<PAGE>
As filed with the Securities and Exchange Commission on September 14, 1994
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Conseco, Inc.
(Exact name of Registrant as specified in its charter)
Indiana 6719 35-1468632
(State or other jurisdication (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
11825 N. Pennsylvania Street, Carmel, Indiana 46032, (317) 573-6100
(Address, including zip code, and telephone number, including area code of
Registrant's principal executive offices)
Lawrence W. Inlow
Conseco, Inc.
11825 N. Pennsylvania St.
Carmel, Indiana 46032
(317) 573-6100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Allen Finkelson Arthur J. McGivern Charles I. Cogut
Cravath, Swaine & Moore Kemper Corporation Simpson, Thacher & Bartlett
825 Eighth Avenue One Kemper Drive 425 Lexington Avenue
New York, NY 10019 Long Grove, IL 60049 New York, NY 10017
(212) 474-1000 (708) 320-4482 (212) 455-2000
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 the Registrant with and into Kemper Corporation ("Kemper")
pursuant to the Merger Agreement 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. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Amount Proposed Maximum Proposed Maximum
Title of Each Class of to be Offering Price Per Aggregate Offering Amount of
Securities to Be Registered Registered(1) Unit(2) Price(2) Registration Fee(2)
--------------------------- ------------- ------- -------- -------------------
<S> <C> <C> <C> <C>
Common stock, without par
value 9,097,109 shares Not Applicable Not Applicable $82,659.77
<FN>
(1) This Registration Statement relates to securities of the Registrant
issuable to holders of common stock of Kemper, par value $5.00 per share
("Kemper Common Stock"), in the Merger. The number of shares to be
registered is based upon the number of shares of Kemper Common Stock
outstanding at June 30, 1994, together with the number of shares of Kemper
Common Stock issuable upon conversion of outstanding shares of convertible
preferred stock of Kemper and upon exercise of outstanding stock options
(net of the number of shares owned by the Registrant and shares of
restricted stock of Kemper) multiplied by .2173, the Conversion Number (as
defined in the enclosed Joint Proxy Statement/Prospectus) calculated based
upon the Average Conseco Price (as defined in the Joint Proxy
Statement/Prospectus) as of September 12, 1994.
(2) Pursuant to Rule 457(f), the registration fee was computed on the basis of
the market value of the Kemper Common Stock to be exchanged in the Merger,
computed in accordance with Rule 457(c) on the basis of the average of the
high and low prices per share of such stock on the New York Stock Exchange
Composite Transactions Tape on September 12, 1994, minus $2,358,311,151
(the amount of cash consideration to be paid by the Registrant in the
transaction).
</TABLE>
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant 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>
<PAGE>
CONSECO, INC.
Cross-Reference Sheet Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Location in Joint
Form S-4 Item Proxy Statement/Prospectus
------------- --------------------------
<S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of Pro-
spectus Available Information; Incorporation of Certain
Documents by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information Summary: The Meetings; Conseco, Inc.; Kemper
Corporation; The Merger; Comparative Stock
Prices and Dividends; Other Matters
4. Terms of the Transaction Summary: The Meetings; The Merger; The
Merger Agreement; Management and
Operations After the Merger; Comparison of
Rights of Stockholders of Conseco and
Kemper
5. Pro Forma Financial Information Summary: Unaudited Pro Forma Condensed
Consolidated Financial Information
6. Material Contacts with the Company Being
Acquired Summary: The Merger
7. Additional Information Required for Reoffering by
Persons and Parties Deemed To Be Underwriters Inapplicable
8. Interests of Named Experts and Counsel Experts; Legal Matters
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Inapplicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants Available Information; Incorporation of Certain
Documents by Reference
11. Incorporation of Certain Information by
Reference Incorporation of Certain Documents by Reference
12. Information with Respect to S-2 or S-3
Registrants Inapplicable
<PAGE>
<PAGE>
<CAPTION> Location in Joint
Form S-4 Item Proxy Statement/Prospectus
------------- ---------------------------
<S> <C>
13. Incorporation of Certain Information by
Reference Inapplicable
14. Information with Respect to Registrants Other Than
S-2 or S-3 Registrants Inapplicable
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies Available Information; Incorporation of Certain
Documents by Reference
16. Information with Respect to S-2 or S-3
Companies Inapplicable
17. Information with Respect to Companies Other Than
S-2 or S-3 Companies Inapplicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
Are To Be Solicited Incorporation of Certain Documents by
Reference; Summary; The Meetings; The
Merger; Appraisal Rights; Solicitation of
Proxies; Stockholder Proposals
19. Information if Proxies, Consents or Authorizations
Are Not To Be Solicited, or in an Exchange Offer Inapplicable
</TABLE>
<PAGE>
<PAGE>
[Letterhead of]
CONSECO, INC.
October , 1994
Dear Stockholder:
You are cordially invited to attend a special meeting of the
stockholders of Conseco, Inc., to be held at The Ritz Charles, 12156 North
Meridian Street, Carmel, Indiana, at .m., _______ Time, on , ,
1994.
At the meeting, you will be asked to consider and vote upon
a proposal to approve the issuance of shares of Conseco common stock to
stockholders of Kemper Corporation in connection with an Agreement and Plan of
Merger among Conseco, a wholly owned subsidiary of Conseco and Kemper
Corporation which provides for the merger of such wholly owned subsidiary with
and into Kemper. In the merger, subject to certain exceptions described in the
enclosed Joint Proxy Statement/Prospectus, each outstanding share of Kemper
common stock will be converted into the right to receive (i) $56.00 in cash and
(ii) the fraction of a share of Conseco common stock determined by dividing
$11.00 by the average closing price of Conseco common stock for a specified
period preceding the effective date of the merger (which fraction may not be
more than 0.2418 nor less than 0.1982). The proposed merger requires
regulatory approval and the approval and adoption of the Agreement and Plan of
Merger by the holders of a majority of the outstanding shares of Kemper common
stock. Kemper stockholders will consider and vote upon the approval and
adoption of the Agreement and Plan of Merger at their separate meeting also to
be held on , 1994.
At the Conseco meeting of stockholders, you will also be asked
to consider and vote upon a proposal to change the name of Conseco, Inc. to
Kemper, Inc. in connection with the merger.
The Board of Directors of Conseco believes that the issuance
of shares of Conseco common stock in connection with the merger is in the best
interests of Conseco and its stockholders and unanimously recommends that you
vote FOR the approval of the proposal. The Conseco Board also recommends that
you vote FOR the proposed change of the name of the corporation to Kemper, Inc.
