a.m., local time, and at any adjournments
or postponements thereof.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
Green Tree Common Stock in connection with the solicitation of proxies by the
Green Tree Board of Directors for use at the Green Tree Special Meeting to be
held on June 30, 1998, at The Saint Paul Hotel, 350 Market Tower, Saint Paul,
Minnesota, commencing at 10:00 a.m., local time, and at any adjournments or
postponements thereof.
MATTERS TO BE CONSIDERED AT THE MEETINGS
Conseco. At the Conseco Special Meeting, holders of shares of Conseco Stock
will consider and vote upon (i) a proposal to approve the Merger Consideration
Stock Issuance and (ii) such other business as may properly come before the
Conseco Special Meeting or any adjournments or postponements thereof.
The Conseco Board of Directors has unanimously approved the Merger
Agreement and the Merger Consideration Stock Issuance and unanimously recommends
that Conseco shareholders vote FOR approval of the Merger Consideration Stock
Issuance. See "The Merger -- Background of the Merger" and "-- Conseco's Reasons
for the Merger; Recommendation of the Conseco Board of Directors."
Holders of shares of Conseco Stock will not be entitled to appraisal rights
under the Indiana Corporation Law as a result of the Merger. See "The
Merger -- Absence of Appraisal Rights."
Green Tree. At the Green Tree Special Meeting, holders of shares of Green
Tree Common Stock will consider and vote upon (i) a proposal to approve and
adopt the Merger Agreement and (ii) such other business as may properly come
before the Green Tree Special Meeting or any adjournments or postponements
thereof.
The Green Tree Board of Directors has unanimously approved the Merger
Agreement and unanimously recommends that Green Tree shareholders vote FOR
approval and adoption of the Merger Agreement. See "The Merger -- Background of
the Merger" and "-- Green Tree's Reasons for the Merger; Recommendation of the
Green Tree Board of Directors."
Holders of shares of Green Tree Common Stock will not be entitled to
appraisal rights under the DGCL as a result of the Merger. See "The Merger --
Absence of Appraisal Rights."
VOTING AT THE MEETINGS; RECORD DATE; QUORUM
Conseco. The Conseco Board of Directors has fixed May 21, 1998 as the
Conseco Record Date. Accordingly, only holders of record of shares of Conseco
Common Stock and Conseco PRIDES on the Conseco Record Date will be entitled to
notice of and to vote, together as a single class, at the Conseco Special
Meeting. As of the Conseco Record Date, there were 187,126,301 shares of Conseco
Common Stock outstanding and entitled to vote, and 1,889,400 shares of Conseco
PRIDES outstanding and entitled to vote. Each holder of record of shares of
Conseco Common Stock on the Conseco Record Date is entitled to cast, either in
person or by properly executed proxy, one vote per share of Conseco Common Stock
on the Merger Consideration Stock Issuance and such other matters, properly
submitted for the vote of the Conseco shareholders at the Conseco Special
Meeting. Each holder of record of shares of Conseco PRIDES on the Conseco Record
Date is entitled to cast, either in person or by properly executed proxy,
four-fifths (4/5) of one vote per share of Conseco PRIDES on the Merger
Consideration Stock Issuance and such other matters, if any, properly submitted
for the vote of the Conseco shareholders at the Conseco Special Meeting. The
presence, in person or by properly executed proxy, of the holders of Conseco
Common Stock and Conseco
21
<PAGE> 33
PRIDES representing a majority of the voting power of all outstanding Conseco
Stock at the Conseco Special Meeting is necessary to constitute a quorum at the
Conseco Special Meeting.
Although approval of the Merger and the Merger Agreement by the
shareholders of Conseco is not required under Indiana law because Conseco is not
a constituent corporation to the Merger, under the rules of the NYSE, on which
the Conseco Common Stock is listed, the approval by a majority of the votes
cast, provided that the total votes cast represent over 50% in interest of all
securities entitled to vote on the proposal, is required for approval of the
issuance by a corporation of shares of its common stock in connection with the
acquisition of stock or assets of another company if the common stock so issued
will be equal to or in excess of 20% of the number of shares of common stock of
such corporation outstanding before the issuance of such shares. Because the
number of shares of Conseco Common Stock to be issued pursuant to the Merger
will exceed 20% of the shares of Conseco Common Stock outstanding immediately
prior to the Merger, approval of the Merger Consideration Stock Issuance is
required pursuant to the rules of the NYSE.
Shares subject to abstentions will be treated as shares that are present at
the Conseco Special Meeting for purposes of determining the presence of a quorum
and as voted for purposes of determining the number of shares voting on a
particular proposal. If a broker or other nominee holder indicates on the proxy
card that it does not have discretionary authority to vote the shares for which
it is the holder of record on a particular proposal, those shares will not be
considered as votes cast for purposes of determining the number of Conseco
shareholders that have voted for or against the proposal. Accordingly,
abstentions will have the same practical effect as votes against, and broker
non-votes will have no effect as to, the approval of the Merger Consideration
Stock Issuance or any other matter submitted to the Conseco shareholders which
requires approval by a majority of the votes cast, assuming the total votes cast
represent over 50% in interest of all securities entitled to vote on the
proposal.
As of the Conseco Record Date, the executive officers and directors of
Conseco (as a group, 13 persons) were entitled to vote 19,055,474 shares of
Conseco Common Stock and 1,000 shares of Conseco PRIDES representing
approximately 10.1% of the outstanding votes of Conseco Stock entitled to be
cast as of such date. Although the executive officers and directors are not
under contractual or other legal obligation to vote their shares in favor of
approval of the Merger Consideration Stock Issuance, Conseco has been advised
that all of such shares will be voted in favor of approval of the Merger
Consideration Stock Issuance.
Green Tree. The Green Tree Board of Directors has fixed May 21, 1998 as the
Green Tree Record Date. Accordingly, only holders of record of shares of Green
Tree Common Stock on the Green Tree Record Date will be entitled to notice of
and to vote at the Green Tree Special Meeting. As of the Green Tree Record Date,
there were 134,058,353 shares of Green Tree Common Stock outstanding and
entitled to vote. Each holder of record of shares of Green Tree Common Stock on
the Green Tree Record Date is entitled to cast, either in person or by properly
executed proxy, one vote per share on the Merger Agreement and the other
matters, if any, properly submitted for the vote of the Green Tree shareholders
at the Green Tree Special Meeting. The presence, in person or by properly
executed proxy, of the holders of stock representing a majority of the voting
power of all outstanding shares of the Green Tree Common Stock at the Green Tree
Special Meeting is necessary to constitute a quorum at the Green Tree Special
Meeting.
The approval and adoption by Green Tree of the Merger Agreement will
require the affirmative vote of the holders of at least a majority of the voting
power of the outstanding shares of Green Tree Common Stock. Shares subject to
abstentions will be treated as shares that are present at the Green Tree Special
Meeting for purposes of determining the presence of a quorum and as voted for
purposes of determining the number of shares voting on a particular proposal. If
a broker or other nominee holder indicates on the proxy card that it does not
have discretionary authority to vote the shares for which it is the holder of
record on a particular proposal, those shares will not be considered as voted
for purposes of determining the number of Green Tree shareholders that have
voted for or against the proposal. Accordingly, abstentions and broker non-votes
will have the same practical effect as votes against the approval and adoption
of the Merger Agreement or on any other matter submitted to the Green Tree
shareholders which requires a percentage of the total number of outstanding
shares for approval.
22
<PAGE> 34
As of the Green Tree Record Date, the executive officers and directors of
Green Tree (as a group, 24 persons) were entitled to vote 5,357,775 shares of
Green Tree Common Stock, or approximately 4.0% of the number of shares of Green
Tree Common Stock outstanding and entitled to vote as of such date. Although the
executive officers and directors are not under contractual or other legal
obligation to vote their shares in favor of the approval and adoption of the
Merger Agreement, Green Tree has been advised that all of such shares will be
voted in favor of the approval and adoption of the Merger Agreement.
PROXIES
This Joint Proxy Statement/Prospectus is being furnished to holders of
Conseco Stock and Green Tree Common Stock in connection with the solicitation of
proxies by and on behalf of the respective Boards of Directors of Conseco and
Green Tree for use at the Conseco Special Meeting and the Green Tree Special
Meeting, as the case may be.
Conseco. Conseco Stock represented by properly executed proxies received at
or prior to the Conseco Special Meeting that have not been revoked will be voted
at the Conseco Special Meeting in accordance with the instructions contained
therein. Conseco Stock represented by properly executed proxies for which no
instruction is given will be voted FOR approval of the Merger Consideration
Stock Issuance. Conseco shareholders are requested to complete, sign, date and
return promptly the enclosed proxy card in the postage-prepaid envelope provided
for this purpose to ensure that their shares are voted. A shareholder may revoke
a proxy at any time prior to the vote on the Merger Consideration Stock Issuance
by submitting a later-dated proxy with respect to the same Conseco Stock,
delivering written notice of revocation to the Secretary of Conseco at any time
prior to such vote or attending the Conseco Special Meeting and voting in
person. Mere attendance at the Conseco Special Meeting will not in and of itself
revoke a proxy.
If the Conseco Special Meeting is postponed or adjourned for any reason, at
any subsequent reconvening of the Conseco Special Meeting all proxies will be
voted in the same manner as such proxies would have been voted at the original
convening of the Conseco Special Meeting (except for any proxies that have
theretofore effectively been revoked or withdrawn), notwithstanding that they
may have been effectively voted on the same or any other matter at a previous
meeting.
If any other matters are properly presented at the Conseco Special Meeting
for consideration, including, among other things, consideration of a motion to
adjourn the meeting to another time and/or place (including, without limitation,
for the purpose of soliciting additional proxies), the persons named in the
enclosed form of proxy and acting thereunder will have discretion to vote on
such matters in accordance with their best judgment.
Green Tree. Shares of Green Tree Common Stock represented by properly
executed proxies received at or prior to the Green Tree Special Meeting that
have not been revoked will be voted at the Green Tree Special Meeting in
accordance with the instructions contained therein. Shares of Green Tree Common
Stock represented by properly executed proxies for which no instruction is given
will be voted FOR approval and adoption of the Merger Agreement. Green Tree
shareholders are requested to complete, sign, date and return promptly the
enclosed proxy card in the postage-prepaid envelope provided for this purpose to
ensure that their shares are voted. A shareholder may revoke a proxy at any time
prior to the vote on the Merger Agreement by submitting a later-dated proxy with
respect to the same shares, delivering written notice of revocation to the
Secretary of Green Tree at any time prior to such vote or attending the Green
Tree Special Meeting and voting in person. Mere attendance at the Green Tree
Special Meeting will not in and of itself revoke a proxy.
If the Green Tree Special Meeting is postponed or adjourned for any reason,
at any subsequent reconvening of the Green Tree Special Meeting all proxies will
be voted in the same manner as such proxies would have been voted at the
original convening of the Green Tree Special Meeting (except for any proxies
that have theretofore effectively been revoked or withdrawn), notwithstanding
that they may have been effectively voted on the same or any other matter at a
previous meeting.
23
<PAGE> 35
If any other matters are properly presented at the Green Tree Special
Meeting for consideration, including, among other things, consideration of a
motion to adjourn the meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons named
in the enclosed form of proxy and acting thereunder will have discretion to vote
on such matters in accordance with their best judgment.
Proxy Solicitation. Conseco and Green Tree will each bear the cost of
soliciting proxies from their respective shareholders. Additionally, Conseco and
Green Tree will each bear one-half the cost of preparing and mailing this Joint
Proxy Statement/Prospectus and the preparation and filing of the Registration
Statement. In addition to solicitation by mail, directors, officers and
employees of Conseco and Green Tree may solicit proxies by telephone, telegram
or otherwise. Such directors, officers and employees of Conseco and Green Tree
will not be additionally compensated for such solicitation, but may be
reimbursed for out-of-pocket expenses incurred in connection therewith.
Brokerage firms, fiduciaries and other custodians who forward soliciting
material to the beneficial owners of shares of Conseco Stock and shares of Green
Tree Common Stock held of record by them will be reimbursed for their reasonable
expenses incurred in forwarding such material. In addition, Conseco and Green
Tree have retained Georgeson & Company, Inc. ("Georgeson") to assist in
soliciting proxies and to provide materials to banks, brokerage firms, nominees,
fiduciaries and other custodians. For such services, Conseco and Green Tree will
pay Georgeson total fees of $22,000 plus reimbursement of reasonable expenses.
GREEN TREE SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
24
<PAGE> 36
THE MERGER
BACKGROUND OF THE MERGER
Merrill Lynch introduced Lawrence M. Coss, Chairman and Chief Executive
Officer of Green Tree, to Stephen C. Hilbert, Chairman, President and Chief
Executive Officer of Conseco, and Rollin M. Dick, Executive Vice President and
Chief Financial Officer of Conseco, at a lunch in New York on September 10,
1997. At this lunch, the respective businesses of Green Tree and Conseco were
discussed.
On November 13, 1997, Green Tree issued a press release concerning revised
fourth quarter earnings expectations and stated that it would make a
supplemental non-cash addition to its reserves in the fourth quarter of 1997 in
response to higher prepayment assumptions for certain pools of manufactured
housing loans. On January 27, 1998, Green Tree announced that it would restate
its previously reported financial statements for 1996. As a result of the
restatement of its financial statements in 1996 and the revised earnings
expectations for 1997, Green Tree's senior unsecured debt ratings and short-term
debt ratings were lowered by each of the credit rating agencies which provide
ratings on Green Tree's debt. As a result of these ratings actions, continued
issuance of commercial paper by Green Tree was not practicable. Green Tree
utilized its existing warehouse lines to pay off its commercial paper as such
instruments matured. In addition, effective February 10, 1998, Green Tree
renegotiated its unsecured bank credit agreements to reduce the aggregate
commitment to $750 million and to make other changes to permit its use by Green
Tree for its continuing funding requirements through April 28, 1998. As a result
of these actions, Green Tree determined that it was necessary to find additional
funding sources to support its ongoing operations.
On February 2, 1998, Green Tree began negotiations with Lehman Commercial
Paper Inc., an affiliate of Lehman Brothers, to obtain a two-year $500 million
loan secured by Green Tree's interest-only securities. In partial consideration
for this loan, Green Tree issued to Lehman Commercial Paper Inc. a warrant to
purchase 2,735,688 shares of Green Tree Common Stock (approximately 2% of the
outstanding shares of Green Tree Common Stock) at the market price on the date
of the warrant. Green Tree negotiated a right to repurchase the warrant at a
price equal to $15 per warrant share. This loan transaction closed on February
13, 1998.
On February 10, 1998, members of Green Tree's senior management met with
representatives of Merrill Lynch to discuss potential sources of additional
capital, including public and private issuances of debt and equity securities of
Green Tree ranging up to $500 million. On February 18, representatives of
Merrill Lynch met with Mr. Coss to review preliminary financing plans.
On March 6, 1998, another meeting was held between members of Green Tree's
senior management and representatives of Merrill Lynch to discuss capital
raising, including private equity investments in Green Tree. At this meeting,
Merrill Lynch provided Green Tree with a list of a limited number of potential
investors.
On March 9, 1998, members of Green Tree's senior management met with
representatives of Lehman Brothers. At this meeting, Lehman Brothers explored
the possibility of raising capital in the public market through the issuance of
subordinated debt and/or preferred or common equity in the range of $400 million
to $600 million. Lehman Brothers also provided a list of a limited number of
investors that might be interested in making a private investment in Green Tree.
Green Tree determined to proceed with raising capital in the public market, and
on March 16, 1998, filed a universal shelf registration statement covering both
debt and equity securities with the Commission.
On March 9, 1998, Mr. Hilbert telephoned Mr. Coss to discuss an investment
in the area of $200 million in Green Tree through the purchase of subordinated
debt and/or preferred equity securities of Green Tree. Mr. Hilbert indicated
that he would be travelling for the next two weeks and suggested that Mr. Dick
visit Green Tree. A meeting was scheduled for March 19, 1998 at Green Tree's
headquarters in Saint Paul between Mr. Dick and several Green Tree executives.
A series of meetings were held between senior management of Green Tree and
investors which were on the lists that Merrill Lynch and Lehman Brothers had
provided to Green Tree. The purpose of these meetings was to discuss the
possibility of an investment in the range of $400 million to $600 million in
Green Tree by such investors through the purchase of subordinated debt and/or
preferred stock of Green Tree. Green Tree's
25
<PAGE> 37
management determined that an investment in Green Tree by these investors was
not Green Tree's preferred method of obtaining funding.
On March 19, 1998, Mr. Dick met with several Green Tree executives,
including Edward L. Finn, Executive Vice President and Chief Financial Officer,
and Joel H. Gottesman, Senior Vice President, General Counsel and Secretary, to
further explore an investment by Conseco in Green Tree. Messrs. Finn and
Gottesman presented information on the customer base, growth opportunities,
exposure and business opportunities of Green Tree. At a previously scheduled
meeting of the Conseco Board of Directors held on March 23, 1998, Mr. Hilbert
discussed Mr. Dick's visit to Green Tree.
On March 30, 1998, Mr. Hilbert telephoned Mr. Coss to arrange a meeting on
March 31, 1998 to discuss a strategic initiative. On March 31, 1998, Messrs.
Hilbert and Coss met at Green Tree's headquarters in Saint Paul, Minnesota. Mr.
Hilbert stated that Conseco was interested in the opportunities for growth and
cross-marketing which would exist from combining an insurance company with a
consumer finance company. Mr. Hilbert proposed a business combination between
Conseco and Green Tree. Mr. Coss responded that Green Tree would be willing to
explore whether a business combination would provide significant synergies, but
only on a very short time frame, because a road show with respect to Green
Tree's planned offerings under the universal shelf registration statement was
scheduled to commence on April 8, 1998 and Green Tree did not want to delay or
jeopardize the possible receipt of new capital. At this meeting, Mr. Hilbert
suggested a preliminary indication of value in the range of $47 to $50 per share
of Green Tree Common Stock, which was subject to change based on due diligence
investigations which had not yet begun. Mr. Coss suggested that a value in
excess of $50 per share was more appropriate.
On March 31, 1998, Conseco contacted Merrill Lynch, with Green Tree's
permission, to request that it act as Conseco's financial advisor in connection
with a proposed transaction. On that date Conseco distributed certain public
information concerning Green Tree to its Board of Directors.
On March 31, 1998, Green Tree requested Lehman Brothers to act as its
financial advisor in connection with any proposed transaction.
On April 1, 1998, Green Tree and Conseco executed confidentiality
agreements. On April 1, 1998, members of Conseco management and representatives
of Merrill Lynch and Sidley & Austin, Conseco's outside counsel, traveled to
Green Tree's headquarters and heard presentations by Green Tree's senior
management concerning Green Tree's businesses and business plans in order to
further discussions concerning the strategic potential of a business combination
between Conseco and Green Tree and to begin legal due diligence investigations.
On April 2 and 3, 1998, Conseco's management and financial and legal advisors
conducted intensive due diligence investigations.
On April 2, 1998, a previously scheduled meeting of the Green Tree Board of
Directors was held at Green Tree's headquarters in Saint Paul, Minnesota. At
this meeting, Mr. Coss informed the directors that discussions had commenced
with Conseco to explore the strategic potential of a business combination,
including the preliminary indication of the value of the transaction, the
commencement, scope and timing of due diligence by both companies and
information about Conseco.
On April 3, 1998 Conseco furnished drafts of the Merger Agreement and Stock
Option Agreement to Green Tree and its advisors. The terms of these agreements
were negotiated and finalized during meetings held on April 5 and 6, 1998.
On April 4, 1998, Green Tree, together with representatives of Lehman
Brothers and KPMG Peat Marwick LLP, Green Tree's independent public accountants,
conducted an on-site business due diligence review of Conseco at Conseco's
headquarters in Carmel, Indiana. During April 4, 1998, representatives of Green
Tree and its advisors focused on, among other things, possible synergies from
the business combination and Conseco's customer and distribution base.
On April 5, 1998, Messrs. Coss and Hilbert met at Green Tree's headquarters
in Saint Paul, Minnesota to negotiate the terms of a possible merger. After
discussion, Messrs. Coss and Hilbert agreed to propose to their respective
Boards of Directors an exchange ratio of 0.9165 shares, the granting to Conseco
of a stock option to
26
<PAGE> 38
purchase approximately 19.9% of Green Tree's outstanding Common Stock if certain
events occurred, Green Tree's entering into a non-solicitation provision and the
granting of a termination fee to Conseco if the Merger Agreement was terminated
as a result of certain actions.
On April 5, 1998, the Green Tree Board of Directors held a special meeting
at Green Tree's headquarters in Saint Paul, Minnesota and considered the
proposed Merger. Members of Dorsey & Whitney LLP, Green Tree's outside counsel,
made a presentation to the Green Tree Board of Directors concerning the Board of
Directors' fiduciary duties in considering the proposed Merger. Representatives
of Lehman Brothers discussed the results of financial due diligence. Members of
Green Tree management discussed the results of due diligence and made a
presentation to the Green Tree Board of Directors regarding certain terms of the
proposed Merger, the business reasons for approving the Merger, the strategic
fit of Conseco and Green Tree and the opportunities for growth and
cross-marketing of each company's products and services. Following the
presentations and discussions, the Green Tree Board of Directors adjourned the
meeting until April 6, 1998 when Lehman Brothers would make a presentation on
the financial aspects of the Merger.
On April 6, 1998, the Conseco Board of Directors held a special meeting at
Conseco's headquarters in Carmel, Indiana and considered the proposed Merger
Agreement, the Stock Option Agreement and the transactions contemplated thereby.
Members of Conseco's management gave presentations concerning their diligence
investigation of Green Tree as well as their analysis of the terms of the
proposed Merger, the business reasons for approving the Merger and the
opportunities for growth and cross-marketing of each company's products and
services. John J. Sabl, Conseco's Executive Vice President, General Counsel and
Secretary, made a presentation to the Conseco Board of Directors concerning the
Merger Agreement, the Stock Option Agreement and related documents and the Board
of Directors' fiduciary duties in considering the transactions contemplated by
the Merger Agreement. Representatives of Merrill Lynch presented its analyses of
the proposed transaction and delivered its opinion to Conseco's Board of
Directors that the Exchange Ratio is fair to Conseco from a financial point of
view. Mr. Coss gave a presentation concerning Green Tree's business and
prospects. Following significant discussion, the Conseco Board of Directors
concluded that the Merger was in the best interests of Conseco and, by a
unanimous vote of all of the directors present, approved the Merger Agreement,
the Stock Option Agreement and the transactions contemplated thereby (including
the Merger Consideration Stock Issuance) and authorized the officers of Conseco
to enter into the Merger Agreement, the Stock Option Agreement and related
agreements.
On April 6, 1998, the Green Tree Board of Directors reconvened and
management and the financial and legal advisors to Green Tree, including
representatives of Lehman Brothers and Dorsey & Whitney LLP were present. Lehman
Brothers presented its analysis of the financial terms of the Merger and
delivered its opinion to the Green Tree Board of Directors that the Exchange
Ratio to be offered to holders of Green Tree Common Stock in the Merger was fair
to the holders of Green Tree Common Stock from a financial point of view. Mr.
Hilbert made a presentation to the Green Tree Board of Directors regarding the
business of Conseco and potential synergies of the proposed Merger, including
benefits to Conseco, Green Tree and the combined companies. Following
significant discussion, the Green Tree Board of Directors concluded that the
Merger was in the best interests of Green Tree and its stockholders and, by a
unanimous vote of all of the directors, approved the Merger Agreement, the Stock
Option Agreement and the transactions contemplated thereby and authorized the
officers of Green Tree to enter into the Merger Agreement, the Stock Option
Agreement and related agreements.
On April 6, 1998, Conseco and Green Tree executed the Merger Agreement, the
Stock Option Agreement and related agreements. On April 7, 1998, prior to the
opening of trading on the NYSE, Conseco and Green Tree issued a joint press
release announcing the Merger.
CONSECO'S REASONS FOR THE MERGER; RECOMMENDATION OF THE CONSECO BOARD OF
DIRECTORS
At a meeting held on April 6, 1998 the Conseco Board of Directors
unanimously (with one director absent) determined that the Merger is advisable
and fair to and in the best interests of Conseco and its shareholders and
approved the Merger Agreement, the Merger and the other transactions
contemplated thereby and resolved to recommend that the shareholders of Conseco
vote in favor of the Merger Consideration Stock Issuance. In reaching these
conclusions, the Conseco Board of Directors considered, with
27
<PAGE> 39
the assistance of management and Conseco's financial and legal advisors, a
number of factors, including the following:
(i) The results of operations, financial condition, business and
competitive position of Conseco and Green Tree, both on an historical and
prospective basis (including the substantial internal growth of Green
Tree's activities over a number of years), their respective strategic
business plans, recent restatements of Green Tree's financial results and
the reasons therefor, and various challenges and opportunities facing
Conseco and Green Tree in executing their business plans;
(ii) The presentation by Merrill Lynch to the Conseco Board of
Directors on April 6, 1998, including the written opinion rendered by
Merrill Lynch dated April 6, 1998 to the effect that, as of such date, the
Exchange Ratio was fair to Conseco from a financial point of view;
(iii) The historical market prices of Conseco Common Stock and Green
Tree Common Stock;
(iv) The judgment, advice and analysis of Conseco's management,
including the results of management's due diligence investigation;
(v) The potential synergies from the combination of Conseco and Green
Tree, especially the potential of each of Conseco and Green Tree to
cross-sell its products to the other's customers given the common "Middle
America" focus of both companies, the potential financial and operating
efficiencies that could result from the combined operation, as well as the
challenges that existed in realizing these benefits from the Merger;
(vi) The desirability of expanding the size of Conseco and
diversifying Conseco's assets, earnings and cash flow including the partial
interest rate hedge in the different assets held by the two companies (for
example, Conseco's fixed income assets tend to increase in value during
periods of interest rate decline while Green Tree's residual interests in
asset securitizations tend to decline in value during such periods);
(vii) The substantial internal growth in Green Tree's business that
has been achieved over a period of years;
(viii) The respective corporate cultures of the two companies which
are focused on growth, performance and a variety of distribution methods;
(ix) The terms of the Merger Agreement and the Stock Option Agreement;
and
(x) The contemplated accounting treatment of the Merger as a pooling
of interests.
The foregoing discussion of the information and factors considered and
given weight by the Conseco Board of Directors is not intended to be exhaustive.
In view of the variety of factors considered in connection with its evaluation
of the Merger, the Conseco Board of Directors did not find it practicable to and
did not quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual members of the
Conseco Board of Directors may have given different weights to different
factors.
ACCORDINGLY, THE CONSECO BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF CONSECO VOTE FOR THE PROPOSAL TO APPROVE THE MERGER
CONSIDERATION STOCK ISSUANCE.
OPINION OF CONSECO'S FINANCIAL ADVISOR
Conseco retained Merrill Lynch to act as its exclusive financial advisor in
connection with the Merger and related matters based upon its qualifications,
expertise and reputation as well as Merrill Lynch's prior investment banking
relationship and general familiarity with Conseco and Green Tree. At the April
6, 1998 meeting of the Conseco Board of Directors, Merrill Lynch rendered its
written opinion to the Conseco Board of Directors, dated as of that date, to the
effect that, as of such date, and based upon the assumptions made, matters
considered and limits of review set forth in such opinion, the Exchange Ratio
was fair from a financial point of view to Conseco.
28
<PAGE> 40
A full text of Merrill Lynch's written opinion (the "Merrill Lynch
Opinion"), which sets forth, among other things, the assumptions made,
procedures followed, matters considered and certain limitations on the scope of
review undertaken by Merrill Lynch, is attached as Annex C to this Joint Proxy
Statement/ Prospectus and is incorporated herein by reference. Holders of
Conseco Stock are urged to, and should, read such opinion in its entirety. The
Merrill Lynch Opinion was provided to the Conseco Board of Directors for its
information and is directed only to the fairness of the Exchange Ratio from a
financial point of view to Conseco. The Merrill Lynch Opinion is not intended to
be, nor should it be construed as, a recommendation to any Conseco shareholder
as to how such shareholder should vote at the Conseco Special Meeting. The
summary of the Merrill Lynch Opinion set forth in this Joint Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of such opinion.
In arriving at the Merrill Lynch Opinion, Merrill Lynch, among other
things: (1) reviewed certain publicly available business and financial
information relating to Conseco and Green Tree which it deemed to be relevant;
(2) reviewed certain information, including financial forecasts, relating to the
businesses, earnings, cash flow, assets, liabilities and prospects of Conseco
and Green Tree, as well as the amount and timing of the cost savings and related
charges and expenses and revenue enhancements expected to result from the
Merger, furnished to it by the senior management of Conseco (the "Merger
Benefits"); (3) conducted discussions with members of senior management of
Conseco and Green Tree concerning the foregoing, including the respective
businesses, prospects, regulatory condition and contingencies of Conseco and
Green Tree before and after giving effect to the Merger and the Merger Benefits;
(4) reviewed the market prices and valuation multiples for Conseco Common Stock
and Green Tree Common Stock and compared them with those of certain publicly
traded companies which it deemed to be relevant; (5) reviewed the results of
operations of Conseco and Green Tree and compared them with those of certain
publicly traded companies which it deemed to be relevant; (6) compared the
proposed financial terms of the Merger with the financial terms of certain other
transactions which it deemed to be relevant; (7) participated in certain
discussions and negotiations among representatives of Conseco and Green Tree and
their respective financial and legal advisors; (8) reviewed the potential pro
forma impact of the Merger; (9) reviewed the Merger Agreement and the Stock
Option Agreement; and (10) reviewed such other financial studies and analyses
and took into account such other matters as it deemed necessary, including its
assessment of general economic, market and monetary conditions.
In preparing the Merrill Lynch Opinion, Merrill Lynch assumed and relied on
the accuracy and the completeness of all information supplied or otherwise made
available to it, discussed with or reviewed by or for it, or publicly available,
and it has not assumed responsibility for independently verifying such
information or undertaken an independent evaluation or appraisal of any of the
assets or liabilities, contingent or otherwise, of Green Tree or Conseco or any
actuarial analysis with respect to Conseco, nor has it been furnished with any
such evaluation, appraisal or actuarial analysis. Merrill Lynch is not an expert
in the evaluation of allowances for credit or loan losses or in the valuation of
residual interests or other assets resulting from Green Tree's securitization
transactions ("Securitization Assets"), and has not made an independent
evaluation of the adequacy of the allowance for credit or loan losses of Green
Tree, reviewed any individual credit or loan files relating to Green Tree nor
made an independent evaluation of the Securitization Assets. In addition,
Merrill Lynch has not assumed any obligation to conduct, nor has it conducted,
any physical inspection of the properties or facilities of Green Tree or
Conseco. With respect to the financial forecast information of Green Tree and
Conseco, including, without limitation, financial forecasts, evaluation of
contingencies and projections regarding, among other things, receivable
originations, prepayment speeds, delinquencies, under-performing and
non-performing assets, net charge-offs, adequacy of reserves, valuation of the
Securitization Assets and future economic conditions pertaining to Green Tree,
and the Merger Benefits, furnished to or discussed with Merrill Lynch by Green
Tree and Conseco, Merrill Lynch has assumed that they were reasonably prepared
and reflected the best currently available estimates, allocations and judgments
of the senior management of Green Tree and Conseco as to the expected future
financial performance of Green Tree, Conseco or the combined entity, as the case
may be, and the Merger Benefits. Merrill Lynch expressed no opinion as to such
financial forecast information or the Merger Benefits or the assumptions upon
which they were based. Merrill Lynch further assumed that the Merger will
qualify as a tax-free reorganization for U.S. federal income tax purposes and
will be accounted for as a pooling of interests under GAAP.
29
<PAGE> 41
The Merrill Lynch Opinion is necessarily based upon market, economic and
other conditions as in effect on, and the information made available to Merrill
Lynch as of, the date of such opinion. For purposes of rendering its opinion,
Merrill Lynch assumed, in all respects material to its analysis, that the
representations and warranties of each party in the Merger Agreement and all
related documents and instruments (collectively, the "Documents") contained
therein are true and correct, that each party to the Documents will perform all
of the covenants and agreements required to be performed by such party under
such Documents, and that all conditions to the consummation of the Merger will
be satisfied without waiver thereof. Merrill Lynch also assumed that in the
course of obtaining the necessary regulatory or other consents or approvals
(contractual or otherwise) for the Merger, no restrictions, including any
divestiture requirements or amendment or modifications, will be imposed that
will have a material adverse effect on the contemplated benefits of the Merger,
including the Merger Benefits.
Merrill Lynch was retained by the Conseco Board of Directors to act as
Conseco's financial advisor in connection with the Merger, and Merrill Lynch has
and will receive a fee from Conseco for its services, a significant portion of
which is contingent upon the consummation of the Merger. In addition, Conseco
has agreed to indemnify Merrill Lynch for certain liabilities arising out of
Merrill Lynch's engagement. In the past, Merrill Lynch has provided financial
advisory and financing advisory, investment banking and other services to
Conseco and may continue to do so, and has received, and may receive, customary
fees for the rendering of such services. In the past, Merrill Lynch has
provided, and is currently providing, financial advisory, investment banking and
other services to Green Tree and its affiliates, including acting as a lender to
Green Tree (pursuant to an uncommitted reverse repurchase agreement dated July
1997 in the amount of $1 billion) and may continue to do so, and has received,
and may receive, customary fees for the rendering of such services. In the
ordinary course of Merrill Lynch's business, Merrill Lynch may actively trade
the debt and/or equity securities of Conseco and its affiliates and Green Tree
and its affiliates for its own account and for the accounts of its customers
and, accordingly, may at any time hold a long or short position in such
securities.
The Merrill Lynch Opinion is for the use and benefit of the Conseco Board
of Directors. It addresses only the financial fairness of the Exchange Ratio,
does not address the merits of the underlying decision by Conseco to engage in
the Merger, and does not constitute a recommendation to any shareholder as to
how such shareholder should vote on the proposed Merger or any matter related
thereto. In having delivered the Merrill Lynch Opinion, Merrill Lynch does not
express any opinion as to the prices at which shares of Conseco Common Stock
will trade following the consummation of the Merger.
The following is a summary of certain of the financial and comparative
analyses presented by Merrill Lynch to the Conseco Board of Directors on April
6, 1998 in connection with the Merrill Lynch Opinion dated as of such date.
Publicly Traded Comparables -- Acquisition Mode. Merrill Lynch reviewed and
compared certain financial and operating information and ratios (described
below) for Green Tree with the publicly available corresponding data compiled by
First Call for a group of selected companies that make loans and hold them in
portfolio on their balance sheets and a group of selected companies that
securitize their loans using gain on sale accounting treatment, in each case,
which Merrill Lynch deemed to be reasonably comparable to Green Tree. The group
of selected portfolio lending companies (the "Portfolio Companies") consisted
of: Associates First Capital Corporation, Household International, Inc. and
Beneficial Corporation. The group of selected gain on sale companies (the "Gain
on Sale Companies") consisted of: The Money Store, Inc., FIRSTPLUS Financial
Group, Inc., Ocwen Financial Corporation, ContiFinancial Corporation, AMRESCO,
Inc. and United Companies Financial Corporation.
Based on a review of such information for the Portfolio Companies, Merrill
Lynch compared: (i) current trading price to actual 1997 earnings per share
("EPS") for the Portfolio Companies, which figures were obtained from First
Call, as of March 27, 1998, and ranged from 22.0x to 26.9x, with an average of
24.5x, compared to a multiple of 13.3x for Green Tree Common Stock based upon
figures from First Call; (ii) current trading price to estimated 1998 EPS for
the Portfolio Companies, which estimates were obtained from First Call and
ranged from 18.2x to 23.0x, with an average of 20.5x, compared to a multiple of
11.6x for
30
<PAGE> 42
Green Tree Common Stock based upon estimates from First Call; (iii) current
trading price to estimated 1999 EPS for the Portfolio Companies, which estimates
were obtained from First Call and ranged from 15.4x to 21.3x, with an average of
17.4x, compared to a multiple of 10.4x for Green Tree Common Stock based upon
estimates from First Call; (iv) current trading price to book value for the
Portfolio Companies, as of December 31, 1997, which ranged from 3.40x to 4.42x,
with an average of 3.91x, compared to a multiple of 2.89x for Green Tree Common
Stock; (v) market value less total equity to managed receivables (the "Implied
Receivables Premium") for the Portfolio Companies, which ranged from 24.6% to
37.2%, with an average of 30.9%, compared to the Implied Receivables Premium of
8.7% for Green Tree Common Stock; (vi) estimated 5 year growth rate for the
Portfolio Companies, which estimates were obtained from Institutional Brokers
Estimate System ("IBES") and ranged from 11.0% to 19.0%, with an average of
18.5%, compared to the estimated 5 year growth rate of 18.7% for Green Tree
Common Stock, based on an average of First Call, Zacks and IBES; and (vii) 1999
price to earnings ratio to 5 year growth ratio for the Portfolio Companies,
which ranged from 0.81x to 1.94x, with an average of 0.95x, compared to the 1999
price to earnings ratio to 5 year growth ratio of 0.55x for Green Tree Common
Stock. Financial and operating information and ratios for Beneficial Corporation
were included in the calculation of the foregoing ranges; however, such
information and ratios were excluded from the calculation of the foregoing
averages.
Based on a review of such information for the Gain on Sale Companies,
Merrill Lynch compared: (i) current trading price to actual 1997 EPS for the
Gain on Sale Companies, which figures were obtained from First Call as of March
27, 1998, and ranged from 7.0x to 22.1x, with a mean of 14.7x and median of
14.8x, compared to a multiple of 13.3x for Green Tree Common Stock based upon
figures from First Call; (ii) current trading price to estimated 1998 EPS for
the Gain on Sale Companies, which estimates were obtained from First Call and
ranged from 9.3x to 16.7x, with a mean of 14.3x and a median of 15.1x, compared
to a multiple of 11.6x for Green Tree Common Stock based upon estimates from
First Call; (iii) current trading price to estimated 1999 EPS for the Gain on
Sale Companies, which estimates were obtained from First Call and ranged from
8.0x to 13.6x, with a mean of 10.8x and a median of 11.2x, compared to a
multiple of 10.4x for Green Tree Common Stock based upon estimates from First
Call; (iv) current trading price to book value for the Gain on Sale Companies,
as of December 31, 1997, which ranged from 1.26x to 3.76x, with a mean of 2.94x
and a median of 3.28x, compared to a multiple of 2.89x for Green Tree Common
Stock; (v) Implied Receivables Premium for the Gain on Sale Companies, which
ranged from 1.7% to 25.1%, with a mean of 10.9% and a median of 8.7%, compared
to the Implied Receivables Premium of 8.7% for Green Tree Common Stock; (vi)
estimated 5 year growth rate for the Gain on Sale Companies, which estimates
were obtained from IBES which ranged from 16.0% to 25.0%, with a mean of 20.8%
and a median of 20.0%, compared to the estimated 5 year growth rate ratio of
18.7% for Green Tree Common Stock based on an average of First Call, Zacks and
IBES; and (vii) 1999 price to earnings ratio to 5 year growth for the Gain on
Sale Companies, which ranged from 0.36x to 0.72x, with a mean of 0.53x and a
median of 0.50x, compared to the 1999 price to earnings ratio to 5 year growth
of 0.55x for Green Tree Common Stock. Financial and operating information and
ratios for The Money Store, Inc. were included in the calculation of the
foregoing ranges; however, such information and ratios were excluded from the
calculation of the foregoing means and medians.
No public company utilized as a comparison in the analyses described above
is identical to Green Tree. Accordingly, an analysis of publicly traded
comparable companies is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable companies and other factors that could affect
the public trading value of the comparable companies or company to which they
are being compared.
Selected Consumer Finance Transactions. Merrill Lynch reviewed publicly
available information regarding seven consumer finance merger transactions with
a value greater than $300 million which had occurred in the United States since
September 1994 that it deemed to be relevant (the "Consumer Finance Merger
Transactions"). The Consumer Finance Merger Transactions and the month in which
each transaction was announced were as follows: Barnett Banks, Inc./Equicredit
Corporation (September 1994), Norwest Corporation/ITT Island Finance (December
1994), Bank One Corporation/First USA, Inc. (January 1997),
Household/Transamerica Cons. Finance (May 1997), Travelers Group, Inc./Security
Pacific Corporation
31
<PAGE> 43
(June 1997), Associates First/Beneficial Canada (February 1998) and First Union
Corporation/The Money Store, Inc. (March 1998).
Merrill Lynch compared the 30 day premium to market price, price to
last-twelve-months earnings, price to forward earnings, price to book value and
premium to receivables. This analysis yielded a range of (i) 30 day premium to
market price of 49.4% to 92.2% with an average of 66.0% and a median of 56.5%,
(ii) price to last-twelve-months earnings multiples of 11.7x to 25.1x with an
average of 17.3x and a median of 16.5x, (iii) price to forward earnings
multiples of 14.3x to 21.7x with an average of 17.4x and a median of 16.9x, (iv)
price to book value multiples of 2.81x to 5.46x with an average of 3.81x and a
median of 3.25x, and (v) premium to receivables of 9.0% to 48.3% with an average
of 23.9% and a median of 23.0%; and estimated transaction prices for Green Tree
on the basis of such multiples.
None of the business combinations utilized as a comparison in the analyses
described above is identical to the Merger. Accordingly, an analysis of
comparable business combinations is not mathematical; rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the comparable companies and other factors that
could affect the public trading value of the comparable companies or company to
which they are being compared.
Discounted Dividend Analysis. Using a discounted dividend analysis, Merrill
Lynch estimated the present value of the future streams of after-tax earnings
that Green Tree could produce from 1998 through 2002 and distribute to
shareholders ("dividendable net income") assuming a pre-tax cost savings
assumption of $0 million in 1998, $48 million in 1999 and $50 million in 2000
and an after-tax restructuring charge of $452 million. Merrill Lynch assumed
that Green Tree performed in accordance with earnings forecasts provided to
Merrill Lynch by Conseco's senior management and that Green Tree's tangible
common equity to managed assets ratio would be maintained at a 4.6% level.
Merrill Lynch estimated the terminal values for Green Tree Common Stock at
12.0x, 14.0x and 16.0x Green Tree's 2003 estimated net income (defined as
earnings less amortization). The dividendable net income streams and terminal
values were then discounted to present values using discount rates (ranging from
13% to 17%) chosen to reflect different assumptions regarding required rates of
return of holders or prospective buyers of Green Tree Common Stock. This
discounted dividend analysis indicated a reference range of $46.12 to $71.22 per
share of Green Tree Common Stock. As indicated above, this analysis is not
necessarily indicative of actual values or actual future results and does not
purport to reflect the prices at which any securities may trade at the present
or at any time in the future. Discounted dividend analysis is a widely used
valuation methodology, but the results of such methodology are highly dependent
upon the numerous assumptions that must be made, including earnings growth
rates, dividend payout rates, terminal values and discount rates.
Pro Forma Impact. Based on projections provided by senior management of
Conseco and the Merger Benefits, including pre-tax cost savings of $0 million in
1998, $48 million in 1999 and $50 million in 2000, Merrill Lynch analyzed
certain pro forma effects of the Merger. This analysis indicated that the
transaction would be dilutive to projected earnings per share of Conseco Common
Stock in 1998 and accretive to projected earnings per share of Conseco Common
Stock in 1999 and 2000. The analysis also indicated that the Merger would be
dilutive to Conseco's book value and accretive to its tangible book value per
share based on reported financial results as of December 31, 1997. In this
analysis, Merrill Lynch assumed that Conseco performed in accordance with the
publicly available earnings forecasts and the Merger Benefits provided to
Merrill Lynch by Conseco's senior management.
The summary set forth above does not purport to be a complete description
of the analyses performed by Merrill Lynch underlying the Merrill Lynch Opinion.
Arriving at a fairness opinion is a complex process not necessarily susceptible
to partial analysis or summary description. Merrill Lynch believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all such
factors and analyses, could create a misleading view of the processes underlying
the Merrill Lynch Opinion. Merrill Lynch did not assign relative weights to any
of its analyses in preparing the Merrill Lynch Opinion. The matters considered
by Merrill Lynch in its analyses are based on numerous macroeconomic, operating
and financial assumptions with respect to industry performance, general business
and economic conditions and other matters, many of which are beyond Conseco's or
Green Tree's control and involve the application of complex methodologies and
educated judgment. Any estimates incorporated in the
32
<PAGE> 44
analyses performed by Merrill Lynch are not necessarily indicative of actual
past or future results or values, which may be significantly more or less
favorable than such estimates. Estimated values do not purport to be appraisals
and do not necessarily reflect the prices at which businesses or companies may
be sold in the future, and such estimates are inherently subject to uncertainty.
The projections furnished to Merrill Lynch and used by it in certain of its
analyses were prepared by the senior management of Conseco. Conseco does not
publicly disclose internal management projections of the type provided to
Merrill Lynch in connection with its review of the Merger, and as a result, such
projections were not prepared with a view towards public disclosure. The
projections were based on numerous variables and assumptions which are
inherently uncertain, including, without limitation, factors related to general
economic and competitive conditions, and accordingly, actual results could vary
significantly from those set forth in such projections.