The enclosed Joint Proxy Statement/Prospectus explains in detail the proposed
merger. Please carefully review and consider all of this information.
It is especially important that your shares be represented and
voted at the meeting. Although you may currently plan to attend the meeting,
please complete, sign, date and promptly return the enclosed proxy card. If
you attend the meeting and vote in person, your vote will supersede your proxy.
Sincerely,
-------------------------
Stephen C. Hilbert
Chairman of the Board,
President and Chief
Executive Officer
<PAGE>
<PAGE>
[Letterhead of]
Kemper Corporation
October , 1994
Dear Stockholder:
On behalf of your Board of Directors, I am pleased to invite
you to attend the 1994 Annual Meeting of Stockholders of Kemper Corporation,
which will be held at [ ] a.m., _______ Time, on [ ], 1994 in the
Stockholders Meeting Room on the 57th floor of The First National Bank of
Chicago, One First National Plaza, Chicago, Illinois.
At the meeting, holders of Kemper common stock will be asked
to consider and vote upon the approval and adoption of the Agreement and Plan
of Merger among Conseco, Inc., a wholly owned subsidiary of Conseco and Kemper
which provides for the merger of such wholly owned subsidiary with and into
Kemper. Your Board of Directors, after careful consideration, has determined
that the merger is in the best interests of Kemper and its stockholders. It
unanimously recommends that you vote FOR the approval and adoption of the
Agreement and Plan of Merger at the meeting.
In the merger, subject to certain exceptions described in the
enclosed Joint Proxy Statement/Prospectus, each outstanding share of Kemper
common stock will be converted into the right to receive (i) $56.00 in cash and
(ii) the fraction of a share of Conseco common stock determined by dividing
$11.00 by the average closing price of the Conseco common stock for a specified
period preceding the effective date of the merger (which fraction may not be
more than 0.2418 nor less than 0.1982).
In addition, stockholders will be asked to elect four Class
II directors to the Board of Directors and to ratify the Board's appointment
of independent auditors.
A Notice of the Annual Meeting and a Joint Proxy
Statement/Prospectus containing detailed information concerning the merger and
related transactions and the other matters of business discussed above is
enclosed. I urge you to read this material carefully.
Your participation in this meeting, in person or by proxy, is
very important. Please mark, date, sign, and return the enclosed proxy as soon
as possible, whether or not you plan to attend the meeting.
Sincerely,
--------------------
David B. Mathis
Chairman of the Board and
Chief Executive Officer
<PAGE>
<PAGE>
CONSECO, INC.
11825 N. Pennsylvania Street
Carmel, Indiana 46032
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
A special meeting of the stockholders of Conseco, Inc. ("Conseco")
will be held at The Ritz Charles, 12156 North Meridian Street, Carmel, Indiana,
at _____, _____ Time, on , , 1994.
The special meeting is being held for the purpose of considering and
voting upon:
1. The issuance of shares of common stock,
without par value, of Conseco ("Conseco Common Stock"),
to stockholders of Kemper Corporation ("Kemper")
pursuant to and in accordance with the Agreement and
Plan of Merger dated as of June 26, 1994 (the "Merger
Agreement"), among Conseco, KC Acquisition, Inc., a
wholly owned subsidiary of Conseco ("Merger Sub"), and
Kemper. The Merger Agreement provides for the merger
of Merger Sub with and into Kemper (the "Merger").
Upon the effectiveness of the Merger, Kemper will
continue as the surviving corporation and will be a
wholly owned subsidiary of Conseco. Pursuant to the
Merger Agreement, subject to certain exceptions
described in the enclosed Joint Proxy
Statement/Prospectus, each outstanding share of common
stock, par value $5.00 per share, of Kemper will be
converted into the right to receive (i) $56.00 in cash
and (ii) the fraction of a share of Conseco Common
Stock determined by dividing $11.00 by the average
closing price of Conseco Common Stock for a specified
period preceding the effective date of the Merger
(which fraction may not be more than 0.2418 nor less
than 0.1982). A copy of the Merger Agreement is
included as Annex 1 to the enclosed Joint Proxy
Statement/Prospectus.
2. The amendment of the Amended and Restated
Articles of Incorporation of Conseco, Inc. to change
the name of the corporation to Kemper, Inc. upon the
effectiveness of the Merger.
The close of business on , 1994 has been
fixed as the record date for the determination of
stockholders entitled to notice of, and to vote at, the
meeting and any adjournment thereof. Only holders of record
of Conseco Common Stock on the record date are entitled to
notice of, and to vote at, the meeting.
All stockholders who are entitled to vote, even if they
now plan to attend the meeting, are requested to execute the
enclosed proxy card and return it without delay in the
enclosed postage-paid envelope. Stockholders present at the
meeting may withdraw their proxy and vote personally on each
matter brought before the meeting.
By Order of the Board of Directors,
Lawrence W. Inlow
Executive Vice President and
Secretary
October ___, 1994<PAGE>
<PAGE>
KEMPER CORPORATION
One Kemper Drive
Long Grove,
Illinois 60049--Telephone (708) 320-4700
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS -- [ ], 1994
October , 1994
To Our Stockholders:
You are cordially invited to attend the 1994
Annual Meeting of Stockholders of Kemper Corporation
("Kemper") at _____ a.m., _____ Time, on October ___, 1994
in the Stockholders Meeting Room on the 57th floor of The
First National Bank of Chicago, One First National Plaza
(intersection of Clark and Madison), Chicago, Illinois.
Please enter on the Clark Street side of the building. The
meeting is called for the purpose of considering and voting
upon:
1. The approval and adoption of the Agreement and
Plan of Merger dated as of June 26, 1994 (the "Merger
Agreement"), among Conseco, Inc. ("Conseco"),
KC Acquisition, Inc., a wholly owned subsidiary of
Conseco ("Merger Sub"), and Kemper, a copy of which is
included as Annex 1 to the enclosed Joint Proxy
Statement/Prospectus, providing for the merger of
Merger Sub with and into Kemper (the "Merger"),
pursuant to which, subject to certain exceptions
described in the enclosed Joint Proxy
Statement/Prospectus, each outstanding share of common
stock, par value $5.00 per share, of Kemper ("Kemper
Common Stock") will be converted into the right to
receive (i) $56.00 in cash and (ii) the fraction of a
share of common stock, without par value, of Conseco
("Conseco Common Stock") determined by dividing $11.00
by the average closing price of Conseco Common Stock
for a specified period preceding the effective date of
the Merger (which fraction may not be more than 0.2418
nor less than 0.1982).
2. The election of directors of Kemper.
3. The ratification of the appointment of KPMG
Peat Marwick as independent auditors for 1994.