Merrill Lynch is an internationally recognized investment banking and
advisory firm and is continually engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, corporate and
other purposes. Merrill Lynch was selected to act as financial advisor to the
Conseco Board of Directors because of its substantial expertise in transactions
similar to the Merger and its reputation in investment banking and mergers and
acquisitions.
In connection with Conseco's engagement of Merrill Lynch, Conseco and
Merrill Lynch have entered into a letter agreement dated April 1, 1998 relating
to the services to be provided by Merrill Lynch in connection with the Merger.
Conseco has agreed to pay Merrill Lynch fees as follows: (i) a cash fee of $2.5
million which was paid upon the execution of the Merger Agreement; and (ii) a
cash fee of $22 million (less the $2.5 million in fees paid pursuant to clause
(i) above) payable upon consummation of the Merger (or of certain similar
business combination transactions between Conseco and Green Tree). In such
letter, Conseco also agreed to reimburse Merrill Lynch for its reasonable
out-of-pocket expenses incurred in connection with its advisory work, including
the reasonable fees and disbursements of its legal counsel, and to indemnify
Merrill Lynch against certain liabilities relating to or arising out of the
Merger, including liabilities under the federal securities laws.
GREEN TREE'S REASONS FOR THE MERGER; RECOMMENDATION OF THE GREEN TREE BOARD OF
DIRECTORS
In reaching its decision to approve the Merger Agreement, the Green Tree
Board of Directors consulted with its management team and advisors and
independently considered the proposed Merger Agreement, including the material
factors described below. Based upon its independent review of such factors and
the business and operations of Conseco, the Green Tree Board of Directors
unanimously approved the Merger Agreement and the transactions contemplated
thereby. There can be no assurance, however, that any of the opportunities
described in the following reasons for the Merger will be achieved through the
consummation of the Merger.
The Green Tree Board of Directors concluded that the Merger is in the best
interests of Green Tree and its shareholders because of its belief that the
Merger would enhance the combined company's opportunities for future growth and
create a stronger competitor in the consumer finance and life/health insurance
markets. The Green Tree Board of Directors concluded that the Merger would
further such objectives in part because of its belief that: (i) the demographics
of the customers of each of Green Tree and Conseco are similar; (ii) since the
customer base of each of Green Tree and Conseco are complementary, consummation
of the Merger would create opportunities for cross-marketing; (iii) the combined
company will enjoy earnings diversity and stability; (iv) consummation of the
Merger would provide improved liquidity and capital access to Green Tree; and
(v) the combined company will have improved systems management.
In reaching its conclusions, the Green Tree Board of Directors also
considered, among other things, the following factors: (i) its knowledge of the
business, operations, properties, assets, financial condition, operating results
and prospects of each of Green Tree and Conseco; (ii) current industry, economic
and market conditions; (iii) presentations by its management and its financial
advisors with respect to Conseco; (iv) the opinion of Lehman Brothers as to the
fairness, from a financial point of view, of the Exchange Ratio to the holders
of Green Tree Common Stock; (v) the terms of the Merger Agreement and Stock
Option Agreement;
33
<PAGE> 45
(vi) the similarity of the respective business philosophies, entrepreneurial
spirit and business culture of Green Tree and Conseco; and (vii) the opportunity
for Green Tree shareholders to participate in a larger, more diversified
company.
In view of the variety of factors considered in connection with its
evaluation of the Merger, the Green Tree Board of Directors did not find it
practicable to and did not quantify or otherwise assign relative weights to the
specific factors considered in reaching its determination.
The Green Tree Board of Directors believes that the Merger is fair to, and
in the best interests of, Green Tree and its shareholders.
THE BOARD OF DIRECTORS OF GREEN TREE UNANIMOUSLY APPROVED THE TERMS OF THE
MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF GREEN TREE
VOTE FOR THE PROPOSAL TO APPROVE THE MERGER AGREEMENT.
OPINION OF GREEN TREE'S FINANCIAL ADVISOR
In connection with serving as the financial advisor to Green Tree, Lehman
Brothers delivered an oral opinion to the Green Tree Board of Directors on April
6, 1998, to the effect that as of April 6, 1998, and based upon assumptions
made, matters considered, and limitations as set forth therein, from a financial
point of view, the Exchange Ratio is fair to the shareholders of Green Tree.
Later that afternoon, Lehman Brothers confirmed its oral opinion by delivery of
its written opinion dated April 6, 1998 (the "Lehman Brothers Opinion").
The full text of the Lehman Brothers Opinion is attached as Annex D to this
Joint Proxy Statement/ Prospectus and is incorporated herein by reference.
Stockholders should read the Lehman Brothers Opinion for a discussion of
assumptions made, matters considered and limitations on the review undertaken by
Lehman Brothers in rendering its opinion. The summary of the Lehman Brothers
Opinion set forth in this Joint Proxy Statement/Prospectus is qualified in its
entirety by reference to the full text of the Lehman Brothers Opinion.
No limitations were imposed by Green Tree on the scope of Lehman Brothers's
investigation or the procedures to be followed by Lehman Brothers in rendering
its opinion, except that Green Tree did not authorize Lehman Brothers to
solicit, and Lehman Brothers did not solicit, any indications of interest from
any third party with respect to the purchase of all or a part of Green Tree's
business. The form and amount of the consideration to be received by Green
Tree's shareholders in the Merger was determined through arm's-length
negotiations between the parties. In arriving at its opinion, Lehman Brothers
did not ascribe a specific range of value to Green Tree, but rather made its
determination as to the fairness, from a financial point of view, of the
Exchange Ratio on the basis of the financial and comparative analyses described
below. The Lehman Brothers Opinion is for the use and benefit of the Green Tree
Board of Directors, was rendered to the Green Tree Board of Directors in
connection with its consideration of the Merger, relates only to the fairness of
the Exchange Ratio from a financial point of view and does not address any other
aspect of the Merger or the Merger Agreement or any related transaction. The
Lehman Brothers Opinion is not intended to be and does not constitute a
recommendation to any Green Tree shareholder as to how such shareholder should
vote with respect to the Merger. Lehman Brothers was not requested to opine as
to, and its opinion does not address, Green Tree's underlying business decision
to proceed with or effect the Merger.
In connection with its opinion, Lehman Brothers reviewed and analyzed: (i)
the proposed financial terms of the Merger as described to Lehman Brothers by
Green Tree and Green Tree's legal advisors, (ii) publicly available information
concerning Green Tree and Conseco that Lehman Brothers believed to be relevant
to its analysis, (iii) financial and operating information with respect to the
business, operations and prospects of Green Tree and Conseco furnished to Lehman
Brothers by Green Tree and Conseco, (iv) a trading history of the Green Tree
Common Stock from January 1, 1993 to the present and a comparison of that
trading history with those of other companies that Lehman Brothers deemed
relevant, (v) a trading history of the Conseco Common Stock from January 1, 1993
to the present and a comparison of that trading history with those of other
companies that Lehman Brothers deemed relevant, (vi) a comparison of the
historical financial results
34
<PAGE> 46
and present financial condition of Green Tree with those of other companies
Lehman Brothers deemed relevant, (vii) a comparison of the historical financial
results and present financial condition of Conseco with other companies Lehman
Brothers deemed relevant, (viii) estimates of third party research analysts
regarding the future financial performance of Green Tree and Conseco, (ix) a
comparison of the financial terms of the Merger with the financial terms of
certain other recent transactions Lehman Brothers deemed relevant, and (x) the
potential pro forma impact of the Merger on Conseco. In addition, Lehman
Brothers had discussions with the management of Green Tree and Conseco
concerning their respective businesses, operations, assets, liabilities,
financial conditions and prospects, and the potential cost savings, operating
synergies and strategic benefits expected by the managements of Green Tree and
Conseco, and undertook such other studies, analyses and investigations it deemed
appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by Lehman
Brothers without assuming any responsibility for independent verification of
such information and further relied upon the assurances of the management of
Green Tree and Conseco that they are not aware of any facts or circumstances
that would make such information inaccurate or misleading. With respect to the
financial projections of Green Tree, upon advice of Green Tree, Lehman Brothers
assumed that such projections were reasonably prepared on a basis reflecting the
best currently available estimates and judgments of Green Tree and that Green
Tree will perform substantially in accordance with such projections. In arriving
at its opinion, with the consent of Green Tree, Lehman Brothers was not provided
with and did not have any access to any financial forecasts or projections
prepared by the management of Conseco as to the projected financial performance
of Conseco beyond 1998, and accordingly, in performing its analysis, based upon
advice of Conseco and with the consent of Green Tree, Lehman Brothers assumed
that the publicly available estimates of research analysts are a reasonable
basis upon which to evaluate and analyze the future financial performance of
Conseco and that Conseco will perform substantially in accordance with such
estimates. In arriving at its opinion, Lehman Brothers did not conduct a
physical inspection of the properties and facilities of Green Tree or Conseco
and did not make or obtain any evaluations or appraisals of the assets or
liabilities of Green Tree or Conseco. Upon advice of Conseco and its legal and
accounting advisors, Lehman Brothers assumed that the Merger would qualify for
pooling of interests accounting treatment. The Lehman Brothers Opinion is
necessarily based upon market, economic and other conditions as they existed on,
and could be evaluated as of, the date of the Lehman Brothers Opinion.
In connection with the preparation and delivery of its opinion to the Green
Tree Board of Directors, Lehman Brothers performed a variety of financial and
comparative analyses, as described below. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial and comparative analysis and the application of those methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Furthermore, in arriving at its opinion,
Lehman Brothers did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Lehman
Brothers believes that its analyses must be considered as a whole and that
considering any portion of such analyses and factors, without considering all
analyses and factors, could create a misleading or incomplete view of the
process underlying its opinion. In its analyses, Lehman Brothers made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of Green Tree
and Conseco. Any estimates contained in these analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than as set forth therein. In addition,
analyses relating to the value of businesses do not purport to be appraisals or
to reflect the prices at which businesses actually may be sold.
Purchase Price Ratio Analysis. Based upon the Exchange Ratio, the closing
price of the Conseco Common Stock on April 3, 1998 of $56.75 represented a value
to be received by holders of Green Tree Common Stock of $52.01 per share. Based
on this implied transaction value per share, Lehman Brothers calculated the
price-to-market, price-to-book, and price-to-earnings multiples in the Merger.
The implied transaction value per share yielded a premium of 81.3% over the
closing price of Green Tree Common Stock of $28.69 as of the close of business
on April 3, 1998. This analysis also yielded a price-to-book value multiple
35
<PAGE> 47
of 5.54x, a price to actual 1997 earnings of 24.2x, a price to estimated 1998
earnings in the range of 19.6x to 20.8x, and a price to estimated 1999 earnings
in the range of 16.4x to 18.1x based on Green Tree management and IBES median
estimates as of April 3, 1998 of Green Tree's 1998 and 1999 earnings. IBES is a
data service that monitors and publishes a compilation of earnings estimates
produced by selected research analysts regarding companies of interest to
institutional investors.
Selected Comparable Companies Analysis. Using publicly available
information, Lehman Brothers compared the financial performance and stock market
valuation of Green Tree with the following selected finance institutions (the
"Comparable Companies") deemed relevant by Lehman Brothers: Associates First
Capital Corporation, Beneficial Corp., CIT Group, Finova Group Inc. and
Household International, Inc. Indications of such financial performance and
stock market valuation included the ratio of stock price to 1997 reported
earnings (13.3x for Green Tree and a mean and median of 21.2x and 22.1x,
respectively, for the Comparable Companies); the ratio of stock price to
estimated 1998 earnings based on Green Tree management and IBES estimates (in a
range of 10.8x to 11.5x for Green Tree and a mean and median of 18.6x and 18.2x,
respectively, for the Comparable Companies); the ratio of stock price to
estimated 1999 earnings based on Green Tree management and IBES estimates (in a
range of 9.1x to 10.0x for Green Tree and a mean and median of 16.2x and 15.3x,
respectively, for the Comparable Companies); the ratio of stock price to book
value (2.90x for Green Tree and a mean and median of 2.12x and 2.52x,
respectively, for the Comparable Companies); and the ratio of stock price to
tangible book value (3.03x for Green Tree (where such tangible book value equals
book value less unidentifiable intangibles) and a mean and median of 3.05x and
2.64x, respectively, for the Comparable Companies). These ratios for the
Comparable Companies are based on public financial statements as of December 31,
1997 and closing stock prices on April 3, 1998.
In addition, Lehman Brothers compared the stock price performance since
January 1, 1993 of Green Tree to that of the Comparable Companies. Indications
of such stock price performance included the ratio of stock price to 52-week
high (57.1% for Green Tree and a mean and median of 98.5% and 98.4%,
respectively, for the Comparable Companies); the ratio of stock price to 52-week
low (163.9% for Green Tree and a mean and median of 160.7% and 181.5%,
respectively, for the Comparable Companies); January 1, 1998 to date stock price
appreciation on absolute and compounded annual growth rate bases (9.5% and
43.0%, respectively, for Green Tree and median of 12.2% and 118.3%,
respectively, for the Comparable Companies); January 1, 1997 to date stock price
appreciation on absolute and compounded annual growth rate bases (-25.7% and
- -21.1%, respectively, for Green Tree and median of 84.9% and 63.4%,
respectively, for the Comparable Companies); January 1, 1995 to date stock price
appreciation on absolute and compounded annual growth rate bases (88.9% and
21.6%, respectively, for Green Tree and median of 281.9% and 50.9%,
respectively, for the Comparable Companies); and January 1, 1993 to date stock
price appreciation on absolute and compounded annual growth rate bases (378.1%
and 50.1%, respectively, for Green Tree and median of 383.1% and 35.0%,
respectively, for the Comparable Companies). These ratios for the Comparable
Companies are based on closing stock prices on April 3, 1998.
However, because of the inherent differences in the businesses, operations,
financial conditions and prospects of Green Tree and the companies included in
the Comparable Companies, Lehman Brothers believed that it was inappropriate to,
and therefore did not, rely solely on the quantitative results of the Comparable
Companies analysis, and accordingly also made qualitative judgments concerning
differences between the characteristics of the Comparable Companies and Green
Tree that would affect the trading values of Green Tree and such companies.
Selected Comparable Transactions Analysis. Using publicly available
information and IBES earnings estimates, Lehman Brothers reviewed certain terms
and financial characteristics, including historical price-to-earnings and
price-to-book ratios of nine acquisition transactions (the "Comparable
Transactions") which Lehman Brothers deemed comparable to the Merger. The
Comparable Transactions considered by Lehman Brothers in its analysis consisted
of the following transactions (identified by acquiror/acquiree): First Union
Corp./The Money Store, Household International/ACC Consumer Finance,
KeyCorp/Champion Mortgage, Household International/Transamerica Finance, Barnett
Banks/Oxford Resources, Southern National/ Regional Acceptance, Bay View
Capital/CTL Credit, KeyCorp/AutoFinance Group, and Barnett Banks/ EquiCredit
Corporation. The values for these transactions for the price to latest twelve
months earning ratio,
36
<PAGE> 48
price to current year earnings, price to next year earnings and price to book
value, on a mean basis were 19.7x, 17.2x, 14.0x and 3.95x, respectively, on a
median basis were 17.7x, 16.5x, 14.3x and 3.23x, respectively, and the range of
values for these parameters were from 12.7x to 37.4x, 11.1x to 25.6x, 10.2x to
19.5x, and 1.41x to 8.01x, respectively. These mean and median ratios implied a
valuation per Green Tree Common Stock in the range of $38.08 to $42.39, $41.19
to $45.65, $40.46 to $45.23, and $31.98 to $39.13.
Using publicly available information, Lehman Brothers also reviewed the
premium of the price paid in the Comparable Transactions to the share price of
the companies included in the Comparable Transactions 1 day and 7, 30, 45 and 60
days prior to the announcement of the Comparable Transactions. The mean premium
for each time period was 35.5%, 38.2%, 50.5%, 59.3% and 63.8%, respectively, the
median premium for each time period was 35.8%, 28.6%, 47.1%, 58.4% and 75.8%,
respectively, and range of premiums for these periods were from 9.3% to 72.5%,
6.6% to 82.3%, 25.4% to 87.6%, 18.2% to 96.3%, and 6.4% to 108.4%, respectively.
These mean and median premiums implied a valuation per Green Tree Common Stock
in the range of $38.86 to $38.96, $36.97 to $39.73, $42.48 to $43.46, $35.44 to
$35.64, and $37.27 to $39.98.
However, because the reasons for and the circumstances surrounding each of
the transactions analyzed were specific to each transaction and because of the
inherent differences between the businesses, operations and prospects of Green
Tree and Conseco and the businesses, operations and prospects of the acquired
companies included in the Comparable Transactions, Lehman Brothers believed that
it was inappropriate to, and therefore did not, rely solely on the quantitative
results of the Comparable Transactions analysis, and accordingly also made
qualitative judgments concerning differences between the characteristics of
these transactions and the Merger that would affect the acquisition values of
Green Tree and such acquired companies. In particular, Lehman Brothers
considered the form of consideration, whether the transactions involved the
purchase of assets or stock, the cross-selling opportunities that the
transactions offered to the acquirors and the potential cost savings.
Discounted Cash Flow Analysis. Lehman Brothers discounted estimated cash
flows of Green Tree through the end of 2003 and an estimated terminal value of
Green Tree Common Stock, assuming net income based on Green Tree management
estimates, assuming a dividend rate sufficient to maintain a book value less
goodwill to managed assets less goodwill of 4.50%, and using a range of discount
rates of 12% to 18%. Lehman Brothers derived an estimate of a range of terminal
values by applying multiples ranging from 12x to 18x to estimated year-end 2003
net income. These rates and values were chosen to reflect different assumptions
regarding the required rates of return of holders or prospective buyers of Green
Tree Common Stock. This analysis, and its underlying assumptions, yielded a
range of values for Green Tree Common Stock of approximately $32.92 to $61.57,
as compared to a per share transaction value of $52.01, based on the closing
price of Conseco Common Stock on April 3, 1998.
Black-Scholes Option Pricing Model Analysis. Lehman Brothers analyzed the
premium or deficit that the per share transaction value of $52.01, based on the
closing price of Conseco Common Stock on April 3, 1998, constituted compared to
the theoretical price Green Tree Common Stock was likely to reach under
Black-Scholes option pricing theory, Green Tree Common Stock's market price of
$28.69 on April 3, 1998, and Green Tree Common Stock price volatility of 67.59%.
Lehman Brothers analyzed such theoretical value as of June 30, 1998, and as of
December 31 for the years ending 1998 through 2004. According to such analysis,
and as of such dates, the per share transaction value of $52.01, based on the
closing price of Conseco Common Stock on April 3, 1998, reflected a premium to
Green Tree Common Stock's theoretical value of $23.13, $21.43, $18.00, $15.25,
$13.05, $11.26, $9.78, and $8.56.
Pro Forma Merger Analysis. Lehman Brothers analyzed the impact of the
Merger on Green Tree's estimated earnings per share based on Green Tree
management and IBES estimates for the 1998 and 1999 earnings of Green Tree and
based on estimates for the 1998 and 1999 earnings of Conseco published by IBES,
and assumed growth rates of 17% from 1999 to 2003 for both Green Tree and
Conseco. In connection with this analysis, projections for cost savings and
operating synergies from the Merger were incorporated in Lehman Brothers's
analysis. Based on such estimates, assumed growth rates and projections of cost
savings and operating synergies, Lehman Brothers concluded that the Merger would
result in accretion of 17.1% to Green Tree's earnings per share in 1999,
accretion of 16.8% to Green Tree's earnings per share in 2000,
37
<PAGE> 49
accretion of 3.0% to Conseco's earnings per share in 1999 and accretion of 2.7%
to Conseco's earnings per share in 2000.
Contribution Analysis. Lehman Brothers analyzed the respective
contributions of Green Tree and Conseco to the combined company's pro forma
balance sheet as of December 31, 1997 and pro forma historic income for 1996 and
1997. This analysis showed that Green Tree would have contributed 11.9% of total
assets, 13.0% of total assets less unidentifiable intangibles, 26.1% of total
equity, 90.3% of total equity less unidentifiable intangibles, 47.2% of 1996 net
income and 35.6% of 1997 net income. This analysis also showed that, based upon
IBES earnings estimates for 1998 and 1999, without giving effect to any cost
savings or operational synergies resulting from the Merger, Green Tree's
contribution to the combined company's net income would be 33.0% in 1998 and
32.9% in 1999. This analysis also showed that, based upon IBES earnings
estimates for 1998 and 1999 for Conseco, and based upon management earnings
estimates for 1998 and 1999 for Green Tree both without and with giving effect
to any cost savings or operational synergies resulting from the Merger to Green
Tree's estimated earnings for 1998 and 1999, Green Tree's contribution to the
combined company's net income would be 33.2% and 34.7% in 1998 and 33.9% and
40.2% in 1999. Based upon the Exchange Ratio, Green Tree stockholders would own
an estimated 39.9% of the combined company's primary shares upon completion of
the Merger and 40.1% of the combined company's fully diluted shares upon
completion of the Merger.
Historic P/E Multiple Analysis. Lehman Brothers analyzed the ratio of Green
Tree's and Conseco's historic stock price to next twelve months projected
earnings (as published by IBES) from April 3, 1993 to April 3, 1998 and compared
such ratios to the same ratio for the Standard & Poor's 500 Index, an index of
finance companies composed of Amersco Inc., Associates First Capital
Corporation, Beneficial Corp., Finova Group Inc., Household International, Inc.
and United Companies Financial Corporation (the "Finance Company Index"), and an
index of life insurance companies composed of American General Corporation, The
Equitable Companies Incorporated, Lincoln National Corporation, SunAmerica Inc.,
Aetna Inc., AFLAC Incorporated and UNUM Corporation (the "Life Insurance Company
Index"). This analysis showed that Green Tree, Conseco, the Finance Company
Index and the Life Insurance Company Index had a lower ratio throughout the
period analyzed than the ratio of the Standard & Poor's 500 Index. This analysis
also showed that while Green Tree usually had a ratio equal to or in excess of
the ratio for the Finance Company Index until October 1997, after which Green
Tree had a lower ratio, and as of April 3, 1998 had a ratio of 11.1x compared to
a ratio for the Finance Company Index of 19.6x. This analysis also indicated
that Conseco has usually had a ratio less than the ratio for the Life Insurance
Company Index, and as of April 3, 1998 had a ratio of 16.7x compared to a ratio
for the Life Insurance Company Index of 18.6x.
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The Green Tree Board of Directors
selected Lehman Brothers because of its expertise, reputation and familiarity
with Green Tree in particular and the consumer and commercial finance industry
in general and because its investment banking professionals have substantial
experience in transactions similar to the Merger.
As compensation for its services as financial advisor in connection with
the Merger, Green Tree has agreed to pay Lehman Brothers a fee of $2 million in
connection with the delivery of its opinion (such fee to be decreased to $1
million if the Merger is not consummated) (the "Opinion Fee"), and additionally,
Green Tree has agreed to pay Lehman Brothers a fee (including the Opinion Fee),
upon consummation of the Merger, equal to 0.275% of the total consideration
received by Green Tree shareholders on consummation of the Merger, which fee
(based on the closing price of Conseco Common Stock on May 21, 1998) would be
approximately $17 million. In addition, Green Tree has agreed to reimburse
Lehman Brothers for reasonable out-of-pocket expenses incurred in connection
with the Merger and to indemnify Lehman Brothers for certain liabilities that
may arise out of its engagement by Green Tree and the rendering of its opinion.
Lehman Brothers is acting as financial advisor to Green Tree in connection
with the Merger. Lehman Brothers has also performed various investment banking
services for Green Tree in the past and has received
38
<PAGE> 50
customary fees for such services. In addition, an affiliate of Lehman Brothers,
Lehman Commercial Paper Inc., has received warrants to purchase 2,735,688 shares
of Green Tree Common Stock at $22.75 per share in connection with certain credit
facilities provided by it to Green Tree. Green Tree has the right to call the
warrants for a call price of $15.00 per underlying share of Green Tree Common
Stock, which call price may be paid in Green Tree Common Stock. In connection
with the Merger, Conseco will assume the rights and obligations of Green Tree in
connection with such warrants, and such warrants will become exercisable for
Conseco Common Stock, adjusted by the Exchange Ratio. In the ordinary course of
its business, Lehman Brothers actively trades in the debt and equity securities
of Green Tree and Conseco for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities, which positions may be significant. Additionally, Mr. Mark H.
Burton, a Managing Director of Lehman Brothers, is a Director of Green Tree.
CERTAIN CONSEQUENCES OF THE MERGER
As a result of the Merger, the shareholders of Green Tree will become
shareholders of Conseco, and thereby will continue to have an interest in Green
Tree through Conseco. See "Comparison of Shareholders' Rights." Upon the
consummation of the Merger, each outstanding share of Green Tree Common Stock
(other than shares of Green Tree Common Stock held by Green Tree as treasury
stock or by its wholly owned subsidiaries or Conseco) will be cancelled and
converted into the Merger Consideration. Conseco will apply to have the
additional shares of Conseco Common Stock issued pursuant to the Merger listed
on the NYSE.
Each Green Tree Stock Option will become and represent a Substitute Option
to purchase the number of shares of Conseco Common Stock (decreased to the
nearest full share) determined by multiplying (i) the number of shares of
Conseco Common Stock subject to such Green Tree Stock Option immediately prior
to the Effective Time by (ii) the Exchange Ratio, at an exercise price per share
of Conseco Common Stock (rounded up to the nearest tenth of a cent) equal to the
exercise price per share of Green Tree Common Stock immediately prior to or at
the Effective Time divided by the Exchange Ratio. Except as provided in the
Merger Agreement, after the Effective Time, each Substitute Option shall be
exercisable upon the same terms and conditions as were applicable under the
related Green Tree Stock Option immediately prior to or at the Effective Time.
Conseco has agreed to take all corporate action necessary to reserve for
issuance a sufficient number of shares of Conseco Common Stock for delivery upon
exercise of Green Tree Stock Options assumed in accordance with the Merger
Agreement.
CONDUCT OF THE BUSINESS OF CONSECO AND GREEN TREE AFTER THE MERGER
Prior to or concurrently with the Effective Time, the Conseco Board of
Directors will be expanded to add Mr. Coss and Mr. Nickoloff. Pursuant to the
Merger Agreement, (i) the members of the Board of Directors of Merger Sub
immediately prior to the consummation of the Merger shall become the directors
of the Surviving Corporation following the consummation of the Merger and (ii)
the officers of Green Tree immediately prior to the consummation of the Merger
shall be the officers of the Surviving Corporation following the consummation of
the Merger. See "Management of the Surviving Corporation Upon Consummation of
the Merger."
Conseco plans for the operations of Green Tree in general to remain in
their current locations after the Effective Time. Conseco intends to support and
encourage Green Tree's continued growth and product expansion. Conseco and Green
Tree have similar "Middle America" customer focus, and they plan to cross-
market their products to the customer base of the combined company. In addition,
Conseco intends to seek to finance the combined entity on a more efficient basis
and achieve other cost efficiencies where possible. There can be no assurance
that these benefits will be realized from the Merger. See "Risk Factors --
Uncertainty in Realizing Synergies of Merger."
39
<PAGE> 51
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Green Tree. In considering the recommendation of the Green Tree Board of
Directors with respect to the Merger, holders of Green Tree Common Stock should
be aware that certain members of Green Tree's management, some of whom are
members of the Green Tree Board of Directors, and certain members of the Green
Tree Board of Directors have certain interests in the Merger in addition to
those of shareholders of Green Tree generally. The Green Tree Board of Directors
was aware of these interests when it considered and approved the Merger and the
Merger Agreement.
Pursuant to the terms of the Merger Agreement, Conseco has agreed to take
all action necessary to cause Lawrence M. Coss and, at Conseco's option, one or
two additional members of the Green Tree Board of Directors to become members of
the Conseco Board of Directors upon consummation of the Merger. Conseco plans to
add Mr. Nickoloff as a new director of Conseco. In addition, Mr. Coss will
remain the Chief Executive Officer of Green Tree following the Merger. Under Mr.
Coss's employment agreement with Green Tree, if Mr. Coss terminates his
employment with Green Tree within two years after the consummation of the
Merger, he will be entitled to a payment (a "Termination Payment") that is equal
to 0.5% of the value of the aggregate consideration received by the Green Tree
shareholders in the transactions resulting from the Merger. Pursuant to an
Amendment Agreement to Mr. Coss's existing employment agreement with Green Tree,
which was executed in connection with the Merger Agreement (the "Coss
Amendment"), Mr. Coss agreed that if his employment with Green Tree is
terminated by him or Green Tree prior to the first anniversary of the
consummation of the Merger, Mr. Coss will continue to provide certain consulting
services to Green Tree until such first anniversary and will continue to receive
the compensation he would have otherwise received as an employee through such
first anniversary. The Coss Amendment also provides that for a 30 day period
following termination of Mr. Coss's employment with Green Tree, Mr. Coss will
have the right to purchase Green Tree's Hawker 800XP aircraft and Green Tree's
hangar for a cash payment equal to their then fair market value in lieu of his
right to use Green Tree's aircraft for personal use until the end of the term of
Mr. Coss's non-competition agreement with Green Tree. In addition, pursuant to
the terms of the Coss Amendment, Green Tree agreed to provide Mr. Coss use of an
office in the city of Mr. Coss's principal residence, a personal secretary and a
security person during the period from the termination of Mr. Coss's employment
with Green Tree until the end of the term of Mr. Coss's non-competition
agreement with Green Tree.
Green Tree and Conseco have acknowledged that the Merger, upon
consummation, will be treated as a "change in control" for purposes of certain
Green Tree option agreements and Conseco agreed to cause the Surviving
Corporation to honor the provisions of any such agreements, including provisions
which relate to a change in control such as the accelerated vesting of stock
options. As of the date of the Merger Agreement, the executive officers of Green
Tree held a total of 4,230,667 unvested stock options which will become 100%
vested at the Effective Time.
The Merger Agreement provides that for a period of six years after the
Effective Time, Conseco will cause the Surviving Corporation to, and will
guarantee the obligation of the Surviving Corporation to, indemnify and hold
harmless all past and present officers and directors of Green Tree and its
subsidiaries to the same extent such persons were indemnified as of the date of
the Merger Agreement by Green Tree pursuant to Green Tree's Certificate of
Incorporation, Restated Bylaws or agreements in existence as of April 6, 1998
for acts or omissions occurring at or prior to the Effective Time. Conseco also
agreed to provide, or to cause the Surviving Corporation to provide, for an
aggregate period of not less than six years after the Effective Time, a policy
of directors' and officers' liability insurance that is substantially similar
(with respect to limits and deductibles) to Green Tree's existing policy or, if
substantially equivalent coverage is unavailable, the best available coverage;
provided, however, that the Surviving Corporation will not be required to pay
premiums aggregating more than $3 million for such insurance for the six year
period commencing on the Effective Time.
Mr. Burton, a member of the Green Tree Board of Directors, is also a
managing director of Lehman Brothers, Green Tree's financial advisor. The
material facts as to Mr. Burton's relationship with Lehman Brothers were
disclosed to the Green Tree Board of Directors and the Green Tree Board of
Directors
40
<PAGE> 52
unanimously concluded that Mr. Burton should participate in the deliberations
and vote with respect to the proposed Merger.
Conseco expects to offer some form of retention arrangements to
substantially all of Green Tree's executive officers after consummation of the
Merger to encourage such officers to remain with the combined company.
Conseco. Stephen C. Hilbert owns 50,000 shares of Green Tree Common Stock,
which he purchased at a cost of $19.125 per share on January 27, 1998.
ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a pooling of interests in
accordance with GAAP. Under this accounting method, the recorded assets and
liabilities of Conseco and Green Tree will be carried forward at their recorded
amounts to the combined enterprise, income of the combined enterprise will
include income of Conseco and Green Tree for the entire fiscal year in which the
Merger occurs and the reported income of Conseco and Green Tree for prior
periods will be combined and restated as income of the combined enterprise. See
"The Merger Agreement -- Conditions of the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material U.S. federal income tax
consequences of the Merger to the shareholders of Green Tree and is based upon
current provisions of the Code, existing, temporary and final regulations
thereunder and current administrative rulings and court decisions, all of which
are subject to change (possibly on a retroactive basis). No attempt has been
made to comment on all U.S. federal income tax consequences of the Merger that
may be relevant to particular shareholders of Green Tree. This discussion also
does not describe any tax consequences arising out of the tax laws of any state,
local or foreign jurisdiction.
Assuming that the Merger is consummated in accordance with the terms of the
Merger Agreement and as described in this Joint Proxy Statement/Prospectus,
under current laws, for federal income tax purposes: (i) the Merger will
constitute a "reorganization" within the meaning of Section 368(a) of the Code,
and Green Tree, Merger Sub and Conseco will each be a party to such
reorganization within the meaning of Section 368(b) of the Code; (ii) no gain or
loss will be recognized by Conseco or Green Tree as a result of the Merger;
(iii) no gain or loss will be recognized by the shareholders of Green Tree upon
the exchange of their Green Tree Common Stock solely for shares of Conseco
Common Stock pursuant to the Merger, except with respect to cash, if any,
received in lieu of fractional shares of Conseco Common Stock; (iv) the
aggregate tax basis of the shares of Conseco Common Stock received solely in
exchange for Green Tree Common Stock pursuant to the Merger (including
fractional shares of Conseco Common Stock for which cash is received) will be
the same as the aggregate tax basis of the Green Tree Common Stock exchanged
therefor; (v) the holding period for shares of Conseco Common Stock received in
exchange for Green Tree Common Stock pursuant to the Merger will include the
holding period of the Green Tree Common Stock exchanged therefor, provided such
shares of Green Tree Common Stock were held as capital assets by the shareholder
at the Effective Time; and (vi) a shareholder of Green Tree who receives cash in
lieu of a fractional share of Conseco Common Stock will recognize gain or loss
equal to the difference, if any, between such shareholder's tax basis in such
fractional share (as described in clause (iv) above) and the amount of cash
received. It is anticipated that, and it is a condition to the consummation of
the Merger that, opinions of Dorsey & Whitney LLP, counsel to Green Tree, and
Sidley & Austin, counsel to Conseco, will be rendered at the Effective Time of
the Merger to such effect.
In rendering such opinions, Dorsey & Whitney LLP and Sidley & Austin may
receive and rely upon representations contained in certificates of Green Tree
and Conseco. Shareholders of Green Tree should be aware that such opinions of
counsel are not binding on the Internal Revenue Service ("IRS"), and no
assurance is or will be given that the IRS would not adopt a contrary position
or that the IRS position would not be sustained by a court. No rulings from the
IRS have been or will be requested in connection with the Merger.
THE FOREGOING IS A GENERAL DISCUSSION OF CERTAIN POTENTIAL MATERIAL FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER AND IS INCLUDED FOR GENERAL INFORMATION
ONLY. THE FOREGOING DISCUSSION DOES NOT TAKE INTO ACCOUNT
41
<PAGE> 53
THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH GREEN TREE SHAREHOLDER'S TAX
STATUS AND ATTRIBUTES. AS A RESULT, THE FEDERAL INCOME TAX CONSEQUENCES
ADDRESSED IN THE FOREGOING DISCUSSION MAY NOT APPLY TO EACH GREEN TREE
SHAREHOLDER. ACCORDINGLY, EACH GREEN TREE SHAREHOLDER SHOULD CONSULT HIS, HER OR
ITS OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER,
INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL, STATE, LOCAL AND OTHER TAX LAWS.
REGULATORY APPROVALS
Antitrust. Under the HSR Act and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and specified waiting period requirements have been satisfied.
Conseco, Green Tree and certain shareholders of Green Tree who may be deemed
acquirors of Conseco by virtue of their ownership of Green Tree Common Stock
filed notification and report forms under the HSR Act with the FTC and the
Antitrust Division on April 20, 1998. On May 5, 1998, Conseco and Green Tree
received notice of early termination of the waiting period under the HSR Act. At
any time before or after the consummation of the Merger, the Antitrust Division
of the FTC could take such action under the antitrust laws as it deems necessary
or desirable in the public interest, including seeking to enjoin the
consummation of the Merger or seeking divestiture of substantial assets of
Conseco and Green Tree. At any time before or after the consummation of the
Merger and notwithstanding that the HSR Act waiting period has expired, any
state could take such action under the antitrust laws as it deems necessary or
desirable in the public interest. Such action could include seeking to enjoin
the consummation of the Merger or seeking divestiture of Green Tree or
businesses of Conseco or Green Tree. Private parties may also seek to take legal
action under the antitrust laws under certain circumstances.
Conseco and Green Tree believe that the Merger can be effected in
compliance with federal and state antitrust laws. However, there can be no
assurance that a challenge to the consummation of the Merger on antitrust
grounds will not be made or that, if such a challenge were made, Conseco and
Green Tree would prevail or would not be required to accept certain conditions,
possibly including certain divestitures, in order to consummate the Merger.
Banking and Finance Licenses. The consummation of the Merger will require
the approvals of the Federal Deposit Insurance Corporation (the "FDIC"), the
Utah Department of Financial Institutions and the South Dakota Division of
Banking of the Department of Commerce and Regulation. Such approval requirements
result from Green Tree's ownership of Green Tree Retail Services Bank, Inc., a
South Dakota chartered bank, and Green Tree Capital Bank, Inc., a Utah
industrial loan company (the "Banks"). The Banks are insured by the FDIC, but
Green Tree is not subject to the requirements of the Bank Holding Company Act.
Accordingly, under the Federal Deposit Insurance Act, Conseco must give the FDIC
60 days prior written notice before a change in control of the Banks may occur.
Similar filing requirements must be complied with in Utah and South Dakota.
Conseco had filed all of the required notices of change in control by April 23,
1998. The FDIC deemed the filing to be complete on April 21, 1998 and thus the
60-day time period is scheduled to expire on June 20, 1998. Conseco and Green
Tree expect to obtain the approvals of Utah and South Dakota within the same
period. Although there can be no assurance, it is anticipated that approvals of
the FDIC, the Utah Department of Financial Institutions and the South Dakota
Division of Banking of the Department of Commerce and Regulation will be
obtained.
Green Tree and/or its subsidiaries are licensed in all 50 states with
respect to their retail sales, mortgage lending and small loan finance business
(the "Lending Licenses"). Eleven of such states require a notice filing or
approval process in connection with the Merger. Green Tree had submitted the
required notices and approval applications by April 28, 1998. Green Tree has
obtained such approvals from the required states, other than New York. Although
there can be no assurance, it is anticipated that this remaining approval will
be obtained.
Each of the following has approved Green Tree and/or its subsidiaries as a
lender (the "Lending Approvals"): (i) Federal National Mortgage Association;
(ii) Veterans Affairs; (iii) Government National
42
<PAGE> 54
Mortgage Association; and (iv) Federal Housing Administration. The Lending
Approvals require notice filings in connection with the Merger. Green Tree
completed the notice filings by April 27, 1998.
NYSE LISTING OF CONSECO COMMON STOCK
Pursuant to the Merger Agreement, Conseco is required to use its reasonable
best efforts to obtain listing on the NYSE of the shares of Conseco Common Stock
to be issued in connection with the Merger. Approval of the listing on the NYSE
of the shares of Conseco Common Stock to be issued in the Merger is a condition
to the respective obligations of Green Tree, Conseco and Merger Sub to
consummate the Merger.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of Conseco Common Stock issued in connection with the Merger
will be freely transferable, except that any shares of Conseco Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the Securities Act) of Green Tree prior to the Merger may be resold by
them only in transactions registered under the Securities Act, permitted by the
resale provisions of Rule 145 promulgated under the Securities Act (or Rule 144
if such persons are or become affiliates of Conseco) or otherwise permitted
under the Securities Act. Persons who may be deemed to be affiliates of Green
Tree generally include individuals or entities that control, are controlled by,
or are under common control with, such party and may include certain officers
and directors of such party as well as principal shareholders of such party.
Green Tree has agreed to use its reasonable best efforts to cause each of
its affiliates to deliver to Conseco on or prior to May 6, 1998 a written
agreement providing that such person will not (i) sell, pledge, transfer or
otherwise dispose of, any Green Tree Common Stock or any shares of Conseco
Common Stock issued to such person in connection with the Merger, except
pursuant to an effective registration statement or in compliance with such Rule
145 or another exemption from the registration requirements of the Securities
Act or (ii) sell or in any other way reduce such person's risk relative to any
Green Tree Common Stock or any shares of Conseco Common Stock received in the
Merger during the period (the "Resale Period") commencing 30 days prior to the
Effective Time and ending at such time as the financial results covering at
least 30 days of post-Merger operations have been published by Conseco.
Conseco has agreed to use its reasonable best efforts to cause its
affiliates to deliver to Green Tree on or prior to May 6, 1998 a written
agreement providing that such person will not sell, pledge, transfer or
otherwise dispose of, or in any other way reduce such person's risk relative to,
any shares of Conseco Common Stock or any Green Tree Common Stock during the
Resale Period.
ABSENCE OF APPRAISAL RIGHTS
Holders of Green Tree Common Stock will not be entitled to appraisal rights
under the DGCL in connection with the Merger. Holders of Conseco Common Stock
will not be entitled to appraisal rights under the Indiana Corporation Law in
connection with the Merger because Conseco is not a constituent corporation in
the Merger.
THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement,
which appears as Annex A to this Joint Proxy Statement/Prospectus and is
incorporated herein by reference. The following summary includes the material
terms of such agreement but is not necessarily complete and is qualified in its
entirety by reference to the Merger Agreement.
TERMS OF THE MERGER
The Merger Agreement provides that, upon the terms and subject to the
conditions contained therein, including the approval of the Merger Consideration
Stock Issuance by the holders of Conseco Common Stock and the approval and
adoption of the Merger Agreement by the holders of Green Tree Common Stock,
Merger Sub will be merged with and into Green Tree at the Effective Time, and
Green Tree will continue as the Surviving Corporation.
43
<PAGE> 55
After the conditions precedent to the Merger have been fulfilled or waived
(where permissible), the filing of a duly executed Certificate of Merger will be
made with the Secretary of State of the State of Delaware, and the Merger will
become effective at the Effective Time, which will occur upon the filing of the
Certificate of Merger or such later time established thereby (provided that such
later date is not more than 30 days after the Certificate of Merger is filed).
Pursuant to the Merger Agreement, as of the Effective Time, all shares of
Green Tree Common Stock that are held in the treasury of Green Tree or by any
wholly owned subsidiary of Green Tree and any shares of Green Tree Common Stock
owned by Conseco will be cancelled and no capital stock of Conseco or other
consideration will be delivered in exchange therefor.
Each issued and outstanding share of common stock, par value $.01 per
share, of Merger Sub will be converted into one validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation.
Subject to the terms and conditions of the Merger Agreement, each share of
Green Tree Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares to be cancelled) will be converted into 0.9165
(such number being the "Exchange Ratio") validly issued, fully paid and
nonassessable shares of Conseco Common Stock. All such shares of Green Tree
Common Stock, when so converted, will no longer be outstanding and will
automatically be cancelled and retired and each holder of a certificate
representing any such shares will cease to have any rights with respect thereto,
except the right to receive certain dividends and other distributions,
certificates representing the shares of Conseco Common Stock into which such
shares are converted and any cash, without interest, in lieu of fractional
shares to be issued or paid in consideration therefor upon the surrender of such
certificate.
In the event of any reclassification, stock split or stock dividend with
respect to Conseco Common Stock, any change or conversion of Conseco Common
Stock into other securities or any other dividend or distribution with respect
to Conseco Common Stock other than normal quarterly cash dividends as the same
may be adjusted from time to time pursuant to the terms of the Merger Agreement
(or if a record date with respect to any of the foregoing should occur) prior to
the Effective Time, appropriate and proportionate adjustments, if any, will be
made to the Exchange Ratio, and all references to the Exchange Ratio in the
Merger Agreement will be deemed to be to the Exchange Ratio as so adjusted.
SURRENDER AND PAYMENT
Conseco will authorize a commercial bank (or such other person or persons
as shall be reasonably acceptable to Conseco and Green Tree) to act as Exchange
Agent (the "Exchange Agent"). As soon as practicable after the Effective Time,
Conseco will deposit with the Exchange Agent, in trust for the holders of shares
of Green Tree Common Stock converted in the Merger, certificates representing
the shares of Conseco Common Stock issuable pursuant to the Merger Agreement in
exchange for outstanding shares of Green Tree Common Stock and cash, as required
to make payments in lieu of any fractional shares (such cash and shares of
Conseco Common Stock, together with any dividends or distributions with respect
thereto, being the "Exchange Fund"). The Exchange Agent will deliver the Conseco
Common Stock issuable pursuant to the Merger Agreement out of the Exchange Fund.