4. The transaction of such other business as may
properly come before the meeting or any adjournment(s)
or postponement(s) thereof.
The close of business on ___________, 1994 has
been fixed as the record date for the determination of
stockholders entitled to notice of, and to vote at, the
meeting and any adjournment thereof. Only holders of record
of Kemper Common Stock on the record date are entitled to
vote at the meeting.
In connection with the Merger, appraisal rights
will be available to those stockholders of Kemper who meet
and comply with the requirements of Section 262 of the
Delaware General Corporation Law (the "Delaware Corporation
Law"). Any stockholder who wishes to seek appraisal rights
must meet and comply with the requirements of Section 262 of
the Delaware Corporation Law, a copy of which Section 262 is
included as Annex 4 to the enclosed Joint Proxy
Statement/Prospectus. Reference is made to the section
entitled "APPRAISAL RIGHTS" in the enclosed Joint Proxy
Statement/Prospectus for a discussion of procedures to be
followed in asserting appraisal rights.
<PAGE>
Whether or not you now expect to be personally
present at the meeting, please complete, date and sign the
enclosed proxy card and return it promptly. A self-
addressed return envelope, requiring no postage if mailed in
the United States, is enclosed for your use. You may revoke
your proxy at any time before the authority granted by it is
exercised. If you attend the annual meeting, you may vote
in person although you have previously returned an executed
proxy.
Kemper previously distributed its 1993 annual
report to stockholders on March 28, 1994. A copy of
Kemper's 1993 annual report to stockholders will be provided
by first-class mail without charge to each person, including
any beneficial owner, to whom a Joint Proxy
Statement/Prospectus is delivered, upon oral or written
request of any such person. Requests should be directed to
John A Effrein, Director of Investor Relations, Kemper
Corporation, One Kemper Drive, W-2, Long Grove, Illinois
60049 (telephone (708) 320-3435).
By Order of the Board of Directors
Kathleen A. Gallichio
Corporate Secretary
<PAGE>
<PAGE> 1
CONSECO, INC.
AND
KEMPER CORPORATION
JOINT PROXY STATEMENT
________________________
CONSECO, INC.
PROSPECTUS
This Joint Proxy Statement/Prospectus is being
furnished to the stockholders of Conseco, Inc. ("Conseco")
and Kemper Corporation ("Kemper") in connection with the
solicitation of proxies by the respective Boards of
Directors of Conseco and Kemper for use at the special
meeting of stockholders of Conseco and the annual meeting of
stockholders of Kemper to be held on , 1994,
including any adjournments or postponements of the meetings.
At the Kemper stockholders meeting, the holders of
common stock, par value $5.00 per share ("Kemper Common
Stock"), of Kemper will consider and vote upon the approval
and adoption of the Agreement and Plan of Merger dated as of
June 26, 1994 (the "Merger Agreement"), among Conseco, KC
Acquisition, Inc., a wholly owned subsidiary of Conseco
("Merger Sub"), and Kemper, pursuant to which Merger Sub
will be merged with and into Kemper (the "Merger"). Kemper
will be the surviving corporation in the Merger (the
"Surviving Corporation") and will become a wholly owned
subsidiary of Conseco. Pursuant to the Merger Agreement,
subject to certain exceptions described in this Joint Proxy
Statement/Prospectus with respect to shares owned by
Conseco, Kemper or their subsidiaries, each outstanding
share of Kemper Common Stock (other than Dissenting Common
Shares (as hereinafter defined)) will be converted upon the
effectiveness of the Merger into the right to receive (i)
$56.00 in cash and (ii) the fraction of a share of common
stock, without par value, of Conseco ("Conseco Common
Stock") determined by dividing $11.00 by the average closing
price of Conseco Common Stock for a specified period
preceding the effective date of the Merger (which fraction
may not be more than 0.2418 nor less than 0.1982). In
addition, holders of Kemper Common Stock will be asked to
elect four Class II directors to the Board of Directors of
Kemper and to ratify the Kemper Board of Directors'
appointment of independent auditors.
<PAGE>
<PAGE> 2
At the Conseco stockholders meeting, the holders
of Conseco Common Stock will consider and vote upon a
proposal to approve the issuance of the shares of Conseco
Common Stock to be issued pursuant to the Merger Agreement
(the "Issuance") and a proposal to amend the Amended and
Restated Articles of Incorporation of Conseco to change the
name of the corporation to Kemper, Inc. upon the
effectiveness of the Merger (the "Name Change Amendment").
It is currently expected that, in connection with the
Merger, the Surviving Corporation will sell its two life
insurance companies, Federal Kemper Life Assurance Company
("FKLA") and Kemper Investors Life Insurance Company
("KILICO"; together with FKLA, the "Life Companies") to a
subsidiary of Conseco Capital Partners II, L.P. ("CCP II"),
an affiliate of Conseco. In addition, certain real estate
interests currently held by subsidiaries of Kemper will be
transferred, by merger or otherwise, to indirect
subsidiaries of CCP II. See "THE RESTRUCTURING".
The Merger is presently anticipated to be
consummated prior to December 31, 1994.
This Joint Proxy Statement/Prospectus also serves
as a Prospectus of Conseco 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.
This Joint Proxy Statement/Prospectus and the
accompanying forms of proxy are first being mailed to
stockholders of Conseco and Kemper on or about ,
1994.