Conseco will instruct the Exchange Agent, as soon as practicable after the
Effective Time, to mail to each record holder of a certificate or certificates,
which immediately prior to the Effective Time represented outstanding shares of
Green Tree Common Stock converted in the Merger (the "Certificates"), a letter
of transmittal (which will specify that delivery will be effected, and risk of
loss and title to the Certificates will pass, only upon actual delivery of the
Certificates to the Exchange Agent, and will contain instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of Conseco Common Stock and cash in lieu of fractional
shares). Upon surrender for cancellation to the Exchange Agent of all
Certificates held by any record holder of a Certificate, together with such
letter of transmittal, duly executed, the holder of such Certificate will be
entitled to receive in exchange therefor a certificate representing that number
of whole shares of Conseco Common Stock into which the shares represented by the
surrendered Certificate will have been converted at the Effective Time, cash in
lieu of any fractional share, and
44
<PAGE> 56
certain dividends and other distributions in accordance with the Merger
Agreement, and any Certificate so surrendered will forthwith be cancelled.
All shares of Conseco Common Stock issued upon the surrender for
Certificates in accordance with the terms of the Merger Agreement (including any
cash paid pursuant to the Merger Agreement) will be deemed to have been issued
in full satisfaction of all rights pertaining to the shares of Green Tree Common
Stock represented by such Certificates.
FRACTIONAL SHARES
No certificates or scrip representing fractional shares of Conseco Common
Stock will be issued upon the surrender for exchange of Certificates, and no
Conseco dividend or other distribution or stock split will relate to any
fractional share, and no fractional share will entitle the owner thereof to vote
or to any other rights of a security holder of Conseco. In lieu of any such
fractional share, each holder of Green Tree Common Stock who would otherwise
have been entitled to a fraction of a share of Conseco Common Stock upon
surrender of Certificates for exchange will be paid an amount in cash (without
interest), rounded to the nearest cent, determined by multiplying (i) the per
share closing price on the NYSE of Conseco Common Stock (as reported in the NYSE
Composite Transactions) on the date of the Effective Time (or, if the shares of
Conseco Common Stock do not trade on the NYSE on such date, the first date of
trading of the Conseco Common Stock on the NYSE after the Effective Time) by
(ii) the fractional interest to which such holder would otherwise be entitled.
CONDITIONS TO THE MERGER
The respective obligations of Conseco, Green Tree and Merger Sub to effect
the Merger will be subject to the fulfillment of certain conditions at or prior
to the Effective Time, including: (a) approval of the Merger Agreement by the
requisite vote of shareholders of Green Tree and approval of the Merger
Consideration Stock Issuance by the requisite vote of the shareholders of
Conseco; (b) the authorization for listing on the NYSE, subject to official
notice of issuance, of the shares of Conseco Common Stock issuable in the
Merger; (c) expiration or termination of the waiting period (and any extension
thereof) applicable to the consummation of the Merger under the HSR Act; (d) all
authorizations, consents, orders, declarations or approvals of, or filings with,
or terminations or expirations of waiting periods imposed by, any governmental
entity, which the failure to obtain, make or occur would have the effect of
making the Merger or any of the transactions contemplated by the Merger
Agreement illegal or would have, individually or in the aggregate, a material
adverse effect on Conseco (assuming the Merger had taken place), will have been
obtained, will have been made or will have occurred; (e) no stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the Commission and no proceedings for that purpose shall have been
initiated or, to the knowledge of Conseco or Green Tree, threatened by the
Commission; and (f) no court or other governmental entity having jurisdiction
over Green Tree or Conseco, or any of their respective subsidiaries, shall have
enacted, issued, promulgated, enforced or entered any law, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is then in effect and has the effect of making
the Merger or any of the transactions contemplated by the Merger Agreement
illegal.
The obligations of Green Tree to effect the Merger are also subject to the
satisfaction of certain conditions at or prior to the Effective Time, including:
(a) each of the representations and warranties of Conseco and Merger Sub that is
qualified by materiality shall be true and correct on and as of the Effective
Time as if made on and as of the Effective Time (except to the extent they
relate to a particular date) and each of the representations and warranties of
Conseco and Merger Sub that is not so qualified shall be true and correct in all
material respects on and as of the Effective Time as if made on and as of the
Effective Time (except to the extent they relate to a particular date), in each
case except as contemplated or permitted by the Merger Agreement; each of
Conseco and Merger Sub shall have performed in all material respects each of its
agreements contained in the Merger Agreement required to be performed on or
prior to the Effective Time; and Green Tree shall have received from Conseco and
Merger Sub certificates to that effect; (b) Green Tree shall have received an
opinion of Dorsey & Whitney LLP relating to certain tax matters; (c) in
obtaining any approval or consent required to consummate any of the transactions
contemplated by the Merger Agreement or the Stock Option Agreement, no
governmental entity shall have imposed or shall have sought to impose any
45
<PAGE> 57
condition, penalty or requirement which, in the reasonable opinion of Green
Tree, individually or in the aggregate, would have a material adverse effect on
Conseco (assuming the consummation of the Merger); and (d) Conseco shall have
taken all action necessary to cause Mr. Coss and one or two additional persons,
at Conseco's option, selected by Conseco among the individuals who were
directors of Green Tree as of the date of the Merger Agreement, to become
members of the Board of Directors of Conseco upon consummation of the Merger,
subject to the willingness of each such individual to serve as a director of
Conseco. Conseco plans to add Mr. Robert S. Nickoloff as a new director of
Conseco.
The obligations of Conseco and Merger Sub to effect the Merger are subject
to the satisfaction of certain conditions at or prior to the Effective Time,
including: (a) each of the representations and warranties of Green Tree that is
qualified by materiality shall be true and correct on and as of the Effective
Time as if made on and as of the Effective Time (except to the extent they
relate to a particular date) and each of the representations and warranties of
Green Tree that is not so qualified shall be true and correct in all material
respects on and as of the Effective Time as if made on and as of the Effective
Time (except to the extent they relate to a particular date), in each case
except as contemplated or permitted by the Merger Agreement; Green Tree shall
have performed in all material respects each of its agreements contained in the
Merger Agreement required to be performed on or prior to the Effective Time; and
Conseco shall have received from Green Tree a certificate to that effect; (b)
Conseco shall have received an opinion of Sidley & Austin relating to certain
tax matters; (c) receipt by Conseco of an opinion dated as of the Effective Time
of Coopers & Lybrand L.L.P. (or any successor thereto) that the Merger will
qualify for pooling of interests accounting treatment under Accounting
Principles Board Opinion No. 16 if closed and consummated in accordance with the
Merger Agreement and receipt by Conseco of "comfort letters" from KPMG Peat
Marwick LLP in form and substance reasonably satisfactory to Conseco; (d) Green
Tree shall have obtained the consent or approval of each person or governmental
entity whose consent or approval will be required in connection with the
transactions contemplated by the Merger Agreement under any loan or credit
agreement, note, mortgage, indenture, lease or other agreement or instrument or
any applicable law, rule or regulation, except as to which the failure to obtain
such consents and approvals would not, in the reasonable opinion of Conseco,
individually or in the aggregate, have a material adverse effect on Green Tree
or Conseco or upon the consummation of the transactions contemplated in the
Merger Agreement or the Stock Option Agreement, and in obtaining any approval or
consent required to consummate any of the transactions contemplated by the
Merger Agreement or by the Stock Option Agreement, no governmental entity shall
have imposed or shall have sought to impose any condition, penalty or
requirement which, in the reasonable opinion of Conseco, individually or in
aggregate would have a material adverse effect on Green Tree or Conseco; and (e)
there shall not be instituted or pending any suit, action or proceeding before
any governmental entity as a result of the Merger Agreement, the Stock Option
Agreement or any of the transactions contemplated therein which would have a
material adverse effect on Conseco.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties of
Conseco and Merger Sub, including, among other things, (a) that the documents
filed by Conseco with the Commission since January 1, 1995 did not, at the time
they were filed, contain material misstatements or omissions; (b) that the
information supplied by Conseco and Merger Sub to be included herein or in the
Registration Statement in connection with the Special Meetings will be free from
material misstatements and omissions; (c) that there has been no material
adverse change with respect to Conseco and its subsidiaries except as disclosed
in its documents filed with the Commission; (d) as to governmental licenses and
permits, and compliance with laws; (e) as to compliance with relevant tax laws;
(f) with respect to actions and proceedings pending against or involving Conseco
or its subsidiaries; (g) as to employee benefit plans and labor matters; (h) as
to compliance with worker safety laws and environmental laws; (i) as to
intellectual property; (j) as to actions taken or not taken that would
jeopardize the contemplated tax and accounting treatment of the Merger; (k) the
receipt of a fairness opinion from Merrill Lynch; (1) as to brokers; and (m)
that the Board of Directors of Conseco has taken all action necessary to exempt
Conseco, its subsidiaries and affiliates, the Merger, the Merger Agreement and
the transactions contemplated thereby from certain state takeover statutes and
certain provisions of Conseco's charter. In addition, the Merger Agreement
contains
46
<PAGE> 58
representations and warranties by each of Conseco and Merger Sub as to, among
other things, its organization, capital structure, authority to enter into the
Merger Agreement and, with respect to Conseco, the Stock Option Agreement, and
the binding effect of the Merger Agreement and the Stock Option Agreement.
The Merger Agreement also contains similar customary representations and
warranties of Green Tree.
CONDUCT OF BUSINESS PENDING THE MERGER
Actions by Green Tree. Pursuant to the Merger Agreement, Green Tree has
agreed that, during the period from the date of the Merger Agreement through the
Effective Time (except as otherwise expressly permitted by the terms of the
Merger Agreement), it will, and will cause its subsidiaries to, in all material
respects carry on its business in the ordinary course as conducted as of the
date of the Merger Agreement and, to the extent consistent therewith, use
reasonable best efforts to preserve intact its current business organizations,
keep available the services of its current officers and employees and preserve
its relationships with customers, suppliers and others having business dealings
with it to the end that its goodwill and ongoing business will be unimpaired at
the Effective Time. Without limiting the generality of the foregoing, and except
as otherwise expressly contemplated by the Merger Agreement, Green Tree will
not, and will not permit any of its subsidiaries to, without the prior written
consent of Conseco (which consent shall not be unreasonably withheld or
delayed): (a) (1) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its capital
stock, or otherwise make any payments to its stockholders in their capacity as
such (other than (A) regular quarterly dividends of not more than $.0875 per
share of Green Tree Common Stock and (B) dividends and other distributions by
subsidiaries), (2) other than in the case of any subsidiary, split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock or (3) purchase, redeem or otherwise acquire any shares of capital
stock of Green Tree or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities; (b) issue, deliver,
sell, pledge, dispose of or otherwise encumber any shares of its capital stock,
any other voting securities or equity equivalent or any securities convertible
into, or any rights, warrants or options to acquire any such shares, voting
securities, equity equivalent or convertible securities, other than (1) the
issuance of shares of Green Tree Common Stock upon the exercise of Green Tree
Stock Options outstanding on the date of the Merger Agreement in accordance with
their then current terms and (2) the issuance of Green Tree Common Stock
pursuant to the Stock Option Agreement; (c) amend its charter or bylaws; (d)
acquire or agree to acquire any business or any corporation, limited liability
company, partnership, association or other business organization or division
thereof or otherwise acquire or agree to acquire any assets, other than
transactions that are in the ordinary course of business consistent with past
practice and not material to Green Tree and its subsidiaries taken as a whole;
(e) sell, lease or otherwise dispose of, or agree to sell, lease or otherwise
dispose of, any of its assets other than transactions in the ordinary course of
business consistent with past practice; (f) incur any indebtedness for borrowed
money, guarantee any such indebtedness or make any loans, advances or capital
contributions to, or other investments in, any other person, other than (1) in
the ordinary course of business consistent with past practices, provided that
Green Tree may not, without the written consent of Conseco, incur more than $25
million of indebtedness for borrowed money, other than borrowings under credit
facilities existing on the date of the Merger Agreement, and (2) indebtedness,
loans, advances, capital contributions and investments between Green Tree and
any of its wholly owned subsidiaries or between any of such wholly owned
subsidiaries; (g) alter the corporate structure or ownership of Green Tree or
any subsidiary; (h) enter into or adopt any, or amend any existing, severance
plan, agreement or arrangement or enter into or amend any Green Tree benefit
plan or employment or consulting agreement, other than as required by law; (i)
increase the compensation payable or to become payable to its directors,
officers or employees (except for increases in the ordinary course of business
consistent with past practice in salaries or wages of employees of Green Tree or
any of its subsidiaries who are not officers of Green Tree or any of its
subsidiaries) or grant any severance or termination pay to, or enter into or
amend any employment or severance agreement with, any director or officer of
Green Tree or any of its subsidiaries, or establish, adopt, enter into, or,
except as may be required to comply with applicable law, amend in any material
respect or take action to enhance in any material respect or accelerate any
rights or benefits under, any plan or arrangement for the benefit of any
director, officer or employee; (j) knowingly violate or knowingly fail to
perform any obligation or duty imposed upon it or any
47
<PAGE> 59
subsidiary by any applicable material federal, state or local law, rule,
regulation, guideline or ordinance; (k) make any change to accounting policies
or procedures (other than actions required to be taken by GAAP); (l) prepare or
file any tax return inconsistent with past practice or, on any such tax return,
take any position, make any election, or adopt any method that is inconsistent
with positions taken, elections made or methods used in preparing or filing
similar tax returns in prior periods; (m) make any tax election or settle or
compromise any material federal, state, local or foreign income tax liability;
(n) enter into or amend any agreement or contract material to Green Tree and its
subsidiaries, taken as a whole, except in the ordinary course of business
consistent with past practice (other than certain agreements) or make or agree
to make any new capital expenditure or expenditures which, individually, is in
excess of $5 million or, in the aggregate, are in excess of $60 million; (o)
pay, discharge or satisfy any claims, liabilities or obligations, other than the
payment, discharge or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their terms, of liabilities
reflected or reserved against in, or contemplated by, the most recent financial
statements (or the notes thereto) of Green Tree included in documents filed with
the Commission or incurred in the ordinary course of business consistent with
past practice; or (p) authorize, recommend, propose or announce an intention to
do any of the foregoing, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
During the period from the date of the Merger Agreement through the
Effective Time, Green Tree will not terminate, amend, modify or waive any
provision of any confidentiality agreement relating to a takeover proposal or
standstill agreement to which Green Tree or any of its subsidiaries is a party
(other than any involving Conseco).
Actions by Conseco. During the period from the date of the Merger Agreement
to the Effective Time of the Merger, Conseco will not, and will not permit any
of its subsidiaries to (a) declare, set aside or pay any dividends on, or make
any other distributions in respect of, any of its capital stock, except that
Conseco may continue the declaration and payment of regular quarterly cash
dividends of not more than $.20 per share of Conseco Common Stock or (b) issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of Conseco's capital stock.
GREEN TREE STOCK OPTIONS
Each Green Tree Stock Option which is outstanding immediately prior to the
Effective Time will become and represent a Substitute Option to purchase the
number of shares of Conseco Common Stock (decreased to the nearest full share)
determined by multiplying (i) the number of shares of Green Tree Common Stock
subject to such Green Tree Stock Option by (ii) the Exchange Ratio, at an
exercise price per share of Conseco Common Stock (rounded up to the nearest
tenth of a cent) equal to the exercise price per share of Green Tree Common
Stock immediately prior to or at the Effective Time divided by the Exchange
Ratio. Conseco will pay cash to holders of Green Tree Stock Options in lieu of
issuing fractional shares of Conseco Common Stock upon the exercise of
Substitute Options for shares of Conseco Common Stock, unless in the judgment of
Conseco such payment would adversely affect the ability to account for the
Merger under the pooling of interests method. Each Substitute Option will be
otherwise exercisable upon the same terms and conditions as were applicable
under the related Green Tree Stock Option immediately prior to or at the
Effective Time. Green Tree has agreed that it will not grant any stock
appreciation rights or limited stock appreciation rights and will not permit
cash payments to holders of Green Tree Stock Options in lieu of the substitution
therefor of Substitute Options.
EMPLOYEE BENEFIT PLANS
Pursuant to the Merger Agreement, Conseco will cause the Surviving
Corporation from and after the Effective Time to honor all Green Tree benefit
plans and all employment agreements entered into by Green Tree prior to the date
of the Merger Agreement; provided, however, that the Merger Agreement does not
limit the power of Conseco or the Surviving Corporation to amend or terminate
any Green Tree benefit plan or require Conseco or the Surviving Corporation to
offer to continue (other than as required by its terms) any written employment
contract.
48
<PAGE> 60
NO SOLICITATION
Pursuant to the Merger Agreement, Green Tree will not, nor will it permit
any of its subsidiaries to and will not authorize or permit any of its officers,
directors, employees, financial advisors, attorneys or other advisors or
representatives or those of any of its subsidiaries to solicit, initiate or
encourage the submission of, any Takeover Proposal (as defined below), enter
into any agreement with respect to any Takeover Proposal or participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Takeover Proposal; provided, however, that prior to the Green Tree
Special Meeting, if the Board of Directors of Green Tree reasonably determines
the Takeover Proposal constitutes a Superior Proposal (as defined below), then,
to the extent required by the fiduciary obligations of the Board of Directors of
Green Tree, as determined in good faith by a majority of the disinterested
members thereof after receiving the advice of independent counsel, Green Tree
may, in response to an unsolicited request therefor, furnish information with
respect to Green Tree to, and enter into discussions with, any person pursuant
to a customary confidentiality agreement. Without limiting the foregoing, any
violation of these restrictions by any executive officer of Green Tree or any of
its subsidiaries or any financial advisor, attorney or other advisor or
representative of Green Tree or any of its subsidiaries, whether or not such
person is purporting to act on behalf of Green Tree or any of its subsidiaries
or otherwise, will be deemed to be a breach of the Merger Agreement by Green
Tree. For purposes of the Merger Agreement, "Takeover Proposal" means any
proposal for a merger or other business combination involving Green Tree or any
of its subsidiaries or any proposal or offer to acquire in any manner, directly
or indirectly, a substantial equity interest in, a substantial portion of the
voting securities of, or a substantial portion of the assets of Green Tree or
any of its subsidiaries, other than the transactions contemplated by the Merger
Agreement and the Stock Option Agreement, and "Superior Proposal" means a bona
fide Takeover Proposal made by a third party which a majority of the
disinterested members of the Board of Directors of Green Tree determines in its
reasonable good faith judgment to be more favorable to Green Tree's shareholders
than the Merger (after receiving the written opinion, with only customary
qualifications, of Green Tree's independent financial advisor that the value of
the consideration provided for in such proposal exceeds the value of the
consideration provided for in the Merger) and for which financing, to the extent
required, is then committed or which, in the reasonable good faith judgment of a
majority of such disinterested members (after receiving the written advice of
Green Tree's independent financial advisor), is highly likely to be financed by
such third party.
In addition, Green Tree has agreed that neither its Board of Directors nor
any committee thereof will withdraw or modify, or propose to withdraw or modify,
in a manner adverse to Conseco or Merger Sub, the approval or recommendation by
such Board of Directors or any such committee of the Merger Agreement or the
Merger, or approve or recommend, or propose to approve or recommend, any
Takeover Proposal. Green Tree will advise Conseco orally (within one business
day) and in writing (as promptly as practicable) of any Takeover Proposal or any
inquiry with respect to or which could lead to any Takeover Proposal, the
material terms of such Takeover Proposal and the identity of the person making
any such Takeover Proposal or inquiry, and will keep Conseco fully informed of
the status and details of any such Takeover Proposal or inquiry.
INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE
The Merger Agreement provides that for six years from and after the
Effective Time, Conseco agrees to cause the Surviving Corporation to, and to
guarantee the obligation of the Surviving Corporation to, indemnify and hold
harmless all past and present officers and directors of Green Tree and of its
subsidiaries to the same extent such persons were indemnified as of the date of
the Merger Agreement by Green Tree pursuant to Green Tree's Certificate of
Incorporation, Restated Bylaws and agreements for acts or omissions occurring at
or prior to the Effective Time. In addition, Conseco will provide, or will cause
the Surviving Corporation to provide, for an aggregate period of not less than
six years from the Effective Time, Green Tree's current directors and officers
with an insurance and indemnification policy that provides coverage for events
occurring prior to the Effective Time that is substantially similar to Green
Tree's existing policy or, if substantially equivalent insurance coverage is
unavailable, the best available coverage; provided, however, the Surviving
49
<PAGE> 61
Corporation will not be required to pay premiums for such insurance aggregating
more than $3 million for the six year period commencing on the Effective Time.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after any approval of the matters presented in
connection with the Merger by the shareholders of Green Tree or Conseco: (a) by
mutual written consent of Green Tree and Conseco; (b) except for the breach by
Green Tree of its obligations with respect to calling the Green Tree Special
Meeting and the recommendation of the Green Tree Board of Directors to Green
Tree shareholders, by either Conseco or Green Tree if the other party shall have
failed to comply in any material respect with any of its covenants or agreements
contained in the Merger Agreement required to be complied with prior to the date
of such termination, which failure to comply has not been cured within thirty
business days following receipt by such other party of written notice of such
failure to comply; (c) by either Conseco or Green Tree if there has been (1) a
breach by the other party (in the case of Conseco, including any material breach
by Merger Sub) of any representation or warranty that is not qualified as to
materiality which has the effect of making such representation or warranty not
true and correct in all material respects or (2) a breach by the other party (in
the case of Conseco, including any material breach by Merger Sub) of any
representation or warranty that is qualified as to materiality, in each case of
the foregoing clauses (c)(1) and (c)(2) which breach has not been cured within
thirty business days following receipt by the breaching party from the
non-breaching party of written notice of the breach; (d) by Conseco or Green
Tree if: (1) the Merger has not been effected on or prior to the close of
business on December 31, 1998; provided, however, that the right to terminate
the Merger Agreement pursuant to this clause will not be available to any party
whose failure to fulfill any of its obligations contained in the Merger
Agreement has been the cause of, or resulted in, the failure of the Merger to
have occurred on or prior to the aforesaid date; or (2) any court or other
governmental entity having jurisdiction over a party to the Merger Agreement has
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the transactions contemplated by
the Merger Agreement and such order, decree, ruling or other action has become
final and nonappealable; (e) by Conseco or Green Tree if the shareholders of
Green Tree do not approve the Merger Agreement at the Green Tree Special
Meeting; (f) by Conseco or Green Tree if the shareholders of Conseco do not
approve the Merger Consideration Stock Issuance at the Conseco Special Meeting;
(g) by Conseco or Green Tree if Green Tree enters into a merger, acquisition or
other agreement (including an agreement in principle) to effect a Superior
Proposal or the Green Tree Board of Directors resolves to do so; provided,
however, that Green Tree may not terminate the Merger Agreement pursuant to this
clause unless (1) Green Tree has delivered to Conseco a written notice of the
Green Tree's intent to enter into such an agreement to effect the Superior
Proposal, (2) five business days have elapsed following delivery to Conseco of
such written notice by Green Tree and (3) during such five business day period
Green Tree has fully cooperated with Conseco, including, without limitation,
informing Conseco of the terms and conditions of the Takeover Proposal and the
identity of the person making the Takeover Proposal, with the intent of enabling
Conseco to agree to a modification of the terms and conditions of the Merger
Agreement so that the transactions contemplated by the Merger Agreement may be
effected; provided, further, that Green Tree may not terminate the Merger
Agreement pursuant to this clause unless at the end of such five business day
period the Board of Directors of Green Tree continues reasonably to believe that
the Takeover Proposal constitutes a Superior Proposal and prior to such
termination Green Tree pays to Conseco the Termination Fee described below; (h)
by Conseco if (1) the Green Tree Board, in breach of the Merger Agreement, has
not recommended, or has resolved not to recommend, or has qualified, modified or
withdrawn its recommendation of the Merger or declaration that the Merger is
advisable and fair to and in the best interest of Green Tree and its
shareholders, or has resolved to do so, (2) the Board of Directors of Green Tree
has recommended to the shareholders of Green Tree any Takeover Proposal or has
resolved to do so or (3) a tender offer or exchange offer for 20% or more of the
outstanding shares of capital stock of Green Tree is commenced, and the Board of
Directors of Green Tree fails to recommend against acceptance of such tender
offer or exchange offer by its shareholders; or (i) by Green Tree if the Board
of Directors of Conseco has not recommended, or has resolved not to recommend,
or has qualified or modified or withdrawn its recommendation of the Merger or
declaration that the Merger is advisable and fair to and in the best interest of
Conseco and its shareholders, or shall have resolved to do so.
50
<PAGE> 62
FEES AND EXPENSES
Regardless of whether the Merger is consummated, except as described below
upon certain events of termination of the Merger Agreement and with respect to
certain real estate transfer and gains taxes, all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
will be paid by the party incurring such costs and expenses; provided that all
printing expenses and filing fees will be divided equally between Conseco and
Green Tree. Notwithstanding the foregoing, if the Merger Agreement is terminated
(A) by Green Tree or Conseco pursuant to clause (e) or (g) under
"-- Termination" above, (B) by Conseco pursuant to clause (h) under "--
Termination" above or (C) by Green Tree or Conseco at a time when Conseco is
entitled to terminate the Merger Agreement pursuant to clause (e), (g) or (h)
under "-- Termination" above, then, in each case, Green Tree shall (without
prejudice to any other rights Conseco may have against Green Tree for breach of
the Merger Agreement) reimburse Conseco upon demand for all out-of-pocket fees
and expenses incurred or paid by or on behalf of Conseco or any affiliate of
Conseco in connection with the Merger Agreement, the Stock Option Agreement and
the transactions contemplated therein, including all fees and expenses of
counsel, investment banking firms, accountants and consultants.
If (A) the Merger Agreement is terminated by Green Tree or Conseco at a
time when Conseco is entitled to terminate the Merger Agreement pursuant to
clause (b), (c) or (e) under "-- Termination" above, and, concurrently with or
within twelve months after such a termination a Third Party Acquisition Event
(as defined below) occurs, or (B) the Merger Agreement is terminated pursuant to
clause (g) or (h) under "-- Termination" above or by Green Tree or Conseco at a
time when Conseco is entitled to terminate the Merger Agreement pursuant to
clause (g) or (h) under "-- Termination" above, then, in each case, Green Tree
shall (in addition to any obligation under the Merger Agreement and without
prejudice to any other rights that Conseco may have against Green Tree for a
breach of the Merger Agreement) pay to Conseco the Termination Fee in cash, such
payment to be made promptly, but in no event later than the second business day
following, in the case of clause (A), the later to occur of such termination and
such Third Party Acquisition Event or, in the case of clause (B), such
termination.
For purposes of the Merger Agreement, "Termination Fee" means $200 million
minus the product obtained by multiplying (i) the value (if any) of the Spread
(as defined below) as of the date when the Termination Fee is payable by (ii)
the number of Optioned Shares (as defined below) held by Conseco as to which the
Conseco Option has not yet been exercised; provided, however, that in no event
shall the Termination Fee be less than $100 million.
For purposes of the Merger Agreement, "Third Party Acquisition Event" means
any of the following events: (A) any person (other than Conseco or its
affiliates) acquires or becomes the beneficial owner of 20% or more of the
outstanding shares of Green Tree Common Stock; (B) any group (other than a group
which includes or may reasonably be deemed to include Conseco or any of its
affiliates) is formed which, at the time of formation, beneficially owns 20% or
more of the outstanding shares of Green Tree Common Stock; (C) any person (other
than Conseco or its affiliates) shall have commenced a tender or exchange offer
for 20% or more of the then outstanding shares of Green Tree Common Stock or
publicly proposed any bona fide merger, consolidation or acquisition of all or
substantially all the assets of Green Tree, or other similar business
combination involving Green Tree; (D) Green Tree enters into, or announces that
it proposes to enter into, an agreement, including, without limitation, an
agreement in principle, providing for a merger or other business combination
involving Green Tree or a significant subsidiary of Green Tree or the
acquisition of a substantial interest in, or a substantial portion of the
assets, business or operations of, Green Tree or a significant subsidiary (other
than the transactions contemplated by the Merger Agreement); (E) any person
(other than Conseco or its affiliates) is granted any option or right,
conditional or otherwise, to acquire or otherwise become the beneficial owner of
shares of Green Tree Common Stock which, together with all shares of Green Tree
Common Stock beneficially owned by such person, results or would result in such
person being the beneficial owner of 20% or more of the outstanding shares of
Green Tree Common Stock; or (F) there is a public announcement with respect to a
plan or intention by Green Tree or any person, other than Conseco and its
affiliates, to effect any of the foregoing transactions.
51
<PAGE> 63
AMENDMENT
The Merger Agreement may be amended by the parties thereto, by or pursuant
to action taken by their respective Boards of Directors, at any time before or
after approval of the matters presented in connection with the Merger by the
shareholders of Conseco and Green Tree, but, after any such approval, no
amendment shall be made which by law requires further approval by such
shareholders without such further approval.
WAIVER
The Merger Agreement provides that, at any time prior to the Effective
Time, the parties thereto may (a) extend the time for the performance of any of
the obligations or other acts of the other parties thereto, (b) waive any
inaccuracies in the representations and warranties contained therein or in any
document delivered pursuant thereto and (c) waive compliance with any of the
agreements or conditions contained therein which may legally be waived.
THE STOCK OPTION AGREEMENT
The following is a summary of certain provisions of the Stock Option
Agreement, which appears as Annex B to this Joint Proxy Statement/Prospectus and
is incorporated herein by reference. The following summary includes the material
terms of such agreement but is not necessarily complete and is qualified in its
entirety by reference to the Stock Option Agreement.
In connection with the execution of the Merger Agreement, Conseco and Green
Tree entered into the Stock Option Agreement pursuant to which Green Tree
granted to Conseco the Conseco Option to purchase up to 26,668,399 shares (the
"Optioned Shares") of Green Tree Common Stock (approximately 19.9% of the
outstanding shares of Green Tree Common Stock as of the Green Tree Record Date,
without including any shares subject to or issued pursuant to the Conseco
Option) at an exercise price of $52.93 per share (the "Exercise Price") payable
in Conseco Common Stock, cash or a combination of Conseco Common Stock and cash,
in each case at Conseco's option. The Exercise Price shall from time to time be
adjusted so that in no event shall the Aggregate Spread Value (as defined
below), together with the Termination Fee, exceed $295 million (it being
understood that, if the Exercise Price has been increased from time to time as a
result of this sentence, the Exercise Price shall from time to time be adjusted
downward to the extent of any decrease in the price of the Green Tree Common
Stock). "Spread Value" with respect to an Optioned Share means the product
obtained by multiplying (x) the excess, if any, of (i) the average of the
closing prices on the NYSE of Green Tree Common Stock during the five trading
days immediately preceding the written notice of exercise (in the case of an
Optioned Share previously exercised) or the date of determination (in the case
of an Optioned Share as to which the Conseco Option has not yet been exercised)
over (ii) the Exercise Price. The "Aggregate Spread Value" is the sum of the
Spread Value of all Optioned Shares.
The Conseco Option is exercisable only upon the occurrence of one of the
following events: (i) any person, other than Conseco or its affiliates, acquires
or becomes the beneficial owner of 20% or more of the outstanding shares of
Green Tree Common Stock; (ii) any new group is formed which beneficially owns
20% or more of the outstanding shares of Green Tree Common Stock (other than a
group which includes or may reasonably be deemed to include Conseco or any of
its affiliates); (iii) any person (other than Conseco or its affiliates) shall
have commenced a tender or exchange offer for 20% or more of the then
outstanding shares of Green Tree Common Stock or publicly proposed any bona fide
merger, consolidation or acquisition of all or substantially all the assets of
Green Tree, or other similar business combination involving Green Tree; (iv)
Green Tree enters into, or announces that it proposes to enter into, an
agreement, including, without limitation, an agreement in principle, providing
for a merger or other business combination involving Green Tree or a significant
subsidiary of Green Tree or the acquisition of a substantial interest in, or a
substantial portion of the assets, business or operations of Green Tree or a
significant subsidiary (other than the transactions contemplated by the Merger
Agreement); (v) any person (other than Conseco or its affiliates) is granted any
option or right, conditional or otherwise, to acquire or otherwise become the
beneficial owner of shares of Green Tree Common Stock which, together with all
shares of Green Tree Common Stock beneficially owned by such person, results or
would result in such person being the beneficial owner of 20% or
52
<PAGE> 64
more of the outstanding shares of Green Tree Common Stock; or (vi) there is a
public announcement with respect to a plan or intention by Green Tree or any
person, other than Conseco or its affiliates, to effect any of the foregoing
transactions (each of the above-described events is referred to herein as a
"Purchase Event"). No Purchase Event has occurred as of the date of this Joint
Proxy Statement/Prospectus.
Notwithstanding the occurrence of a Purchase Event, Conseco may not
exercise the Conseco Option if (a) Conseco or Merger Sub has breached any of
their material obligations under the Merger Agreement or has terminated the
Merger Agreement in violation of its terms or (b) a preliminary or permanent
injunction or other order issued by any federal or state court which invalidates
the grant or prohibits the exercise of the Conseco Option is in effect.
Conseco's obligation to purchase the Optioned Shares following the exercise
of the Conseco Option, and Green Tree's obligation to deliver the Optioned
Shares, are subject to the conditions that (i) no preliminary or permanent
injunction or other order issued by any federal or state court of competent
jurisdiction in the United States prohibiting the delivery of the Optioned
Shares shall be in effect; (ii) the purchase of the Optioned Shares will not
violate Rule 10b-13 promulgated under the Exchange Act; and (iii) all applicable
waiting periods under the HSR Act shall have expired or been terminated.
The Conseco Option terminates upon the earlier of (i) the Effective Time
and (ii) the termination of the Merger Agreement in accordance with its terms;
provided, however, the Conseco Option shall not terminate pursuant to clause
(ii) if (A) the Merger Agreement is terminated by Conseco pursuant to clause (b)
or (c) under "The Merger Agreement -- Termination" above or (B) the Merger
Agreement is terminated by Conseco or Green Tree pursuant to clause (e), (g) or
(h) under "The Merger Agreement -- Termination" above.
The Stock Option Agreement further provides that, prior to the termination
of the Conseco Option, from and after the occurrence of a Put Event (as defined
below), Conseco will be entitled to require Green Tree to purchase (the "Put
Right") for cash the Conseco Option from Conseco, at a price equal to the
product determined by multiplying (A) the number of Optioned Shares as to which
the Conseco Option has not yet been exercised by (B) the Spread (as defined
below). For purposes of the Stock Option Agreement, "Put Event" means the
occurrence on or after the date of the Stock Option Agreement of any of the
following: (i) any person (other than Conseco or its affiliates) acquires or
becomes the beneficial owner of 30% or more of the outstanding shares of Green
Tree Common Stock or (ii) Green Tree consummates a merger or other business
combination involving Green Tree or a significant subsidiary of Green Tree or
the acquisition of a substantial interest in, or a substantial portion of the
assets, business or operations of Green Tree or a significant subsidiary (other
than the transactions contemplated by the Merger Agreement). As used in the
Stock Purchase Agreement, the term "Spread" means the excess, if any, of (i) the
greater of (x) the highest price (in cash or fair market value of securities or
other property) per share of Green Tree Common Stock paid or to be paid within
12 months preceding the date of exercise of the Put Right for any shares of
Green Tree Common Stock beneficially owned by any person who shall have acquired
or become the beneficial owner of 30% or more of the outstanding shares of Green
Tree Common Stock after the date of the Stock Purchase Agreement or (y) the
average of the closing prices on the NYSE of Green Tree Common Stock during the
five trading days immediately preceding the written notice of exercise of the
Put Right over (ii) the Exercise Price. Notwithstanding the foregoing, in no
event shall the aggregate Put Price, together with the Aggregate Spread Value of
any Optioned Shares previously exercised and the amount of the Termination Fee
then payable, exceed $295 million.
The Conseco Option, which Conseco required that Green Tree grant as a
condition to Conseco's entering into the Merger Agreement, might increase the
likelihood of consummation of the Merger by discouraging competing offers for
Green Tree. Certain aspects of the Stock Option Agreement may have the effect of
discouraging persons who may now, or prior to the Effective Time, be interested
in acquiring all of or a significant interest in Green Tree from considering or
proposing such an acquisition, even if such persons were prepared to offer to
pay consideration to shareholders of Green Tree that had a higher current market
price than the shares of Conseco Common Stock to be received for each share of
Green Tree Common Stock pursuant to the Merger Agreement.
53
<PAGE> 65
CONSECO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined balance sheet as of March 31,
1998 combines the historical consolidated balance sheets of Conseco and Green
Tree as if the Merger had been effective on March 31, 1998, after giving effect
to certain adjustments described in the accompanying notes to the unaudited pro
forma consolidated financial information.
The unaudited pro forma combined statements of operations for the three
months ended March 31, 1998 and 1997 and for each of the three years ended
December 31, 1997, present the combined results of operations of Conseco and
Green Tree as if the Merger had been effective at the earliest period presented.
The unaudited pro forma combined financial information and accompanying
notes reflect the application of the pooling of interests method of accounting
for the Merger. Under this method of accounting, the recorded assets,
liabilities, shareholders' equity, income and expense of Conseco and Green Tree
are combined and reflected at their historical amounts.
The unaudited pro forma combined financial statements are based on the
historical financial statements of Conseco and Green Tree and are qualified in
their entirety by, and should be read in conjunction with, these financial
statements and the notes thereto. The unaudited pro forma combined financial
statements are not necessarily indicative of the results of operations or the
combined financial position that would have resulted had the Merger been
consummated at the beginning of the period indicated, nor are they necessarily
indicative of future results of operations or financial position.
54
<PAGE> 66
CONSECO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1998
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
CONSECO GREEN TREE ADJUSTMENTS COMBINED
------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Investments:
Actively managed fixed maturities at fair value........... $22,968.9 $ -- $ -- $22,968.9
Equity securities at fair value........................... 263.4 -- -- 263.4
Interest only securities.................................. -- 1,412.3 -- 1,412.3
Finance receivables....................................... -- 2,154.6 -- 2,154.6
Mortgage loans............................................ 474.2 -- -- 474.2
Credit-tenant loans....................................... 596.6 -- -- 596.6
Policy loans.............................................. 691.7 -- -- 691.7
Other invested assets..................................... 534.8 19.1 -- 553.9
Short-term investments.................................... 837.7 888.7 -- 1,726.4
Assets held in separate accounts.......................... 675.2 -- -- 675.2
--------- -------- ------- ---------
Total investments................................... 27,042.5 4,474.7 -- 31,517.2
Accrued investment income................................... 399.9 -- -- 399.9
Other receivables........................................... -- 228.5 -- 228.5
Servicing rights............................................ -- 111.8 -- 111.8
Cost of policies purchased.................................. 2,442.6 -- -- 2,442.6
Cost of policies produced................................... 1,022.5 -- -- 1,022.5
Reinsurance receivables..................................... 761.8 -- -- 761.8
Income tax assets........................................... 42.4 -- (42.4)(2) --
Goodwill.................................................... 3,604.9 55.4 -- 3,660.3
Property and equipment...................................... 176.0 121.2 -- 297.2
Cash deposits, restricted................................... -- 234.2 -- 234.2
Other assets................................................ 431.3 29.4 -- 460.7
--------- -------- ------- ---------
Total assets........................................ $35,923.9 $5,255.2 $ (42.4) $41,136.7
========= ======== ======= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Insurance liabilities:
Interest sensitive products............................. $17,320.6 $ -- $ -- $17,320.6
Traditional products.................................... 5,758.0 -- -- 5,758.0
Claims payable and other policyholder funds............. 1,617.3 -- -- 1,617.3
Unearned premiums....................................... 409.1 -- -- 409.1
Liabilities related to separate accounts................ 675.2 -- -- 675.2
Investment borrowings..................................... 1,196.1 -- -- 1,196.1
Investor payables......................................... -- 653.3 -- 653.3
Other liabilities......................................... 1,223.4 556.2 240.0(3) 2,019.6
Income tax liabilities.................................... -- 637.4 (42.4)(2) 595.0
Notes payable and commercial paper:
Corporate............................................... 2,435.1 -- -- 2,435.1
Related to finance receivables.......................... -- 2,059.1 -- 2,059.1
--------- -------- ------- ---------
Total liabilities................................... 30,634.8 3,906.0 197.6 34,738.4
--------- -------- ------- ---------
Minority interest:
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust.......................... 1,388.1 -- -- 1,388.1
Common stock of subsidiary................................ .7 -- -- .7
Shareholders' equity:
Preferred stock........................................... 115.8 -- -- 115.8
Common stock and additional paid-in capital............... 2,397.0 446.6 (222.6)(4) 2,621.0
Accumulated other comprehensive income:
Unrealized appreciation of fixed maturity investments... 159.0 -- -- 159.0
Unrealized appreciation of other investments............ 10.9 .9 -- 11.8
Minimum pension liability adjustment.................... -- (3.1) -- (3.1)
Less treasury shares at cost.............................. -- (222.6) 222.6(4) --
Retained earnings......................................... 1,217.6 1,127.4 (240.0)(3) 2,105.0
--------- -------- ------- ---------
Total shareholders' equity.......................... 3,900.3 1,349.2 (240.0) 5,009.5
--------- -------- ------- ---------
Total liabilities and shareholders' equity.......... $35,923.9 $5,255.2 $ (42.4) $41,136.7
========= ======== ======= =========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements.
55
<PAGE> 67
CONSECO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
CONSECO GREEN TREE ADJUSTMENTS COMBINED
------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income:
Traditional products........................ $ 859.4 $ -- $ 859.4
Interest sensitive products................. 130.7 -- 130.7
Net investment income......................... 583.3 101.0 684.3
Gain on sale of receivables................... -- 129.1 129.1
Net investment gains.......................... 104.8 -- 104.8
Fee revenue and other income.................. 20.8 55.7 76.5
----------- ----------- -----------
Total revenues............................ 1,699.0 285.8 1,984.8
----------- ----------- -----------
Benefits and expenses:
Insurance policy benefits..................... 680.4 -- 680.4
Amounts added to annuity and financial product
policyholder account balances:
Interest.................................. 188.4 -- 188.4
Other amounts added to variable and
equity-indexed annuity products........ 85.6 -- 85.6
Interest expense on notes payable............. 39.0 48.5 87.5
Interest expense on short-term investment
borrowings.................................. 18.9 -- 18.9
Amortization related to operations............ 117.1 -- 117.1
Amortization related to investment gains...... 86.4 -- 86.4
Other operating costs and expenses............ 165.0 134.9 299.9
----------- ----------- -----------
Total benefits and expenses................. 1,380.8 183.4 1,564.2
----------- ----------- -----------
Income before income taxes, minority
interest and extraordinary charge......... 318.2 102.4 420.6
Income tax expense.............................. 131.3 38.9 170.2
----------- ----------- -----------
Income before minority interest and
extraordinary charge...................... 186.9 63.5 250.4
Minority interest -- distributions on
Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts, net
of income taxes............................... 19.4 -- 19.4
----------- ----------- -----------
Income before extraordinary charge.......... 167.5 63.5 231.0
Extraordinary charge on extinguishment of debt,
net of taxes and minority interest............ 16.4 -- 16.4
----------- ----------- -----------
Net income.................................. 151.1 63.5 214.6
Less preferred stock dividends.................. 2.0 -- 2.0
----------- ----------- -----------
Net income applicable to common stock....... $ 149.1 $ 63.5 $ 212.6
=========== =========== ===========
</TABLE>
<TABLE>
Earnings per common share:
<S> <C> <C> <C> <C>
Basic:
Weighted average shares outstanding......... 185,941,000 134,237,000 (11,209,000)(4) 308,969,000
Net income before extraordinary charge...... $ .89 $ .47 $ .74
Extraordinary charge........................ .09 -- .05
----------- ----------- -----------
Net income................................ $ .80 $ .47 $ .69
=========== =========== ===========
Diluted:
Weighted average shares outstanding......... 207,930,000 135,820,000 (11,341,000)(4) 332,409,000
Net income before extraordinary charge...... $ .81 $ .47 $ .70
Extraordinary charge........................ .08 -- .05
----------- ----------- -----------
Net income................................ $ .73 $ .47 $ .65
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements.