_________________
THE SECURITIES TO BE ISSUED IN THE MERGER 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 October ___, 1994.<PAGE>
<PAGE> 3
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
Available Information 6
Incorporation of Certain Documents by Reference 7
Summary 10
The Meetings 10
Votes Required 11
The Merger 11
The Restructuring 20
Plan of Financing 20
Market Price and Dividend Data 22
Selected Historical and Pro Forma Consolidated Financial Data 24
Comparative Per Share Data 31
The Meetings 32
Conseco Meeting 32
Kemper Meeting 34
Conseco, Inc. 38
Kemper Corporation 41
Asset Management 41
Life Insurance 41
Securities Brokerage 42
Real Estate 42
The Merger 42
Background of the Merger 42
Recommendations of the Boards of Directors and Reasons for the Merger 51
Opinions of Financial Advisors 55
Certain Considerations 74
Effective Time 81
Merger Consideration 82
Paying Agent; Procedures for Exchange of Certificates; Dividends; No Fractional
Shares 83
Stock Exchange Listing 84
Expenses 84
Material Federal Income Tax Consequences 85
Accounting Treatment 86
Effect on Employee Benefit and Stock Plans 86
Interests of Certain Persons in the Merger 90
Resale of Conseco Common Stock 93
No Solicitation 93
Right of the Kemper Board of Directors to Withdraw Recommendation 94
Certain Fees 94
<PAGE>
<PAGE> 4
The Restructuring 95
Plan of Financing 95
General 95
Description of Credit Agreements 97
Description of Senior Subordinated Debentures 111
Description of CCP II Holdings PIK Preferred Stock 113
Certain Related Transactions 113
Amendment to Kemper Rights Agreement 113
Other 114
The Merger Agreement 114
The Merger 114
Representations and Warranties 116
Business of Kemper Pending the Merger 118
Business of Conseco Pending the Merger 120
Certain Additional Agreements 121
Conditions to the Consummation of the Merger 122
Termination, Amendment and Waiver 125
Management and Operations After the Merger 127
Directors After the Merger 127
Conseco Directors 127
Management 128
Operations After the Merger 129
Projected Annual Cost Savings 129
Comparative Stock Prices and Dividends 130
Unaudited Pro Forma Condensed Consolidated Financial Information 133
Comparison of Rights of Common Stockholders of Conseco and Kemper 159
Other Matters 167
Regulatory Approvals Required 167
Certain Pending Litigation 167
Name Change Amendment 168
Appraisal Rights 168
Solicitation of Proxies 173
Stockholder Proposals 173
Kemper Stockholder List 174
Principal Kemper Stockholders 174
Election of Kemper Directors 176
Security Ownership of Kemper Directors and Executive Officers 180
Committees of the Kemper Board 182
Executive Officers of Kemper as ofDecember 31, 1993 185
Compensation of Kemper Executive Officers 187
<PAGE>
<PAGE> 5
Pension Plan Table 195
Report on Kemper Executive Compensation of the Committee on
Compensation and Organization 197
Kemper Versus Selected Composite Indices 203
Compensation of Kemper Directors 204
Ratification of Appointment of Kemper's Independent Auditors 208
Experts 208
Legal Matters 209
ANNEXES
Annex 1 Agreement and Plan of Merger
Annex 2 Opinion of Morgan Stanley & Co. Incorporated
Annex 3 Opinion of Goldman, Sachs & Co.
Annex 4 Section 262 of the Delaware General Corporation Law
</TABLE>
<PAGE>
<PAGE> 6
NO PERSON IS AUTHORIZED BY CONSECO OR KEMPER TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN
THOSE CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, IN
CONNECTION WITH THE SOLICITATION AND THE OFFERING MADE BY
THIS JOINT PROXY STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE THE SOLICITATION OF
A PROXY OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO PURCHASE, ANY SECURITIES IN ANY JURISDICTION IN WHICH
SUCH SOLICITATION OR OFFERING MAY NOT LAWFULLY BE MADE.
NEITHER THE DELIVERY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE
HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF CONSECO OR
KEMPER SINCE THE DATE HEREOF.
FOR NORTH CAROLINA PURCHASERS: THESE SECURITIES HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSIONER OF
INSURANCE FOR THE STATE OF NORTH CAROLINA, NOR HAS THE
COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY OR
ADEQUACY OF THIS DOCUMENT.
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 15% in one of the applicable
states) or more of the Conseco Common Stock would be
presumed to have acquired such control, unless the
appropriate insurance regulatory authorities upon advance
application determine otherwise.
AVAILABLE INFORMATION
Conseco and Kemper are subject to the informational
requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). In accordance with the
Exchange Act, Conseco and Kemper file proxy statements,
reports and other information with the Securities and
Exchange Commission (the "SEC"). This filed material can be
inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional
Offices of the SEC: Chicago Regional Office (Suite 1400,
Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661) and New York Regional Office (7
World Trade Center, 13th Floor, New York, New York 10048).
Copies of such material can be obtained by mail from the
Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition,
such material can be inspected at the offices of the
New York Stock Exchange, Inc. (the "NYSE"), 20 Broad Street,
New York, New York 10005.
<PAGE>
<PAGE> 7
Conseco has filed a Registration Statement on Form S-4
(the "Registration Statement") with the SEC under the
Securities Act with respect to the Conseco Common Stock to
be issued upon consummation of the Merger. This Joint Proxy
Statement/Prospectus does not contain all the information
set forth in the Registration Statement and the exhibits
thereto, certain portions of which have been omitted as
permitted by the rules and regulations of the SEC. Copies
of the Registration Statement are available from the SEC,
upon payment of prescribed rates. For further information,
reference is made to the Registration Statement and the
exhibits filed therewith. Statements contained in this
Joint Proxy Statement/Prospectus or in any document
incorporated by reference in this Joint Proxy
Statement/Prospectus relating to the contents of any
contract or other document referred to herein or therein 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 or such other
document, each such statement being qualified in all
respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following Conseco documents are incorporated by
reference in this Joint Proxy Statement/Prospectus:
(i) Conseco's Annual Report on Form 10-K for the year ended
December 31, 1993, (ii) Conseco's Quarterly Reports on
Form 10-Q for the quarterly periods ended March 31, 1994 and
June 30, 1994, (iii) Conseco's Current Report on Form 8-K
dated July 5, 1994 and (iv) the description of Conseco
Common Stock set forth 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.
<PAGE>
<PAGE> 8
The following Kemper documents are incorporated by
reference in this Joint Proxy Statement/Prospectus:
(i) Kemper's Annual Report on Form 10-K for the year ended
December 31, 1993, (ii) Kemper's Quarterly Reports on
Form 10-Q for the quarterly periods ended March 31, 1994 and
June 30, 1994, (iii) Kemper's Current Report on Form 8-K
dated July 1, 1994, (iv) the description of Kemper Common
Stock set forth in Kemper'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, and (v) the description of the Rights (the
"Rights") issued by Kemper pursuant to the Rights Agreement
dated as of July 18, 1990, between Kemper and Harris Trust
and Savings Bank (the "Kemper Rights Agreement") contained
in the Registration Statement on Form 8-A filed by Kemper on
July 20, 1990, as amended on July 20, 1994, pursuant to
which Kemper registered the Rights pursuant to Section 12 of
the Exchange Act.
The following documents filed by The Statesman Group,
Inc. ("Statesman"), are incorporated by reference in this
Joint Proxy Statement/Prospectus: (i) Statesman's Annual
Report on Form 10-K for the year ended December 31, 1993,
and (ii) Statesman's Quarterly Reports on Form 10-Q for the
quarterly periods ended March 31, 1994 and June 30, 1994.
A copy of the documents incorporated herein by
reference (excluding exhibits unless such exhibits are
specifically incorporated by reference into the information
incorporated herein) that are not presented herein or
delivered herewith will be provided by first-class mail
without charge to each person, including any beneficial
owner, to whom a Joint Proxy Statement/Prospectus is
delivered, upon oral or written request of any such person.
With respect to Conseco's documents, requests should be
directed to James W. Rosensteele, Vice President, Investor
Relations, Conseco, Inc., 11825 N. Pennsylvania Street,
Carmel, Indiana 46032 (telephone (317) 573-2893). With
respect to Kemper's documents, requests should be directed
to John A. Effrein, Director of Investor Relations, Kemper
Corporation, One Kemper Drive, W-2, Long Grove, Illinois
60049 (telephone (708) 320-3435). In order to ensure timely
delivery of the documents in advance of the meetings to
which this Joint Proxy Statement/Prospectus relates, any
such request should be made by October ___, 1994.
<PAGE>
<PAGE> 9
All reports and definitive proxy or information
statements filed by Conseco and Kemper pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act
subsequent to the date of this Joint Proxy
Statement/Prospectus and prior to the dates of their
respective meetings of stockholders, shall be deemed to be
incorporated by reference into this Joint Proxy
Statement/Prospectus from the dates of filing of such
documents. Any statement contained in a document
incorporated or deemed to be incorporated in this Joint
Proxy Statement/Prospectus shall be deemed to be modified or
superseded for purposes of this Joint Proxy
Statement/Prospectus to the extent that a statement
contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference
modifies or supersedes such statement.
All information contained in this Joint Proxy
Statement/Prospectus relating to Conseco has been supplied
by Conseco, and all information relating to Kemper has been
supplied by Kemper.
<PAGE>
<PAGE> 10
SUMMARY
The following is a summary of certain information contained elsewhere
in this Joint Proxy Statement/Prospectus. Reference is made to, and this
summary is qualified in its entirety by, the more detailed information
contained elsewhere in this Joint Proxy Statement/Prospectus, in the attached
Annexes and in the documents incorporated herein by reference. Stockholders
are urged to read carefully this Joint Proxy Statement/Prospectus and the
attached Annexes in their entirety, and in particular the section entitled "THE
MERGER--Certain Considerations".
The Meetings
Conseco. A special meeting of the stockholders of
Conseco (including any adjournments or postponements
thereof, the "Conseco Meeting") will be held at a.m.,
Time, on , 1994 at The Ritz Charles, 12156
North Meridian Street, Carmel, Indiana. Only holders of
record of Conseco Common Stock at the close of business on
, 1994 (the "Conseco Record Date") will be entitled
to notice of, and to vote at, the Conseco Meeting. At the
Conseco Meeting, holders of Conseco Common Stock will be
asked to consider and vote upon the approval of the Issuance
and the Name Change Amendment.
Kemper. The annual meeting of stockholders of Kemper
(including any adjournments or postponements thereof, the
"Kemper Meeting") will be held at .m., Time, on
, 1994 at The First National Bank of Chicago, One
First National Plaza, Chicago, Illinois. All holders of
record of Kemper Common Stock and Kemper preferred stock,
without par value (the "Kemper Preferred Stock"), at the
close of business on , 1994 (the "Kemper Record
Date") will be entitled to notice of the Kemper Meeting, but
only holders of record of Kemper Common Stock on the Kemper
Record Date will be entitled to vote at the Kemper Meeting.
At the Kemper Meeting, holders of Kemper Common Stock will
be asked to consider and vote upon the approval and adoption
of the Merger Agreement, the election of four Class II
directors to the Board of Directors of Kemper and the
ratification of the appointment of KPMG Peat Marwick LLP as
independent auditors for 1994. The nominees for election as
directors at the Kemper Meeting are John T. Chain Jr.,
George D. Kennedy, David B. Mathis and Kenneth A. Randall.
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<PAGE> 11
Votes Required
Conseco. Approval of the Issuance requires the
affirmative vote of the holders of a majority of the shares
of Conseco Common Stock voted thereon at the Conseco
Meeting; provided that holders of a majority of the
outstanding shares of Conseco Common Stock are present, in
person or by proxy, at the Conseco Meeting and vote upon the
Issuance. The affirmative vote of the holders of shares
representing a plurality of the shares of Conseco Common
Stock present, in person or by proxy, and entitled to vote
thereon at the Conseco Meeting is required for the approval
of the Name Change Amendment. As of the Conseco Record
Date, there were shares of Conseco Common Stock
outstanding, of which approximately % were beneficially
owned by directors and executive officers of Conseco and
their respective affiliates.
Kemper. The affirmative vote of the holders of a
majority of the outstanding shares of Kemper Common Stock is
required for the approval and adoption of the Merger
Agreement. The affirmative vote of the holders of shares
representing a plurality of the shares of Kemper Common
Stock present, in person or by proxy, and entitled to vote
thereon at the Kemper Meeting is required for the election
of each director. The affirmative vote of the holders of
shares representing a majority of the shares of Kemper
Common Stock present, in person or by proxy, and entitled to
vote thereon at the Kemper Meeting is required for approval
of the ratification of the appointment of independent
auditors. As of the Kemper Record Date, there were
shares of Kemper Common Stock outstanding, of which
approximately % were beneficially owned by directors and
executive officers of Kemper and their respective
affiliates.
The Merger
The Parties. Conseco is a holding company which owns,
operates and provides services to companies in the financial
services industry (primarily life insurance companies, to
date). Historically, Conseco's earnings have resulted from
three distinct activities: (i) operating life insurance
companies and other financial services businesses;
(ii) providing investment management, administrative and
other fee-based services to affiliated businesses as well as
non-affiliates; and (iii) acquiring and restructuring life
insurance companies in partnership with other investors.
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<PAGE> 12
Recently, Conseco has aggressively pursued a strategy to
expand its fee-based business, with special emphasis on
increasing assets under management. Conseco's operating
strategy for acquired businesses is to consolidate and
streamline management and administrative functions, to
realize superior investment returns through active asset
management, to eliminate unprofitable products and
distribution channels and to focus resources on the
development and expansion of profitable products and strong
distribution channels. The insurance companies Conseco
targets for acquisition have profitable niche products,
strong distribution systems and progressive management teams
who can work with Conseco to implement Conseco's operating
and growth strategies.
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) 573-6100. Since
Conseco commenced operations in 1982, it has acquired 11
life insurance companies, the first seven as wholly owned
subsidiaries and the last four through an investment
partnership, Conseco Capital Partners, L.P. ("CCP I"), which
has since been dissolved. In early 1994, Conseco formed
CCP II, its second investment partnership to invest in
acquisitions of life insurance companies and related
businesses. A wholly owned subsidiary of Conseco is the
sole general partner of CCP II, as was the case with CCP I.