56
<PAGE> 68
CONSECO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
CONSECO GREEN TREE ADJUSTMENTS COMBINED
------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income:
Traditional products....................... $ 566.2 $ -- $ 566.2
Interest sensitive products................ 103.9 -- 103.9
Net investment income........................ 409.2 75.4 484.6
Gain on sale of receivables.................. -- 153.4 153.4
Net investment gains......................... 5.1 -- 5.1
Fee revenue and other income................. 14.6 38.4 53.0
----------- ------------ -----------
Total revenues........................... 1,099.0 267.2 1,366.2
----------- ------------ -----------
Benefits and expenses:
Insurance policy benefits.................... 455.3 -- 455.3
Amounts added to annuity and financial
product policyholder account balances:
Interest................................. 173.7 -- 173.7
Other amounts added to variable and
equity-indexed annuity products....... 16.2 -- 16.2
Interest expense on notes payable............ 25.8 29.8 55.6
Interest expense on short-term investment
borrowings................................. 2.8 -- 2.8
Amortization related to operations........... 103.6 -- 103.6
Amortization related to investment gains..... 11.8 -- 11.8
Other operating costs and expenses........... 114.4 89.3 203.7
----------- ------------ -----------
Total benefits and expenses................ 903.6 119.1 1,022.7
----------- ------------ -----------
Income before income taxes, minority
interest and extraordinary charge........ 195.4 148.1 343.5
Income tax expense............................. 70.6 56.3 126.9
----------- ------------ -----------
Income before minority interest and
extraordinary charge..................... 124.8 91.8 216.6
Minority interest:
Distributions on Company-obligated
mandatorily redeemable preferred securities
of subsidiary trusts, net of income
taxes...................................... 8.7 -- 8.7
Dividends on preferred stock of
subsidiaries............................... 1.3 -- 1.3
----------- ------------ -----------
Income before extraordinary charge......... 114.8 91.8 206.6
Extraordinary charge on extinguishment of debt,
net of taxes and minority interest........... 3.3 -- 3.3
----------- ------------ -----------
Net income................................. 111.5 91.8 203.3
Less amounts applicable to preferred stock:
Charge related to induced conversions........ 12.3 -- 12.3
Preferred stock dividends.................... 2.3 -- 2.3
----------- ------------ -----------
Net income applicable to common stock...... $ 96.9 $ 91.8 $ 188.7
=========== ============ ===========
Earnings per common share:
Basic:
Weighted average shares outstanding........ 177,670,000 138,511,000 (11,566,000)(4) 304,615,000
Net income before extraordinary charge..... $ .57 $ .66 $ .63
Extraordinary charge....................... .02 -- .01
----------- ------------ -----------
Net income............................... $ .55 $ .66 $ .62
=========== ============ ===========
Diluted:
Weighted average shares outstanding........ 203,620,000 142,220,000 (11,875,000)(4) 333,965,000
Net income before extraordinary charge..... $ .51 $ .65 $ .58
Extraordinary charge....................... .02 -- .01
----------- ------------ -----------
Net income............................... $ .49 $ .65 $ .57
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements.
57
<PAGE> 69
CONSECO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
CONSECO GREEN TREE ADJUSTMENTS COMBINED
------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income:
Traditional products....................... $2,954.1 $ -- $2,954.1
Interest sensitive products................ 456.7 -- 456.7
Net investment income........................ 1,825.3 370.6 2,195.9
Gain on sale of receivables.................. -- 546.8 546.8
Net investment gains......................... 266.5 -- 266.5
Fee revenue and other income................. 65.8 174.1 239.9
----------- ------------ -----------
Total revenues........................... 5,568.4 1,091.5 6,659.9
----------- ------------ -----------
Benefits and expenses:
Insurance policy benefits.................... 2,368.3 -- 2,368.3
Amounts added to annuity and financial
product policyholder account balances:
Interest................................. 697.1 -- 697.1
Other amounts added to variable and
equity-indexed annuity products....... 109.6 109.6
Interest expense on notes payable............ 109.4 160.9 270.3
Interest expense on short-term investment
borrowings................................. 42.0 -- 42.0
Amortization related to operations........... 408.8 -- 408.8
Amortization related to investment gains..... 181.2 -- 181.2
Nonrecurring charges......................... 71.7 -- 71.7
Other operating costs and expenses........... 577.2 444.5 1,021.7
----------- ------------ -----------
Total benefits and expenses................ 4,565.3 605.4 5,170.7
----------- ------------ -----------
Income before income taxes, minority
interest and extraordinary charge........ 1,003.1 486.1 1,489.2
Income tax expense............................. 376.6 184.7 561.3
----------- ------------ -----------
Income before minority interest and
extraordinary charge..................... 626.5 301.4 927.9
Minority interest:
Distributions on Company-obligated
mandatorily redeemable preferred securities
of subsidiary trusts, net of income
taxes...................................... 49.0 -- 49.0
Dividends on preferred stock of
subsidiaries............................... 3.3 -- 3.3
----------- ------------ -----------
Income before extraordinary charge......... 574.2 301.4 875.6
Extraordinary charge on extinguishment of debt,
net of taxes and minority interest........... 6.9 -- 6.9
----------- ------------ -----------
Net income................................. 567.3 301.4 868.7
Less amounts applicable to preferred stock:
Charge related to induced conversions........ 13.2 -- 13.2
Preferred stock dividends.................... 8.7 -- 8.7
----------- ------------ -----------
Net income applicable to common stock...... $ 545.4 $ 301.4 $ 846.8
=========== ============ ===========
</TABLE>
<TABLE>
Earnings per common share:
<S> <C> <C> <C> <C>
Basic:
Weighted average shares outstanding........ 185,751,000 136,715,000 (11,416,000)(4) 311,050,000
Net income before extraordinary charge..... $ 2.98 $ 2.20 $ 2.74
Extraordinary charge....................... .04 -- .02
----------- ------------ -----------
Net income............................... $ 2.94 $ 2.20 $ 2.72
=========== ============ ===========
Diluted:
Weighted average shares outstanding........ 210,179,000 140,254,000 (11,711,000)(4) 338,722,000
Net income before extraordinary charge..... $ 2.67 $ 2.15 $ 2.55
Extraordinary charge....................... .03 -- .02
----------- ------------ -----------
Net income............................... $ 2.64 $ 2.15 $ 2.53
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements.
58
<PAGE> 70
CONSECO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
CONSECO GREEN TREE ADJUSTMENTS COMBINED
------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income:
Traditional products.................... $ 1,384.3 $ -- $ 1,384.3
Interest sensitive products............. 269.9 -- 269.9
Net investment income..................... 1,302.5 215.3 1,517.8
Gain on sale of receivables............... -- 389.7 389.7
Net investment gains...................... 60.8 -- 60.8
Fee revenue and other income.............. 49.8 119.1 168.9
------------ ------------ ------------
Total revenues........................ 3,067.3 724.1 3,791.4
------------ ------------ ------------
Benefits and expenses:
Insurance policy benefits................. 1,195.0 -- 1,195.0
Amounts added to annuity and financial
product policyholder account balances:
Interest.............................. 620.2 -- 620.2
Other amounts added to variable and
equity-indexed annuity products.... 48.4 -- 48.4
Interest expense on notes payable......... 108.1 70.1 178.2
Interest expense on short-term investment
borrowings.............................. 22.0 -- 22.0
Amortization related to operations........ 240.0 -- 240.0
Amortization related to investment
gains................................... 36.0 -- 36.0
Other operating costs and expenses........ 304.0 330.2 634.2
------------ ------------ ------------
Total benefits and expenses........... 2,573.7 400.3 2,974.0
------------ ------------ ------------
Income before income taxes, minority
interest and extraordinary
charge............................. 493.6 323.8 817.4
Income tax expense.......................... 179.8 123.0 302.8
------------ ------------ ------------
Income before minority interest and
extraordinary charge.................. 313.8 200.8 514.6
Minority interest:
Distributions on Company-obligated
mandatorily redeemable preferred
securities of subsidiary trusts, net of
income taxes............................ 3.6 -- 3.6
Dividends on preferred stock of
subsidiaries............................ 8.9 -- 8.9
Equity in earnings of subsidiaries........ 22.4 -- 22.4
------------ ------------ ------------
Income before extraordinary charge.... 278.9 200.8 479.7
Extraordinary charge on extinguishment of
debt, net of taxes and minority
interest.................................. 26.5 -- 26.5
------------ ------------ ------------
Net income............................ 252.4 200.8 453.2
Less preferred stock dividends.............. 27.4 -- 27.4
------------ ------------ ------------
Net income applicable to common
stock.............................. $ 225.0 $ 200.8 $ 425.8
============ ============ ============
Earnings per common share:
Basic:
Weighted average shares outstanding..... 104,584,000 136,996,000 (11,439,000)(4) 230,141,000
Net income before extraordinary
charge................................ $ 2.40 $ 1.47 $ 1.96
Extraordinary charge.................... .25 -- .11
------------ ------------ ------------
Net income............................ $ 2.15 $ 1.47 $ 1.85
============ ============ ============
Diluted:
Weighted average shares outstanding..... 138,860,000 140,562,000 (11,737,000)(4) 267,685,000
Net income before extraordinary
charge................................ $ 2.01 $ 1.43 $ 1.79
Extraordinary charge.................... .19 -- .10
------------ ------------ ------------
Net income............................ $ 1.82 $ 1.43 $ 1.69
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements.
59
<PAGE> 71
CONSECO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
CONSECO GREEN TREE ADJUSTMENTS COMBINED
------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income:
Traditional products......................... $ 1,355.6 $ -- $ 1,355.6
Interest sensitive products.................. 109.4 -- 109.4
Net investment income.......................... 1,142.6 176.0 1,318.6
Gain on sale of receivables.................... -- 448.7 448.7
Net investment gains........................... 204.1 -- 204.1
Fee revenue and other income................... 43.6 86.6 130.2
------------ ------------ ------------
Total revenues............................. 2,855.3 711.3 3,566.6
------------ ------------ ------------
Benefits and expenses:
Insurance policy benefits...................... 1,107.5 -- 1,107.5
Amounts added to annuity and financial product
policyholder account balances:
Interest................................... 556.6 -- 556.6
Other amounts added to variable and equity-
indexed annuity products................ 28.8 -- 28.8
Interest expense on notes payable.............. 119.4 57.3 176.7
Interest expense on short-term investment
borrowings................................... 22.2 -- 22.2
Amortization related to operations............. 203.6 -- 203.6
Amortization related to investment gains....... 126.6 -- 126.6
Other operating costs and expenses............. 272.1 244.4 516.5
------------ ------------ ------------
Total benefits and expenses................ 2,436.8 301.7 2,738.5
------------ ------------ ------------
Income before income taxes, minority
interest and extraordinary charge....... 418.5 409.6 828.1
Income tax expense............................... 87.0 155.6 242.6
------------ ------------ ------------
Income before minority interest and
extraordinary charge.................... 331.5 254.0 585.5
Minority interest:
Dividends on preferred stock of subsidiaries... 11.9 -- 11.9
Equity in earnings of subsidiaries............. 97.1 -- 97.1
------------ ------------ ------------
Income before extraordinary charge......... 222.5 254.0 476.5
Extraordinary charge on extinguishment of debt,
net of taxes and minority interest............. 2.1 -- 2.1
------------ ------------ ------------
Net income................................. 220.4 254.0 474.4
Less preferred stock dividends................... 18.4 -- 18.4
------------ ------------ ------------
Net income applicable to common stock...... $ 202.0 $ 254.0 $ 456.0
============ ============ ============
Earnings per common share:
Basic:
Weighted average shares outstanding.......... 81,405,000 136,644,000 (11,410,000)(4) 206,639,000
Net income before extraordinary charge....... $ 2.51 $ 1.86 $ 2.22
Extraordinary charge......................... .03 -- .01
------------ ------------ ------------
Net income................................. $ 2.48 $ 1.86 $ 2.21
============ ============ ============
Diluted:
Weighted average shares outstanding.......... 103,881,000 140,090,000 (11,698,000)(4) 232,273,000
Net income before extraordinary charge....... $ 2.14 $ 1.81 $ 2.05
Extraordinary charge......................... .02 -- .01
------------ ------------ ------------
Net income................................. $ 2.12 $ 1.81 $ 2.04
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements.
60
<PAGE> 72
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited pro forma combined financial statements have been prepared
assuming that the Merger will be accounted for under the pooling of interests
method and are based on the historical consolidated financial statements of
Conseco and Green Tree. Certain amounts in the historical financial statements
of Green Tree have been reclassified to conform with Conseco's historical
financial statement presentation.
Conseco and Green Tree are still in the process of reviewing their
respective accounting policies relative to those followed by the other entity.
As a result of this review, it might be necessary to restate certain amounts in
Conseco's or Green Tree's financial statements to conform to those accounting
policies that are most appropriate. In management's opinion, any such
restatements will not be material.
Green Tree pools and securitizes substantially all of the loan contracts it
originates, retaining: (i) investments in interest-only securities that are
subordinated to the rights of other investors and (ii) the servicing on the
contracts. The valuation of interest-only securities and servicing rights is
determined by discounting the projected cash flows over the expected life of the
finance receivables sold using prepayment, default, loss, servicing cost and
discount rate assumptions. Impairment in the value of interest-only securities
considered other than temporary is recognized as a reduction to earnings, while
impairment that is temporary is recognized as a reduction to shareholders'
equity. Impairment in the value of servicing rights is recognized as a reduction
in earnings. The assumptions used in calculating the value of interest-only
securities and servicing rights are subject to volatility. Prepayments resulting
from competition, obligor mobility, general and regional economic conditions,
and prevailing interest rates, as well as actual losses incurred, may vary from
the performance projected in future periods. Assumptions with respect to future
prepayments, defaults, losses, servicing costs and discount rates are reviewed
periodically. As disclosed in its Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998, Green Tree realized a material writedown of its interest-
only securities due to higher than expected prepayments. Prepayments have
continued to exceed expectations in April 1998. If prepayments continue above
expectations, or upon review certain other assumptions are revised, it is likely
that there will be a further material writedown in the value of the
interest-only securities and servicing rights and this reduction in value could
materially affect operating results. Any adjustments to be made in future
periods will depend on circumstances existing at that time.
The unaudited pro forma consolidated financial information should be read
in conjunction with the historical consolidated financial statements of Conseco
and Green Tree, incorporated by reference herein.
2. INCOME TAX LIABILITIES
The income tax assets of Conseco are netted against the income tax
liabilities of Green Tree.
3. MERGER AND INTEGRATION COSTS
In connection with the Merger, Conseco expects to incur Merger-related
costs of approximately $240 million, net of income taxes. Such costs include
investment banking, accounting, legal and regulatory fees, severance and
retention costs and other costs associated with the Merger. These expenses
(including the related tax effect) have been reflected in the unaudited pro
forma combined balance sheet financial information, but are not reflected in the
unaudited pro forma statement of operations financial information since such
expenses are not expected to have a continuing impact on the combined company.
4. SHAREHOLDERS' EQUITY AND WEIGHTED AVERAGE SHARES OUTSTANDING
Weighted average shares outstanding have been adjusted to reflect the
issuance of .9165 shares of Conseco Common Stock for each share of Green Tree
Common Stock or equivalent. The following shares of Green Tree Common Stock or
equivalents were outstanding at April 6, 1998: (i) 134,012,054 shares of Green
Tree Common Stock; (ii) 10,297,132 options outstanding to purchase Green Tree
Common Stock at an average price of $23.12 per share (such options are
equivalent to 6,174,713 shares of Conseco Common Stock,
61
<PAGE> 73
based on the last reported sale price of a share of Conseco Common Stock on
April 6, 1998); and (iii) warrants to purchase 2,735,688 shares of Green Tree
Common Stock at $22.75 per share (such warrants are equivalent to 710,568 shares
of Conseco Common Stock, based on the last reported sale price of a share of
Conseco Common Stock on April 6, 1998 based on Green Tree's right to call the
warrant by issuing stock equivalents at $15 per warrant). The treasury stock
held by Green Tree prior to the Merger has been reclassified to common stock and
additional paid-in capital to conform to Conseco's presentation.
5. OPERATING COST SAVINGS
No adjustment has been included in the unaudited pro forma consolidated
financial information for the anticipated operating cost savings. The combined
company expects to achieve operating cost savings through the reduction of
certain borrowing costs as well as potentially through the elimination of
redundant staff functions, data processing, marketing synergies and certain back
office operations and the reduction of corporate overhead. There can be no
assurance that anticipated operating cost savings will be achieved.
DESCRIPTION OF CONSECO CAPITAL STOCK
At May 21, 1998, the authorized capital stock of Conseco was 1,020,000,000
shares, consisting of:
(a) 20,000,000 shares of preferred stock ("Conseco Preferred Stock"), of
which 1,889,400 shares of Conseco PRIDES were outstanding; and
(b) 1,000,000,000 shares of Conseco 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 Conseco is empowered, without approval of the
shareholders, to cause the Conseco 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 Conseco
Preferred Stock (or of the entire class of Conseco 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 Conseco Articles of Incorporation (as defined below).
CONSECO COMMON STOCK
Dividends. Except as provided below, holders of Conseco Common Stock are
entitled to receive dividends and other distributions in cash, stock or property
of Conseco when, as and if declared by the Conseco Board of Directors out of
assets or funds of Conseco 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 Conseco Preferred Stock).
Voting Rights. At every meeting of shareholders, every holder of Conseco
Common Stock is entitled to one vote per share. Subject to any voting rights
which may be granted to holders of Conseco 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 Conseco, whether voluntary or involuntary (any
such event, a "Liquidation"), the holders of Conseco Common Stock are entitled
to share equally on a per share basis in the assets available for distribution
after payment of all liabilities and provision for the liquidation preference of
any shares of Conseco Preferred Stock then outstanding.
Miscellaneous. The holders of Conseco Common Stock have no preemptive
rights, cumulative voting rights, subscription rights, or conversion rights and
the Conseco Common Stock is not subject to redemption.
62
<PAGE> 74
The transfer agent and registrar with respect to the Conseco Common Stock
and the Conseco PRIDES is First Union National Bank.
See "Comparison of Shareholders' Rights" for additional information
regarding the rights of holders of Conseco Common Stock.
CONSECO PRIDES
General. The Conseco PRIDES are shares of convertible preferred stock and
rank prior to the Conseco Common Stock as to payment of dividends and
distribution of assets upon liquidation. The shares of Conseco PRIDES
mandatorily convert into shares of Conseco Common Stock on February 1, 2000 (the
"Mandatory Conversion Date"), and Conseco has the option to redeem the shares of
Conseco 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 Conseco Common Stock. In
addition, the shares of Conseco PRIDES are convertible into shares of Conseco
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 Conseco 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 share of Conseco 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 Conseco PRIDES will mandatorily
convert into (i) four shares of Conseco 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 Conseco 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, Conseco may
redeem any or all of the outstanding shares of Conseco PRIDES. Upon any such
redemption, each holder will receive, in exchange for each share of Conseco
PRIDES, the number of shares of Conseco 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 Conversion 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 Conseco Common Stock,
subject to adjustment. The number of shares of Conseco Common Stock to be
delivered in payment of the applicable Call Price will be determined on the
basis of the current market price of Conseco 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 Conseco PRIDES is
convertible at the option of the holder thereof into 3.42 shares of Conseco
Common Stock (the "Optional Conversion Rate"), equivalent to the conversion
price of $17.8728 per share of Conseco Common Stock, subject to adjustment as
described herein. The right of holders to convert shares of Conseco PRIDES
called for redemption will terminate immediately prior to the close of business
on the redemption date.
Voting Rights. The holders of shares of Conseco PRIDES have the right with
the holders of Conseco Common Stock to vote in the election of directors and
upon each other matter coming before any meeting of the holders of Conseco
Common Stock on the basis of 4/5 of one vote for each share of Conseco PRIDES.
On such matters, the holders of shares of Conseco PRIDES and the holders of
Conseco Common Stock vote together as one class except as otherwise provided by
law or the Conseco Articles of Incorporation. In addition, (i) whenever
dividends on the shares of Conseco PRIDES or any other series of Conseco
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 Conseco PRIDES (voting separately as a class with the holders of
all other series of Conseco Preferred Stock with like voting rights that are
exercisable) are entitled to vote, on the basis of one vote for each share of
Conseco PRIDES, for the election of two directors of Conseco, such
63
<PAGE> 75
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 Conseco PRIDES may have voting rights with respect to certain
alterations of the Conseco Articles of Incorporation and certain other matters,
voting on the same basis or separately as a series.
Liquidation Preference and Ranking. The shares of Conseco PRIDES rank prior
to the Conseco Common Stock as to payment of dividends and distribution of
assets upon liquidation. The liquidation preference of each share of Conseco
PRIDES is an amount equal to the sum of (i) $61.125 per share and (ii) all
accrued and unpaid dividends thereon.
64
<PAGE> 76
COMPARISON OF SHAREHOLDERS' RIGHTS
The rights of Conseco shareholders are governed by Conseco's Amended and
Restated Articles of Incorporation (the "Conseco Articles of Incorporation"),
its Amended and Restated Bylaws (the "Conseco Bylaws") and the Indiana
Corporation Law. The rights of Green Tree shareholders are governed by its
Certificate of Incorporation, as amended (the "Green Tree Certificate of
Incorporation"), its Restated Bylaws (the "Green Tree Bylaws") and the DGCL.
After the Effective Time, the rights of Green Tree shareholders who become
Conseco shareholders will be governed by the Conseco Articles of Incorporation,
the Conseco Bylaws and the Indiana Corporation Law. The following is a summary
of the material differences between the rights of Conseco shareholders and the
rights of Green Tree shareholders.
CERTAIN PROVISIONS RELATING TO ACQUISITIONS
The Indiana Corporation Law, the DGCL, the Conseco Articles of
Incorporation and the Green Tree Certificate of Incorporation contain certain
provisions, including the ones described below, which purport to apply to
certain types of share acquisitions or corporate transactions.
Business Combinations. The Conseco Articles of Incorporation provide that
Conseco may not enter into a "Special Business Combination Transaction" (defined
as a merger or other business combination transaction with or involving a
beneficial owner of more than 10% of Conseco Common Stock (a "Related Person"))
unless (i) the consideration to be received per share by holders of Conseco
Common Stock in such transaction is at least equal to the highest per share
price paid in order to acquire any shares of Conseco Common Stock beneficially
owned by the Related Person or (ii) the transaction shall have been approved by
two-thirds of the Continuing Directors (defined as the directors of Conseco in
office prior to the date on which a Related Person became such).
Section 23-1-43-18 of the Indiana Corporation Law provides that a
corporation may not engage in any "business combination" with any "interested
shareholder" for a period of five years following the interested shareholder's
share acquisition date unless the business combination or the purchase of shares
made by the interested shareholder is approved by the board of directors of the
corporation before the interested shareholder's share acquisition date. A
"business combination" under the Indiana Corporation Law is generally defined as
any of the following transactions involving the corporation and an interested
shareholder thereof: (i) a merger or consolidation; (ii) a sale, lease,
exchange, mortgage, pledge, transfer, or other disposition of 10% or more of the
corporation's assets or representing 10% or more of the earning power or net
income of the corporation; (iii) an issuance or transfer of shares of the
corporation's stock representing 5% or more of the aggregate market value of all
of such corporation's outstanding stock; (iv) the adoption of a plan of
liquidation or dissolution proposed by or under agreement with such interested
shareholder; (v) a transaction having the effect of directly or indirectly
increasing the proportionate share of the corporation's stock held by such
interested shareholder; or (vi) any receipt by such interested shareholder of
the benefit of any loans, advances, guarantees, pledges, or other financial
assistance or any tax credits or other tax advantages. An "interested
shareholder" under the Indiana Corporation Law is generally defined as any
person owning 10% or more of the voting power of the outstanding voting shares
of the corporation.
The Green Tree Certificate of Incorporation provides that (a) any merger or
consolidation of Green Tree or any subsidiary with a beneficial owner of more
than 10% of Green Tree's Common Stock or an affiliate or associate of such
beneficial owner (an "Interested Stockholder"), (b) any sale, lease, exchange,
mortgage, pledge, grant of a security interest, transfer, or other disposition,
other than in the ordinary course of business, to an Interested Stockholder, (c)
the issuance or transfer by Green Tree or any subsidiary of any securities
(except pursuant to stock dividends, stock splits, or similar transactions which
would not have the effect of increasing the proportionate voting power of an
Interested Stockholder) of Green Tree or any subsidiary to an Interested
Stockholder, (d) the adoption of any plan or proposal for the liquidation or
dissolution of Green Tree proposed by an Interested Stockholder, or (e) any
reclassification of securities or recapitalization of Green Tree or any merger
or consolidation of Green Tree with any of its subsidiaries or any other
transaction which has the effect of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities of Green
Tree or any subsidiary beneficially owned by an Interested Stockholder, in each
65
<PAGE> 77
case shall not be consummated without the approval by the affirmative vote of
the holders of at least 80% of the voting power of the then outstanding shares
of voting stock of Green Tree. The Green Tree Certificate of Incorporation
provides that the foregoing sentence does not apply if the transaction has been
approved by a majority of the Continuing Directors (defined as a member of the
Green Tree Board of Directors prior to the time an Interested Stockholder became
such and not an affiliate or an associate of an Interested Stockholder) or if
(i) the consideration payable in the transaction is at least equal to the higher
of (a) the highest per share price paid by the Interested Stockholder to acquire
any shares of Green Tree Common Stock within the preceding two years or (b) the
fair market value of the Green Tree Common Stock on the announcement date or the
determination date, (ii) after an Interested Stockholder has become an
Interested Stockholder and prior to the consummation of the transaction, there
has been no failure to declare and pay at the regular date the full amount of
any dividends payable on any outstanding preferred stock, no reduction in the
annual rate of dividends paid on Green Tree Common Stock (other than as approved
by a majority of the Continuing Directors), and such Interested Stockholder
shall not become the beneficial owner of any additional shares of Green Tree
voting stock, (iii) after an Interested Stockholder became such, it has not
received the benefit of any loans, advances, guarantees, pledges, or other
financial assistance or any tax credits or other tax advantages provided by
Green Tree, and (iv) a proxy or information statement describing the proposed
transaction and complying with the requirements of the Exchange Act and the
rules and regulations thereunder shall be mailed to the stockholders of Green
Tree no later than the earlier of (a) 30 days prior to any vote on the proposed
transaction or (b) if no vote is required, 60 days prior to the consummation of
such proposed transaction. Any such proxy statement must contain any
recommendations that the Continuing Directors may have furnished in writing and,
if deemed advisable by a majority of the Continuing Directors, an opinion of a
reputable investment banking firm as to the fairness of the terms of the
proposed transaction from the point of view of the holders of voting stock other
than the Interested Stockholder. The Green Tree Bylaws do not have any
restrictions with respect to business combinations.
In addition, Green Tree is governed by Section 203 of the DGCL. Section 203
of the DGCL provides that a corporation shall not engage in any "business
combination" with any "interested stockholder" for a period of three years
following the time that such stockholder became an interested stockholder,
unless (i) prior to such time, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder, (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding those shares owned
(a) by persons who are directors and also officers and (b) employee stock plans
in which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer, or (iii) at or subsequent to such time, the business combination is
approved by the board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of
at least two-thirds (2/3) of the outstanding voting stock which is not owned by
the interested stockholder. A "business combination" under the DGCL is generally
defined as any of the following transactions involving the corporation and an
interested stockholder thereof: (i) a merger or consolidation; (ii) a sale,
lease, exchange, mortgage, pledge, transfer or other disposition of 10% or more
of the corporation's assets; (iii) an issuance or transfer of the corporation's
stock; (iv) a transaction having the effect of directly or indirectly increasing
the proportionate share of the corporation's stock held by such interested
stockholder; or (v) any receipt by such interested stockholder of the benefit of
any loans, guarantees, pledges or other financial benefits. An "interested
stockholder" under the DGCL is generally defined as any person owning 15% or
more of the corporation's outstanding voting stock.
Control Share Acquisitions. Chapter 23-1-42 of the Indiana Corporation Law
requires that, unless the articles or bylaws of a corporation exempt the
corporation therefrom (which Conseco's Articles of Incorporation and Bylaws do
not), any person who proposes to acquire or has acquired (a "control share
acquisition") ownership of (or the power to direct the voting of) shares
representing one-fifth, one-third, or a majority of the voting power of an
issuing public corporation in the election of directors must provide the
corporation with a statement describing such acquisition (an "acquiring person
statement"). If the acquiring person so requests at the time of delivery of such
statement (and undertakes to pay the expenses relating thereto), the
66
<PAGE> 78
corporation shall cause a special meeting of its shareholders to be called for
the purpose of considering the voting rights to be accorded the shares acquired
in the control share acquisition. The shares so acquired shall be accorded the
same voting rights as were accorded such shares before the control share
acquisition only to the extent granted by resolution of the shareholders of such
corporation. Shares acquired in a control share acquisition as to which no
acquiring person statement has been filed may be redeemed by the corporation at
the fair value thereof under certain circumstances. In the event that shares
acquired in a control share acquisition are accorded full voting rights and the
acquiring person has acquired shares representing a majority or more of all
voting power, the other shareholders will be entitled to appraisal rights. The
DGCL does not contain a comparable provision.
Takeover Offers. Chapter 23-2-3.1 of the Indiana Corporation Law provides
that a person shall not make a takeover offer unless the following conditions
are satisfied: (i) a statement which consists of each document required to be
filed with the Commission is filed with the Indiana securities commissioner and
delivered to the president of the target company before making the takeover
offer; (ii) a consent to service of process and the requisite filing fee
accompanies the statement filed with the Indiana securities commissioner; (iii)
the takeover offer is made to all offerees holding the same class of equity
securities on substantially equivalent terms; (iv) a hearing is held within 20
business days after the statement described in clause (i) above is filed; and
(v) the Indiana securities commissioner shall have approved the takeover offer.
In addition, such section provides that no offeror may acquire any equity
security of any class of a target company within two years following the
conclusion of a takeover offer with respect to that class, unless the holder of
such equity security is afforded, at the time of that acquisition, a reasonable
opportunity to dispose of such securities to the offeror upon substantially
equivalent terms. A "takeover offer" means an offer to acquire or an acquisition
of any equity security of a target company pursuant to a tender offer or request
or invitation for tenders if, after the acquisition, the offeror is directly or
indirectly a record or beneficial owner of more than ten percent of any class of
the outstanding equity securities of the target company. A "target company"
means an issuer of securities which is organized under the laws of Indiana, has
its principal place of business in Indiana and has substantial assets in
Indiana. The DGCL does not contain a comparable provision.
AMENDMENT OF BYLAWS
The Conseco Bylaws may be amended by majority vote of the Conseco Board of
Directors only. The Green Tree Bylaws may be amended by the Green Tree Board of
Directors at a meeting duly called for such purpose. The shareholders of Green
Tree may amend the Green Tree Bylaws by a majority vote of the shareholders at
any meeting called for such purpose, except that provisions relating to
directors must be approved by the affirmative vote of 80% of all shareholders.
RIGHT TO BRING BUSINESS BEFORE AN ANNUAL OR SPECIAL MEETING OF SHAREHOLDERS;
NOTICE OF DIRECTOR NOMINATIONS
The Conseco Bylaws provide that a shareholder must give timely, written
notice to the Secretary of Conseco to propose business to be brought before an
annual meeting or to nominate directors. To be timely, a shareholder's notice
must be received not later than 90 calendar days in advance of the anniversary
date of the release of Conseco's proxy statement to shareholders in connection
with the preceding year's annual meeting of shareholders, except that if no
annual meeting was held in the previous year or the date of the annual meeting
has been changed by more than 30 calendar days from the anniversary of the
annual meeting date stated in the previous year's proxy statement, such proposal
shall be received a reasonable time before the solicitation is made. The Conseco
Bylaws also provide that special meetings of shareholders may be called by the
Board of Directors, the Chairman of the Board or the President and the business
transacted at such meeting shall be limited to the purpose or purposes specified
in the notice for such meeting.
The Green Tree Certificate of Incorporation and the Green Tree Bylaws do
not contain any restriction on the ability of shareholders to bring business
before an annual or a special meeting of shareholders. The Green Tree Bylaws
provide that a director candidate may be nominated by a shareholder giving
written notice to the Secretary of Green Tree of such nomination not less than
60 days prior to the date of the applicable annual meeting.
67
<PAGE> 79
DIRECTOR LIABILITY
The Conseco Articles of Incorporation and the Conseco Bylaws do not contain
a specific exculpatory provision regarding director liability. However, the
Indiana Corporation Law provides that a director is not liable for any action
taken as a director, or any failure to take any action, unless (i) the director
has breached or failed to perform the duties of the director's office in
compliance with Section 23-1-35-1 of the Indiana Corporation Law (which
requires, among other things, that a director discharge his duties as a director
in good faith, with the care an ordinarily prudent person in a like position
would exercise under similar circumstances and in a manner the director
reasonably believes to be in the best interests of the corporation) and (ii) the
breach or failure to perform constitutes willful misconduct or recklessness.
The Green Tree Certificate of Incorporation provides that a director of
Green Tree shall not be personally liable to Green Tree or its shareholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to Green Tree or
its shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law, (iii) under Section 174 of
the DGCL (unlawful payment of dividends), or (iv) for any transaction from which
the director derived an improper personal benefit.
INDEMNIFICATION
The Indiana Corporation Law grants authorization to Indiana corporations to
indemnify officers and directors for their conduct if such conduct was in good
faith and was in the corporation's best interests or, in the case of directors,
was not opposed to such best interests, and permits the purchase of insurance in
this regard. In addition, the shareholders of a corporation may approve the
inclusion of other or additional indemnification provisions in the articles of
incorporation and bylaws.
The Conseco Bylaws provide for the indemnification of any person made a
party to any action, suit or proceeding by reason of the fact that he or she is
a director, officer or employee of Conseco, if (a) such person is wholly
successful with respect to such action, suit or proceeding or (b) if such person
is determined to have acted in good faith, in what he or she reasonably believed
to be the best interests of Conseco or at least not opposed to its best
interests and, in addition, with respect to any criminal claim, is determined to
have had reasonable cause to believe that his or her conduct was lawful or had
no reasonable cause to believe that his or her conduct was unlawful. Such
indemnification shall be against the reasonable expenses, including attorneys'
fees, incurred by such person in connection with the defense of such action,
suit or proceeding and amounts paid in settlement. If such person was not wholly
successful, the determination of entitlement to indemnification shall be made by
one of the following methods, such method to be selected by the Board of
Directors: (a) by the Board of Directors by a majority vote of a quorum
consisting of directors who are not and have not been parties to the claim; (b)
by the majority vote of a committee duly designated by the Board of Directors,
consisting solely of two or more directors who are not and have not been parties
to the claim; and (c) by special legal counsel. The Conseco Bylaws also provide
that Conseco shall advance to a director or officer the expenses incurred by
such individual. The rights conferred above shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute, bylaw,
resolution of shareholders or directors, agreement or otherwise.
The Green Tree Bylaws provide that Green Tree shall indemnify any person
who was, is, or is threatened to be made a party to a proceeding by reason of
the fact that he or she (i) is or was a director or officer of Green Tree or
(ii) while a director, officer, employee or agent of Green Tree, is or was
serving at the request of Green Tree as a director, officer, employee, agent, or
in any other capacity of another corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise, to the fullest extent permitted
under the DGCL. Such right shall include the right to be paid by Green Tree
expenses incurred in defending any such proceeding in advance of its final
disposition to the maximum extent permitted under the DGCL. If a claim for
indemnification or advancement of expenses is not paid in full by Green Tree
within sixty (60) days after a written claim has been received by Green Tree,
the claimant may at any time thereafter bring suit against Green Tree to recover
the unpaid amount of the claim, and if successful in whole or in part, the
claimant shall also be entitled to be paid the expenses of prosecuting such
claim. It shall be a defense to any such action that
68
<PAGE> 80
such indemnification or advancement of costs of defense are not permitted under
the DGCL, but the burden of proving such defense shall be on Green Tree. Neither
the failure of Green Tree (including its board of directors or any committee
thereof, independent legal counsel, or shareholders) to have made its
determination prior to the commencement of such action that indemnification of,
or advancement of costs of defense to, the claimant is permissible in the
circumstances nor an actual determination by Green Tree (including its board of
directors or any committee thereof, independent legal counsel, or shareholders)
that such indemnification or advancement is not permissible shall be a defense
to the action or create a presumption that such indemnification or advancement
is not permissible. The rights conferred above shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
bylaw, resolution of shareholders or directors, agreement, or otherwise.
DIVIDENDS AND REPURCHASES
Under the Indiana Corporation Law, a corporation may make distributions to
its shareholders as long as the corporation's net assets are greater than zero,
debts may be paid as they come due, and the payment of these distributions is
consistent with the corporation's articles of incorporation. Under the DGCL, a
corporation may pay dividends and repurchase stock out of surplus or, if there
is no surplus, out of any net profits for the fiscal year in which the dividend
was declared or for the preceding fiscal year as long as no payment reduces
capital below the amount of capital represented by all classes of shares having
a preference upon the distribution of assets.
DISSENTERS' RIGHTS
Under the Indiana Corporation Law, dissenters' rights are unavailable to
holders of shares registered on a national securities exchange or quoted on
NASDAQ Market System on the record date for a meeting of shareholders at which
action on the proposed transaction otherwise subject to dissenters' rights is to
be taken.
Under the DGCL, a shareholder is entitled, under certain circumstances, to
receive payment of the fair value of the shareholder's common stock if the
shareholder dissents from a proposed merger or consolidation. Dissenters' rights
are unavailable in the case of a sale of all or substantially all of the assets
of a corporation. Dissenters' rights are also unavailable if the shares of the
Delaware corporation which is a party to a merger or consolidation are listed on
a national securities exchange, or are held of record by more than 2,000
persons, and in the merger or consolidation, shareholders receive shares of
stock of the surviving or resulting corporation and/or shares of stock of any
other corporation which are listed on a national securities exchange or held of
record by more than 2,000 persons. Since the Green Tree Common Stock is
currently listed and the shares of Conseco Common Stock to be received in the
Merger will be listed on the NYSE, dissenters' rights will not be available to
shareholders of Green Tree in connection with the Merger.
DIRECTOR AND OFFICER DISCRETION
Under Sections 23-1-35-1-(d), (f), and (g) of the Indiana Corporation Law,
in discharging his or her duties to the corporation and in determining what he
or she believes to be in the best interests of the corporation, a director or
officer may, in addition to considering the effects of any action on
shareholders, consider the effects of the action on employees, suppliers,
customers, the communities in which the corporation operates and any other
factors that the director or officer considers pertinent. The DGCL does not
contain a comparable provision, and under Delaware law, the consideration that a
board may give to nonshareholder constituencies is less clear. In considering
the best interests of a corporation, under Delaware law, directors and officers
may generally take into consideration the interests of nonshareholders. However,
the Delaware Supreme Court has held that the consideration of nonshareholder
constituencies is inappropriate when an active "auction" is in process to sell a
company.
The foregoing discussion of certain similarities and material differences
between the rights of Conseco shareholders and the rights of Green Tree
shareholders is a summary of certain provisions only, does not purport to be a
complete description of such similarities and differences and is qualified in
its entirety by reference to the Indiana Corporation Law and the common law
thereunder, the DGCL and the common law
69
<PAGE> 81
thereunder, and the full text of the Conseco Articles of Incorporation, the
Conseco Bylaws, the Green Tree Certificate of Incorporation and the Green Tree
Bylaws.
MANAGEMENT OF THE SURVIVING CORPORATION
UPON CONSUMMATION OF THE MERGER
The directors of Merger Sub are Stephen C. Hilbert, Rollin M. Dick and
Thomas J. Kilian. The current executive officers of Green Tree are Lawrence M.
Coss, Gregory D. Aplin, Jerry W. Britton, Bruce A. Crittenden, Richard G. Evans,
Edward L. Finn, Jack F. Brandom, III, James R. Breakey, Barbara J. Didrikson,
Joel H. Gottesman, Joseph E. Huguelet, III, Phyllis A. Knight, Michael L.
Newell, Brent H. Peterson, Mark A. Shepherd, Jeffrey A. Vanthournout, Scott T.
Young, Lyle D. Zeller, Gary V. Busch and John A. Dolphin, and such individuals
will be the executive officers of the Surviving Corporation upon consummation of
the Merger and will have the same titles with the Surviving Corporation as they
currently have with Green Tree.
LEGAL MATTERS
The validity of the Conseco Common Stock to be issued in connection with
the Merger will be passed upon for Conseco by John J. Sabl, Executive Vice
President, General Counsel and Secretary of Conseco. Mr. Sabl is a full-time
employee and officer of Conseco and owns 75,000 shares and holds options to
purchase 450,000 shares of Conseco Common Stock.
Certain tax matters in connection with the transaction will be passed upon
by Sidley & Austin and Dorsey & Whitney LLP.
EXPERTS
The consolidated financial statements of Conseco at December 31, 1997 and
1996, and for each of the three years in the period ended December 31, 1997,
incorporated by reference in this Joint Proxy Statement/ Prospectus, have been
audited by Coopers & Lybrand L.L.P., independent 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.
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,
incorporated by reference in this Joint Proxy Statement/ Prospectus, have been
audited by KPMG Peat Marwick LLP, independent auditors, as set forth in their
report thereon incorporated by reference herein, and are incorporated by
reference in reliance upon such report, given upon authority of such firm as
experts in accounting and auditing.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS AND AUDITORS
Representatives of Coopers & Lybrand L.L.P. will be present at the Conseco
Special Meeting and will be available to respond to appropriate questions and
have the opportunity to make a statement if they desire. Representatives of KPMG
Peat Marwick LLP will be present at the Green Tree Special Meeting and will be
available to respond to appropriate questions and have the opportunity to make a
statement if they desire.
SHAREHOLDERS PROPOSALS
Any proper proposal which a shareholder of Conseco wishes to have included
in the Conseco Board of Directors' proxy statement and form of proxy for the
1999 Annual Meeting must be received by Conseco by December 10, 1998. Such
proposals must meet the requirements set forth in the rules and regulations of
the Commission in order to be eligible for inclusion in the proxy statement for
the 1999 Annual Meeting. In addition, the Conseco Bylaws establish advance
notice procedures as to: (i) business to be brought before an annual meeting of
shareholders other than by or at the direction of the Board of Directors; and
(ii) the
70
<PAGE> 82
nomination, other than by the Board of Directors or a committee appointed by the
Board of Directors, of candidates for election as directors. Any shareholder who
wishes to submit a proposal to be acted upon at the 1999 Annual Meeting or who
wishes to nominate a candidate for election as director should obtain a copy of
these Bylaw provisions and may do so by written request addressed to the
Secretary of Conseco at 11825 N. Pennsylvania Street, Carmel, Indiana 46032.
In the event that the Merger is not consummated, all proposals of
shareholders of Green Tree intended to be presented at the 1999 Annual Meeting
of Shareholders of Green Tree must be received by Green Tree at its executive
offices in Saint Paul, Minnesota on or before November 29, 1998, for inclusion
in Green Tree's Proxy Statement and Proxy for such meeting. Such proposals must
meet the requirements set forth in the rules and regulations of the Commission
in order to be eligible for inclusion in the proxy statement for the 1999 Annual
Meeting.
OTHER MATTERS
As of the date of this Joint Proxy Statement/Prospectus, the Boards of
Directors of Conseco and Green Tree do not intend to present, and have not been
informed that any other person intends to present, any matter for action at the
Conseco Special Meeting or the Green Tree Special Meeting, as the case may be,
other than as discussed herein.
71
<PAGE> 83
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
CONSECO, INC.,
MARBLE ACQUISITION CORP.
AND
GREEN TREE FINANCIAL CORPORATION
DATED AS OF APRIL 6, 1998
COMPOSITE CONFORMED, AS AMENDED
<PAGE> 84
TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER
<TABLE>
<S> <C> <C>
ARTICLE I--THE MERGER
Section 1.1 The Merger.................................................. A-1
Section 1.2 Effective Time.............................................. A-1
Section 1.3 Effects of the Merger; Directors and Officers............... A-2
Section 1.4 Charter and Bylaws; Directors and Officers.................. A-2
Section 1.5 Conversion of Securities.................................... A-2
Section 1.6 Parent to Make Certificates Available....................... A-2
Section 1.7 Dividends; Transfer Taxes; Withholding...................... A-3
Section 1.8 No Fractional Securities.................................... A-3
Section 1.9 Return of Exchange Fund..................................... A-4
Section 1.10 Adjustment of Exchange Ratio................................ A-4
Section 1.11 No Further Ownership Rights in Company Common Stock......... A-4
Section 1.12 Closing of Company Transfer Books........................... A-4
Section 1.13 Lost Certificates........................................... A-4
Section 1.14 Further Assurances.......................................... A-4
Section 1.15 Closing..................................................... A-5
ARTICLE II--REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Section 2.1 Organization, Standing and Power............................ A-5
Section 2.2 Capital Structure........................................... A-5
Section 2.3 Authority................................................... A-6
Section 2.4 Consents and Approvals; No Violation........................ A-7
Section 2.5 SEC Documents and Other Reports............................. A-7
Section 2.6 Registration Statement and Joint Proxy Statement............ A-8
Section 2.7 Absence of Certain Changes or Events........................ A-8
Section 2.8 Permits and Compliance...................................... A-8
Section 2.9 Tax Matters................................................. A-9
Section 2.10 Actions and Proceedings..................................... A-9
Section 2.11 Certain Agreements.......................................... A-10
Section 2.12 ERISA....................................................... A-10
Section 2.13 Compliance with Worker Safety and Environmental Laws........ A-10
Section 2.14 Labor Matters............................................... A-11
Section 2.15 Intellectual Property....................................... A-11
Section 2.16 Pooling of Interests; Reorganization........................ A-11
Section 2.17 Required Vote of Parent Stockholders........................ A-11
Section 2.18 Operations of Sub........................................... A-11
Section 2.19 Opinion of Financial Advisor................................ A-11
Section 2.20 Brokers..................................................... A-11
Section 2.21 State Takeover Statutes; Certain Charter Provisions......... A-11
ARTICLE III--REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Organization, Standing and Power............................ A-12
Section 3.2 Capital Structure........................................... A-12
Section 3.3 Authority................................................... A-13
Section 3.4 Consents and Approvals; No Violation........................ A-13
Section 3.5 SEC Documents and Other Reports............................. A-14
Section 3.6 Registration Statement and Joint Proxy Statement............ A-14
Section 3.7 Absence of Certain Changes or Events........................ A-14
Section 3.8 Permits and Compliance...................................... A-15
Section 3.9 Tax Matters................................................. A-15
Section 3.10 Actions and Proceedings..................................... A-16
</TABLE>
<PAGE> 85
<TABLE>
<S> <C> <C>
Section 3.11 Certain Agreements.......................................... A-16
Section 3.12 ERISA....................................................... A-16
Section 3.13 Compliance with Worker Safety and Environmental Laws........ A-17
Section 3.14 Labor Matters............................................... A-17
Section 3.15 Intellectual Property....................................... A-18
Section 3.16 Opinion of Financial Advisor................................ A-18
Section 3.17 State Takeover Statutes; Certain Charter Provisions......... A-18
Section 3.18 Required Vote of Company Stockholders....................... A-18
Section 3.19 Pooling of Interests; Reorganization........................ A-18
Section 3.20 Brokers..................................................... A-18
ARTICLE IV--COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business Pending the Merger...................... A-18
Section 4.2 No Solicitation............................................. A-20
Section 4.3 Third Party Standstill Agreements........................... A-21
Section 4.4 Pooling of Interests; Reorganization........................ A-21
ARTICLE V--ADDITIONAL AGREEMENTS
Section 5.1 Stockholder Meetings........................................ A-22
Preparation of the Registration Statement and the Joint
Section 5.2 Proxy Statement............................................. A-22
Section 5.3 Comfort Letters............................................. A-22
Section 5.4 Access to Information....................................... A-22
Section 5.5 Compliance with the Securities Act.......................... A-23
Section 5.6 Stock Exchange Listings..................................... A-23
Section 5.7 Fees and Expenses........................................... A-23
Section 5.8 Company Stock Options....................................... A-24
Section 5.9 Reasonable Best Efforts; Pooling of Interests............... A-24
Section 5.10 Public Announcements........................................ A-25
Section 5.11 Real Estate Transfer and Gains Tax.......................... A-25
Section 5.12 State Takeover Law.......................................... A-25
Section 5.13 Indemnification; Directors and Officers Insurance........... A-26
Section 5.14 Notification of Certain Matters............................. A-26
Section 5.15 Employee Benefit Plans and Agreements....................... A-26
ARTICLE VI--CONDITIONS PRECEDENT TO THE MERGER
Conditions to Each Party's Obligation to Effect the
Section 6.1 Merger...................................................... A-26
Conditions to Obligation of the Company to Effect the
Section 6.2 Merger...................................................... A-27
Conditions to Obligations of Parent and Sub to Effect the
Section 6.3 Merger...................................................... A-28
ARTICLE VII--TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination................................................. A-30
Section 7.2 Effect of Termination....................................... A-31
Section 7.3 Amendment................................................... A-31
Section 7.4 Waiver...................................................... A-31
ARTICLE VIII--GENERAL PROVISIONS
Section 8.1 Non-Survival of Representations and Warranties.............. A-31
Section 8.2 Notices..................................................... A-31
Section 8.3 Interpretation.............................................. A-32
Section 8.4 Counterparts................................................ A-32
Section 8.5 Entire Agreement; No Third-Party Beneficiaries.............. A-32
Section 8.6 Governing Law............................................... A-33
Section 8.7 Assignment.................................................. A-33
Section 8.8 Severability................................................ A-33
Section 8.9 Enforcement of this Agreement............................... A-33
</TABLE>
<PAGE> 86
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of April 6, 1998 and amended as of
April 29, 1998 (this "Agreement"), among Conseco, Inc., an Indiana corporation
("Parent"), Marble Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Parent ("Sub"), and Green Tree Financial Corporation, a Delaware
corporation (the "Company") (Sub and the Company being hereinafter collectively
referred to as the "Constituent Corporations").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved and declared advisable the merger of Sub and the Company (the
"Merger"), upon the terms and subject to the conditions set forth herein,
whereby each issued and outstanding share of common stock, par value $.01 per
share, of the Company ("Company Common Stock") not owned directly or indirectly
by Parent or the Company will be converted into shares of Common Stock, no par
value, of Parent ("Parent Common Stock");
WHEREAS, the respective Boards of Directors of Parent and the Company have
determined that the Merger is in furtherance of and consistent with their
respective long-term business strategies and is in the best interest of their
respective stockholders;
WHEREAS, in order to induce Parent and Sub to enter into this Agreement,
concurrently herewith Parent and the Company are entering into the Stock Option
Agreement dated as of the date hereof (the "Stock Option Agreement") in the form
of the attached Exhibit A;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, it is intended that the Merger shall be recorded for accounting
purposes as a pooling of interests.
NOW, THEREFORE, in consideration of the premises, representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the Delaware General Corporation Law (the
"DGCL"), Sub shall be merged with and into the Company at the Effective Time (as
hereinafter defined). Following the Merger, the separate corporate existence of
Sub shall cease and the Company shall continue as the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all the rights and
obligations of Sub in accordance with the DGCL. Notwithstanding anything to the
contrary herein, at the election of Parent, any direct wholly owned Subsidiary
(as hereinafter defined) of Parent may be substituted for Sub as a constituent
corporation in the Merger; provided that such substituted corporation is a
Delaware corporation which is formed solely for the purpose of engaging in the
transactions contemplated by this Agreement and has engaged in no other business
activities. In such event, the parties agree to execute an appropriate amendment
to this Agreement, in form and substance reasonably satisfactory to Parent and
the Company, in order to reflect such substitution.
Section 1.2 Effective Time. The Merger shall become effective when a
Certificate of Merger (the "Certificate of Merger"), executed in accordance with
the relevant provisions of the DGCL, is filed with the Secretary of State of the
State of Delaware; provided, however, that, upon mutual consent of the
Constituent Corporations, the Certificate of Merger may provide for a later date
of effectiveness of the Merger not more than 30 days after the date the
Certificate of Merger is filed. When used in this Agreement, the term "Effective
Time" shall mean the date and time at which the Certificate of Merger is
accepted for record or
A-1
<PAGE> 87
such later time established by the Certificate of Merger. The filing of the
Certificate of Merger shall be made on the date of the Closing (as defined in
Section 1.15).
Section 1.3 Effects of the Merger; Directors and Officers. The Merger shall
have the effects set forth in Section 259 of the DGCL.
Section 1.4 Charter and Bylaws; Directors and Officers. (a) At the
Effective Time, the Certificate of Incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be amended so that (i) Article 4
of such Certificate of Incorporation reads in its entirety as follows: "The
total number of shares of all classes of capital stock which the Corporation
shall have authority to issue is 100 shares of Common Stock, par value $.01 per
share" and (ii) Articles 8 and 9 of such Certificate of Incorporation are
deleted. As so amended, such Certificate of Incorporation of the Company shall
be the Certificate of Incorporation of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law. At the
Effective Time, the Restated Bylaws of the Company, as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Surviving Corporation
until thereafter changed or amended as provided therein or by the Certificate of
Incorporation.
(b) The directors of Sub at the Effective Time of the Merger shall be the
directors of the Surviving Corporation, until the earlier of their resignation
or removal or until their respective successors are duly elected and qualified,
as the case may be. The officers of the Company at the Effective Time of the
Merger shall be the officers of the Surviving Corporation, until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
Section 1.5 Conversion of Securities. As of the Effective Time, by virtue
of the Merger and without any action on the part of Sub, the Company or the
holders of any securities of the Constituent Corporations:
(a) Each issued and outstanding share of common stock, par value $.01
per share, of Sub shall be converted into one validly issued, fully paid
and nonassessable share of common stock of the Surviving Corporation.
(b) All shares of Company Common Stock that are held in the treasury
of the Company or by any wholly owned Subsidiary of the Company and any
shares of Company Common Stock owned by Parent shall be cancelled and no
capital stock of Parent or other consideration shall be delivered in
exchange therefor.
(c) Subject to the provisions of Sections 1.8 and 1.10 hereof, each
share of Company Common Stock issued and outstanding immediately prior to
the Effective Time (other than shares to be cancelled in accordance with
Section 1.5(b)) shall be converted into 0.9165 (such number being the
"Exchange Ratio") validly issued, fully paid and nonassessable shares of
Parent Common Stock. All such shares of Company Common Stock, when so
converted, shall no longer be outstanding and shall automatically be
cancelled and retired and each holder of a certificate representing any
such shares shall cease to have any rights with respect thereto, except the
right to receive any dividends and other distributions in accordance with
Section 1.7, certificates representing the shares of Parent Common Stock
into which such shares are converted and any cash, without interest, in
lieu of fractional shares to be issued or paid in consideration therefor
upon the surrender of such certificate in accordance with Section 1.6.
Section 1.6 Parent to Make Certificates Available. (a) Exchange of
Certificates. Parent shall authorize a commercial bank (or such other person or
persons as shall be reasonably acceptable to Parent and the Company) to act as
Exchange Agent hereunder (the "Exchange Agent" ). As soon as practicable after
the Effective Time, Parent shall deposit with the Exchange Agent, in trust for
the holders of shares of Company Common Stock converted in the Merger,
certificates representing the shares of Parent Common Stock issuable pursuant to
Section 1.5(c) in exchange for outstanding shares of Company Common Stock and
cash, as required to make payments in lieu of any fractional shares pursuant to
Section 1.8 (such cash and shares of Parent Common Stock, together with any
dividends or distributions with respect thereto, being hereinafter referred to
as the "Exchange Fund"). The Exchange Agent shall deliver the Parent Common
Stock contemplated to be issued pursuant to Section 1.5(c) out of the Exchange
Fund.
A-2
<PAGE> 88
(b) Exchange Procedures. Parent shall instruct the Exchange Agent, as soon
as practicable after the Effective Time, to mail to each record holder of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock converted in the Merger
(the "Certificates") a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon actual delivery of the Certificates to the Exchange Agent, and shall
contain instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock and cash in
lieu of fractional shares). Upon surrender for cancellation to the Exchange
Agent of all Certificates held by any record holder of a Certificate, together
with such letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor a certificate representing
that number of whole shares of Parent Common Stock into which the shares
represented by the surrendered Certificate shall have been converted at the
Effective Time pursuant to this Article I, cash in lieu of any fractional share
in accordance with Section 1.8 and certain dividends and other distributions in
accordance with Section 1.7, and any Certificate so surrendered shall forthwith
be cancelled.
Section 1.7 Dividends; Transfer Taxes; Withholding. No dividends or other
distributions that are declared on or after the Effective Time on Parent Common
Stock, or are payable to the holders of record thereof on or after the Effective
Time, will be paid to any person entitled by reason of the Merger to receive a
certificate representing Parent Common Stock until such person surrenders the
related Certificate or Certificates, as provided in Section 1.6, and no cash
payment in lieu of fractional shares will be paid to any such person pursuant to
Section 1.8 until such person shall so surrender the related Certificate or
Certificates. Subject to the effect of applicable law, there shall be paid to
each record holder of a new certificate representing such Parent Common Stock:
(i) at the time of such surrender or as promptly as practicable thereafter, the
amount of any dividends or other distributions theretofore paid with respect to
the shares of Parent Common Stock represented by such new certificate and having
a record date on or after the Effective Time and a payment date prior to such
surrender; (ii) at the appropriate payment date or as promptly as practicable
thereafter, the amount of any dividends or other distributions payable with
respect to such shares of Parent Common Stock and having a record date on or
after the Effective Time but prior to such surrender and a payment date on or
subsequent to such surrender; and (iii) at the time of such surrender or as
promptly as practicable thereafter, the amount of any cash payable with respect
to a fractional share of Parent Common Stock to which such holder is entitled
pursuant to Section 1.8. In no event shall the person entitled to receive such
dividends or other distributions be entitled to receive interest on such
dividends or other distributions. If any cash or certificate representing shares
of Parent Common Stock is to be paid to or issued in a name other than that in
which the Certificate surrendered in exchange therefor is registered, it shall
be a condition of such exchange that the Certificate so surrendered shall be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange shall pay to the Exchange Agent any transfer or other
taxes required by reason of the issuance of certificates for such shares of
Parent Common Stock in a name other than that of the registered holder of the
Certificate surrendered, or shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. Parent or the Exchange
Agent shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company Common
Stock such amounts as Parent or the Exchange Agent is required to deduct and
withhold with respect to the making of such payment under the Code or under any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld by Parent or the Exchange Agent, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of the
shares of Company Common Stock in respect of which such deduction and
withholding was made by Parent or the Exchange Agent.
Section 1.8 No Fractional Securities. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of Certificates pursuant to this Article I, and no Parent dividend or
other distribution or stock split shall relate to any fractional share, and no
fractional share shall entitle the owner thereof to vote or to any other rights
of a security holder of Parent. In lieu of any such fractional share, each
holder of Company Common Stock who would otherwise have been entitled to a
fraction of a share of Parent Common Stock upon surrender of Certificates for
exchange pursuant to this Article I will be paid an amount in cash (without
interest), rounded to the nearest cent, determined by multiplying (i) the per
share closing price on the New York Stock Exchange, Inc. (the "NYSE") of Parent
A-3
<PAGE> 89
Common Stock (as reported in the NYSE Composite Transactions) on the date of the
Effective Time (or, if the shares of Parent Common Stock do not trade on the
NYSE on such date, the first date of trading of shares of Parent Common Stock on
the NYSE after the Effective Time) by (ii) the fractional interest to which such
holder would otherwise be entitled. As promptly as practicable after the
determination of the amount of cash, if any, to be paid to holders of fractional
share interests, the Exchange Agent shall so notify the Parent, and the Parent
shall deposit such amount with the Exchange Agent and shall cause the Exchange
Agent to forward payments to such holders of fractional share interests subject
to and in accordance with the terms of Section 1.7 and this Section 1.8.
Section 1.9 Return of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the former stockholders of the Company for six months
after the Effective Time shall be delivered to Parent, upon demand of Parent,
and any such former stockholders who have not theretofore complied with this
Article I shall thereafter look only to Parent for payment of their claim for
Parent Common Stock, any cash in lieu of fractional shares of Parent Common
Stock and any dividends or distributions with respect to Parent Common Stock.
Neither Parent nor the Surviving Corporation shall be liable to any former
holder of Company Common Stock for any such shares of Parent Common Stock, cash
and dividends and distributions held in the Exchange Fund which is delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
Section 1.10 Adjustment of Exchange Ratio. In the event of any
reclassification, stock split or stock dividend with respect to Parent Common
Stock, any change or conversion of Parent Common Stock into other securities of
Parent or any other dividend or distribution with respect to the Parent Common
Stock other than normal quarterly cash dividends as the same may be adjusted
from time to time pursuant to the terms of this Agreement (or if a record date
with respect to any of the foregoing should occur) prior to the Effective Time,
appropriate and proportionate adjustments, if any, shall be made to the Exchange
Ratio, and all references to the Exchange Ratio in this Agreement shall be
deemed to be to the Exchange Ratio as so adjusted.
Section 1.11 No Further Ownership Rights in Company Common Stock. All
shares of Parent Common Stock issued upon the surrender for exchange of
Certificates in accordance with the terms hereof (including any cash paid
pursuant to Section 1.8) shall be deemed to have been issued in full
satisfaction of all rights pertaining to the shares of Company Common Stock
represented by such Certificates.
Section 1.12 Closing of Company Transfer Books. At the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of shares of
Company Common Stock shall thereafter be made on the records of the Company. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation, the Exchange Agent or the Parent, such Certificates shall be
cancelled and exchanged as provided in this Article I.
Section 1.13 Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
Parent or the Exchange Agent, the posting by such person of a bond, in such
reasonable amount as Parent or the Exchange Agent may direct as indemnity
against any claim that may be made against them with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate the shares of Parent Common Stock, any cash in lieu of
fractional shares of Parent Common Stock to which the holders thereof are
entitled pursuant to Section 1.8 and any dividends or other distributions to
which the holders thereof are entitled pursuant to Section 1.7.
Section 1.14 Further Assurances. If at any time after the Effective Time
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation its right, title or interest in, to or under any of
the rights, privileges, powers, franchises, properties or assets of either of
the Constituent Corporations, or (b) otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors or
their designees shall be authorized to execute and deliver, in the name and on
behalf of either of the Constituent Corporations, all such deeds, bills of sale,
assignments and assurances and to do, in the name and on behalf of either
Constituent Corporation, all such other acts and things as may be necessary,
desirable or proper to vest,
A-4
<PAGE> 90
perfect or confirm the Surviving Corporation's right, title or interest in, to
or under any of the rights, privileges, powers, franchises, properties or assets
of such Constituent Corporation and otherwise to carry out the purposes of this
Agreement.
Section 1.15 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") and all actions specified in this Agreement to occur
at the Closing shall take place at the offices of Dorsey & Whitney LLP, 220
South Sixth Street, Minneapolis, Minnesota, at 10:00 a.m., local time, no later
than the second business day following the day on which the last of the
conditions set forth in Article VI shall have been fulfilled or waived (if
permissible) or at such other time and place as Parent and the Company shall
agree.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
Section 2.1 Organization, Standing and Power. Each of Parent and Sub is a
corporation duly organized, validly existing and in good standing under the laws
of its place of incorporation and has the requisite corporate power and
authority to carry on its business as now being conducted. Each Subsidiary (as
hereinafter defined) of Parent is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is organized and has the
requisite corporate power and authority to carry on its business as now being
conducted, except where the failure to be so organized, existing or in good
standing or to have such power or authority would not, individually or in the
aggregate, have a Material Adverse Effect (as hereinafter defined) on Parent.
Parent and each of its Subsidiaries are duly qualified to do business, and are
in good standing, in each jurisdiction where the character of their properties
owned or held under lease or the nature of their activities makes such
qualification necessary, except where the failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect on Parent. For
purposes of this Agreement (a) "Material Adverse Change" or "Material Adverse
Effect" means, when used with respect to Parent or the Company, as the case may
be, any change or effect that is or could reasonably be expected (as far as can
be foreseen at the time) to be materially adverse to the business, assets,
liabilities, financial condition or results of operations of Parent and its
Subsidiaries, taken as a whole, or the Company and its Subsidiaries, taken as a
whole, as the case may be; provided, however, that in determining whether a
Material Adverse Change or Material Adverse Effect has occurred with respect to
either referenced party, any change or effect, to the extent it is attributable
to changes in prevailing interest rates, to any change in general economic
conditions affecting companies in industries similar to the industries in which
the Company and its Subsidiaries or Parent and its Subsidiaries, as the case may
be, operate or to the actions described in Section 2.1 of the Company Letter (as
hereinafter defined) shall not be considered when determining if a Material
Adverse Change or Material Adverse Effect has occurred; and (b) "Subsidiary"
means any corporation, partnership, limited liability company, joint venture or
other legal entity of which Parent or the Company, as the case may be (either
alone or through or together with any other Subsidiary), owns, directly or
indirectly, 50% or more of the stock or other equity interests the holders of
which are generally entitled to vote for the election of the board of directors
or other governing body of such corporation, partnership, limited liability
company, joint venture or other legal entity.
Section 2.2 Capital Structure. As of the date hereof, the authorized
capital stock of Parent consists of 1,000,000,000 shares of Parent Common Stock
and 20,000,000 shares of Preferred Stock, no par value (the "Parent Preferred
Stock"). At the close of business on April 3, 1998, (i) 186,696,453 shares of
Parent Common Stock were issued and outstanding all of which were validly
issued, fully paid and nonassessable and free of preemptive rights, (ii)
39,823,149 shares of Parent Common Stock were held in treasury of Parent or by
Subsidiaries of Parent, (iii) 1,895,250 shares of Preferred Redeemable Increased
Dividend Equity Securities of Parent (the "Parent PRIDES") were issued and
outstanding under which Parent had the obligation to deliver 6,481,755 shares of
Parent Common Stock, (iv) 90,000 shares of Series E Preferred Stock held by
Bankers National Life Insurance Company, a wholly owned subsidiary of Parent,
were issued and outstanding, (v) 10,074,900 FELINE PRIDES of Parent ("FELINE
PRIDES") were issued and outstanding under which Parent has the obligation to
deliver 9,463,332 shares of Parent Common Stock,
A-5
<PAGE> 91
(vi) $29,128,000 in principal amount of 6.5% Convertible Subordinated Notes of
Parent due 2005, which debt is convertible into an aggregate of 2,241,691 shares
of Parent Common Stock, (vii) $86,038,000 in principal amount of 6.5%
Convertible Subordinated Notes of Pioneer Financial Services, Inc. due 2003,
which notes are convertible into an aggregate of 3,044,454 shares of Parent
Common Stock, (viii) 700,000 warrants to purchase Parent Common Stock, (ix)
23,974,665 shares of Parent Common Stock were reserved for issuance pursuant to
outstanding options to purchase shares of Parent Common Stock and other benefits
granted under Parent's benefit plans (the "Parent Stock Plans"), or pursuant to
any plans assumed by Parent Company in connection with any acquisition, business
combination or similar transaction and (x) 15,945,087 shares of Parent Common
Stock were reserved for issuance upon conversion of the Parent PRIDES and FELINE
PRIDES. As of the date of this Agreement, except (i) as set forth above and (ii)
as set forth in the Parent SEC Documents (as hereinafter defined), no shares of
capital stock or other voting securities of Parent were issued, reserved for
issuance or outstanding. All of the shares of Parent Common Stock issuable in
exchange for Company Common Stock at the Effective Time in accordance with this
Agreement will be, when so issued, duly authorized, validly issued, fully paid
and nonassessable and free of preemptive rights. As of the date of this
Agreement, except for (i) this Agreement, (ii) as set forth above, or (iii) as
disclosed in any Parent SEC Documents and (iv) except as set forth in Section
2.2 of the letter dated the date hereof and delivered on the date hereof by
Parent to the Company, which letter relates to this Agreement and is designated
therein as the Parent Letter (the "Parent Letter"), there are no options,
warrants, calls, rights or agreements to which Parent or any of its wholly owned
Subsidiaries is a party or by which any of them is bound obligating Parent or
any of its wholly owned Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock of Parent or any
of its wholly owned Subsidiaries or obligating Parent or any of its wholly owned
Subsidiaries to grant, extend or enter into any such option, warrant, call,
right or agreement. Except as set forth in Section 2.2 of the Parent Letter,
each outstanding share of capital stock of each Subsidiary of Parent is duly
authorized, validly issued, fully paid and nonassessable and, except as
disclosed in the Parent SEC Documents filed prior to the date of this Agreement,
each such share is owned by Parent or another Subsidiary of Parent, free and
clear of all security interests, liens, claims, pledges, options, rights of
first refusal, agreements, limitations on voting rights, charges and other
encumbrances of any nature whatsoever. Except as set forth above, Parent does
not have any outstanding bonds, debentures, notes or other obligations the
holders of which have the right to vote (or convertible into or exercisable for
securities having the right to vote) with the stockholders of the Company on any
matter. All of Parent's material Subsidiaries are wholly owned by Parent.
Exhibit 21 to Parent's Annual Report on Form 10-K for the year ended December
31, 1997 as filed with the Securities and Exchange Commission (the "SEC") (the
"Parent Annual Report"), is a true, accurate and correct statement in all
material respects of all of the information required to be set forth therein by
the regulations of the SEC.
Section 2.3 Authority. On or prior to the date of this Agreement, the
Boards of Directors of Parent and Sub have declared the Merger advisable and
fair to and in the best interest of Parent and Sub, respectively, and their
stockholders, approved and adopted this Agreement in accordance with the
Business Corporation Law of the State of Indiana and the DGCL, respectively, and
the Board of Directors of Parent has resolved to recommend the approval by
Parent's stockholders of the issuance of Parent Common Stock in connection with
the Merger (the "Share Issuance"). Each of Parent and Sub has all requisite
corporate power and authority to enter into this Agreement, Parent has all
requisite corporate power and authority to enter into the Stock Option
Agreement, and, subject to approval by the stockholders of Parent of the Share
Issuance, to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement by Parent and Sub, the execution and
delivery of the Stock Option Agreement by Parent and the consummation by Parent
and Sub of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of Parent and Sub,
subject to (x) approval by the stockholders of Parent of the Share Issuance and
(y) the filing of appropriate Merger documents as required by the DGCL. This
Agreement and the consummation of the transactions contemplated hereby have been
approved by the sole stockholder of Sub. This Agreement has been duly executed
and delivered by Parent and Sub, the Stock Option Agreement has been duly
executed and delivered by Parent, and (assuming the valid authorization,
execution and delivery of this Agreement and the Stock Option Agreement by the
Company and the validity and binding effect hereof and thereof on the Company)
this Agreement constitutes the valid
A-6
<PAGE> 92
and binding obligation of Parent and Sub enforceable against each of them in
accordance with its terms and the Stock Option Agreement constitutes the valid
and binding obligation of Parent enforceable against Parent in accordance with
its terms. The Share Issuance and the filing of a registration statement on Form
S-4 with the SEC by Parent under the Securities Act of 1933, as amended
(together with the rules and regulations promulgated thereunder, the "Securities
Act"), for the purpose of registering the shares of Parent Common Stock to be
issued in the Merger (together with any amendments or supplements thereto,
whether prior to or after the effective date thereof, the "Registration
Statement") have been duly authorized by Parent's Board of Directors.
Section 2.4 Consents and Approvals; No Violation. Assuming that all
consents, approvals, authorizations and other actions described in this Section
2.4 have been obtained and all filings and obligations described in this Section
2.4 have been made, and except as set forth in Section 2.4 of the Parent Letter,
the execution and delivery of this Agreement and the Stock Option Agreement do
not, and the consummation of the transactions contemplated hereby and thereby
and compliance with the provisions hereof and thereof will not, result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give to others a right of termination, cancellation or acceleration of
any obligation or the loss of a material benefit under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of Parent or any of its Subsidiaries under, any provision
of (i) the Amended and Restated Articles of Incorporation or the Amended and
Restated By-Laws of Parent or the Certificate of Incorporation or Bylaws of Sub,
(ii) any provision of the comparable charter or organization documents of any of
Parent's Subsidiaries, (iii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license applicable to Parent or any of its Subsidiaries or (iv) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Parent
or any of its Subsidiaries or any of their respective properties or assets,
other than, in the case of clauses (ii), (iii) or (iv), any such violations,
defaults, rights, liens, security interests, charges or encumbrances that,
individually or in the aggregate, would not have a Material Adverse Effect on
Parent, materially impair the ability of Parent or Sub to perform their
respective obligations hereunder or under the Stock Option Agreement or prevent
the consummation of any of the transactions contemplated hereby or thereby. No
filing or registration with, or authorization, consent or approval of, any
domestic (federal and state), foreign or supranational court, commission,
governmental body, regulatory agency, authority or tribunal (a "Governmental
Entity") is required by or with respect to Parent or any of its Subsidiaries in
connection with the execution and delivery of this Agreement or the Stock Option
Agreement by Parent or Sub or is necessary for the consummation of the Merger
and the other transactions contemplated by this Agreement or the Stock Option
Agreement, except for (i) in connection, or in compliance, with the provisions
of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), the Securities Act and the Securities Exchange Act of 1934, as
amended (together with the rules and regulations promulgated thereunder, the
"Exchange Act"), (ii) the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware and appropriate documents with the relevant
authorities of other states in which the Company or any of its Subsidiaries is
qualified to do business, (iii) such filings, authorizations, orders and
approvals as may be required by state takeover laws (the "State Takeover
Approvals"), (iv) such filings as may be required in connection with the taxes
described in Section 5.11, (v) applicable requirements, if any, of state
securities or "blue sky" laws ("Blue Sky Laws") and the NYSE, (vi) as may be
required under foreign laws, (vii) such filings and consents as may be required
under federal and state commercial finance, lending and banking laws, (viii) any
required filings and/or notices required under the insurance laws of the
jurisdictions set forth in Section 2.4 of the Parent Letter and (ix) such other
consents, orders, authorizations, registrations, declarations and filings the
failure of which to be obtained or made would not, individually or in the
aggregate, have a Material Adverse Effect on Parent, materially impair the
ability of Parent or Sub to perform its obligations hereunder or under the Stock
Option Agreement or prevent the consummation of any of the transactions
contemplated hereby or thereby.
Section 2.5 SEC Documents and Other Reports. Parent has filed all required
documents with the SEC since January 1, 1995 (the "Parent SEC Documents"). As of
their respective dates, the Parent SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and, at the respective times they were filed, none of the Parent
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or
A-7
<PAGE> 93
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The consolidated financial statements
(including, in each case, any notes thereto) of Parent included in the Parent
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, were prepared in accordance with generally accepted accounting
principles (except, in the case of the unaudited statements, as permitted by
Form 10-Q of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated therein or in the notes thereto) and fairly
presented in all material respects the consolidated financial position of Parent
and its consolidated Subsidiaries as at the respective dates thereof and the
consolidated results of their operations and their consolidated cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments and to any other adjustments described therein).
Except as set forth in Section 2.5 of the Parent Letter, as disclosed in the
Parent SEC Documents or as required by generally accepted accounting principles,
Parent has not, since December 31, 1997, made any change in the accounting
practices or policies applied in the preparation of financial statements.
Section 2.6 Registration Statement and Joint Proxy Statement. None of the
information to be supplied by Parent or Sub for inclusion or incorporation by
reference in the Registration Statement or the joint proxy statement/prospectus
included therein relating to the Stockholder Meetings (as defined in Section
5.1) (together with any amendments or supplements thereto, the "Joint Proxy
Statement") will (i) in the case of the Registration Statement, at the time it
becomes effective, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading or (ii) in the case of the Joint
Proxy Statement, at the time of the mailing of the Joint Proxy Statement, at the
time of each of the Stockholder Meetings and at the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. If at any
time prior to the Effective Time any event with respect to Parent, its officers
and directors or any of its Subsidiaries shall occur which is required to be
described in the Joint Proxy Statement or the Registration Statement, such event
shall be so described, and an appropriate amendment or supplement shall be
promptly filed with the SEC and, as required by law, disseminated to the
stockholders of Parent and the Company. The Registration Statement will comply
(with respect to Parent) as to form in all material respects with the provisions
of the Securities Act, and the Joint Proxy Statement will comply (with respect
to Parent) as to form in all material respects with the provisions of the
Exchange Act.
Section 2.7 Absence of Certain Changes or Events. Except as disclosed in
Parent SEC Documents filed with the SEC prior to the date of this Agreement,
since December 31, 1997, (A) Parent and its Subsidiaries have not incurred any
material liability or obligation (indirect, direct or contingent), or entered
into any material oral or written agreement or other transaction, that is not in
the ordinary course of business or that would result in a Material Adverse
Effect on Parent, (B) Parent and its Subsidiaries have not sustained any loss or
interference with their business or properties from fire, flood, windstorm,
accident or other calamity (whether or not covered by insurance) that has had a
Material Adverse Effect on Parent, and (C) there has been no event causing a
Material Adverse Effect on Parent, nor any development that would, individually
or in the aggregate, result in a Material Adverse Effect on Parent.
Section 2.8 Permits and Compliance. Each of Parent and its Subsidiaries is
in possession of all franchises, grants, authorizations, licenses, permits,
charters, easements, variances, exceptions, consents, certificates, approvals
and orders of any Governmental Entity necessary for Parent or any of its
Subsidiaries to own, lease and operate its properties or to carry on its
business as it is now being conducted (the "Parent Permits"), except where the
failure to have any of the Parent Permits would not, individually or in the
aggregate, have a Material Adverse Effect on Parent, and, as of the date of this
Agreement, no suspension or cancellation of any of the Parent Permits is pending
or, to the Knowledge of Parent (as hereinafter defined), threatened, except
where the suspension or cancellation of any of the Parent Permits would not,
individually or in the aggregate, have a Material Adverse Effect on Parent.
Neither Parent nor any of its Subsidiaries is in violation of (A) its charter,
by-laws or other organizational documents, (B) any applicable law, ordinance,
administrative or governmental rule or regulation or (C) any order, decree or
judgment of any Governmental
A-8
<PAGE> 94
Entity having jurisdiction over Parent or any of its Subsidiaries, except, in
the case of clauses (A), (B) and (C), for any violations that, individually or
in the aggregate, would not have a Material Adverse Effect on Parent. Except as
disclosed in the Parent SEC Documents filed prior to the date of this Agreement
or in Section 2.8 of the Parent Letter, as of the date hereof there is no
contract or agreement that is material to the business, assets, liabilities,
financial condition or results of operations of Parent and its Subsidiaries,
taken as a whole. Except as set forth in the Parent SEC Documents filed prior to
the date of this Agreement or Section 2.8 of the Parent Letter, no event of
default or event that, but for the giving of notice or the lapse of time or
both, would constitute an event of default exists or, upon the consummation by
Parent or Sub of the transactions contemplated by this Agreement or the Stock
Option Agreement, will exist under any indenture, mortgage, loan agreement, note
or other agreement or instrument for borrowed money, any guarantee of any
agreement or instrument for borrowed money or any lease, contractual license or
other agreement or instrument to which Parent or any of its Subsidiaries is a
party or by which Parent or any such Subsidiary is bound or to which any of the
properties, assets or operations of Parent or any such Subsidiary is subject,
other than any defaults that, individually or in the aggregate, would not have a
Material Adverse Effect on Parent. For purposes of this Agreement, "Knowledge of
Parent" means the actual knowledge of the individuals identified in Section 2.8
of the Parent Letter.
Section 2.9 Tax Matters. Except as otherwise set forth in Section 2.9 of
the Parent Letter, (i) Parent and each of its Subsidiaries have filed all
federal, and all material state, local, foreign and provincial, Tax Returns (as
hereinafter defined) required to have been filed or appropriate extensions
therefor have been properly obtained, and such Tax Returns are correct and
complete, except to the extent that any failure to so file or any failure to be
correct and complete would not, individually or in the aggregate, have a
Material Adverse Effect on Parent; (ii) all Taxes (as hereinafter defined) shown
to be due on such Tax Returns have been timely paid or extensions for payment
have been properly obtained, or such Taxes are being timely and properly
contested, (iii) Parent and each of its Subsidiaries have complied in all
material respects with all rules and regulations relating to the withholding of
Taxes except to the extent that any failure to comply with such rules and
regulations would not, individually or in the aggregate, have a Material Adverse
Effect on Parent; (iv) neither Parent nor any of its Subsidiaries has waived any
statute of limitations in respect of its Taxes; (v) any Tax Returns referred to
in clause (i) relating to federal and state income Taxes have been examined by
the Internal Revenue Service (the "IRS") or the appropriate state taxing
authority or the period for assessment of the Taxes in respect of which such Tax
Returns were required to be filed has expired; (vi) no issues that have been
raised in writing by the relevant taxing authority in connection with the
examination of the Tax Returns referred to in clause (i) are currently pending;
and (vii) all deficiencies asserted or assessments made as a result of any
examination of such Tax Returns by any taxing authority have been paid in full
or are being timely and properly contested. The representations set forth in the
Parent Tax Certificate attached to the Parent Letter, if made on the date hereof
(assuming the Merger were consummated on the date hereof), would be true and
correct. For purposes of this Agreement: (i) "Taxes" means any federal, state,
local, foreign or provincial income, gross receipts, property, sales, use,
license, excise, franchise, employment, payroll, withholding, alternative or
added minimum, ad valorem, value-added, transfer or excise tax, or other tax,
custom, duty, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty imposed by any Governmental
Entity, and (ii) "Tax Return" means any return, report or similar statement
(including the attached schedules) required to be filed with respect to any Tax,
including, without limitation, any information return, claim for refund, amended
return or declaration of estimated Tax.
Section 2.10 Actions and Proceedings. Except as set forth in the Parent SEC
Documents filed prior to the date of this Agreement, there are no outstanding
orders, judgments, injunctions, awards or decrees of any Governmental Entity
against or involving Parent or any of its Subsidiaries, or against or involving
any of the present or former directors, officers, employees, consultants, agents
or stockholders of Parent or any of its Subsidiaries, as such, any of its or
their properties, assets or business that, individually or in the aggregate,
would have a Material Adverse Effect on Parent or materially impair the ability
of Parent to perform its obligations hereunder. As of the date of this
Agreement, there are no actions, suits or claims or legal, administrative or
arbitrative proceedings or investigations pending or, to the Knowledge of
Parent, threatened against or involving Parent or any of its Subsidiaries or any
of its or their present or former directors, officers, employees, consultants,
agents or stockholders, as such, or any of its or their properties, assets or
business that,
A-9
<PAGE> 95
individually or in the aggregate, would have a Material Adverse Effect on Parent
or materially impair the ability of Parent to perform its obligations hereunder.
As of the date hereof, there are no actions, suits, labor disputes or other
litigation, legal or administrative proceedings or governmental investigations
pending or, to the Knowledge of Parent, threatened against or affecting Parent
or any of its Subsidiaries or any of its or their present or former officers,
directors, employees, consultants, agents or stockholders, as such, or any of
its or their properties, assets or business relating to the transactions
contemplated by this Agreement and the Stock Option Agreement.
Section 2.11 Certain Agreements. Neither Parent nor any of its Subsidiaries
is a party to any material oral or written agreement or plan, including any
employment agreement, severance agreement, stock option plan, stock appreciation
rights plan, restricted stock plan or stock purchase plan, any of the benefits
of which will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the Stock Option Agreement or the value of any of the benefits of
which will be calculated on the basis of any of the transactions contemplated by
this Agreement or the Stock Option Agreement.
Section 2.12 ERISA. (a) Except as would not have a Material Adverse Effect
on Parent, each Parent Plan complies in all respects with Title IV of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") , the Code
and all other applicable statutes and governmental rules and regulations, and
(i) no "reportable event" (within the meaning of Section 4043 of ERISA) has
occurred with respect to any Parent Plan that is likely to have individually or
in the aggregate, a Material Adverse Effect on Parent and (ii) neither Parent
nor any of its ERISA Affiliates (as hereinafter defined) has withdrawn from any
Parent Plan or Parent Multiemployer Plan (as hereinafter defined) or instituted,
or is currently considering taking, any action to do so. Except as would not
have a Material Adverse Effect on Parent, no Parent Plan, nor any trust created
thereunder, has incurred any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or not waived.
(b) With respect to the Parent Plans, no event has occurred and, to the
Knowledge of Parent, there exists no condition or set of circumstances in
connection with which Parent or any ERISA Affiliate or Parent Plan fiduciary
could be subject to any liability under the terms of such Parent Plans, ERISA,
the Code or any other applicable law, other than liabilities for benefits
payable in the normal course, which would have a Material Adverse Effect on
Parent.
(c) As used herein, (i) "Parent Plan" means a "pension plan" (as defined in
Section 3(2) of ERISA (other than a Parent Multiemployer Plan)), a "welfare
plan" (as defined in Section 3(1) of ERISA), or any bonus, profit sharing,
deferred compensation, incentive compensation, stock ownership, stock purchase,
stock option, phantom stock, holiday pay, vacation, severance, death benefit,
sick leave, fringe benefit, personnel policy, insurance or other plan,
arrangement or understanding, in each case established or maintained by Parent
or any of its ERISA Affiliates or as to which Parent or any of its ERISA
Affiliates has contributed or otherwise may have any liability, (ii) "Parent
Multiemployer Plan" means a "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA) to which Parent or any of its ERISA Affiliates is or has
been obligated to contribute or otherwise may have any liability, and (iii) with
respect to any person, "ERISA Affiliate" means any trade or business (whether or
not incorporated) which is under common control or would be considered a single
employer with such person pursuant to Section 414(b), (c), (m) or (o) of the
Code and the regulations promulgated under those sections or pursuant to Section
4001(b) of ERISA and the regulations promulgated thereunder.
Section 2.13 Compliance with Worker Safety and Environmental Laws. The
properties, assets and operations of Parent and its Subsidiaries are in
compliance with all applicable federal, state, local and foreign laws, rules and
regulations, orders, decrees, judgments, permits and licenses relating to public
and worker health and safety (collectively, "Worker Safety Laws") and the
protection and clean-up of the environment and activities or conditions related
thereto, including, without limitation, those relating to the generation,
handling, disposal, transportation or release of hazardous materials
(collectively, "Environmental Laws"), except for any violations that,
individually or in the aggregate, would not have a Material Adverse Effect on
Parent. With respect to such properties, assets and operations, including any
previously owned, leased or
A-10
<PAGE> 96
operated properties, assets or operations, there are no events, conditions,
circumstances, activities, practices, incidents, actions or plans of Parent or
any of its Subsidiaries that may interfere with or prevent compliance or
continued compliance with applicable Worker Safety Laws and Environmental Laws,
other than any such interference or prevention as would not, individually or in
the aggregate with any such other interference or prevention, have a Material
Adverse Effect on Parent.
Section 2.14 Labor Matters. Neither Parent nor any of its Subsidiaries has
engaged in any unfair labor practice with respect to any persons employed by or
otherwise performing services primarily for Parent or any of its Subsidiaries
(the "Parent Business Personnel"), and there is no unfair labor practice
complaint or grievance against Parent or any of its Subsidiaries by the National
Labor Relations Board or any comparable state agency pending or threatened in
writing with respect to Parent Business Personnel, except where such unfair
labor practice, complaint or grievance would not have a Material Adverse Effect
on Parent. There is no labor strike, dispute, slowdown or stoppage pending or,
to the Knowledge of Parent, threatened against or affecting Parent or any of its
Subsidiaries which may interfere with the respective business activities of
Parent or any of its Subsidiaries, except where such dispute, strike or work
stoppage would not have a Material Adverse Effect on Parent.
Section 2.15 Intellectual Property. Parent and its Subsidiaries have
through ownership or licensing all patents, trademarks, trade names, service
marks, trade secrets, copyrights and other proprietary intellectual property
rights (collectively, "Intellectual Property Rights") as are necessary in
connection with the business of Parent and its Subsidiaries, taken as a whole,
except where the failure to have such Intellectual Property Rights would not
have a Material Adverse Effect on Parent. Neither Parent nor any of its
Subsidiaries has infringed any Intellectual Property Rights of any third party
other than any infringements that, individually or in the aggregate, would not
have a Material Adverse Effect on Parent.
Section 2.16 Pooling of Interests; Reorganization. To the Knowledge of
Parent, neither Parent nor any of its Subsidiaries has (i) taken any action or
failed to take any action which action or failure would jeopardize the treatment
of the Merger as a pooling of interests for accounting purposes or (ii) taken
any action or failed to take any action which action or failure would jeopardize
the qualification of the Merger as a reorganization within the meaning of
Section 368(a) of the Code.
Section 2.17 Required Vote of Parent Stockholders. The affirmative vote of
a majority of the votes cast on the Share Issuance is required to approve the
Share Issuance, provided that the total votes cast on the proposal represent a
majority of the outstanding shares of Parent Common Stock. No other vote of the
securityholders of Parent is required by law, the Amended and Restated Articles
of Incorporation or the Amended and Restated By-Laws of Parent or otherwise in
order for Parent to consummate the Merger and the transactions contemplated
hereby.
Section 2.18 Operations of Sub. Sub is a direct, wholly owned subsidiary of
Parent, was formed solely for the purpose of engaging in the transactions
contemplated hereby, has engaged in no other business activities and has
conducted its operations only as contemplated hereby.
Section 2.19 Opinion of Financial Advisor. Parent has received the written
opinion of Merrill Lynch & Co., dated the date hereof, to the effect that, as of
the date hereof, the Exchange Ratio is fair to Parent from a financial point of
view, a copy of which opinion has been delivered to the Company.
Section 2.20 Brokers. No broker, investment banker or other person, other
than Merrill Lynch & Co., the fees and expenses of which will be paid by Parent
(as reflected in an agreement between Merrill Lynch & Co. and Parent, a copy of
which has been furnished to the Company), is entitled to any broker's, finder's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent.
Section 2.21 State Takeover Statutes; Certain Charter Provisions. The Board
of Directors of Parent has, to the extent such statutes are applicable, taken
all action (including appropriate approvals of the Board of Directors of Parent)
necessary to exempt Parent, its Subsidiaries and affiliates, the Merger, this
Agreement, the Stock Option Agreement and the transactions contemplated hereby
and thereby from Section 23-1-43-5 of the Indiana Business Corporation Law and
Article 8 of Parent's Amended and Restated Article of
A-11
<PAGE> 97
Incorporation. To the Knowledge of Parent, no other state takeover statutes or
similar charter or bylaw provisions are applicable to the Merger, this
Agreement, the Stock Option Agreement and the transactions contemplated hereby
and thereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
Section 3.1 Organization, Standing and Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power and authority to carry
on its business as now being conducted. Each Subsidiary of the Company is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized and has the requisite corporate (in the
case of a Subsidiary that is a corporation) or other power and authority to
carry on its business as now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power or authority would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company. The Company and each of its Subsidiaries are duly qualified to do
business, and are in good standing, in each jurisdiction where the character of
their properties owned or held under lease or the nature of their activities
makes such qualification necessary, except where the failure to be so qualified
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company.