CCP II has entered into an Agreement and Plan of Merger
dated as of May 1, 1994, pursuant to which CCP II will
acquire Statesman (the "Statesman Acquisition").
On July 13, 1994, Conseco announced its intention to
explore the sale of its equity interest in one or more of
Western National Corporation ("WNC"), CCP Insurance, Inc.
("CCP Insurance") and Bankers Life Holding Corp. ("BLH"),
three publicly-held insurance holding companies in which
Conseco owns 40% or more of the outstanding common equity,
and stated that Morgan Stanley & Co. Incorporated ("Morgan
Stanley") had been retained to identify potential buyers.
Kemper is a financial services holding company with
continuing operations in four business segments: asset
management, life insurance, securities brokerage and real
estate. Kemper was organized in 1967 as a Delaware
corporation. Its executive offices are located at One
Kemper Drive, Long Grove, Illinois 60049, and its telephone
number is (708) 320-4700.
<PAGE>
<PAGE> 13
Merger Sub, a Delaware corporation, is a wholly owned
subsidiary of Conseco formed solely for the purpose of the
Merger.
Merger Consideration. At the effective time of the
Merger (the "Effective Time"), subject to certain exceptions
described in this Joint Proxy Statement/Prospectus with
respect to shares owned by Conseco, Kemper or their
subsidiaries, each outstanding share of Kemper Common Stock
(other than Dissenting Common Shares) will be converted into
the right to receive (i) $56.00 in cash, without interest
(the "Cash Consideration"), and (ii) the fraction, rounded
to the nearest ten-thousandth of a share (the "Conversion
Number"), of a validly issued, fully paid and nonassessable
share of Conseco Common Stock determined by dividing $11.00
by the Average Conseco Price (as defined below) (the "Stock
Consideration"; together with the Cash Consideration, the
"Merger Consideration"). The "Average Conseco Price" will
be equal to the average of the closing prices of Conseco
Common Stock on the NYSE Composite Transactions Reporting
System, as reported in The Wall Street Journal, for the 20
trading days immediately preceding the second trading day
prior to the Effective Time (the "Trading Average");
provided, however, that if the Trading Average is less than
$45.50, then the Average Conseco Price will be $45.50, and
if the Trading Average is greater than $55.50, then the
Average Conseco Price will be $55.50. No fractional shares
of Conseco Common Stock will be issued in the Merger and
holders of shares of Kemper Common Stock will be entitled to
a cash payment in lieu of any such fractional shares.
Each share of (i) Series A Cumulative Convertible
Preferred Stock of Kemper (the "Series A Preferred Stock"),
(ii) Series C Cumulative Preferred Stock of Kemper (the
"Series C Preferred Stock"), (iii) Series D Index
Exchangeable Preferred Stock of Kemper (the "Series D
Preferred Stock") and (iv) Series E Cumulative Convertible
Preferred Stock of Kemper (the "Series E Preferred Stock")
issued and outstanding immediately prior to the Effective
Time (other than Dissenting Preferred Shares (as hereinafter
defined)) will remain outstanding as one validly issued,
fully paid and nonassessable share of preferred stock of the
Surviving Corporation (collectively, "Surviving Corporation
Preferred Stock") subsequent to the Effective Time, subject
to the respective terms and covenants thereof.
<PAGE>
<PAGE> 14
Recommendations of the Boards of Directors and Reasons for
the Merger
Conseco. The Board of Directors of Conseco has, by a
unanimous vote of those directors present, approved the
Merger and the Issuance. The Conseco Board of Directors
unanimously recommends that the stockholders of Conseco vote
FOR the approval of the Issuance. The Conseco Board of
Directors believes that the Merger represents a unique
opportunity for Conseco to acquire one of the premier
financial services companies in the nation and to expand
into the mutual fund and brokerage businesses with a
nationally recognized brand name and experienced management
teams. The Merger is consistent with Conseco's announced
plan to increase its assets under management with specific
emphasis on fee-based businesses. The Conseco Board
believes that Kemper's and Conseco's businesses
strategically complement each other in several significant
areas including insurance and third party marketing.
Kemper. The Board of Directors of Kemper has
unanimously approved the Merger Agreement. The Board of
Directors of Kemper has determined that the Merger is in the
best interests of Kemper and its stockholders, and
unanimously recommends that the stockholders of Kemper vote
FOR the approval and adoption of the Merger Agreement. In
reaching its decision to approve the Merger, the Board of
Directors of Kemper considered a number of factors. See
"THE MERGER--Background of the Merger" and
"--Recommendations of the Boards of Directors and Reasons
for the Merger".
In evaluating the recommendations of the Boards of
Directors summarized above, stockholders should carefully
consider the matters described under "THE MERGER--Certain
Considerations".
Opinions of Financial Advisors
Conseco. Morgan Stanley has delivered its written
opinion dated June 26, 1994, to the Board of Directors of
Conseco that, as of such date, the consideration being paid
to stockholders of Kemper is fair to Conseco from a
financial point of view. The full text of the opinion of
Morgan Stanley, which sets forth the assumptions made,
matters considered and limitations on the review undertaken
by Morgan Stanley, is included as Annex 2 to this Joint
Proxy Statement/Prospectus. Conseco stockholders are urged
to read the opinion in its entirety.
<PAGE>
<PAGE> 15
Kemper. Goldman, Sachs & Co. ("Goldman Sachs") has
delivered its written opinion dated June 26, 1994, to the
Board of Directors of Kemper that, as of such date, the
consideration to be received by holders of Kemper Common
Stock in the Merger is fair to such holders. The full text
of the opinion of Goldman Sachs, which sets forth the
assumptions made, matters considered and limitations on the
review undertaken by Goldman Sachs, is included as Annex 3
to this Joint Proxy Statement/Prospectus. Kemper
stockholders are urged to read the opinion in its entirety.
Interests of Certain Persons in the Merger. In
addition to (i) shares of Kemper Common Stock held by
directors and executive officers of Kemper, for which they
will receive the same consideration as other Kemper
stockholders, and (ii) options to acquire shares of Kemper
Common Stock and shares of restricted stock granted pursuant
to certain Kemper incentive plans, which will be treated as
described below under "THE MERGER--Effect on Employee
Benefit and Stock Plans", certain executive officers of
Kemper are parties to termination protection agreements with
Kemper or are the beneficiaries of a Kemper severance
program pursuant to which significant payments and other
benefits may be provided to such persons following a "Change
of Control" (which is defined to include approval and
recommendation of the Merger by the Board of Directors of
Kemper). The Merger Agreement also contains certain
provisions with respect to employee benefit plans of Kemper.