Section 3.2 Capital Structure. As of the date hereof, the authorized
capital stock of the Company will consist of 400,000,000 shares of Company
Common Stock and 15,000,000 shares of preferred stock, par value $.01 per share
("Company Preferred Stock"). At the close of business on April 3, 1998, (i)
134,012,054 shares of Company Common Stock were issued and outstanding, all of
which were validly issued, fully paid and nonassessable and free of preemptive
rights, (ii) 7,887,263 shares of Company Common Stock were held in the treasury
of the Company or by Subsidiaries of the Company and (iii) 10,732,932 shares of
Company Common Stock were reserved for future issuance pursuant to the Company's
Key Executive Bonus Program, 1987 Stock Option Plan, Key Executive Stock Bonus
Plan, Restated 1992 Supplemental Stock Option Plan, Chief Executive Cash Bonus
and Stock Option Plan, 1995 Employee Stock Incentive Plan and 1998 Company Stock
Option Plan (collectively, the "Company Stock Option Plans"). The Company Stock
Option Plans are the only benefit plans of the Company or its Subsidiaries under
which any securities of the Company or any of its Subsidiaries are issuable. No
shares of Company Preferred Stock are outstanding. As of the date of this
Agreement, except (i) as set forth above, and (ii) as set forth in the Company
SEC Documents (as hereinafter defined), no shares of capital stock or other
voting securities of the Company were issued, reserved for issuance or
outstanding. As of the date of this Agreement, except for stock options covering
not in excess of 10,297,132 shares of Company Common Stock issued under the
Company Stock Option Plans (collectively, the "Company Stock Options"), and the
warrant held by Lehman Brothers Inc. there are no options, warrants, calls,
rights or agreements to which the Company or any of its Subsidiaries is a party
or by which any of them is bound obligating the Company or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of the Company or any of its
Subsidiaries or obligating the Company or any of its Subsidiaries to grant,
extend or enter into any such option, warrant, call, right or agreement. Each
outstanding share of capital stock of each Subsidiary of the Company that is a
corporation is duly authorized, validly issued, fully paid and nonassessable
and, except as disclosed in the Company SEC Documents filed prior to the date of
this Agreement, each such share is owned by the Company or another Subsidiary of
the Company, free and clear of all security interests, liens, claims, pledges,
options, rights of first refusal, agreements, limitations on voting rights,
charges and other encumbrances of any nature whatsoever. The Company does not
have any outstanding bonds, debentures, notes or other obligations the holders
of which have the right to vote (or convertible into or exercisable for
securities having the right to vote) with the stockholders of the Company on any
matter. Exhibit 21 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997, as filed with the SEC (the "Company Annual Report"), is
a true, accurate and correct statement in all material respects of all of the
information required to be set forth therein by the regulations of the SEC.
A-12
<PAGE> 98
Section 3.3 Authority. On or prior to the date of this Agreement, the Board
of Directors of the Company has declared the Merger advisable and fair to and in
the best interest of the Company and its stockholders, approved this Agreement
in accordance with the DGCL, resolved to recommend the adoption of this
Agreement by the Company's stockholders and directed that this Agreement be
submitted to the Company's stockholders for adoption. The Company has all
requisite corporate power and authority to enter into this Agreement and the
Stock Option Agreement, to consummate the transactions contemplated by the Stock
Option Agreement and, subject to approval by the stockholders of the Company of
this Agreement, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the Stock Option Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of the Company, subject, in the case of this Agreement, to (x)
approval of this Agreement by the stockholders of the Company and (y) the filing
of appropriate Merger documents as required by the DGCL. This Agreement and the
Stock Option Agreement have been duly executed and delivered by the Company and
(assuming the valid authorization, execution and delivery of this Agreement by
Parent and Sub and the Stock Option Agreement by Parent and the validity and
binding effect of the Agreement on Parent and Sub and the Stock Option Agreement
on Parent) constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms. The filing of the
Joint Proxy Statement with the SEC and the issuance of the shares of Company
Common Stock pursuant to the Stock Option Agreement have been duly authorized by
the Company's Board of Directors.
Section 3.4 Consents and Approvals; No Violation. Assuming that all
consents, approvals, authorizations and other actions described in this Section
3.4 have been obtained and all filings and obligations described in this Section
3.4 have been made, except as set forth in Section 3.4 of the Company Letter,
the execution and delivery of this Agreement and the Stock Option Agreement do
not, and the consummation of the transactions contemplated hereby and thereby
and compliance with the provisions hereof and thereof will not, result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give to others a right of termination, cancellation or acceleration of
any obligation or the loss of a material benefit under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any of its Subsidiaries under, any
provision of (i) the Certificate of Incorporation or Restated Bylaws of the
Company, (ii) any provision of the comparable charter or organization documents
of any of the Company's Subsidiaries, (iii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to the Company or any of its
Subsidiaries or (iv) any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to the Company or any of its Subsidiaries or any of
their respective properties or assets, other than, in the case of clauses (ii),
(iii) or (iv), any such violations, defaults, rights, liens, security interests,
charges or encumbrances that, individually or in the aggregate, would not have a
Material Adverse Effect on the Company, materially impair the ability of the
Company to perform its obligations hereunder or under the Stock Option Agreement
or prevent the consummation of any of the transactions contemplated hereby or
thereby. No filing or registration with, or authorization, consent or approval
of, any Governmental Entity is required by or with respect to the Company or any
of its Subsidiaries in connection with the execution and delivery of this
Agreement or the Stock Option Agreement by the Company or is necessary for the
consummation of the Merger and the other transactions contemplated by this
Agreement or the Stock Option Agreement, except for (i) in connection, or in
compliance, with the provisions of the HSR Act, the Securities Act and the
Exchange Act, (ii) the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware and appropriate documents with the relevant
authorities of other states in which the Company or any of its Subsidiaries is
qualified to do business, (iii) such filings, authorizations, orders and
approvals as may be required to obtain the State Takeover Approvals, (iv) such
filings as may be required in connection with the taxes described in Section
5.11, (v) applicable requirements, if any, of Blue Sky Laws, the NYSE and the
Pacific Stock Exchange, (vi) as may be required under foreign laws, (vii) such
filings and consents as may be required under federal and state commercial
finance, lending and banking laws, and (viii) such other consents, orders,
authorizations, registrations, declarations and filings the failure of which to
be obtained or made would not, individually or in the aggregate, have a Material
Adverse Effect on the Company, materially impair the
A-13
<PAGE> 99
ability of the Company to perform its obligations hereunder or under the Stock
Option Agreement or prevent the consummation of any of the transactions
contemplated hereby or thereby.
Section 3.5 SEC Documents and Other Reports. The Company has filed all
required documents with the SEC since January 1, 1995 (the "Company SEC
Documents"). Except as set forth in Section 3.5 of the letter dated the date
hereof and delivered on the date hereof by the Company to Parent, which letter
relates to this Agreement and is designated therein as the Company Letter (the
"Company Letter"), as of their respective dates, the Company SEC Documents
complied in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and, at the respective times they were
filed, none of the Company SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Except as set forth in Section 3.5 of the
Company Letter, the consolidated financial statements (including, in each case,
any notes thereto) of the Company included in the Company SEC Documents (the
"Financial Statements") complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, were prepared in accordance with generally
accepted accounting principles (except, in the case of the unaudited statements,
as permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated therein or in the notes thereto)
and fairly presented in all material respects the consolidated financial
position of the Company and its consolidated Subsidiaries as at the respective
dates thereof and the consolidated results of their operations and their
consolidated cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments and to any other
adjustments described therein). Except as disclosed in the Company SEC Documents
or as required by generally accepted accounting principles, the Company has not,
since December 31, 1997, made any change in the accounting practices or policies
applied in the preparation of financial statements. Except as and to the extent
set forth in Section 3.5 of the Company Letter or in the Company Annual Report,
neither the Company nor any of its Subsidiaries had as of December 31, 1997 any
liabilities or obligations of any nature, whether or not accrued, contingent or
otherwise, that would be required by generally accepted accounting principles to
be reflected on the consolidated balance sheet of the Company and its
Subsidiaries (including the notes thereto) included in the Financial Statements
that are not so reflected.
Section 3.6 Registration Statement and Joint Proxy Statement. None of the
information to be supplied by the Company for inclusion or incorporation by
reference in the Registration Statement or the Joint Proxy Statement will (i) in
the case of the Registration Statement, at the time it becomes effective,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading or (ii) in the case of the Joint Proxy Statement, at the
time of the mailing of the Joint Proxy Statement, at the time of each of the
Stockholder Meetings and at the Effective Time, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at any time prior to
the Effective Time any event with respect to the Company, its officers and
directors or any of its Subsidiaries shall occur which is required at that time
to be described in the Joint Proxy Statement or the Registration Statement, such
event shall be so described, and an appropriate amendment or supplement shall be
promptly filed with the SEC and, as required by law, disseminated to the
stockholders of Parent and the Company. The Registration Statement will comply
(with respect to the Company) as to form in all material respects with the
provisions of the Securities Act, and the Joint Proxy Statement will comply
(with respect to the Company) as to form in all material respects with the
provisions of the Exchange Act.
Section 3.7 Absence of Certain Changes or Events. Except as disclosed in
the Company SEC Documents filed with the SEC prior to the date of this Agreement
or as disclosed in Section 3.12(d) of the Company Letter, since December 31,
1997, (A) the Company and its Subsidiaries have not incurred any material
liability or obligation (indirect, direct or contingent), or entered into any
material oral or written agreement or other transaction, that is not in the
ordinary course of business or that would result in a Material Adverse Effect on
the Company, (B) the Company and its Subsidiaries have not sustained any loss or
interference with their business or properties from fire, flood, windstorm,
accident or other calamity (whether
A-14
<PAGE> 100
or not covered by insurance) that has had a Material Adverse Effect on the
Company, (C) there has been no change in the capital stock of the Company except
for the issuance of shares of the Company Common Stock pursuant to Company Stock
Options and no dividend or distribution of any kind declared, paid or made by
the Company on any class of its stock, except for the regular quarterly dividend
of not more than $.0875 per share of Company Common Stock, (D) there has not
been (x) any granting by the Company or any of its Subsidiaries to any executive
officer of the Company or any of its Subsidiaries of any increase in
compensation, except in the ordinary course of business consistent with prior
practice or as was required under employment agreements in effect as of the date
of the most recent audited financial statements included in the Company SEC
Documents, (y) any granting by the Company or any of its Subsidiaries to any
such executive officer of any increase in severance or termination agreements in
effect as of the date of the most recent audited financial statements included
in the Company SEC Documents or (z) any entry by the Company or any of its
Subsidiaries into any employment, severance or termination agreement with any
such executive officer and (E) there has been no event causing a Material
Adverse Effect on the Company, nor any development that would, individually or
in the aggregate, result in a Material Adverse Effect on the Company.
Section 3.8 Permits and Compliance. Each of the Company and its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents, certificates,
approvals and orders of any Governmental Entity necessary for the Company or any
of its Subsidiaries to own, lease and operate its properties or to carry on its
business as it is now being conducted (the "Company Permits"), except where the
failure to have any of the Company Permits would not, individually or in the
aggregate, have a Material Adverse Effect on the Company, and, as of the date of
this Agreement, no suspension or cancellation of any of the Company Permits is
pending or, to the Knowledge of the Company (as hereinafter defined),
threatened, except where the suspension or cancellation of any of the Company
Permits would not, individually or in the aggregate, have a Material Adverse
Effect on the Company. Neither the Company nor any of its Subsidiaries is in
violation of (A) its charter, by-laws or other organizational documents, (B) any
applicable law, ordinance, administrative or governmental rule or regulation or
(C) any order, decree or judgment of any Governmental Entity having jurisdiction
over the Company or any of its Subsidiaries, except, in the case of clauses (A),
(B) and (C), for any violations that, individually or in the aggregate, would
not have a Material Adverse Effect on the Company. Except as disclosed in the
Company SEC Documents filed prior to the date of this Agreement or as disclosed
in Section 3.8 of the Company Letter, as of the date hereof there is no contract
or agreement that is material to the business, properties, assets, liabilities,
condition (financial or otherwise), results of operations or prospects of the
Company and its Subsidiaries, taken as a whole. Except as set forth in the
Company SEC Documents filed prior to the date of this Agreement or as disclosed
in Section 3.8 of the Company Letter, no event of default or event that, but for
the giving of notice or the lapse of time or both, would constitute an event of
default exists or, upon the consummation by the Company of the transactions
contemplated by this Agreement or the Stock Option Agreement, will exist under
any indenture, mortgage, loan agreement, note or other agreement or instrument
for borrowed money, any guarantee of any agreement or instrument for borrowed
money or any lease, contractual license or other agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which the Company
or any such Subsidiary is bound or to which any of the properties, assets or
operations of the Company or any such Subsidiary is subject, other than any
defaults that, individually or in the aggregate, would not have a Material
Adverse Effect on the Company. As of the date of this Agreement, set forth in
Section 3.8 of the Company Letter is a description of any material changes to
the amount and terms of the indebtedness of the Company and its Subsidiaries as
described in the Company Annual Report. For purposes of this Agreement,
"Knowledge of the Company" means the actual knowledge of the individuals
identified on Section 3.8 of the Company Letter.
Section 3.9 Tax Matters. Except as otherwise set forth in Section 3.9 of
the Company Letter, (i) the Company and each of its Subsidiaries have filed all
federal, and all material state, local, foreign and provincial, Tax Returns
required to have been filed or appropriate extensions therefor have been
properly obtained, and such Tax Returns are correct and complete, except to the
extent that any failure to so file or any failure to be correct and complete
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company; (ii) all Taxes shown to be due on such Tax Returns have been timely
paid or extensions for payment have been properly obtained, or such Taxes are
being timely and properly contested; (iii) the
A-15
<PAGE> 101
Company and each of its Subsidiaries have complied in all material respects with
all rules and regulations relating to the withholding of Taxes except to the
extent that any failure to comply with such rules and regulations would not,
individually or in the aggregate, have a Material Adverse Effect on the Company;
(iv) neither the Company nor any of its Subsidiaries has waived any statute of
limitations in respect of its Taxes; (v) any Tax Returns referred to in clause
(i) relating to federal and state income Taxes have been examined by the IRS or
the appropriate state taxing authority or the period for assessment of the Taxes
in respect of which such Tax Returns were required to be filed has expired; (vi)
no issues that have been raised in writing by the relevant taxing authority in
connection with the examination of the Tax Returns referred to in clause (i) are
currently pending; (vii) all deficiencies asserted or assessments made as a
result of any examination of such Tax Returns by any taxing authority have been
paid in full or are being timely and properly contested; and (viii) no
withholding is required under Section 1445 of the Code in connection with the
Merger. The representations set forth in the Company Tax Certificate attached to
the Company Letter, if made on the date hereof (assuming the Merger were
consummated on the date hereof), would be true and correct.
Section 3.10 Actions and Proceedings. Except as set forth in the Company
SEC Documents filed prior to the date of this Agreement or in Section 3.10 of
the Company Letter, there are no outstanding orders, judgments, injunctions,
awards or decrees of any Governmental Entity against or involving the Company or
any of its Subsidiaries, or against or involving any of the present or former
directors, officers, employees, consultants, agents or stockholders of the
Company or any of its Subsidiaries, as such, any of its or their properties,
assets or business or any Company Plan (as hereinafter defined) that,
individually or in the aggregate, would have a Material Adverse Effect on the
Company or materially impair the ability of the Company to perform its
obligations hereunder or under the Stock Option Agreement. As of the date of
this Agreement, there are no actions, suits or claims or legal, administrative
or arbitrative proceedings or investigations pending or, to the Knowledge of the
Company, threatened against or involving the Company or any of its Subsidiaries
or any of its or their present or former directors, officers, employees,
consultants, agents or stockholders, as such, or any of its or their properties,
assets or business or any Company Plan that, individually or in the aggregate,
would have a Material Adverse Effect on the Company or materially impair the
ability of the Company to perform its obligations hereunder or under the Stock
Option Agreement. As of the date hereof, there are no actions, suits, labor
disputes or other litigation, legal or administrative proceedings or
governmental investigations pending or, to the Knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries or any of
its or their present or former officers, directors, employees, consultants,
agents or stockholders, as such, or any of its or their properties, assets or
business relating to the transactions contemplated by this Agreement and the
Stock Option Agreement.
Section 3.11 Certain Agreements. Except as set forth in Section 3.11 of the
Company Letter, neither the Company nor any of its Subsidiaries is a party to
any oral or written agreement or plan, including any employment agreement,
severance agreement, stock option plan, stock appreciation rights plan,
restricted stock plan or stock purchase plan, any of the benefits of which will
be increased, or the vesting of the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or the
Stock Option Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement or the Stock Option Agreement (collectively, "Transaction
Agreements"). No holder of any option to purchase shares of Company Common
Stock, or shares of Company Common Stock granted in connection with the
performance of services for the Company or its Subsidiaries, is or will be
entitled to receive cash from the Company or any Subsidiary in lieu of or in
exchange for such option or shares as a result of the transactions contemplated
by this Agreement or the Stock Option Agreement. Section 3.11 of the Company
Letter sets forth (i) for each officer, director or employee who is a party to,
or will receive benefits under, any Transaction Agreement, the total amount that
each such person may receive, or is eligible to receive, assuming that the
transactions contemplated by this Agreement is consummated on the date hereof,
and (ii) the total amount of indebtedness owed to the Company or its
Subsidiaries from each officer or director of the Company and its Subsidiaries.
Section 3.12 ERISA. (a) Each Company Plan is listed in Section 3.12(a) of
the Company Letter. Except as would not have a Material Adverse Effect on the
Company, each Company Plan complies in all
A-16
<PAGE> 102
respects with ERISA, the Code and all other applicable statutes and governmental
rules and regulations, and (i) no "reportable event" (within the meaning of
Section 4043 of ERISA) has occurred with respect to any Company Plan that is
likely to have individually or in the aggregate, a Material Adverse Effect on
the Company, (ii) neither the Company nor any of its ERISA Affiliates (as
hereinafter defined) has withdrawn from Company Multiemployer Plan (as
hereinafter defined) or instituted, or is currently considering taking, any
action to do so, and (iii) no action has been taken, or is currently being
considered, to terminate any Company Plan subject to Title IV of ERISA. No
Company Plan, nor any trust created thereunder, has incurred any "accumulated
funding deficiency" (as defined in Section 302 of ERISA), whether or not waived.
(b) Except as listed in Section 3.12(b) of the Company Letter, with respect
to the Company Plans, no event has occurred and, to the Knowledge of the
Company, there exists no condition or set of circumstances in connection with
which the Company or any ERISA Affiliate or Company Plan fiduciary could be
subject to any liability under the terms of such Company Plans, ERISA, the Code
or any other applicable law, other than liabilities for benefits payable in the
normal course, which would have a Material Adverse Effect on the Company. All
Company Plans that are intended to be qualified under Section 401(a) of the Code
have been determined by the IRS to be so qualified, or a timely application for
such determination is now pending or a request for such a determination filed
within the remedial amendment period of Section 401(b) of the Code is pending,
and the Company is not aware of any reason why any such Company Plan is not so
qualified in operation. Neither the Company nor any of its ERISA Affiliates has
been notified by any Company Multiemployer Plan that such Company Multiemployer
Plan is currently in reorganization or insolvency under and within the meaning
of Section 4241 or 4245 of ERISA or that such Company Multiemployer Plan intends
to terminate or has been terminated under Section 4041A of ERISA. Except as
disclosed in Section 3.12(b) of the Company Letter, neither the Company nor any
of its ERISA Affiliates has any liability or obligation under any welfare plan
to provide benefits after termination of employment to any employee or dependent
other than as required by Section 4980B of the Code.
(c) As used herein, (i) "Company Plan" means a "pension plan" (as defined
in Section 3(2) of ERISA (other than a Company Multiemployer Plan)), a "welfare
plan" (as defined in Section 3(1) of ERISA), or any bonus, profit sharing,
deferred compensation, incentive compensation, stock ownership, stock purchase,
stock option, phantom stock, holiday pay, vacation, severance, death benefit,
sick leave, fringe benefit, personnel policy, insurance or other plan,
arrangement or understanding, in each case established or maintained by the
Company or any of its ERISA Affiliates or as to which the Company or any of its
ERISA Affiliates has contributed or otherwise may have any liability, and (ii)
"Company Multiemployer Plan" means a "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA) to which the Company or any of its ERISA Affiliates is or
has been obligated to contribute or otherwise may have any liability.
(d) Item 3.12(d) of the Company Letter contains a list of all (i) severance
and employment agreements with employees of the Company and each ERISA
Affiliate, (ii) severance programs and policies of the Company and each ERISA
Affiliate with or relating to its employees and (iii) plans, programs,
agreements and other arrangements of the Company and each ERISA Affiliate with
or relating to its employees containing change of control or similar provisions.
Section 3.13 Compliance with Worker Safety and Environmental Laws. The
properties, assets and operations of the Company and its Subsidiaries are in
compliance with all applicable Worker Safety Laws and Environmental Laws, except
for any violations that, individually or in the aggregate, would not have a
Material Adverse Effect on the Company. With respect to such properties, assets
and operations, including any previously owned, leased or operated properties,
assets or operations, there are no events, conditions, circumstances,
activities, practices, incidents, actions or plans of the Company or any of its
Subsidiaries that may interfere with or prevent compliance or continued
compliance with applicable Worker Safety Laws and Environmental Laws, other than
any such interference or prevention as would not, individually or in the
aggregate with any such other interference or prevention, have a Material
Adverse Effect on the Company.
Section 3.14 Labor Matters. Neither the Company nor any of its Subsidiaries
is a party to any collective bargaining agreement or labor contract. Neither the
Company nor any of its Subsidiaries has engaged in any unfair labor practice
with respect to any persons employed by or otherwise performing services
primarily for
A-17
<PAGE> 103
the Company or any of its Subsidiaries (the "Company Business Personnel"), and
there is no unfair labor practice complaint or grievance against the Company or
any of its Subsidiaries by the National Labor Relations Board or any comparable
state agency pending or threatened in writing with respect to the Company
Business Personnel, except where such unfair labor practice, complaint or
grievance would not have a Material Adverse Effect on the Company. There is no
labor strike, dispute, slowdown or stoppage pending or, to the Knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries
which may interfere with the respective business activities of the Company or
any of its Subsidiaries, except where such dispute, strike or work stoppage
would not have a Material Adverse Effect on the Company.
Section 3.15 Intellectual Property. The Company and its Subsidiaries have
through ownership or licensing all Intellectual Property Rights as are necessary
in connection with the business of the Company and its Subsidiaries, taken as a
whole, except where the failure to have such Intellectual Property Rights would
not have a Material Adverse Effect on the Company. Neither the Company nor any
of its Subsidiaries has infringed any Intellectual Property Rights of any third
party other than any infringements that, individually and in the aggregate,
would not have a Material Adverse Effect on the Company.
Section 3.16 Opinion of Financial Advisor. The Company has received the
written opinion of Lehman Brothers Inc., dated the date hereof, to the effect
that, as of the date hereof, the Exchange Ratio is fair to the Company's
stockholders from a financial point of view, a copy of which opinion has been
delivered to Parent.
Section 3.17 State Takeover Statutes; Certain Charter Provisions. The Board
of Directors of the Company has, to the extent such statutes are applicable,
taken all action (including appropriate approvals of the Board of Directors of
the Company) necessary to exempt Parent, its Subsidiaries and affiliates, the
Merger, this Agreement, the Stock Option Agreement and the transactions
contemplated hereby and thereby from Section 203 of the DGCL and Articles 8 and
9 of the Company's Certificate of Incorporation. To the Knowledge of the
Company, no other state takeover statutes or similar charter or bylaw provisions
are applicable to the Merger, this Agreement, the Stock Option Agreement and the
transactions contemplated hereby and thereby.
Section 3.18 Required Vote of Company Stockholders. The affirmative vote of
the holders of a majority of the outstanding shares of Company Common Stock is
required to adopt this Agreement. No other vote of the securityholders of the
Company is required by law, the Certificate of Incorporation or Restated Bylaws
of the Company or otherwise in order for the Company to consummate the Merger
and the transactions contemplated hereby and in the Stock Option Agreement.
Section 3.19 Pooling of Interests; Reorganization. To the Knowledge of the
Company, neither it nor any of its Subsidiaries has (i) taken any action or
failed to take any action which action or failure would jeopardize the treatment
of the Merger as a pooling of interests for accounting purposes or (ii) taken
any action or failed to take any action which action or failure would jeopardize
the qualification of the Merger as a reorganization within the meaning of
Section 368(a) of the Code.
Section 3.20 Brokers. No broker, investment banker or other person, other
than Lehman Brothers Inc., the fees and expenses of which will be paid by the
Company (as reflected in an agreement between Lehman Brothers Inc. and the
Company, a copy of which has been furnished to Parent), is entitled to any
broker's, finder's or other similar fee or commission in connection with the
transactions contemplated by this Agreement and by the Stock Option Agreement
based upon arrangements made by or on behalf of the Company.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business Pending the Merger. (a) Conduct of Business
by the Company. Except as expressly permitted by clauses (i) through (xvi) of
this Section 4.1(a), during the period from the date of this Agreement through
the Effective Time, the Company shall, and shall cause each of its Subsidiaries
to, in
A-18
<PAGE> 104
all material respects carry on its business in the ordinary course of its
business as currently conducted and, to the extent consistent therewith, use
reasonable best efforts to preserve intact its current business organizations,
keep available the services of its current officers and employees and preserve
its relationships with customers, suppliers and others having business dealings
with it to the end that its goodwill and ongoing business shall be unimpaired at
the Effective Time. Without limiting the generality of the foregoing, and except
as otherwise expressly contemplated by this Agreement or as set forth in the
Company Letter (with specific reference to the applicable subsection below), the
Company shall not, and shall not permit any of its Subsidiaries to, without the
prior written consent of Parent (which consent shall not be unreasonably
withheld or delayed):
(i) (A) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to its stockholders in their
capacity as such (other than (1) regular quarterly dividends of not more
than $.0875 per share of Company Common Stock declared and paid on dates
consistent with past practice and (2) dividends and other distributions by
Subsidiaries), (B) other than in the case of any Subsidiary, split, combine
or reclassify any of its capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for
shares of its capital stock or (C) purchase, redeem or otherwise acquire
any shares of capital stock of the Company or any other securities thereof
or any rights, warrants or options to acquire any such shares or other
securities;
(ii) issue, deliver, sell, pledge, dispose of or otherwise encumber
any shares of its capital stock, any other voting securities or equity
equivalent or any securities convertible into, or any rights, warrants or
options to acquire any such shares, voting securities, equity equivalent or
convertible securities, other than (A) the issuance of shares of Company
Common Stock upon the exercise of Company Stock Options outstanding on the
date of this Agreement in accordance with their current terms and (B) the
issuance of shares of Company Common Stock pursuant to the Stock Option
Agreement;
(iii) amend its charter or by-laws;
(iv) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of or equity in, or by
any other manner, any business or any corporation, limited liability
company, partnership, association or other business organization or
division thereof or otherwise acquire or agree to acquire any assets, other
than transactions that are in the ordinary course of business consistent
with past practice and not material to the Company and its Subsidiaries
taken as a whole;
(v) sell, lease or otherwise dispose of, or agree to sell, sell, lease
or otherwise dispose of, any of its assets, other than transactions that
are in the ordinary course of business consistent with past practice;
(vi) incur any indebtedness for borrowed money, guarantee any such
indebtedness or make any loans, advances or capital contributions to, or
other investments in, any other person, other than (A) in the ordinary
course of business consistent with past practices, provided, that the
Company may not, without the written consent of Parent, incur more than
$25,000,000 of indebtedness for borrowed money, other than borrowings under
credit facilities existing on the date hereof (it being understood that if
any new credit facility is established by Parent for the benefit of the
Company or its Subsidiaries or indebtedness is purchased or guaranteed by
Parent or any of its Subsidiaries, the terms of such extension of credit or
guarantee of Parent or its Subsidiaries shall contain provisions mutually
agreed by Parent and the Company providing for an extension or transition
period for a mutually agreed period following a termination of this
Agreement) and (B) indebtedness, loans, advances, capital contributions and
investments between the Company and any of its wholly owned Subsidiaries or
between any of such wholly owned Subsidiaries;
(vii) alter (through merger, liquidation, reorganization,
restructuring or in any other fashion) the corporate structure or ownership
of the Company or any Subsidiary;
(viii) enter into or adopt any, or amend any existing, severance plan,
agreement or arrangement or enter into or amend any Company Plan or
employment or consulting agreement, except as required by applicable law;
A-19
<PAGE> 105
(ix) increase the compensation payable or to become payable to its
directors, officers or employees (except for increases in the ordinary
course of business consistent with past practice in salaries or wages of
employees of the Company or any of its Subsidiaries who are not officers of
the Company or any of its Subsidiaries) or grant any severance or
termination pay to, or enter into or amend any employment or severance
agreement with, any director or officer of the Company or any of its
Subsidiaries, or establish, adopt, enter into, or, except as may be
required to comply with applicable law, amend in any material respect or
take action to enhance in any material respect or accelerate any rights or
benefits under, any labor, collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any
director, officer or employee;
(x) knowingly violate or knowingly fail to perform any obligation or
duty imposed upon it or any Subsidiary by any applicable material federal,
state or local law, rule, regulation, guideline or ordinance;
(xi) make any change to accounting policies or procedures (other than
actions required to be taken by generally accepted accounting principles);
(xii) prepare or file any Tax Return inconsistent with past practice
or, on any such Tax Return, take any position, make any election, or adopt
any method that is inconsistent with positions taken, elections made or
methods used in preparing or filing similar Tax Returns in prior periods;
(xiii) make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability;
(xiv) enter into or amend any agreement or contract material to the
Company and its Subsidiaries, taken as a whole, except in the ordinary
course of business consistent with past practices (provided, however, that
the Company may not amend the Common Stock Warrant Agreement by and between
the Company and Lehman Commercial Paper Inc. dated as of February 13, 1998,
as amended as of the date hereof, and the related Warrant Certificates); or
make or agree to make any new capital expenditure or expenditures which,
individually, is in excess of $5,000,000 or, in the aggregate, are in
excess of $60,000,000;
(xv) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction, in the ordinary course of
business consistent with past practice or in accordance with their terms,
of liabilities reflected or reserved against in, or contemplated by, the
most recent financial statements (or the notes thereto) of the Company
included in the Company SEC Documents or incurred in the ordinary course of
business consistent with past practice; or
(xvi) authorize, recommend, propose or announce an intention to do any
of the foregoing, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
(b) Conduct of Business by Parent. During the period from the date of this
Agreement to the Effective Time of the Merger, Parent shall not, and shall not
permit any of its Subsidiaries to (i) declare, set aside or pay any dividends
on, or make any other distributions in respect of, any capital stock of Parent,
except that Parent may continue the declaration and payment of regular quarterly
cash dividends not in excess of $0.20 per share of Parent Common Stock with
usual record and payment dates and in accordance with Parent's past dividend
policy or (ii) issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of Parent's capital stock.
Section 4.2 No Solicitation. (a) The Company shall not, nor shall it permit
any of its Subsidiaries to, nor shall it authorize or permit any officer,
director or employee of or any financial advisor, attorney or other advisor or
representative of, the Company or any of its Subsidiaries to, (i) solicit,
initiate or encourage the submission of, any Takeover Proposal (as hereafter
defined), (ii) enter into any agreement with respect to any Takeover Proposal or
(iii) participate in any discussions or negotiations regarding, or furnish to
any person any information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Takeover Proposal; provided, however,
that
A-20
<PAGE> 106
prior to the Company Stockholders Meeting, if the Board of Directors of the
Company reasonably determines the Takeover Proposal constitutes a Superior
Proposal (as defined below), then, to the extent required by the fiduciary
obligations of the Board of Directors of the Company, as determined in good
faith by a majority of the disinterested members thereof after receiving the
advice of independent counsel, the Company may, in response to an unsolicited
request therefor, furnish information with respect to the Company to, and enter
into discussions with, any person pursuant to a customary confidentiality
agreement. Without limiting the foregoing, it is understood that any violation
of the restrictions set forth in the preceding sentence by any executive officer
of the Company or any of its Subsidiaries or any financial advisor, attorney or
other advisor or representative of the Company or any of its Subsidiaries,
whether or not such person is purporting to act on behalf of the Company or any
of its Subsidiaries or otherwise, shall be deemed to be a breach of this Section
4.2(a) by the Company. For purposes of this Agreement, "Takeover Proposal" means
any proposal for a merger or other business combination involving the Company or
any of its Subsidiaries or any proposal or offer to acquire in any manner,
directly or indirectly, a substantial equity interest in, a substantial portion
of the voting securities of, or a substantial portion of the assets of the
Company or any of its Subsidiaries, other than the transactions contemplated by
this Agreement and the Stock Option Agreement, and "Superior Proposal" means a
bona fide Takeover Proposal made by a third party which a majority of the
disinterested members of the Board of Directors of the Company determines in its
reasonable good faith judgment to be more favorable to the Company's
stockholders than the Merger (after receiving the written opinion, with only
customary qualifications, of the Company's independent financial advisor that
the value of the consideration provided for in such proposal exceeds the value
of the consideration provided for in the Merger) and for which financing, to the
extent required, is then committed or which, in the reasonable good faith
judgment of a majority of such disinterested members (after receiving the
written advice of the Company's independent financial advisor), is highly likely
to be financed by such third party.
(b) Neither the Board of Directors of the Company nor any committee thereof
shall (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Parent or Sub, the approval or recommendation by such Board of
Directors or any such committee of this Agreement or the Merger or (ii) approve
or recommend, or propose to approve or recommend, any Takeover Proposal.
(c) The Company shall advise Parent orally (within one business day) and in
writing (as promptly as practicable) of (i) any Takeover Proposal or any inquiry
with respect to or which could lead to any Takeover Proposal, (ii) the material
terms of such Takeover Proposal and (iii) the identity of the person making any
such Takeover Proposal or inquiry. The Company will keep Parent fully informed
of the status and details of any such Takeover Proposal or inquiry.
Section 4.3 Third Party Standstill Agreements. During the period from the
date of this Agreement through the Effective Time, the Company shall not
terminate, amend, modify or waive any provision of any confidentiality agreement
relating to a Takeover Proposal or standstill agreement to which the Company or
any of its Subsidiaries is a party (other than any involving Parent). During
such period, the Company agrees to enforce, to the fullest extent permitted
under applicable law, the provisions of any such agreements, including, but not
limited to, obtaining injunctions to prevent any breaches of such agreements and
to enforce specifically the terms and provisions thereof in any court of the
United States or any state thereof having jurisdiction.
Section 4.4 Pooling of Interests; Reorganization. During the period from
the date of this Agreement through the Effective Time, unless the other party
shall otherwise agree in writing, none of Parent, the Company or any of their
respective Subsidiaries shall (a) knowingly take or fail to take any action
which action or failure would jeopardize the treatment of the Merger as a
pooling of interests for accounting purposes or (b) knowingly take or fail to
take any action which action or failure would jeopardize the qualification of
the Merger as a reorganization within the meaning of Section 368(a) of the Code
or would cause any of the representations and warranties set forth in the
Company Tax Certificate attached to the Company Letter or the Parent Tax
Certificate attached to the Parent Letter to be untrue or incorrect in any
material respect. Between the date of this Agreement and the Effective Time,
Parent and the Company each shall take all reasonable actions necessary to cause
the characterization of the Merger as a pooling of interests for
A-21
<PAGE> 107
accounting purposes if such a characterization were jeopardized by action taken
by Parent or the Company, respectively, prior to the Effective Time.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Stockholder Meetings. The Company and Parent will each, as soon
as practicable following the date of this Agreement, duly call, give notice of,
convene and hold a meeting of stockholders (respectively, the "Company
Stockholder Meeting" and the "Parent Stockholder Meeting" and, collectively, the
"Stockholder Meetings") for the purpose of considering the approval of this
Agreement (in the case of the Company) and the Share Issuance (in the case of
Parent). The Company and Parent will, through their respective Boards of
Directors, recommend to their respective stockholders adoption or approval of
such matters, as the case may be, shall use all reasonable efforts to solicit
such approvals by their respective stockholders and shall not withdraw such
recommendation, except, in the case of Parent, subject to the fiduciary duties
of the Board of Directors of Parent under applicable law. Without limiting the
generality of the foregoing, the Company agrees that its obligations pursuant to
the first sentence of this Section 5.1 shall not be affected by the
commencement, public proposal, public disclosure or communication to the Company
of a Takeover Proposal. The Company and Parent shall coordinate and cooperate
with respect to the timing of such meetings and shall use their reasonable best
efforts to hold such meetings on the same day.
Section 5.2 Preparation of the Registration Statement and the Joint Proxy
Statement. The Company and Parent shall promptly prepare and file with the SEC
the Joint Proxy Statement and Parent shall prepare and file with the SEC the
Registration Statement, in which the Joint Proxy Statement will be included as a
prospectus. Each of Parent and the Company shall use its reasonable best efforts
to have the Registration Statement declared effective under the Securities Act
as promptly as practicable after such filing. As promptly as practicable after
the Registration Statement shall have become effective, each of Parent and the
Company shall mail the Joint Proxy Statement to its respective stockholders.
Parent shall also take any action reasonably required to be taken under any
applicable state securities laws in connection with the issuance of Parent
Common Stock in the Merger and upon the exercise of the Substitute Options (as
defined in Section 5.8), and the Company shall furnish all information
concerning the Company and the holders of Company Common Stock as may be
reasonably requested in connection with any such action.
Section 5.3 Comfort Letters. (a) The Company shall use its reasonable best
efforts to cause to be delivered to Parent "comfort" letters of KPMG Peat
Marwick LLP, the Company's independent public accountants, dated the date on
which the Registration Statement shall become effective and as of the Effective
Time, and addressed to Parent and the Company, in form and substance reasonably
satisfactory to Parent and reasonably customary in scope and substance for
letters delivered by independent public accountants in connection with
transactions such as those contemplated by this Agreement.
(b) Parent shall use its reasonable best efforts to cause to be delivered
to the Company "comfort" letters of Coopers & Lybrand L.L.P. (or any successor
thereto), Parent's independent public accountants, dated the date on which the
Registration Statement shall become effective and as of the Effective Time, and
addressed to the Company and Parent, in form and substance reasonably
satisfactory to the Company and reasonably customary in scope and substance for
letters delivered by independent public accountants in connection with
transactions such as those contemplated by this Agreement.
Section 5.4 Access to Information. Subject to currently existing
contractual and legal restrictions applicable to Parent or to the Company or any
of their Subsidiaries, each of Parent and the Company shall, and shall cause
each of its Subsidiaries to, afford to the accountants, counsel, financial
advisors and other representatives of the other party hereto reasonable access
to, and permit them to make such inspections as they may reasonably require of,
during normal business hours during the period from the date of this Agreement
through the Effective Time, all their respective properties, books, contracts,
commitments and records (including, without limitation, the work papers of
independent accountants, if available and subject to the consent of such
independent accountants) and, during such period, Parent and the Company shall,
and
A-22
<PAGE> 108
shall cause each of its Subsidiaries to, furnish promptly to the other (i) a
copy of each report, schedule, registration statement and other document filed
by it during such period pursuant to the requirements of federal or state
securities laws and (ii) all other information concerning its business,
properties and personnel as the other may reasonably request. No investigation
pursuant to this Section 5.4 shall affect any representation or warranty in this
Agreement of any party hereto or any condition to the obligations of the parties
hereto. All information obtained by Parent or the Company pursuant to this
Section 5.4 shall be kept confidential in accordance with each of the
Confidentiality Agreements, dated April 1, 1998 between Parent and the Company
(collectively, the "Confidentiality Agreement").
Section 5.5 Compliance with the Securities Act. (a) Section 5.5(a) of the
Company Letter contains a list (reasonably satisfactory to counsel for Parent)
identifying all persons who, at the time of the Company Stockholder Meeting, may
be deemed to be "affiliates" of the Company as that term is used in paragraphs
(c) and (d) of Rule 145 under the Securities Act (the "Rule 145 Affiliates").
The Company shall use its reasonable best efforts to cause each person who is
identified as a Rule 145 Affiliate in such list to deliver to Parent within 30
days of the date hereof a written agreement in substantially the form of Exhibit
5.5(a) hereto, executed by each of such persons identified in the foregoing
list.
(b) Section 5.5(b) of the Parent Letter contains a list (reasonably
satisfactory to counsel for the Company) identifying those persons who may be,
at the time of the Parent Stockholder Meeting, affiliates of Parent under
applicable SEC accounting releases with respect to pooling of interests
accounting treatment. Parent shall use its reasonable best efforts to enter into
a written agreement in substantially the form of Exhibit 5.5(b) hereto within 30
days of the date hereof with each of such persons identified in the foregoing
list.
Section 5.6 Stock Exchange Listings. Parent shall use its reasonable best
efforts to list on the NYSE, upon official notice of issuance, the shares of
Parent Common Stock to be issued in connection with the Merger.
Section 5.7 Fees and Expenses. (a) Except as provided in this Section 5.7
and Section 5.11, whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby including, without limitation, the fees and disbursements of
counsel, financial advisors and accountants, shall be paid by the party
incurring such costs and expenses, provided that all printing expenses and all
filing fees (including, without limitation, filing fees under the Securities
Act, the Exchange Act and the HSR Act) shall be divided equally between Parent
and the Company.
(b) Notwithstanding any provision in this Agreement to the contrary, if
this Agreement is terminated (A) by the Company or Parent pursuant to Section
7.1(e) or 7.1(g), (B) by Parent pursuant to Section 7.1(h) or (C) by the Company
or Parent at a time when Parent is entitled to terminate this Agreement pursuant
to Section 7.1(e), 7.1(g) or 7.1(h), then, in each case, the Company shall
(without prejudice to any other rights Parent may have against the Company for
breach of this Agreement) reimburse Parent upon demand for all out-of-pocket
fees and expenses incurred or paid by or on behalf of Parent or any Affiliate
(as hereinafter defined) of Parent in connection with this Agreement, the Stock
Option Agreement and the transactions contemplated herein or therein, including
all fees and expenses of counsel, investment banking firms, accountants and
consultants. As used herein, "Affiliate" shall have the meaning set forth in
Rule 405 under the Securities Act.
(c) Notwithstanding any provision in this Agreement to the contrary, if (i)
this Agreement is terminated by the Company or Parent at a time when Parent is
entitled to terminate this Agreement pursuant to Section 7.1(b), (c) or (e),
and, concurrently with or within twelve months after such a termination a Third
Party Acquisition Event (as defined below) occurs, or (ii) this Agreement is
terminated pursuant to Section 7.1(g) or 7.1(h) or by the Company or Parent at a
time when Parent is entitled to terminate this Agreement pursuant to Section
7.1(g) or 7.1(h), then, in each case, the Company shall (in addition to any
obligation under Section 5.7(b) and without prejudice to any other rights that
Parent may have against the Company for a breach of this Agreement) pay to
Parent the Termination Fee in cash, such payment to be made promptly, but in no
event later than the second business day following, in the case of clause (i),
the later
A-23
<PAGE> 109
to occur of such termination and such Third Party Acquisition Event or, in the
case of clause (ii), such termination.
"Termination Fee" means $200,000,000 minus the product obtained by
multiplying (i) the value (if any) of the Spread (as defined in Section 9 of the
Stock Option Agreement) as of the date when the Termination Fee is payable by
(ii) the number of Optioned Shares held by Parent as to which the Option has not
yet been exercised (as such terms are defined in Section 1 of the Stock Option
Agreement); provided, however, that in no event shall the Termination Fee be
less than $100,000,000.
A "Third Party Acquisition Event" means any of the following events: (A)
any Person (other than Parent or its Affiliates) acquires or becomes the
beneficial owner of 20% or more of the outstanding shares of Company Common
Stock; (B) any group (other than a group which includes or may reasonably be
deemed to include Parent or any of its Affiliates) is formed which, at the time
of formation, beneficially owns 20% or more of the outstanding shares of Company
Common Stock; (C) any Person (other than Parent or its Affiliates) shall have
commenced a tender or exchange offer for 20% or more of the then outstanding
shares of Company Common Stock or publicly proposed any bona fide merger,
consolidation or acquisition of all or substantially all the assets of the
Company, or other similar business combination involving the Company; (D) the
Company enters into, or announces that it proposes to enter into, an agreement,
including, without limitation, an agreement in principle, providing for a merger
or other business combination involving the Company or a "significant
subsidiary" (as defined in Rule 1.02(v) of Regulation S-X as promulgated by the
SEC) of the Company or the acquisition of a substantial interest in, or a
substantial portion of the assets, business or operations of, the Company or a
significant subsidiary (other than the transactions contemplated by this
Agreement); (E) any Person (other than Parent or its Affiliates) is granted any
option or right, conditional or otherwise, to acquire or otherwise become the
beneficial owner of shares of Company Common Stock which, together with all
shares of Company Common Stock beneficially owned by such Person, results or
would result in such Person being the beneficial owner of 20% or more of the
outstanding shares of Company Common Stock; or (F) there is a public
announcement with respect to a plan or intention by the Company or any Person,
other than Parent and its Affiliates, to effect any of the foregoing
transactions. For purposes of this Section 5.7(c), the terms "group" and "
beneficial owner" shall be defined by reference to Section 13(d) of the Exchange
Act.
Section 5.8 Company Stock Options. Not later than the Effective Time, each
Company Stock Option which is outstanding immediately prior to the Effective
Time pursuant to the Company's stock option plans (other than any "stock
purchase plan" within the meaning of Section 423 of the Code) in effect on the
date hereof (the "Stock Plans") shall become and represent an option to purchase
the number of shares of Parent Common Stock (a "Substitute Option") (decreased
to the nearest full share) determined by multiplying (i) the number of shares of
Company Common Stock subject to such Company Stock Option immediately prior to
the Effective Time by (ii) the Exchange Ratio, at an exercise price per share of
Parent Common Stock (rounded up to the nearest tenth of a cent) equal to the
exercise price per share of Company Common Stock immediately prior to or at the
Effective Time divided by the Exchange Ratio. Parent shall pay cash to holders
of Company Stock Options in lieu of issuing fractional shares of Parent Common
Stock upon the exercise of Substitute Options for shares of Parent Common Stock,
unless in the judgment of Parent such payment would adversely affect the ability
to account for the Merger under the pooling of interests method. After the
Effective Time, except as provided above in this Section 5.8, each Substitute
Option shall be exercisable upon the same terms and conditions as were
applicable under the related Company Stock Option immediately prior to or at the
Effective Time. The Company shall take all necessary action to implement the
provisions of this Section 5.8. The Company agrees that it will not grant any
stock appreciation rights or limited stock appreciation rights and will not
permit cash payments to holders of Company Stock Options in lieu of the
substitution therefor of Substitute Options, as described in this Section 5.8.
Section 5.9 Reasonable Best Efforts; Pooling of Interests. (a) Upon the
terms and subject to the conditions set forth in this Agreement, each of the
parties agrees to use reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the Merger and
the other transactions contemplated by this Agreement, including, but not
A-24
<PAGE> 110
limited to: (i) the obtaining of all necessary actions or non-actions, waivers,
consents and approvals from all Governmental Entities and the making of all
necessary registrations and filings (including filings with Governmental
Entities) and the taking of all reasonable steps as may be necessary to obtain
an approval or waiver from, or to avoid an action or proceeding by, any
Governmental Entity (including those in connection with the HSR Act and State
Takeover Approvals), (ii) the obtaining of all necessary consents, approvals or
waivers from third parties, (iii) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement, the
Stock Option Agreement or the consummation of the transactions contemplated
hereby and thereby, including seeking to have any stay or temporary restraining
order entered by any court or other Governmental Entity vacated or reversed,
(iv) each of Parent and the Company agreeing to take, together with their
respective accountants, all actions reasonably necessary in order to obtain a
favorable determination (if required) from the SEC that the Merger may be
accounted for as a pooling of interests in accordance with generally accepted
accounting principles and (v) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by this
Agreement. No party to this Agreement shall consent to any voluntary delay of
the consummation of the Merger at the behest of any Governmental Entity without
the consent of the other parties to this Agreement, which consent shall not be
unreasonably withheld. The Company and Parent shall coordinate with each other
as to the declaration of dividends or other distributions on Company Common
Stock and Parent Common Stock, including the record dates thereof, it being the
intention of the parties that the holders of Company Common Stock shall not
receive more than one dividend for any single calendar quarter (it being
understood that the Company customarily pays its dividend for a quarter on the
last day thereof while the Parent customarily pays its dividend for a quarter on
the first business day of the succeeding quarter) on their shares of stock
(including any shares of Parent Common Stock received in the Merger).
(b) Each party shall use all reasonable best efforts to not take any
action, or enter into any transaction, which would cause any of its
representations or warranties contained in this Agreement to be untrue or result
in a breach of any covenant made by it in this Agreement.
(c) Notwithstanding anything to the contrary contained in this Agreement,
in connection with any filing or submission required or action to be taken by
either Parent or the Company to effect the Merger and to consummate the other
transactions contemplated hereby, the Company shall not, without Parent's prior
written consent, commit to any divestiture transaction, and neither Parent nor
any of its Affiliates shall be required to divest or hold separate or otherwise
take or commit to take any action that limits its freedom of action with respect
to, or its ability to retain, the Company or any of the material businesses,
product lines or assets of Parent or any of its Subsidiaries or that otherwise
would have a Material Adverse Effect on Parent.
Section 5.10 Public Announcements. Parent and the Company will not issue
any press release with respect to the transactions contemplated by this
Agreement or otherwise issue any written public statements with respect to such
transactions without prior consultation with the other party, except as may be
required by applicable law or by obligations pursuant to any listing agreement
with any national securities exchange.
Section 5.11 Real Estate Transfer and Gains Tax. Parent and the Company
agree that either the Company or the Surviving Corporation will pay any state or
local tax which is attributable to the transfer of the beneficial ownership of
the Company's or its Subsidiaries' real property, if any (collectively, the
"Gains Taxes"), and any penalties or interest with respect to the Gains Taxes,
payable in connection with the consummation of the Merger. The Company and
Parent agree to cooperate with the other in the filing of any returns with
respect to the Gains Taxes, including supplying in a timely manner a complete
list of all real property interests held by the Company and its Subsidiaries and
any information with respect to such property that is reasonably necessary to
complete such returns. The portion of the consideration allocable to the real
property of the Company and its Subsidiaries shall be determined by Parent in
its reasonable discretion.
Section 5.12 State Takeover Laws. If any "fair price," "business
combination" or "control share acquisition" statute or other similar statute or
regulation shall become applicable to the transactions contemplated hereby or in
the Stock Option Agreement, Parent and the Company and their respective Boards
of Directors shall use their best efforts to grant such approvals and take such
actions as are necessary so that the transactions contemplated hereby and
thereby may be consummated as promptly as practicable on the
A-25
<PAGE> 111
terms contemplated hereby and thereby and otherwise act to minimize the effects
of any such statute or regulation on the transactions contemplated hereby and
thereby.
Section 5.13 Indemnification; Directors and Officers Insurance. For six
years from and after the Effective Time, Parent agrees to cause the Surviving
Corporation to, and shall guarantee the obligation of the Surviving Corporation
to, indemnify and hold harmless all past and present officers and directors of
the Company and of its Subsidiaries to the same extent such persons are
indemnified as of the date of this Agreement by the Company pursuant to the
Company's Certificate of Incorporation, Restated Bylaws or agreements in
existence on the date hereof for acts or omissions occurring at or prior to the
Effective Time. Parent shall provide, or shall cause the Surviving Corporation
to provide, for an aggregate period of not less than six years from the
Effective Time, the Company's current directors and officers an insurance and
indemnification policy that provides coverage for events occurring prior to the
Effective Time (the "D&O Insurance") that is substantially similar (with respect
to limits and deductibles) to the Company's existing policy or, if substantially
equivalent insurance coverage is unavailable, the best available coverage;
provided, however, that the Surviving Corporation shall not be required to pay
premiums aggregating more than $3,000,000 for D&O Insurance for the six year
period commencing on the Effective Time.
Section 5.14 Notification of Certain Matters. Parent shall use its
reasonable best efforts to give prompt notice to the Company, and the Company
shall use its reasonable best efforts to give prompt notice to Parent, of: (i)
the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which it is aware and which would be reasonably likely to
cause (x) any representation or warranty contained in this Agreement to be
untrue or inaccurate in any material respect or (y) any covenant, condition or
agreement contained in this Agreement not to be complied with or satisfied in
all material respects, (ii) any failure of Parent or the Company, as the case
may be, to comply in a timely manner with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder or (iii) any change
or event which would be reasonably likely to have a Material Adverse Effect on
Parent or the Company, as the case may be; provided, however, that the delivery
of any notice pursuant to this Section 5.14 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
Section 5.15 Employee Benefit Plans and Agreements. Parent agrees that it
will cause the Surviving Corporation from and after the Effective Time to honor
all Company Plans and all employment agreements entered into by the Company
prior to the date hereof; provided, however, that nothing in this Agreement
shall be interpreted as limiting the power of Parent or the Surviving
Corporation to amend or terminate any Company Plan or any other individual
employee benefit plan, program, agreement or policy or as requiring Parent or
the Surviving Corporation to offer to continue (other than as required by its
terms) any written employment contract.
ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) Stockholder Approval. This Agreement shall have been duly approved
by the requisite vote of stockholders of the Company in accordance with
applicable law and the Certificate of Incorporation and Restated Bylaws of
the Company, and the Share Issuance shall have been approved by the
requisite vote of the stockholders of Parent in accordance with applicable
rules of the NYSE, applicable law and the Amended and Restated Articles of
Incorporation and Amended and Restated By-Laws of Parent.
(b) Stock Exchange Listings. The Parent Common Stock issuable in the
Merger shall have been authorized for listing on the NYSE, subject to
official notice of issuance.
(c) HSR and Other Approvals. (i) The waiting period (and any extension
thereof) applicable to the consummation of the Merger under the HSR Act
shall have expired or been terminated.
A-26
<PAGE> 112
(ii) All authorizations, consents, orders, declarations or approvals
of, or filings with, or terminations or expirations of waiting periods
imposed by, any Governmental Entity, which the failure to obtain, make or
occur would have the effect of making the Merger or any of the transactions
contemplated hereby illegal or would have, individually or in the
aggregate, a Material Adverse Effect on Parent (assuming the Merger had
taken place), shall have been obtained, shall have been made or shall have
occurred.
(d) Registration Statement. The Registration Statement shall have
become effective in accordance with the provisions of the Securities Act.
No stop order suspending the effectiveness of the Registration Statement
shall have been issued by the SEC and no proceedings for that purpose shall
have been initiated or, to the Knowledge of Parent or the Company,
threatened by the SEC. All necessary state securities or blue sky
authorizations (including State Takeover Approvals) shall have been
received.
(e) No Order. No court or other Governmental Entity having
jurisdiction over the Company or Parent, or any of their respective
Subsidiaries, shall have enacted, issued, promulgated, enforced or entered
any law, rule, regulation, executive order, decree, injunction or other
order (whether temporary, preliminary or permanent) which is then in effect
and has the effect of making the Merger or any of the transactions
contemplated hereby illegal.
Section 6.2 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Performance of Obligations; Representations and Warranties. Each
of Parent and Sub shall have performed in all material respects each of its
agreements contained in this Agreement required to be performed on or prior
to the Effective Time, each of the representations and warranties of Parent
and Sub contained in this Agreement that is qualified by materiality shall
be true and correct on and as of the Effective Time as if made on and as of
such date (other than representations and warranties which address matters
only as of a certain date which shall be true and correct as of such
certain date) and each of the representations and warranties that is not so
qualified shall be true and correct in all material respects on and as of
the Effective Time as if made on and as of such date (other than
representations and warranties which address matters only as of a certain
date which shall be true and correct in all material respects as of such
certain date), in each case except as contemplated or permitted by this
Agreement, and the Company shall have received certificates signed on
behalf of each of Parent and Sub by its Chief Executive Officer and its
Chief Financial Officer to such effect.
(b) Tax Opinion. The Company shall have received an opinion of Dorsey
& Whitney LLP, in form and substance reasonably satisfactory to the
Company, dated the Effective Time, substantially to the effect that on the
basis of facts, representations and assumptions set forth in such opinion
which are consistent with the state of facts existing as of the Effective
Time, for federal income tax purposes:
(i) the Merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and the Company, Sub and Parent
will each be a party to that reorganization within the meaning of
Section 368(b) of the Code;
(ii) no gain or loss will be recognized by Parent or the Company as
a result of the Merger;
(iii) no gain or loss will be recognized by the stockholders of the
Company upon the conversion of their shares of Company Common Stock into
shares of Parent Common Stock pursuant to the Merger, except with
respect to cash, if any, received in lieu of fractional shares of Parent
Common Stock;
(iv) the aggregate tax basis of the shares of Parent Common Stock
received in exchange for shares of Company Common Stock pursuant to the
Merger (including a fractional share of Parent Common Stock for which
cash is paid) will be the same as the aggregate tax basis of such shares
of Company Common Stock;
(v) the holding period for shares of Parent Common Stock received
in exchange for shares of Company Common Stock pursuant to the Merger
will include the holder's holding period for such
A-27
<PAGE> 113
shares of Company Common Stock, provided such shares of Company Common
Stock were held as capital assets by the holder at the Effective Time;
and
(vi) a stockholder of the Company who receives cash in lieu of a
fractional share of Parent Common Stock will recognize gain or loss
equal to the difference, if any, between such stockholder's basis in the
fractional share (determined under clause (iv) above) and the amount of
cash received.
In rendering such opinion, Dorsey & Whitney LLP may rely as to matters of
fact upon the representations contained herein and may receive and rely
upon representations from Parent, the Company, and others, including
representations from Parent substantially similar to the representations in
the Parent Tax Certificate attached to the Parent Letter and
representations from the Company substantially similar to the
representations in the Company Tax Certificate attached to the Company
Letter.
(c) Certain Consents. In obtaining any approval or consent required to
consummate any of the transactions contemplated herein or in the Stock
Option Agreement, no Governmental Entity shall have imposed or shall have
sought to impose any condition, penalty or requirement which, in the
reasonable opinion of the Company, individually or in the aggregate, would
have a Material Adverse Effect on Parent (assuming the consummation of the
Merger).
(d) Board Representation. Parent shall have taken all action necessary
to cause Mr. Lawrence Coss and one additional person, selected by Parent
among the individuals who are directors of the Company as of the date
hereof, to become members of the Board of Directors of Parent upon
consummation of the Merger (it being understood that Parent, at its sole
discretion, may choose to appoint one additional individual from such
existing Board of Directors of the Company to become a member of the Board
of Directors of Parent), subject in each case to the willingness of each
such individual to serve as a director of Parent.
Section 6.3 Conditions to Obligations of Parent and Sub to Effect the
Merger. The obligations of Parent and Sub to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Performance of Obligations; Representations and Warranties. The
Company shall have performed in all material respects each of its
agreements contained in this Agreement required to be performed on or prior
to the Effective Time, each of the representations and warranties of the
Company contained in this Agreement that is qualified by materiality shall
be true and correct on and as of the Effective Time as if made on and as of
such date (other than representations and warranties which address matters
only as of a certain date which shall be true and correct as of such
certain date) and each of the representations and warranties that is not so
qualified shall be true and correct in all material respects on and as of
the Effective Time as if made on and as of such date (other than
representations and warranties which address matters only as of a certain
date which shall be true and correct in all material respects as of such
certain date), in each case except as contemplated or permitted by this
Agreement, and Parent shall have received a certificate signed on behalf of
the Company by its Chief Executive Officer and its Chief Financial Officer
to such effect.
(b) Tax Opinion. Parent shall have received an opinion of Sidley &
Austin, in form and substance reasonably satisfactory to Parent, dated the
Effective Time, substantially to the effect that on the basis of facts,
representations and assumptions set forth in such opinion which are
consistent with the state of facts existing as of the Effective Time, for
federal income tax purposes:
(i) the Merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and the Company, Sub and Parent
will each be a party to that reorganization within the meaning of
Section 368(b) of the Code;
(ii) no gain or loss will be recognized by Parent or the Company as
a result of the Merger;
(iii) no gain or loss will be recognized by the stockholders of the
Company upon the conversion of their shares of Company Common Stock into
shares of Parent Common Stock pursuant to the
A-28
<PAGE> 114
Merger, except with respect to cash, if any, received in lieu of
fractional shares of Parent Common Stock;
(iv) the aggregate tax basis of the shares of Parent Common Stock
received in exchange for shares of Company Common Stock pursuant to the
Merger (including a fractional share of Parent Common Stock for which
cash is paid) will be the same as the aggregate tax basis of such shares
of Company Common Stock;
(v) the holding period for shares of Parent Common Stock received
in exchange for shares of Company Common Stock pursuant to the Merger
will include the holder's holding period for such shares of Company
Common Stock, provided such shares of Company Common Stock were held as
capital assets by the holder at the Effective Time; and
(vi) a stockholder of the Company who receives cash in lieu of a
fractional share of Parent Common Stock will recognize gain or loss
equal to the difference, if any, between such stockholder's basis in the
fractional share (determined under clause (iv) above) and the amount of
cash received.
In rendering such opinion, Sidley & Austin may rely as to matters of fact
upon representations contained herein and may receive and rely upon
representations from Parent, the Company, and others, including
representations from Parent substantially similar to the representations in
the Parent Tax Certificate attached to the Parent Letter and
representations from the Company substantially similar to the
representations in the Company Tax Certificate attached to the Company
Letter.
(c) Accounting. (i) Parent shall have received an opinion of Coopers &
Lybrand L.L.P. (or any successor thereto), in form and substance reasonably
satisfactory to Parent, that the Merger will qualify for pooling of
interests accounting treatment under Accounting Principles Board Opinion
No. 16 if closed and consummated in accordance with this Agreement (which
opinion shall be based, as to the financial statements of the Company, on a
customary "pooling" letter of KPMG Peat Marwick LLP); and
(ii) Parent shall have received the "comfort letters" described in
Section 5.3(a), in form and substance reasonably satisfactory to Parent.
(d) Consents. (i) The Company shall have obtained the consent or
approval of each person or Governmental Entity whose consent or approval
shall be required in connection with the transactions contemplated hereby
under any loan or credit agreement, note, mortgage, indenture, lease or
other agreement or instrument or any applicable law, rule or regulation,
except as to which the failure to obtain such consents and approvals would
not, in the reasonable opinion of Parent, individually or in the aggregate,
have a Material Adverse Effect on the Company or Parent or upon the
consummation of the transactions contemplated in this Agreement or the
Stock Option Agreement.
(ii) In obtaining any approval or consent required to consummate any
of the transactions contemplated herein or in the Stock Option Agreement,
no Governmental Entity shall have imposed or shall have sought to impose
any condition, penalty or requirement which, in the reasonable opinion of
Parent, individually or in aggregate would have a Material Adverse Effect
on the Company or Parent.
(e) Litigation. There shall not be instituted or pending any suit,
action or proceeding before any Governmental Entity as a result of this
Agreement, the Stock Option Agreement or any of the transactions
contemplated herein or therein which would have a Material Adverse Effect
on the Company or Parent.
A-29
<PAGE> 115
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after any approval of the matters
presented in connection with the Merger by the stockholders of the Company or
Parent:
(a) by mutual written consent of Parent and the Company;
(b) except for a breach by the Company of Section 5.1, by either
Parent or the Company if the other party shall have failed to comply in any
material respect with any of its covenants or agreements contained in this
Agreement required to be complied with prior to the date of such
termination, which failure to comply has not been cured within thirty
business days following receipt by such other party of written notice from
the non-breaching party of such failure to comply;
(c) by either Parent or the Company if there has been (i) a breach by
the other party (in the case of Parent, including any material breach by
Sub) of any representation or warranty that is not qualified as to
materiality which has the effect of making such representation or warranty
not true and correct in all material respects or (ii) a breach by the other
party (in the case of Parent, including any material breach by Sub) of any
representation or warranty that is qualified as to materiality, in each
case which breach has not been cured within thirty business days following
receipt by the breaching party from the non-breaching party of written
notice of the breach;
(d) by Parent or the Company if: (i) the Merger has not been effected
on or prior to the close of business on December 31, 1998; provided,
however, that the right to terminate this Agreement pursuant to this
Section 7.1(d)(i) shall not be available to any party whose failure to
fulfill any of its obligations contained in this Agreement has been the
cause of, or resulted in, the failure of the Merger to have occurred on or
prior to the aforesaid date; or (ii) any court or other Governmental Entity
having jurisdiction over a party hereto shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the transactions contemplated by this Agreement and
such order, decree, ruling or other action shall have become final and
nonappealable;
(e) by Parent or the Company if the stockholders of the Company do not
approve this Agreement at the Company Stockholder Meeting or at any
adjournment or postponement thereof;
(f) by Parent or the Company if the stockholders of Parent do not
approve the Share Issuance at the Parent Stockholder Meeting or at any
adjournment or postponement thereof;
(g) by Parent or the Company if the Company enters into a merger,
acquisition or other agreement (including an agreement in principle) to
effect a Superior Proposal or the Board of Directors of the Company
resolves to do so; provided, however, that the Company may not terminate
this Agreement pursuant to this Section 7.1(g) unless (i) the Company has
delivered to Parent a written notice of the Company's intent to enter into
such an agreement to effect the Superior Proposal, (ii) five business days
have elapsed following delivery to Parent of such written notice by the
Company and (iii) during such five business day period the Company has
fully cooperated with Parent, including, without limitation, informing
Parent of the terms and conditions of the Takeover Proposal and the
identity of the Person making the Takeover Proposal, with the intent of
enabling Parent to agree to a modification of the terms and conditions of
this Agreement so that the transactions contemplated hereby may be
effected; provided, further, that the Company may not terminate this
Agreement pursuant to this Section 7.1(g) unless at the end of such five
business day period the Board of Directors of the Company continues
reasonably to believe that the Takeover Proposal constitutes a Superior
Proposal and prior to such termination the Company pays to Parent the
amounts specified under Sections 5.7(a), (b) and (c);
(h) by Parent if (i) the Board of Directors of the Company, in breach
of Section 5.1, shall not have recommended, or shall have resolved not to
recommend, or shall have qualified, modified or withdrawn its
recommendation of the Merger or declaration that the Merger is advisable
and fair to and in the best interest of the Company and its stockholders,
or shall have resolved to do so, (ii) the Board of Directors
A-30
<PAGE> 116
of the Company shall have recommended to the stockholders of the Company
any Takeover Proposal or shall have resolved to do so or (iii) a tender
offer or exchange offer for 20% or more of the outstanding shares of
capital stock of the Company is commenced, and the Board of Directors of
the Company fails to recommend against acceptance of such tender offer or
exchange offer by its stockholders (including by taking no position with
respect to the acceptance of such tender offer or exchange offer by its
stockholders); or
(i) by the Company if the Board of Directors of Parent shall not have
recommended, or shall have resolved not to recommend, or shall have
qualified or modified or withdrawn its recommendation of the Merger or
declaration that the Merger is advisable and fair to and in the best
interest of Parent and its stockholders, or shall have resolved to do so.
The right of any party hereto to terminate this Agreement pursuant to this
Section 7.1 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers or directors,
whether prior to or after the execution of this Agreement.
Section 7.2 Effect of Termination. In the event of termination of this
Agreement by either Parent or the Company, as provided in Section 7.1, this
Agreement shall forthwith become void and there shall be no liability hereunder
on the part of the Company, Parent, Sub or their respective officers or
directors (except for the last sentence of Section 5.4 and the entirety of
Section 5.7, which shall survive the termination); provided, however, that
nothing contained in this Section 7.2 shall relieve any party hereto from any
liability for any willful breach of a representation or warranty contained in
this Agreement or the breach of any covenant contained in this Agreement.
Section 7.3 Amendment. This Agreement may be amended by the parties hereto,
by or pursuant to action taken by their respective Boards of Directors, at any
time before or after approval of the matters presented in connection with the
Merger by the stockholders of Parent and the Company, but, after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 7.4 Waiver. At any time prior to the Effective Time, the parties
hereto may (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein which may legally be waived. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Non-Survival of Representations and Warranties. The
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall terminate at the Effective Time.
Section 8.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given when delivered personally, one day after
being delivered to an overnight courier or when
A-31
<PAGE> 117
telecopied (with a confirmatory copy sent by overnight courier) to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to Parent or Sub, to
Conseco, Inc.
11825 North Pennsylvania Street
Carmel, Indiana 46032
Attention: Stephen C. Hilbert
Facsimile No.: (317) 817-6327
with a copy to:
Conseco, Inc.
11825 North Pennsylvania Street
Carmel, Indiana 46032
Attention: John J. Sabl, Esq.
Facsimile No.: (317) 817-6327
and
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Thomas A. Cole, Esq.
Paul L. Choi, Esq.
Facsimile No.: (312) 853-7036
(b) if to the Company, to
Green Tree Financial Corporation
1100 Landmark Towers
345 St. Peter Street
St. Paul, Minnesota 55102
Attention: Lawrence M. Coss
Facsimile No.: (612) 293-3646
with a copy to:
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402
Attention: William B. Payne, Esq.
Facsimile No.: (612) 340-8738
Section 8.3 Interpretation. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
Section 8.4 Counterparts. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.
Section 8.5 Entire Agreement; No Third-Party Beneficiaries. This Agreement,
except for the Stock Option Agreement and as provided in the last sentence of
Section 5.4, constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to
A-32
<PAGE> 118
the subject matter hereof. This Agreement, except for the provisions of Section
5.13, is not intended to confer upon any person other than the parties hereto
any rights or remedies hereunder.
Section 8.6 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
Section 8.7 Assignment. Subject to Section 1.1, neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties.
Section 8.8 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other terms, conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic and legal
substance of the transactions contemplated hereby are not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated by this Agreement may be consummated as
originally contemplated to the fullest extent possible.
Section 8.9 Enforcement of this Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific wording or were
otherwise breached. It is accordingly agreed that the parties hereto shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, such remedy being in addition to
any other remedy to which any party is entitled at law or in equity.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized all as of
the date first written above.
CONSECO, INC.
By: /s/ STEPHEN C. HILBERT
-----------------------------------
Name: Stephen C. Hilbert
Title: Chairman, President and
Chief Executive Officer
Attest:
/s/ JOHN J. SABL
- ---------------------------------------
Name: John J. Sabl
Title: Executive Vice President,
Secretary and General Counsel
A-33
<PAGE> 119
MARBLE ACQUISITION CORP.
By: /s/ STEPHEN C. HILBERT
---------------------------------
Name: Stephen C. Hilbert
Title: Chairman, President and
Chief Executive Officer
Attest:
/s/ JOHN J. SABL
- ---------------------------------------
Name: John J. Sabl
Title: Executive Vice President and
Secretary
GREEN TREE FINANCIAL
CORPORATION
By: /s/ LAWRENCE M. COSS
-----------------------------------
Name: Lawrence M. Coss
Title: Chairman and Chief
Executive Officer
Attest:
/s/ JOEL H. GOTTESMAN
- ---------------------------------
Name: Joel H. Gottesman
Title: Senior Vice President,
Secretary
and General Counsel
A-34
<PAGE> 120
ANNEX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of April 6, 1998 (the "Agreement"),
between Conseco, Inc., an Indiana corporation ("Parent"), and Green Tree
Financial Corporation, a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, simultaneously with the execution and delivery of this Agreement,
Parent, Marble Acquisition Corp., a newly formed Delaware corporation and a
direct wholly owned subsidiary of Parent ("Sub"), and the Company are entering
into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), which provides for the merger of Sub with and into the Company;
WHEREAS, as a condition to Parent's willingness to enter into the Merger
Agreement, Parent has requested that the Company grant to Parent an option to
purchase up to 26,668,399 authorized and unissued shares of Company Common
Stock, upon the terms and subject to the conditions hereof; and
WHEREAS, in order to induce Parent to enter into the Merger Agreement, the
Company has agreed to grant Parent the requested option.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. The Option; Exercise; Adjustments. The Company hereby grants to Parent
an irrevocable option (the "Option") to purchase from time to time up to
26,668,399 authorized and unissued shares of common stock, par value $.01 per
share, of the Company (the "Company Common Stock") upon the terms and subject to
the conditions set forth herein (the "Optioned Shares"). Subject to the
conditions set forth in Section 2, the Option may be exercised by Parent in
whole or from time to time in part, at any time after the date hereof and prior
to the termination of the Option in accordance with Section 19. In the event
Parent wishes to exercise the Option, Parent shall send a written notice to the
Company (the "Stock Exercise Notice") specifying the total number of Optioned
Shares it wishes to purchase and a date (not later than 20 business days and not
earlier than two business days from the date such notice is given) for the
closing of such purchase (the "Closing Date"). Parent may revoke an exercise of
the Option at any time prior to the Closing Date by written notice to the
Company. In the event of any change in the number of issued and outstanding
shares of Company Common Stock by reason of any stock dividend, stock split,
split-up, recapitalization, merger or other change in the corporate or capital
structure of the Company, the number of Optioned Shares subject to the Option
and the Exercise Price (as hereinafter defined) per Optioned Share shall be
appropriately adjusted. In the event that any additional shares of Company
Common Stock are issued after the date of this Agreement (other than pursuant to
an event described in the preceding sentence or pursuant to this Agreement), the
number of Optioned Shares subject to the Option shall be adjusted so that, after
such issuance, it equals at least 19.9% of the number of shares of Company
Common Stock then issued and outstanding (without considering any shares subject
to or issued pursuant to the Option).
2. Conditions to Exercise of Option and Delivery of Optioned Shares. (a)
Parent's right to exercise the Option is subject to the following conditions
that:
(i) Neither Parent nor Sub shall have breached any of its material
obligations under the Merger Agreement or have terminated the Merger
Agreement in violation of its terms;
(ii) No preliminary or permanent injunction or other order issued by
any federal or state court of competent jurisdiction in the United States
invalidating the grant or prohibiting the exercise of the Option shall be
in effect; and
(iii) One or more of the following events shall have occurred on or
after the date hereof or Parent shall have become aware on or after the
date hereof of the occurrence of any of the following: (A) any person,
corporation, partnership, limited liability company, or other entity or
group (such person,
B-1
<PAGE> 121
corporation, partnership or other entity or group being referred to
hereinafter, singularly or collectively, as a "Person"), other than Parent
or its affiliates, acquires or becomes the beneficial owner of 20% or more
of the outstanding shares of Company Common Stock; (B) any new group is
formed which beneficially owns 20% or more of the outstanding shares of
Company Common Stock (other than a group which includes or may reasonably
be deemed to include Parent or any of its affiliates); (C) any Person
(other than Parent or its affiliates) shall have commenced a tender or
exchange offer for 20% or more of the then outstanding shares of Company
Common Stock or publicly proposed any bona fide merger, consolidation or
acquisition of all or substantially all the assets of the Company, or other
similar business combination involving the Company; (D) the Company enters
into, or announces that it proposes to enter into, an agreement, including,
without limitation, an agreement in principle, providing for a merger or
other business combination involving the Company or a "significant
subsidiary" of the Company (as defined in Rule 1.02(v) of Regulation S-X as
promulgated by the Securities and Exchange Commission (the "SEC")) or the
acquisition of a substantial interest in, or a substantial portion of the
assets, business or operations of the Company or a significant subsidiary
(other than the transactions contemplated by the Merger Agreement); (E) any
Person (other than Parent or its affiliates) is granted any option or
right, conditional or otherwise, to acquire or otherwise become the
beneficial owner of shares of Company Common Stock which, together with all
shares of Company Common Stock beneficially owned by such Person, results
or would result in such Person being the beneficial owner of 20% or more of
the outstanding shares of Company Common Stock; or (F) there is a public
announcement with respect to a plan or intention by the Company or any
Person, other than Parent or its affiliates, to effect any of the foregoing
transactions. For purposes of this subparagraph (iii), the terms "group"
and "beneficial owner" shall be defined by reference to Section 13(d) of
the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder (the "Exchange Act").
(b) Parent's obligation to purchase the Optioned Shares following the
exercise of the Option, and the Company's obligation to deliver the
Optioned Shares, are subject to the conditions that:
(i) No preliminary or permanent injunction or other order issued by
any federal or state court of competent jurisdiction in the United States
prohibiting the delivery of the Optioned Shares shall be in effect;
(ii) The purchase of the Optioned Shares will not violate Rule 10b-13
promulgated under the Exchange Act; and
(iii) All applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), shall have
expired or been terminated.
3. Exercise Price for Optioned Shares. At any Closing Date, the Company
will deliver to Parent a certificate or certificates representing the Optioned
Shares in the denominations designated by Parent in its Stock Exercise Notice
and Parent will purchase the Optioned Shares from the Company at a price per
Optioned Share equal to $52.93 (the "Exercise Price"), payable in Common Stock,
no par value, of Parent (the "Parent Common Stock"), cash or a combination of
Parent Common Stock or cash, in each case at Parent's option, as specified in
the Stock Exercise Notice. Any cash payment made by Parent to the Company
pursuant to this Agreement shall be made by wire transfer of federal funds to a
bank designated by the Company or a check payable in immediately available
funds. If Parent elects to pay the Exercise Price or a portion thereof in Parent
Common Stock, the Parent Common Stock shall be valued at the average of the
closing prices of the Parent Common Stock on the New York Stock Exchange for the
five trading days immediately prior to the Closing Date. After payment of the
Exercise Price for the Optioned Shares covered by the Stock Exercise Notice, the
Option shall be deemed exercised to the extent of the Optioned Shares specified
in the Stock Exercise Notice as of the date such Stock Exercise Notice is given
to the Company. Notwithstanding anything to the contrary herein, the Exercise
Price shall from time to time be adjusted so that in no event shall the
Aggregate Spread Value, together with the Termination Fee (as defined in Section
5.7(c) of the Merger Agreement and as may be adjusted pursuant thereto), exceed
$295,000,000 (it being understood that, if the Exercise Price has been increased
from time to time as a result of this sentence, the Exercise Price shall from
time to time be adjusted downward to the extent of any decrease in the price of
B-2
<PAGE> 122
the Company Common Stock). "Spread Value" with respect to an Optioned Share
means the product obtained by multiplying (x) the excess, if any, of (i) the
average of the closing prices on the New York Stock Exchange of the Company
Common Stock during the five trading days immediately preceding the written
notice of exercise (in the case of an Optioned Share previously exercised) or
the date of determination (in the case of an Optioned Share as to which the
Option has not yet been exercised) over (ii) the Exercise Price. The Aggregate
Spread Value shall be the sum of the Spread Value of all Optioned Shares.
4. Representations and Warranties of the Company. The Company represents
and warrants to Parent that (a) the execution and delivery of this Agreement by
the Company and the consummation by it of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of the
Company and this Agreement has been duly executed and delivered by the Company
and constitutes a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms; (b) the Company has taken all
necessary corporate action to authorize and reserve the Optioned Shares for
issuance upon exercise of the Option, and the Optioned Shares, when issued and
delivered by the Company to Parent upon exercise of the Option, will be duly
authorized, validly issued, fully paid and nonassessable and free of preemptive
rights; (c) except as otherwise required by the HSR Act, except for routine
filings and subject to Section 7, the execution and delivery of this Agreement
by the Company and the consummation by it of the transactions contemplated
hereby do not require the consent, approval or authorization of, or filing with,
any person or public authority and will not violate or conflict with the
Company's Certificate of Incorporation or Restated Bylaws, or result in the
acceleration or termination of, or constitute a default under, any indenture,
license, approval, agreement, understanding or other instrument, or any statute,
rule, regulation, judgment, order or other restriction binding upon or
applicable to the Company or any of its subsidiaries or any of their respective
properties or assets; (d) the Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby; and (e) the
Company has taken all appropriate actions so that the restrictions on business
combinations contained in Section 203 of the General Corporation Law of the
State of Delaware, as amended, and neither Article 8 nor Article 9 of its
Certificate of Incorporation will apply with respect to or as a result of the
transactions contemplated hereby.
5. Representations and Warranties of Parent. Parent represents and warrants
to the Company that (a) the execution and delivery of this Agreement by Parent
and the consummation by it of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Parent and this
Agreement has been duly executed and delivered by Parent and constitutes a valid
and binding agreement of Parent; and (b) Parent is acquiring the Option and, if
and when it exercises the Option, will be acquiring the Optioned Shares issuable
upon the exercise thereof, for its own account and not with a view to
distribution or resale in any manner which would be in violation of the
Securities Act of 1933, as amended (the "Securities Act"), and will not sell or
otherwise dispose of the Optioned Shares except pursuant to an effective
registration statement under the Securities Act or a valid exemption from
registration under the Securities Act.
6. The Closing. Any closing hereunder shall take place on the Closing Date
specified by Parent in its Stock Exercise Notice pursuant to Section 1 at 10:00
A.M., local time, or the first business day thereafter on which all of the
conditions in Section 2 are met, at the principal executive office of the
Company, or at such other time and place as the parties hereto may agree.
7. Filings Related to Optioned Shares. The Company will make such filings
with the SEC and the National Association of Securities Dealers, Inc. as are
required by the Exchange Act, and will use its best efforts to effect all
necessary filings by the Company under the HSR Act and to list the Optioned
Shares on the New York Stock Exchange.
8. Registration Rights. (a) If the Company effects any registration or
registrations of shares of Company Common Stock under the Securities Act for its
own account or for any other stockholder of the Company at any time after the
exercise of the Option (other than a registration on Form S-4, Form S-8 or any
successor forms), it will allow Parent to participate in such registration or
registrations with respect to any or all of the
B-3
<PAGE> 123
Optioned Shares acquired upon the exercise of the Option; provided, however,
that if the managing underwriters in such offering advise the Company that, in
their written opinion, the number of Optioned Shares requested by Parent to be
included in such registration exceeds the number of shares of Company Common
Stock which can be sold in such offering, the Company may exclude from such
registration all or a portion, as may be appropriate, of the Optioned Shares
requested for inclusion by Parent.
(b) At any time after the exercise of the Option, upon the request of
Parent, the Company will promptly file and use its best efforts to cause to be
declared effective a registration statement under the Securities Act (and
applicable Blue Sky statutes) with respect to any or all of the Optioned Shares
acquired upon the exercise of the Option; provided, however, that the Company
shall not be required to have declared effective more than two registration
statements hereunder and shall be entitled to delay the effectiveness of each
such registration statement, for a period not to exceed 90 days in the
aggregate, if the commencement of such offering would, in the reasonable good
faith judgment of the Board of Directors of the Company, require premature
disclosure of any material corporate development or otherwise materially
interfere with or materially adversely affect any pending or proposed offering
of securities of the Company. In connection with any such registration requested
by Parent, the costs of such registration shall be borne by the Company, and the
Company and Parent each shall provide the other and any underwriters with
customary indemnification and contribution agreements.
9. Optional Put. Prior to the termination of the Option in accordance with
Section 19, if a Put Event has occurred, Parent shall have the right, upon three
business days' prior written notice to the Company, to require the Company to
purchase the Option from Parent (the "Put Right") at a cash purchase price (the
"Put Price") equal to the product determined by multiplying (A) the number of
Optioned Shares as to which the Option has not yet been exercised by (B) the
Spread (as defined below). As used herein, "Put Event" means the occurrence on
or after the date hereof or Parent becoming aware on or after the date hereof of
any of the following: (i) any Person (other than Parent or its affiliates)
acquires or becomes the beneficial owner of 30% or more of the outstanding
shares of Company Common Stock or (ii) the Company consummates a merger or other
business combination involving the Company or a "significant subsidiary" of the
Company (as defined in Rule 1.02(v) of Regulation S-X as promulgated by the SEC)
or the acquisition of a substantial interest in, or a substantial portion of the
assets, business or operations of the Company or a significant subsidiary (other
than the transactions contemplated by the Merger Agreement). As used herein, the
term "Spread" shall mean the excess, if any, of (i) the greater of (x) the
highest price (in cash or fair market value of securities or other property) per
share of Company Common Stock paid or to be paid within 12 months preceding the
date of exercise of the Put Right for any shares of Company Common Stock
beneficially owned by any Person who shall have acquired or become the
beneficial owner of 30% or more of the outstanding shares of Company Common
Stock after the date hereof or (y) the average of the closing prices on the New
York Stock Exchange of the Company Common Stock during the five trading days
immediately preceding the written notice of exercise of the Put Right over (ii)
the Exercise Price. Notwithstanding anything herein to the contrary, in no event
shall the aggregate Put Price, together with the Aggregate Spread Value of any
Optioned Shares previously exercised and the amount of the Termination Fee (as
defined in Section 5.7(c) of the Merger Agreement and as may be adjusted
pursuant thereto) then payable, exceed $295,000,000.
10. Expenses. Each party hereto shall pay its own expenses incurred in
connection with this Agreement, except as otherwise provided in Section 8 or as
specified in the Merger Agreement.
11. Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
thereof having jurisdiction, this being in addition to any other remedy to which
they are entitled at law or in equity.
12. Notice. All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given and made if in writing and if
served by personal delivery upon the party for whom it is
B-4
<PAGE> 124
intended or if sent by telex or telecopier (and also confirmed in writing) to
the person at the address set forth below, or such other address as may be
designated in writing hereafter, in the same manner, by such person:
(a) if to Parent or Sub, to
Conseco, Inc.
11825 North Pennsylvania Street
Carmel, Indiana 46032
Attention: Stephen C. Hilbert
Facsimile No.: (317) 817-6327
with copies to:
Conseco, Inc.
11825 North Pennsylvania Street
Carmel, Indiana 46032
Attention: John J. Sabl, Esq.
Facsimile No.: (317) 817-6327
and
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Thomas A. Cole, Esq.
Paul L. Choi, Esq.
Facsimile No.: (312) 853-7036
(b) if to the Company, to
Green Tree Financial Corporation
1100 Landmark Towers
345 St. Peter Street
St. Paul, Minnesota 55102
Attention: Lawrence M. Coss
Facsimile No.: (612) 293-3646
with a copy to:
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402
Attention: William B. Payne, Esq.
Facsimile No.: (612) 340-8738
13. Parties in Interest. This Agreement shall inure to the benefit of and
be binding upon the parties named herein and their respective successors and
assigns. Nothing in this Agreement, expressed or implied, is intended to confer
upon any Person other than Parent or the Company, or their permitted successors
or assigns, any rights or remedies under or by reason of this Agreement.
14. Entire Agreement; Amendments. This Agreement, together with the Merger
Agreement and the other documents referred to therein, contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior and contemporaneous agreements and understandings, oral
or written, with respect to such transactions. This Agreement may not be
changed, amended or modified orally, but only by an agreement in writing signed
by the party against whom any waiver, change, amendment, modification or
discharge may be sought.
B-5
<PAGE> 125
15. Assignment. No party to this Agreement may assign any of its rights or
delegate any of its obligations under this Agreement (whether by operation of
law or otherwise) without the prior written consent of the other party hereto,
except that Parent may, without a written consent, assign its rights and
delegate its obligations hereunder in whole or in part to one or more of its
direct or indirect wholly owned subsidiaries.
16. Headings. The section headings herein are for convenience only and
shall not affect the construction of this Agreement.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflicts of laws thereof.
19. Termination. This Agreement and the Option shall terminate upon the
earlier of (i) the Effective Time (as defined in the Merger Agreement) and (ii)
the termination of the Merger Agreement in accordance with its terms; provided,
however, the Option shall not terminate pursuant to clause (ii) immediately
above if (A) the Merger Agreement is terminated by Parent pursuant to Section
7.1(b) or (c) thereof or (B) the Merger Agreement is terminated by Parent or the
Company pursuant to Section 7.1(e), (g), or (h) thereof.
20. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic and legal substance of
the transactions contemplated hereby are not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in a mutually acceptable manner in order that
the transactions contemplated by this Agreement may be consummated as originally
contemplated to the fullest extent possible.
IN WITNESS WHEREOF, Parent and the Company have caused this Agreement to be
duly executed and delivered on the day and year first above written.
CONSECO, INC.
By: /s/ STEPHEN C. HILBERT
------------------------------------
Name: Stephen C. Hilbert
Title: Chairman, President and
Chief Executive Officer
GREEN TREE FINANCIAL CORPORATION
By: /s/ LAWRENCE M. COSS
------------------------------------
Name: Lawrence M. Coss
Title: Chairman and Chief
Executive Officer
B-6
<PAGE> 126
ANNEX C
April 6, 1998
Board of Directors
Conseco, Inc.
11825 N. Pennsylvania Street
Carmel, IN 46032
Members of the Board:
We understand that Conseco, Inc. (the "Acquiror"), a newly formed, wholly
owned subsidiary of the Acquiror (the "Acquisition Sub"), and Green Tree
Financial Corporation (the "Company") propose to enter into an Agreement and
Plan of Merger (the "Agreement"), dated April 6, 1998, pursuant to which the
Acquisition Sub is to be merged with and into the Company in a transaction (the
"Merger") in which each outstanding share of the Company's common stock, par
value $.01 per share, (the "Company Shares"), will be converted into the right
to receive .9165 shares (the "Exchange Ratio") of the common stock, no par
value, of the Acquiror ("the Acquiror Shares"), all as set forth more fully in
the Agreement. In connection with the Merger, the Acquiror and the Company also
propose to enter into a Stock Option Agreement (the "Option Agreement"),
pursuant to which the Company will grant to the Acquiror an option to acquire,
under certain circumstances, up to 19.9% of the Company Shares outstanding on
the date of the Option Agreement, all as set forth more fully in the Option
Agreement.