In addition, Conseco has agreed that the rights of present
and former directors, officers and employees of Kemper and
its subsidiaries to indemnification under provisions set
forth in their respective certificates of incorporation and
by-laws will be maintained for a period of not less than six
years after the Effective Time and that, subject to certain
limitations, Kemper's current directors' and officers'
insurance policy will be continued for a period of not less
than six years after the Effective Time. See "THE MERGER--
Interests of Certain Persons in the Merger".
<PAGE>
<PAGE> 16
Regulatory Approvals Required. The consummation of the
Merger and the Restructuring (as hereinafter defined) will
be subject to, among other approvals, the prior approval of
the Illinois Insurance Department and to the expiration or
termination of the relevant waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"). Applications for such approvals are being
prepared or have been submitted and the HSR Act notification
and report forms are being prepared or have been filed. The
waiting period under the HSR Act applicable to the Merger
(but not the Restructuring described below) has been
terminated. See "OTHER MATTERS--Regulatory Approvals
Required".
Conditions to the Merger. The obligations of Conseco
and Kemper to consummate the Merger are subject to various
conditions, including obtaining requisite shareholder and
regulatory approvals, certain approvals with respect to the
registered investment companies for which certain Kemper
subsidiaries act as investment adviser or sub-adviser,
certain consents from the noninvestment company advisory
clients of the asset management subsidiaries of Kemper,
approval for listing (subject to official notice of
issuance) on the NYSE of the additional shares of Conseco
Common Stock to be issued in connection with the Merger and
all financing necessary to pay the aggregate Cash
Consideration payable in connection with the Merger.
No Solicitation. The Merger Agreement provides that
Kemper may not, nor may it permit any of its subsidiaries
to, nor may it authorize or permit any officer, director or
employee of, or any investment banker, attorney or other
adviser or representative of, Kemper or any of its
subsidiaries to, directly or indirectly (i) solicit,
initiate or encourage the submission of any Acquisition
Proposal (as defined below) or (ii) participate in any
discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other
action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to
lead to, any Acquisition Proposal. However, following the
receipt by Kemper of an Acquisition Proposal that the Board
of Directors of Kemper determines in good faith, following
consultation with outside counsel, would permit the Board of
Directors of Kemper to take any of the actions referred to
under "Right of the Kemper Board of Directors to Withdraw
Recommendation" below, any such person may participate in
negotiations regarding such Acquisition Proposal. As used
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<PAGE> 17
herein, an "Acquisition Proposal" means any proposal with
respect to a merger, consolidation, share exchange or
similar transaction involving Kemper or any significant
subsidiary of Kemper, or any purchase of all or any
significant portion of the assets of Kemper or any
significant subsidiary of Kemper, or any equity interest in
Kemper or any significant subsidiary of Kemper, other than
the transactions contemplated in the Merger Agreement or in
the Senior Facilities Commitment Letter dated June 21, 1994,
from Citibank, N.A. and Citicorp Securities, Inc. to Conseco
(the "Citibank Commitment Letter").
Right of the Kemper Board of Directors to Withdraw
Recommendation. Under the Merger Agreement, the Board of
Directors of Kemper may not (i) withdraw or modify, or
propose to withdraw or modify, in a manner adverse to
Conseco or Merger Sub, its approval or recommendation of the
Merger Agreement or the Merger, (ii) approve or recommend,
or propose to approve or recommend, any Acquisition Proposal
or (iii) enter into any agreement with respect to any
Acquisition Proposal, unless Kemper receives an Acquisition
Proposal and the Board of Directors of Kemper determines in
good faith, following consultation with outside counsel,
that in order to comply with its fiduciary duties to
stockholders under applicable law it is necessary for the
Board of Directors to withdraw or modify its approval or
recommendation of the Merger Agreement or the Merger,
approve or recommend such Acquisition Proposal, enter into
an agreement with respect to such Acquisition Proposal or
terminate the Merger Agreement. In the event the Board of
Directors of Kemper takes any of the foregoing actions, the
Merger Agreement requires Kemper to, concurrently with the
taking of any such action, pay to Conseco the fee described
below under "Certain Fees".
Certain Fees. The Merger Agreement requires Kemper to
pay to Conseco on demand $100.0 million, plus all Expenses
(as defined below), if a bona fide Acquisition Proposal is
commenced, publicly proposed, publicly disclosed or
communicated to Kemper (or the willingness of any person to
make such an Acquisition Proposal is publicly disclosed or
communicated to Kemper) and (i) the Board of Directors of
Kemper in accordance with the provision described under
"Right of the Kemper Board of Directors to Withdraw
Recommendation" above, withdraws or modifies, in a manner
adverse to Conseco or Merger Sub, its approval or
recommendation of the Merger Agreement or the Merger,
approves or recommends such Acquisition Proposal, enters
into an agreement with respect to such Acquisition Proposal,
terminates the Merger Agreement, approves any transaction
pursuant to certain sections of the Kemper Rights Agreement
or amends or waives any provision of the Kemper Rights
Agreement or redeems the Rights issued thereunder or (ii)
the requisite approval of Kemper's stockholders for the
Merger is not obtained at the Kemper Meeting. As used
herein, "Expenses" means all documented out-of-pocket fees
and expenses incurred or paid on behalf of Conseco in
connection with the Merger or the consummation of any of the
transactions contemplated by the Merger Agreement.
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<PAGE> 18
Termination. The Merger Agreement may be terminated at
any time prior to the Effective Time (i) by the mutual
consent of Conseco and Kemper or (ii) by either party if
(a) any governmental entity shall have issued an order,
decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger
and such order, decree, ruling or other action shall have
become final and nonappealable; (b) the Merger is not
consummated on or before March 31, 1995; (c) any approval of
stockholders of Conseco or Kemper required for the Merger is
not obtained at the applicable meeting; or (d) the Board of
Directors of Kemper shall have exercised its right to
withdraw or modify, in a manner adverse to Conseco or Merger
Sub, its approval or recommendation of the Merger Agreement
or the Merger, approve or recommend an Acquisition Proposal
or enter into an agreement with respect to an Acquisition
Proposal, in each case under the circumstances described
under "Right of the Kemper Board of Directors to Withdraw
Recommendation" above.
Appraisal Rights. Subject to compliance with the
procedures set forth in Section 262 of the Delaware General
Corporation Law (the "Delaware Corporation Law"), the full
text of which is included as Annex 4 to this Joint Proxy
Statement/Prospectus, holders of Kemper Common Stock and
Kemper Preferred Stock are entitled to appraisal rights in
connection with the Merger. Any demand for appraisal must
be made prior to the vote on the Merger Agreement at the
Kemper Meeting. Holders of Kemper Common Stock or Kemper
Preferred Stock who, prior to the stockholder vote on the
Merger Agreement, properly demand appraisal of their shares
and, in the case of holders of Kemper Common Stock, who do
not vote in favor of the approval and adoption of the Merger
Agreement (such shares being referred to herein as
"Dissenting Common Shares" and "Dissenting Preferred
Shares", respectively) will have the right to obtain a cash
payment for the "fair value" of their shares (excluding any
element of value arising from the accomplishment or
expectation of the Merger). Such "fair value" would be
determined in judicial proceedings, the result of which
cannot be predicted. Failure to take any of the steps
required under Section 262 of the Delaware Corporation Law
on a timely basis may result in the loss of appraisal
rights. Holders considering seeking appraisal should be
aware that the fair value of their shares of Kemper Common
Stock or Kemper Preferred Stock as determined under
Section 262 could be more than, the same as or less than the
value of the Merger Consideration that they would otherwise
receive, in the case of holders of Kemper Common Stock, or
the Surviving Corporation Preferred Stock that they would
otherwise continue to hold, in the case of holders of Kemper
Preferred Stock, if they did not seek appraisal of their
shares of Kemper Common Stock or Kemper Preferred Stock.
See "APPRAISAL RIGHTS".
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<PAGE> 19
Under Section 23-1-44-8 of the Indiana Business
Corporation Law (the "Indiana Corporation Law"), holders of
Conseco Common Stock or Conseco's $3.25 Series D Cumulative
Convertible Preferred Stock are not entitled to dissenters'
rights in connection with the Merger.
Certain Federal Income Tax Consequences. Dispositions
of Kemper Common Stock pursuant to the Merger will be
taxable transactions for Federal income tax purposes, and
may also be taxable transactions under applicable state,
local, foreign and other tax laws. A holder generally will
recognize gain or loss equal to the difference between
(i) the sum of (A) the fair market value of the Conseco
Common Stock received by the holder pursuant to the Merger
and (B) the Cash Consideration received by the holder
pursuant to the Merger and (ii) the holder's aggregate
adjusted tax basis in the Kemper Common Stock the holder
disposes of pursuant to the Merger. Gain or loss will be
calculated separately for each block of Kemper Common Stock
exchanged pursuant to the Merger. Gain or loss recognized
by a holder will be capital gain or loss if the Kemper
Common Stock is held as capital assets, and any such capital
gain will be long-term if, as of the date of the
disposition, the Kemper Common Stock was held for more than
one year. See "THE MERGER--Material Federal Income Tax
Consequences".
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<PAGE> 20
Anticipated Accounting Treatment. The Merger will be
treated as a "purchase" for accounting and financial
reporting purposes.
Certain Considerations. Stockholders of Conseco and
Kemper should carefully evaluate the matters set forth under
"THE MERGER--Certain Considerations".
The Restructuring
CCP II has organized CCP II Holdings Corp., a Delaware
corporation ("CCP II Holdings"), to acquire an existing life
insurance company ("Life Insurance Holdings") and to
organize one or more real estate acquisition subsidiaries.
In connection with the Merger, the Surviving Corporation
will sell all of the issued and outstanding shares of
capital stock of the Life Companies to Life Insurance
Holdings (the "Life Company Dispositions"). In addition,
certain real estate interests currently held by subsidiaries
of Kemper will be transferred, by merger or otherwise, to
one or more of CCP II Holdings' real estate acquisition
subsidiaries (the "Real Estate Transfers"). It is currently
anticipated that the purchase price to be paid to the
Surviving Corporation by Life Insurance Holdings in
connection with the Life Company Dispositions and the
consideration to be paid in the Real Estate Transfers
(together with related transaction fees and expenses) will
aggregate approximately $1.35 billion. The Life Company
Dispositions and the Real Estate Transfers are referred to
collectively as the "Restructuring". See "THE
RESTRUCTURING". The implementation of the Restructuring is
an integral part of the plan of financing for the Merger.
See "--Plan of Financing" below.
Plan of Financing
It is estimated that the total funds required to pay
the aggregate Cash Consideration to be paid to stockholders
of Kemper in the Merger and to pay related transaction and
restructuring costs will be approximately $2.54 billion (the
"Aggregate Acquisition Costs"). The Aggregate Acquisition
Costs will be financed from four sources: (i) borrowings by
the Surviving Corporation under a Credit Agreement dated as
of August 31, 1994 with a syndicate of banks for which
Citicorp USA, Inc. is acting as Administrative Agent (the
"Surviving Corporation Credit Agreement") in an aggregate
amount of $823.5 million (consisting of (a) a Senior
Tranche A Term Loan in the amount of $523.5 million; (b) a
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<PAGE> 21
Senior Tranche B Term Loan in the amount of $200.0 million;
and (c) a Senior Bridge Loan in the amount of
$100.0 million); (ii) the proceeds from the sale by the
Surviving Corporation through Morgan Stanley of its senior
subordinated debentures in the aggregate principal amount of
$350.0 million (the "Surviving Corporation Senior
Subordinated Debentures"); (iii) the proceeds to the
Surviving Corporation of the Life Company Dispositions and
the Real Estate Transfers, which (together with related
transaction fees and expenses) are currently expected to
aggregate approximately $1.35 billion and to be financed as
described below and (iv) Kemper cash available at the
Effective Time. In connection with the Merger, Kemper
Financial Services, Inc., a Delaware corporation ("KFS"),
will transfer all of the broker-dealer businesses of KFS and
all of the property and assets related thereto into a new
wholly owned subsidiary of KFS, as a result of which KFS
will no longer be subject to the net capital requirements
applicable to broker-dealers (the "KFS Broker-Dealer
Transfer"). It is anticipated that the Senior Bridge Loan
will be repaid promptly following the Effective Time in part
with funds to be made available to the Surviving Corporation
out of assets no longer required to be maintained by KFS in
connection with its broker-dealer businesses as a result of
the KFS Broker-Dealer Transfer.
The total amount of funds required by CCP II Holdings
to pay to the Surviving Corporation the purchase price for
the Life Company Dispositions and the consideration for the
Real Estate Transfers (together with related transaction
fees and expenses) is currently anticipated to be
approximately $1.35 billion and will be financed from four
sources: (i) borrowings by CCP II Holdings under a Credit
Agreement dated as of August 31, 1994 with a syndicate of
banks for which Citicorp USA, Inc. is acting as
Administrative Agent (the "CCP II Holdings