You have asked us whether, in our opinion, the Exchange Ratio is fair from
a financial point of view to the Acquiror.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to the Acquiror and the Company that we
deemed to be relevant;
(2) Reviewed certain information, including financial forecasts,
relating to the businesses, earnings, cash flow, assets,
liabilities and prospects of the Acquiror and the Company, as well
as the amount and timing of the cost savings and related charges
and expenses and revenue enhancements expected to result from the
Merger furnished to us by the senior management of the Acquiror
(the "Merger Benefits");
(3) Conducted discussions with members of senior management of the
Acquiror and the Company concerning the foregoing, including the
respective businesses, prospects, regulatory condition and
contingencies of the Acquiror and the Company before and after
giving effect to the Merger and the Merger Benefits;
(4) Reviewed the market prices and valuation multiples for the
Acquiror Shares and the Company Shares and compared the Acquiror
Shares and the Company Shares with those of certain publicly
traded companies that we deemed to be relevant;
(5) Reviewed the results of operations of the Company and the Acquiror
and compared them with those of certain publicly traded companies
that we deemed to be relevant;
(6) Compared the proposed financial terms of the Merger with the
financial terms of certain other transactions that we deemed to be
relevant;
(7) Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their
respective financial and legal advisors;
(8) Reviewed the potential pro forma impact of the Merger;
(9) Reviewed draft dated April 6, 1998 of the Agreement and the Option
Agreement; and
C-1
<PAGE> 127
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities, contingent or otherwise, of the Company or the Acquiror or any
actuarial analysis with respect to the Acquiror, nor have we been furnished any
such evaluation, appraisal or actuarial analysis. We are not experts in the
evaluation of allowances for credit or loan losses or in the valuation of
residual interests or other assets resulting from the Company's securitization
transactions ("Securitization Assets"), and we have not made an independent
evaluation of the adequacy of the allowance for credit or loan losses of the
Company, reviewed any individual credit or loan files relating to the Company
nor made an independent valuation of the Securitization Assets. In addition, we
have not assumed any obligation to conduct, nor have we conducted, any physical
inspection of the properties or facilities of the Company or the Acquiror. With
respect to the financial forecast information of the Company and the Acquiror,
including, without limitation, financial forecasts, evaluation of contingencies
and projections regarding, among other things, receivable originations,
prepayment speeds, delinquencies, under-performing and non-performing assets,
net charge-offs, adequacy of reserves, valuation of the Securitization Assets
and future economic conditions pertaining to the Company, and the Merger
Benefits, furnished to or discussed with us by the Company and the Acquiror, we
have assumed that they have been reasonably prepared and reflect the best
currently available estimates, allocations and judgements of the senior
management of the Company and the Acquiror as to the expected future financial
performance of the Company, the Acquiror or the combined entity, as the case may
be, and the Merger Benefits. We express no opinion as to such financial forecast
information or the Merger Benefits or the assumptions upon which they were
based. We have further assumed that the Merger will qualify as a tax-free
reorganization for U.S. federal income tax purposes and will be accounted for as
a pooling-of-interests under generally accepted accounting principles. We have
also assumed that the final forms of the Agreement and the Option Agreement will
be substantially similar to the last drafts reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as in effect on, and the information made available to us as of, the date
hereof. For the purposes of rendering this opinion, we have assumed, in all
respects material to our analysis, that the representations and warranties of
each party in the Agreement and all related documents and instruments
(collectively, the "Documents") contained therein are true and correct, that
each party to the Documents will perform all of the covenants and agreements
required to be performed by such party under such Documents, and that all
conditions to the consummation of the Merger will be satisfied without waiver
thereof. We have also assumed that in the course of obtaining the necessary
regulatory or other consents or approvals (contractual or otherwise) for the
Merger, no restrictions, including any divestiture requirements or amendment or
modifications, will be imposed that will have a material adverse affect on the
contemplated benefits of the Merger, including the Merger Benefits.
We are acting as financial advisor to the Acquiror in connection with the
Merger and will receive a fee from the Acquiror for our services, a significant
portion of which is contingent upon the consummation of the Merger. In addition,
the Acquiror has agreed to indemnify us for certain liabilities arising out of
our engagement. We have in the past provided financial advisory and financing
advisory, investment banking and other services to the Acquiror and may continue
to do so, and have received, and may receive, customary fees for the rendering
of such services. We have in the past provided, and are currently providing
financial advisory, investment banking and other services to the Company and its
affiliates, including acting as a lender to the Company (pursuant to the
uncommitted reverse repurchase agreement, dated July 1997, of which you are
aware), and may continue to do so, and have received, and may receive, customary
fees for the rendering of such services. In addition, in the ordinary course of
our business, we may actively trade debt and equity securities of the Acquiror
and its affiliates and the Company and its affiliates for our own account and
the accounts of our customers, and therefore we may from time to time hold a
long or short position in such securities.
C-2
<PAGE> 128
This opinion is for the use and benefit of the Board of Directors of the
Acquiror. Our opinion addresses only the financial fairness of the Exchange
Ratio, and does not address the merits of the underlying decision by the
Acquiror to engage in the Merger, and does not constitute a recommendation to
any stockholder as to how such stockholder should vote on the proposed Merger or
any matter related thereto.
We are not expressing any opinion herein as to the prices at which the
Acquiror Shares will trade following the announcement or consummation of the
Merger.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Exchange Ratio is fair from a financial point of view
to the Acquiror.
Very truly yours,
/s/ MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
C-3
<PAGE> 129
ANNEX D
LEHMAN BROTHERS
April 6, 1998
Board of Directors
Green Tree Financial Corporation
1100 Landmark Towers
Saint Paul, MN 55102-1639
Members of the Board:
We understand that Green Tree Financial Corporation (the "Company") and
Conseco, Inc. ("Conseco") propose to enter into a definitive merger agreement
pursuant to which a wholly owned subsidiary of Conseco (the "Subsidiary") will
be merged with and into the Company and each share of common stock of the
Company will be converted into the right to receive 0.9165 shares (the "Exchange
Ratio") of common stock of Conseco (the "Merger"). The terms and conditions of
the Merger will be set forth in more detail in an Agreement and Plan of Merger
to be dated as of April 6, 1998 by and among Conseco, the Subsidiary and the
Company (the "Merger Agreement").
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to the
Company's stockholders of the Exchange Ratio to be offered to such stockholders
in the Merger. We have not been requested to opine as to, and our opinion does
not in any manner address, the Company's underlying business decision to proceed
with or effect the Merger.
In arriving at our opinion, we reviewed and analyzed: (1) the financial
terms of the Merger as described to us by the Company and its legal advisors,
(2) such publicly available information concerning the Company and Conseco that
we believe to be relevant to our analysis including, without limitation, the
Annual Reports on Forms 10-K for the year ended December 31, 1997 for the
Company and Conseco, (3) financial and operating information with respect to the
business, operations and prospects of the Company and Conseco furnished to us by
the Company and Conseco, (4) a trading history of the common stock of the
Company from January 1, 1993 to the present and a comparison of that trading
history with those of other companies that we deemed relevant, (5) a trading
history of the common stock of Conseco from January 1, 1993 to the present and a
comparison of that trading history with those of other companies that we deemed
relevant, (6) a comparison of the historical financial results and present
financial condition of the Company with those of other companies that we deemed
relevant, (7) a comparison of the historical financial results and present
financial condition of Conseco with those of other companies that we deemed
relevant, (8) estimates of third party research analysts regarding the future
financial performance of the Company and Conseco, (9) a comparison of the
financial terms of the Merger with the financial terms of certain other recent
transactions that we deemed relevant, and (10) the potential pro forma impact of
the Merger on Conseco. In addition, we have had discussions with the management
of the Company and Conseco concerning their respective businesses, operations,
assets, liabilities, financial conditions and prospects, and the potential cost
savings, operating synergies and strategic benefits expected by the managements
of the Company and Conseco to result from a combination of the businesses of the
Company and Conseco, and have undertaken such other studies, analyses and
investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information and
have further relied upon the assurances of management of the Company and Conseco
that they are not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial projections
of the Company, upon advice of the Company we have assumed that such projections
have been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
financial performance of the Company and that the Company will perform
substantially in accordance with such projections. In arriving at
D-1
<PAGE> 130
our opinion, with the consent of the Company, we were not provided with and did
not have any access to any financial forecasts or projections prepared by the
management of Conseco as to the projected financial performance of Conseco
beyond 1998, and accordingly, in performing our analysis, based upon advice of
Conseco and with the consent of the Company, we have assumed that the publicly
available estimates of research analysts are a reasonable basis upon which to
evaluate and analyze the future financial performance of Conseco and that
Conseco will perform substantially in accordance with such estimates. In
arriving at our opinion, we have not conducted a physical inspection of the
properties and facilities of the Company or Conseco and have not made or
obtained any evaluations or appraisals of the assets or liabilities of the
Company or Conseco. In addition, you have not authorized us to solicit, and we
have not solicited, any indications of interest from any third party with
respect to the purchase of all or a part of the Company's business. Upon advice
of Conseco and its legal and accounting advisors, we have assumed that the
Merger will qualify for "pooling-of interests" accounting treatment. Our opinion
necessarily is based upon market, economic and other conditions as they exist
on, and can be evaluated as of, the date of this letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Exchange Ratio to be
offered to the stockholders of the Company in the Merger is fair to such
stockholders.
We have acted as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon the consummation of the Merger. In addition, the Company has
agreed to indemnify us for certain liabilities that may arise out of the
rendering of this opinion. We and our affiliates also have performed various
investment banking and financing services for the Company in the past, and have
received customary fees for such services. In addition, our affiliate, Lehman
Commercial Paper Inc., has received warrants to purchase approximately 2% of the
outstanding common stock of the Company in connection with certain credit
facilities provided by it to the Company. In the ordinary course of our
business, we actively trade in the debt and equity securities of the Company and
Conseco for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities,
which positions may be significant. Mr. Mark H. Burton, a Managing Director of
Lehman Brothers, is also a Director of the Company.
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Merger. This opinion is not intended to be and does not
constitute a recommendation to any stockholder of the Company as to how such
stockholder should vote with respect to the Merger.
Very truly yours,
/s/ LEHMAN BROTHERS
LEHMAN BROTHERS
D-2
<PAGE> 131
PART II.
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Indiana Corporation Law grants authorization to Indiana corporations to
indemnify officers and directors for their conduct if such conduct was in good
faith and was in the corporation's best interests or, in the case of directors,
was not opposed to such best interests, and permits the purchase of insurance in
this regard. In addition, the shareholders of a corporation may approve the
inclusion of other or additional indemnification provisions in the articles of
incorporation and bylaws.
The Conseco Bylaws provides for the indemnification of any person made a
party to any action, suit or proceeding by reason of the fact that he or she is
a director, officer or employee of Conseco, if (a) such person is wholly
successful with respect to such action, suit or proceeding or (b) if such person
is determined to have acted in good faith, in what he or she reasonably believed
to be the best interests of Conseco or at least not opposed to its best
interests and, in addition, with respect to any criminal claim, is determined to
have had reasonable cause to believe that his or her conduct was lawful or had
no reasonable cause to believe that his or her conduct was unlawful. Such
indemnification shall be against the reasonable expenses, including attorneys'
fees, incurred by such person in connection with the defense of such action,
suit or proceeding and amounts paid in settlement. If such person was not wholly
successful, the determination of entitlement to indemnification shall be made by
one of the following methods, such method to be selected by the Board of
Directors: (a) by the Board of Directors by a majority vote of a quorum
consisting of directors who are not and have not been parties to the claim; (b)
by the majority vote of a committee duly designated by the Board of Directors,
consisting solely of two or more directors who are not and have not been parties
to the claim; and (c) by special legal counsel.
The above discussion of the Conseco Bylaws and the Indiana Corporation Law
is not intended to be exhaustive and is qualified in its entirety by the Conseco
Bylaws and the Indiana Corporation Law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<S> <C> <C>
2(a) -- The Merger Agreement (composite conformed copy included as
Annex A to the Joint Proxy Statement/Prospectus (schedules
omitted -- the Registrant agrees to furnish a copy of any
schedule to the Securities and Exchange Commission (the
"Commission") upon request)).**
2(b) -- Stock Option Agreement, dated as of April 6, 1998, by and
between Conseco, Inc. and Green Tree Financial Corporation
(included as Annex B to the Joint Proxy
Statement/Prospectus).*
3(a) -- Amended and Restated Articles of Incorporation of Conseco
was filed with the Commission as Exhibit 3.1 to Conseco's
Annual Report on 10-K dated March 31, 1998, and is
incorporated herein by this reference.
3(b) -- Amended and Restated Bylaws of Conseco was filed with the
Commission as Exhibit 3.2 to Conseco's Annual Report on 10-K
dated March 31, 1998, and is incorporated herein by this
reference.
4.8 -- Indenture dated as of February 18, 1993, between the
Registrant and Shawmut Bank Connecticut, National
Association, as Trustee, for the 8 1/8 percent Senior Notes
due 2003, was filed with the Commission as Exhibit 4.8 to
the Registrant's Annual Report on Form 10-K for 1992, and is
incorporated herein by this reference.
4.12 -- Indenture dated as of September 29, 1994 between ALHC Merger
Corporation and LTCB Trust Company and First Supplemental
Indenture dated as of September 29, 1994 between American
Life Holding Company and the Trustee for the 11 1/4% Senior
Subordinated Notes due 2004 were filed with the Commission
as Exhibit 4.12 to the Registrant's Report on Form 8-K dated
September 29, 1994, and are incorporated herein by this
reference.
</TABLE>
II-1
<PAGE> 132
<TABLE>
<S> <C> <C>
4.13 -- Indenture dated as of December 15, 1994, between CCP
Insurance, Inc., and LTCB Trust Company, as Trustee, for the
$200,000,000 aggregate principal amount of 10 1/2% Senior
Notes due 2004 was filed with the Commission as Exhibit 4.13
to the Registrant's Annual Report on Form 10-K for 1995, and
is incorporated herein by this reference.
4.13.1 -- First Supplemental Indenture between Conseco, Inc., as
Issuer, and LTCB Trust Company as Trustee, dated as of
August 31, 1995, was filed with the Commission as Exhibit
4.13.1 to the Registrant's Report on Form 10-Q for the
quarter ended September 30, 1995, and is incorporated herein
by this reference.
4.14 -- Credit Agreement among the Registrant, Bank of America
National Trust and Savings Association, First Union National
Bank of North Carolina and Nationsbank, N.A. dated November
22, 1996 ("Credit Agreement"), was filed with the Commission
as Exhibit 4.17 to the Registrant's Report on Form 8-K dated
December 17, 1996, and is incorporated herein by this
reference.
4.14.1 -- First Amendment dated as of March 10, 1997 to Credit
Agreement was filed with the Commission as Exhibit 4.14.1 to
the Registrant's Report on Form 8-K dated April 1, 1997, and
is incorporated herein by this reference.
4.17.1 -- Subordinated Indenture, dated as of November 14, 1996,
between the Registrant and Fleet National Bank, as Trustee,
was filed with the Commission as Exhibit 4.17.1 to the
Registrant's Report on Form 8-K dated November 19, 1996, and
is incorporated herein by this reference.
4.17.2 -- First Supplemental Indenture, dated as of November 14, 1996,
between the Registrant and Fleet National Bank, as Trustee,
was filed with the Commission as Exhibit 4.17.2 to the
Registrant's Report on Form 8-K dated November 19, 1996, and
is incorporated herein by this reference.
4.17.3 -- 9.16% Subordinated Deferrable Interest Debenture due 2006
was filed with the Commission as Exhibit 4.17.3 to the
Registrant's Report on Form 8-K dated November 19, 1996, and
is incorporated herein by this reference.
4.17.4 -- Second Supplemental Indenture, dated as of November 22,
1996, between Conseco, Inc. and Fleet National Bank, as
Trustee was filed with the Commission as Exhibit 4.17.1 to
the Registrant's Report on Form 8-K dated November 27, 1996,
and is incorporated herein by this reference.
4.17.5 -- 8.70% Subordinated Deferrable Interest Debenture due 2026
was filed with the Commission as Exhibit 4.17.4 to the
Registrant's Report on Form 8-K dated November 27, 1996, and
is incorporated herein by this reference.
4.17.6 -- Third Supplemental Indenture, dated as of March 26, 1997
between the Registrant and Fleet National Bank, as Trustee,
was filed with the Commission as Exhibit 4.17.6 to the
Registrant's Report on Form 8-K dated April 1, 1997, and is
incorporated herein by this reference.
4.17.7 -- 8.796% Subordinated Deferrable Interest Debenture due 2027
was filed with the Commission as Exhibit 4.17.7 to the
Registrant's Report on Form 8-K dated April 1, 1997, and is
incorporated herein by this reference.
4.18.1 -- Amended and Restated Declaration of Trust of Conseco
Financing Trust I, dated as of November 14, 1996, among
Conseco, Inc., as sponsor, the Trustees named therein and
the holders from time to time of undivided beneficial
interests in the assets of Conseco Financing Trust I was
filed with the Commission as Exhibit 4.18.1 to the
Registrant's Report on Form 8-K dated November 19, 1996, and
is incorporated herein by this reference.
4.18.2 -- Global Certificate for Preferred Security of Conseco
Financing Trust I was filed with the Commission as Exhibit
4.18.2 to the Registrant's Report on Form 8-K dated November
19, 1996, and is incorporated herein by this reference.
4.18.3 -- Preferred Securities Guarantee Agreement, dated as of
November 19, 1996, between the Registrant and Fleet National
Bank was filed with the Commission as Exhibit 4.18.3 to the
Registrant's Report on Form 8-K dated November 19, 1996, and
is incorporated herein by this reference.
</TABLE>
II-2
<PAGE> 133
<TABLE>
<S> <C> <C>
4.19.1 -- Amended and Restated Declaration of Trust of Conseco
Financing Trust II, dated as of November 22, 1996, among
Conseco, Inc., as sponsor, the Trustees named therein and
the holders from time to time of undivided beneficial
interests in the assets of Conseco Financing Trust II was
filed with the Commission as Exhibit 4.19.1 to the
Registrant's Report on Form 8-K dated November 27, 1996, and
is incorporated herein by this reference.
4.19.2 -- Global Certificate for Preferred Security of Conseco
Financing Trust II was filed with the Commission as Exhibit
4.19.2 to the Registrant's Report on Form 8-K dated November
27, 1996, and is incorporated herein by this reference.
4.19.3 -- Preferred Securities Guarantee Agreement, dated as of
November 27, 1996, between Conseco, Inc. and Fleet National
Bank was filed with the Commission as Exhibit 4.19.3 to the
Registrant's Report on Form 8-K dated November 27, 1996, and
is incorporated herein by this reference.
4.20 -- Indenture relating to the 6.5% Convertible Subordinated
Subordinated Debentures due October 1, 2005 issued by
American Travellers Corporation was filed with the
Commission as Exhibit 4(c) to the Annual Report on Form 10-K
of American Travellers Corporation for the year ended
December 31, 1995, and is incorporated herein by this
reference.
4.20.1 -- First Supplemental Indenture between the Registrant and
Firstar Bank of Minnesota, N.A. Trustee, as Trustee,
relating to the 6.5% Convertible Subordinated Debentures due
October 1, 2005 was filed with the Commission as Exhibit
4.20.1 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996, and is incorporated herein
by this reference.
4.21.1 -- Amended and Restated Declaration of Trust of Conseco
Financing Trust III, dated as of March 26, 1997, among the
Registrant, as sponsor, the trustees named therein and the
holders from time to time of undivided beneficial interests
in the assets of Conseco Financing Trust III was filed with
the Commission as Exhibit 4.20.1 to the Registrant's Report
on Form 8-K dated April 1, 1997, and is incorporated herein
by this reference.
4.21.2 -- Global Certificate for Capital Security of Conseco Financing
Trust III was filed with the Commission as Exhibit 4.20.2 to
the Registrant's Report on Form 8-K dated April 1, 1997, and
is incorporated herein by this reference.
4.21.3 -- Capital Securities Guarantee Agreement, dated as of April 1,
1997 between the Registrant and Fleet National Bank was
filed with the Commission as Exhibit 4.20.3 to the
Registrant's Report on Form 8-K dated April 1, 1997, and is
incorporated herein by this reference.
4.22.1 -- Senior Indenture, dated November 13, 1997, by and between
the Registrant and LTCB Trust Company, as Trustee (the
"Senior Indenture"), was filed with the Commission as
Exhibit 4.1 to Post-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form S-3, No.
333-27803, and is incorporated herein by this reference.
4.22.2 -- 6.4% Note due February 10, 2003 issued under the Senior
Indenture (one of several identical notes aggregating $250
million) was filed with the Commission as Exhibit 4.22.2 in
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997, and is incorporated herein by this
reference.
4.23.1 -- Subordinated Indenture between the Registrant and The First
National Bank of Chicago, as Trustee, was filed with the
Commission as Exhibit 4.2 to the Registrant's Registration
Statement on Form S-3, No. 333-40423, and is incorporated
herein by this reference.
4.24.1 -- Amended and Restated Declaration of Trust of Conseco
Financing Trust IV was filed with the Commission as Exhibit
4.12 to the Registrant's Registration Statement on Form S-3,
No. 333-40423, and is incorporated herein by this reference.
4.24.2 -- Preferred Securities Guarantee of the Registrant for the
benefit of the holders of trust preferred securities of
Conseco Financing Trust IV was filed with the Commission as
Exhibit 4.13 to the Registrant's Registration Statement on
Form S-3, No. 333-40423, and is incorporated herein by
reference.
</TABLE>
II-3
<PAGE> 134
<TABLE>
<S> <C> <C>
4.24.3 -- Purchase Contract Agreement between the Registrant and The
First National Bank of Chicago, as Purchase Contract Agent,
was filed with the Commission as Exhibit 4.20 to the
Registrant's Registration Statement on Form S-3, No.
333-40423, and is incorporated herein by reference.
4.24.4 -- Pledge Agreement among the Registrant, The Chase Manhattan
Bank, as Collateral Agent, and The First National Bank of
Chicago, as Purchase Contract Agent, was filed with the
Commission as Exhibit 4.21 to the Registrant's Registration
Statement on Form S-3, No. 333-40423, and is incorporated
herein by reference.
5 -- Opinion of John J. Sabl, General Counsel to Conseco, Inc.,
as to the validity of the issuance of the securities
registered hereby.**
8(a) -- Opinion of Dorsey & Whitney LLP as to certain tax matters.**
8(b) -- Opinion of Sidley & Austin as to certain tax matters.**
10.1.2 -- Employment Agreement dated March 31, 1998, between the
Registrant and Stephen C. Hilbert was filed with the
Commission as Exhibit 10.1.2 to the Registrant's Report on
Form 10-Q for the quarter ended March 31, 1998 and is
incorporated herein by this reference.
10.1.3 -- Amended and Restated Employment Agreement between the
Registrant and Rollin M. Dick was filed with the Commission
as Exhibit 10.1.3(c) to the Registrant's Report on Form 10-Q
for the quarter ended March 31, 1998, and is incorporated
herein by this reference.
10.1.9 -- Unsecured Promissory Note of Stephen C. Hilbert dated May
13, 1996 was filed with the Commission as Exhibit 10.1.9 to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996, and is incorporated herein by this
reference.
10.1.10 -- Amended and Restated Employment Agreement between the
Registrant and Ngaire E. Cuneo was filed with the Commission
as Exhibit 10.1.10(c) to the Registrant's Report on Form
10-Q for the quarter ended March 31, 1998, and is
incorporated herein by this reference.
10.1.11 -- Amended and Restated Employment Agreement between the
Registrant and John J. Sabl was filed with the Commission as
Exhibit 10.1.11(a) to the Registrant's Report on Form 10-Q
for the quarter ended March 31, 1998, and is incorporated
herein by this reference.
10.1.12 -- Employment Agreement dated March 31, 1998 between the
Registrant and Thomas J. Kilian was filed with the
Commission as Exhibit 10.1.12 to the Registrant's Report on
Form 10-Q for the quarter ended March 31, 1998, and is
incorporated herein by this reference.
10.8 -- The Registrant's Stock Option Plan was filed with the
Commission as Exhibit B to its definitive Proxy Statement
dated December 10, 1983; Amendment No. 1 thereto was filed
with the Commission as Exhibit 10.8.1 to its Report on Form
10-Q for the quarter ended June 30, 1985; Amendment No. 2
thereto was filed with the Commission as Exhibit 10.8.2 to
its Registration Statement on Form S-1, No. 33-4367;
Amendment No. 3 thereto was filed with the Commission as
Exhibit 10.8.3 to the Registrant's Annual Report on Form
10-K for 1986; Amendment No. 4 thereto was filed with the
Commission as Exhibit 10.8 to the Registrant's Annual Report
on Form 10-K for 1987; Amendment No. 5 thereto was filed
with the Commission as Exhibit 10.8 to the Registrant's
Report on Form 10-Q for the quarter ended September 30,
1991; and are incorporated herein by this reference.
10.8.3 -- The Registrant's Cash Bonus Plan was filed with the
Commission as Exhibit 10.8.3 to the Registrant's Report on
Form 10-Q for the quarter ended March 31, 1989, and is
incorporated herein by this reference.
10.8.4 -- Amended and Restated Conseco Stock Bonus and Deferred
Compensation Program was filed with the Commission as
Exhibit 10.8.4 to the Registrant's Annual Report on Form
10-K for 1992, and is incorporated herein by this reference.
10.8.6 -- Conseco Performance-Based Compensation Bonus Plan for
Executive Vice Presidents was filed with the Commission as
Exhibit B to the Registrant's definitive Proxy Statement
dated April 29, 1994, and is incorporated herein by this
reference.
10.8.7 -- Conseco, Inc. Amended and Restated Deferred Compensation
Plan was filed with the Commission as Exhibit A to the
Registrant's definitive Proxy Statement dated April 26,
1995, and is incorporated herein by this reference.
</TABLE>
II-4
<PAGE> 135
<TABLE>
<S> <C> <C>
10.8.8 -- Amendment to the Amended and Restated Conseco Stock Bonus
and Deferred Compensation Program was filed with the
Commission as Exhibit 10.8.8 to the Registrant's Annual
Report on Form 10-K for 1994, and is incorporated herein by
this reference.
10.8.9 -- Conseco 1994 Stock and Incentive Plan was filed as Exhibit A
to the Registrant's definitive Proxy Statement dated April
29, 1994 and is incorporated herein by this reference.
10.8.10 -- Amendment Number 2 to the Amended and Restated Conseco Stock
Bonus and Deferred Compensation Program was filed with the
Commission as Exhibit 10.8.10 to the Registrant's Annual
Report on Form 10-K for 1995 and is incorporated herein by
reference.
10.8.11 -- Amended and Restated Director, Executive and Senior Officer
Stock Purchase Plan was filed with the Commission as Exhibit
10.8.11 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997, and is incorporated herein
by this reference.
10.8.12 -- Guaranty regarding Director, Executive and Senior Officer
Stock Purchase Plan was filed with the Commission as Exhibit
10.8.12 to the Registrant's Report on Form 10-Q for the
quarter ended June 30, 1996, and is incorporated herein by
this reference.
10.8.13 -- Form of Promissory Note payable to the Registrant relating
to the Registrant's Director, Executive and Senior Officer
Stock Purchase Plan was filed with the Commission as Exhibit
10.8.13 to the Registrant's Report on Form 10-Q for the
quarter ended September 30, 1996, and is incorporated herein
by this reference.
10.8.14 -- Conseco, Inc. Amended And Restated 1997 Non-qualified Stock
Option Plan was filed with the Commission as Exhibit 10.8.14
to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997, and is incorporated herein by this
reference.
10.8.15 -- Conseco Performance-Based Compensation Plan for Executive
Officers was filed with the Commission as Exhibit 10.8.15 to
the Registrant's Report on Form 10-Q for the quarter ended
March 31, 1998, and is incorporated herein by this
reference.
10.23 -- Aircraft Lease Agreement dated December 22, 1988, between
General Electrical Capital Corporation and Conseco
Investment Holding Company was filed with the Commission as
Exhibit 10.23 to the Registrant's Annual Report on Form 10-K
for 1988, and is incorporated herein by this reference.
10.23.1 -- Amendment to Aircraft Lease Agreement dated December 22,
1988, between General Electric Capital Corporation and
Conseco Investment Holding Company was filed with the
Commission as Exhibit 10.23.1 to the Registrant's Annual
Report on Form 10-K for 1993, and is incorporated herein by
this reference.
10.24 -- Aircraft Lease Agreement dated April 26, 1991 between
General Electric Capital Corporation and Conseco Investment
Holding Company was filed with the Commission as Exhibit
10.29 to the Registrant's Report on Form 10-Q for the
quarter ended September 30, 1991, and is incorporated herein
by this reference.
10.24.1 -- Amendment to Aircraft Lease Agreement dated April 26, 1991,
between General Electric Capital Corporation and Conseco
Investment Holding Company was filed with the Commission as
Exhibit 10.24.1 to the Registrant's Annual Report on Form
10-K for 1993, and is incorporated herein by this reference.
10.25 -- Aircraft Lease Purchase Agreement dated December 28, 1993,
between MetLife Capital Corporation and Conseco Investment
Holding Company was filed with the Commission as Exhibit
10.25 to the Registrant's Annual Report on Form 10-K for
1993, and is incorporated herein by this reference.
10.31 -- Helicopter Lease Agreement dated April 9, 1992 between
General Electric Capital Corporation and Conseco Investment
Holding Company was filed with the Commission as Exhibit
10.31 to the Registrant's Report on Form 10-Q for the
quarter ended June 30, 1992, and is incorporated herein by
this reference.
</TABLE>
II-5
<PAGE> 136
<TABLE>
<S> <C> <C>
10.32 -- Aircraft Lease Agreement dated October 6, 1993, between
General Electric Capital Corporation and Conseco Investment
Holding Company and the associated Assignment Agreement
dated October 25, 1993, between General Electric Capital
Corporation and Nationsbanc Leasing Corporation were filed
with the Commission as Exhibit 10.32 to the Registrant's
Annual Report on Form 10-K for 1993, and are incorporated
herein by this reference.
10.36 -- Lease dated as of December 18, 1992 between LaSalle National
Trust, N.A. as trustee and Bankers Life and Casualty Company
relating to the lease of executive office and administration
space by BLH was filed with the Commission as Exhibit 10.17
to Amendment No. 1 to BLH's Registration Statement on Form
S-1, No. 33-55026, and is incorporated herein by this
reference.
10.37 -- Lease dated as of August 20, 1993 between REO Holding
Corporation and Bankers Life and Casualty Company relating
the lease of warehouse space by BLH was filed with the
Commission as Exhibit 10.14 to BLH's Report on Form 10-K for
1994, and is incorporated herein by this reference.
23(a) -- Consent of John J. Sabl, General Counsel to Conseco, Inc.
(included in the opinion filed as Exhibit 5 to the
Registration Statement).**
23(b) -- Consent of Coopers & Lybrand L.L.P., with respect to the
financial statements of Conseco, Inc.**
23(c) -- Consent of KPMG Peat Marwick LLP with respect to the
financial statements of Green Tree Financial Corporation.**
23(d) -- Consent of Lehman Brothers, Inc.*
23(e) -- Consent of Merrill Lynch & Co.*
23(f) -- Consent of Dorsey & Whitney LLP (included in the opinion
filed as Exhibit 8(a) to the Registration Statement).**
23(g) -- Consent of Sidley & Austin (included in the opinion filed as
Exhibit 8(b) to the Registration Statement).**
23(h) -- Consent of Lawrence M. Coss.*
23(i) -- Consent of Robert S. Nickoloff.**
24(a) -- Powers of Attorney of directors and officers of Conseco,
Inc. (See page II-5 of the original Registration Statement).
99(a) -- Opinion of Merrill Lynch & Co. (included as Annex C to the
Joint Proxy Statement/Prospectus).*
99(b) -- Opinion of Lehman Brothers Inc. (included as Annex D to the
Joint Proxy Statement/Prospectus).*
99(c) -- Form of proxy card for Conseco Stock.**
99(d) -- Form of proxy card for Green Tree Common Stock.**
</TABLE>
- -------------------------
* Filed previously with this Registration Statement.
** Filed herewith.
(b) Financial Statement Schedules -- Inapplicable.
(c) The written opinions of Merrill Lynch & Co. and Lehman Brothers, Inc. are
attached as Annexes C and D to this Joint Proxy Statement/Prospectus.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 that is incorporated by reference
in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-6
<PAGE> 137
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities
Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person thereof in the successful defense of any action,
suit or proceeding) is asserted by a director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this form, within one business
day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to
the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject
of and included in the registration statement when it became effective.
(e) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-7
<PAGE> 138
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Carmel and
the State of Indiana, on the 26th day of May, 1998.
CONSECO, INC.
By: /s/ STEPHEN C. HILBERT
------------------------------------
Stephen C. Hilbert,
Chairman of the Board,
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director, Chairman of the Board, May 26, 1998
--------------------------------------------- Chief Executive Officer and
Stephen C. Hilbert President (Principal Executive
Officer of the Registrant)
* Director, Executive Vice May 26, 1998
--------------------------------------------- President and Chief Financial
Rollin M. Dick Officer (Principal Financial
Officer of the Registrant)
* Senior Vice President, Chief May 26, 1998
--------------------------------------------- Accounting Officer and Treasurer
James S. Adams (Principal Accounting Officer of
Registrant)
* Director May 26, 1998
---------------------------------------------
Ngaire E. Cuneo
* Director May 26, 1998
---------------------------------------------
M. Phil Hathaway
* Director May 26, 1998
---------------------------------------------
John M. Mutz
* Director May 26, 1998
---------------------------------------------
Donald F. Gongaware
* Director May 26, 1998
---------------------------------------------
David R. Decatur
* Director May 26, 1998
---------------------------------------------
James D. Massey
</TABLE>
II-8
<PAGE> 139
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director May 26, 1998
---------------------------------------------
Dennis E. Murray, Sr.
*By: /s/ KARL W. KINDIG
----------------------------------------
Karl W. Kindig, Attorney-in-fact
</TABLE>
II-9
<PAGE> 1
EXHIBIT 5
May 26, 1998
Board of Directors
Conseco, Inc.
11825 N. Pennsylvania Street
Carmel, Indiana 46032
Gentlemen and Madam:
I am Executive Vice President and General Counsel of Conseco, Inc. (the
"Corporation"). At your request, I have examined or caused to be examined the
Registration Statement on Form S-4, which is being filed by the Corporation with
the Securities and Exchange Commission (the "Registration Statement") in
connection with the registration under the Securities Act of 1933 of shares of
common stock, no par value, of the Corporation (the "Common Stock") to be issued
pursuant to that certain Agreement and Plan of Merger dated as of April 6, 1998,
as amended, among the Corporation, Marble Acquisition Corp. and Green Tree
Financial Corporation.
I have examined, or caused to be examined, instruments, documents and
records which I have deemed relevant and necessary for the basis of my opinions
hereinafter expressed. Based on such examination, I am of the opinion that:
1. The Corporation is a corporation duly organized and validly
existing under the laws of the State of Indiana;
2. When the Common Stock has been issued in the manner described in
the Registration Statement, any amendment thereto and the Joint Proxy
Statement/Prospectus contained therein, such Common Stock will be duly
authorized, validly issued, fully paid and nonassessable.
I consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of my name in the Registration Statement and the Joint
Proxy Statement/Prospectus.
Very truly yours,
/s/ JOHN J. SABL
John J. Sabl
Executive Vice President
and General Counsel
JJS:ds
<PAGE> 1
EXHIBIT 8(a)
[Letterhead of Dorsey & Whitney LLP]
May 26, 1998
Green Tree Financial Corporation
1100 Landmark Towers
345 St. Peter Street
Saint Paul, MN 55102
Dear Ladies and Gentlemen:
We have acted as your counsel in connection with the Registration
Statement on Form S-4 filed on April 27, 1998, ( together with any amendments
thereto, the "Registration Statement") with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Securities Act").
The Registration Statement relates to the proposed merger of a wholly owned
subsidiary of Conseco, Inc. with and into Green Tree Financial Corporation.
This opinion is delivered in accordance with the requirements of Item 601(b)(8)
of the Regulation S-K under the Securities Act.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
the Registration Statement, the Joint Proxy Statement/Prospectus included
therein (the "Joint Proxy Statement/Prospectus") and such other documents as we
have deemed necessary or appropriate.
We hereby confirm that the discussions in the Joint Proxy
Statement/Prospectus under the captions "SUMMARY-- The Merger -- Certain
Federal Income Tax Consequences" and "THE MERGER -- Certain Federal Income Tax
Consequences" are a fair and accurate summary of the matters addressed therein,
based upon current law and the facts and assumptions stated or referred to
therein. There can be no assurance that contrary positions may not be taken by
the Internal Revenue Service.
<PAGE> 2
Green Tree Financial Corporation
May 26, 1998
Page 2
We hereby consent to the filing of this opinion as Exhibit 8(a) to the
Registration Statement and to the use of our name in the Joint Proxy
Statement/Prospectus. In giving such consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act.
Very truly yours,
/s/ Dorsey & Whitney LLP
BJS
<PAGE> 1
[LETTERHEAD OF SIDLEY & AUSTIN]
EXHIBIT 8(B)
MAY 26, 1998
Conseco, Inc.
11825 N. Pennsylvania St.
Carmel, Indiana 46032
Ladies and Gentlemen:
We refer to the Agreement and Plan of Merger dated as of April 6, 1998 (as
amended, the "Agreement") among Conseco, Inc., an Indiana corporation
("Parent"), Marble Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of Parent ("Sub"), and Green Tree Financial Corporation, a Delaware
corporation (the "Company"), which provides for the merger (the "Merger") of Sub
with and into the Company on the terms and conditions therein set forth, the
time at which the Merger becomes effective being hereinafter referred to as the
"Effective Time." Capitalized terms used but not defined herein have the
meanings specified in the Agreement.
The Merger and the Agreement are more fully described in the Parent's
Registration Statement on Form S-4 (the "Registration Statement") relating to
the registration of shares of Parent Common Stock to which this opinion is an
exhibit, which is being filed by Parent with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the "Securities
Act"). The Registration Statement includes the Joint Proxy Statement/Prospectus
(the "Prospectus") of Parent and the Company.
Based on current United States federal income tax laws and regulations and
on current authoritative interpretations, we are of the opinion that the
statements contained in the Registration Statement under the captions
"SUMMARY -- The Merger -- Certain Federal Income Tax Consequences" and "THE
MERGER -- Certain Federal Income Tax Consequences", to the extent that they
concern matters of United States federal income tax law, are correct in all
material respects.
<PAGE> 2
This opinion is provided to you only, and without our prior consent, may
not be relied upon, used, circulated, quoted or otherwise referred to in any
manner by any person, firm, governmental authority or entity whatsoever other
than reliance thereon by you. Notwithstanding the prior sentence, we hereby
consent to the filing of this letter as an exhibit to the Registration Statement
and to all references to our firm included in or made part of the Registration
Statement. In giving such consent, we do not thereby admit that we are within
the category of persons whose consent is required by Section 7 of the Securities
Act or the related rules and regulations promulgated thereunder.
Very truly yours,
/s/ SIDLEY & AUSTIN
--------------------------------------
<PAGE> 1
EXHIBIT 23(B)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Conseco, Inc. on Form S-4 (File No. 333-51123), of our reports dated March
23, 1998 on our audits of the consolidated financial statements and financial
statement schedules of Conseco, Inc. and subsidiaries as of December 31, 1997
and 1996, and for the years ended December 31, 1997, 1996 and 1995, included in
the Annual Report on Form 10-K. We also consent to the reference to our firm
under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
--------------------------------------
COOPERS & LYBRAND L.L.P.
Indianapolis, Indiana
May 26, 1998
<PAGE> 1
EXHIBIT 23(C)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Green Tree Financial Corporation:
We consent to the use of our report incorporated herein by reference and to
the reference to our firm under the heading "EXPERTS" in the Registration
Statement on Form S-4 of Conseco, Inc. Our report refers to the Company's
adoption of the Financial Accounting Standards Board's Statement No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," in 1997.
/s/ KPMG PEAT MARWICK LLP
--------------------------------------
KPMG PEAT MARWICK LLP
Minneapolis, Minnesota
May 26, 1998
<PAGE> 1
EXHIBIT 23(I)
CONSENT TO BE NAMED AS A DIRECTOR
I, Robert S. Nickoloff, hereby consent to be nominated as a director of
Conseco, Inc., and to be named as a nominated director in the Form S-4
Registration Statement filed with the Securities and Exchange Commission by
Conseco, Inc.
Date: May 20, 1998 /s/ ROBERT S. NICKOLOFF
--------------------------------------
Robert S. Nickoloff
<PAGE> 1
EXHIBIT 99(C)
CONSECO, INC.
11825 NORTH PENNSYLVANIA STREET, CARMEL, IN 46032
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Each person signing this card hereby appoints as proxies Rollin M. Dick,
Thomas J. Kilian and Stephen C. Hilbert, or any of them, with full power of
substitution, to vote all shares of common stock and shares of Preferred
Redeemable Increased Dividend Equity Securities, 7% PRIDES, Convertible
Preferred Stock which such person is entitled to vote at the Special Meeting of
Shareholders of Conseco, Inc. ("Conseco"), to be held at The Conseco Conference
Center, 530 North College Drive, Carmel, Indiana at 10:00 a.m. local time on
June 30, 1998 and any adjournments or postponements thereof.
The proxies are hereby authorized to vote as follows:
1. Approval of the issuance of Conseco Common Stock as provided in the
Agreement and Plan of Merger, dated as of April 6, 1998, as amended, by and
among Conseco, Marble Acquisition Corp., a Delaware corporation wholly owned by
Conseco ("Merger Sub"), and Green Tree Financial Corporation, a Delaware
corporation ("Green Tree"), pursuant to which, among other things, (i) Merger
Sub will be merged with and into Green Tree, with Green Tree being the surviving
corporation (the "Merger"), such that Green Tree will become a wholly owned
subsidiary of Conseco, and (ii) each outstanding share of Green Tree Common
Stock will be converted into 0.9165 of a share of Conseco Common Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting.
THE SHARES REPRESENTED BY THIS PROXY, UNLESS OTHERWISE SPECIFIED, SHALL BE
VOTED FOR ITEM 1.
Please sign below exactly as your name
appears on the label. When signing as
attorney, corporate officer or
fiduciary, please give full title as
such. The undersigned hereby
acknowledges receipt of the Notice of
the Special Meeting and Joint Proxy
Statement/Prospectus dated May ,
1998.
Dated
--------------------------------------
Signature(s)
--------------------------------------
PLEASE DATE, SIGN, AND RETURN THIS PROXY PROMPTLY.
<PAGE> 1
EXHIBIT 99(D)
PROXY
GREEN TREE FINANCIAL CORPORATION
1100 LANDMARK TOWERS
SAINT PAUL, MINNESOTA 55102-1639
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Lawrence M. Coss and Joel H. Gottesman, or either of them, are hereby
appointed attorneys and proxies of the undersigned, each with the power of
substitution, to attend, vote and act for the undersigned at the Special Meeting
of stockholders of Green Tree Financial Corporation ("Green Tree") to be held on
June 30, 1998 in Saint Paul, Minnesota, and at any adjournment or adjournments
thereof, in connection therewith to vote all of the shares of Common Stock of
Green Tree which the undersigned would be entitled to vote as follows:
1. A proposal to approve and adopt an Agreement and Plan of Merger (the
"Merger Agreement"), dated as of April 6, 1998, among Conseco, Inc., an Indiana
corporation ("Conseco"), Marble Acquisition Corp., a Delaware corporation wholly
owned by Conseco ("Merger Sub"), and Green Tree, pursuant to which, among other
things, Merger Sub will be merged with and into Green Tree (the "Merger"), such
that Green Tree will become a wholly owned subsidiary of Conseco, and each
issued and outstanding share of Common Stock of Green Tree will be converted
into 0.9165 of a share of Common Stock of Conseco.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Such other business as may properly come before the Special Meeting or
any adjournment or adjournments thereof.
If this proxy is duly executed and returned, this proxy will be voted, and
will be voted in accordance with the instructions specified above. If no
instruction is specified, the proxy will be voted FOR Item 1.
The undersigned hereby revokes any other proxy or proxies heretofore given
to vote or act with respect to such Common Stock, and hereby ratifies and
confirms all action that said attorneys and proxies, their substitutes, or
either of them, may lawfully take by virtue thereof.
Dated: ________________ , 1998
--------------------------------------
Signature(s) of Stockholder
This proxy should be signed exactly as
your name appears thereon. Joint
owners should both sign. If signed by
an attorney, executor, guardian or in
some other capacity or as officer of a
corporation, please add title as such.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY
AND RETURN IT IN THE ENCLOSED ENVELOPE.
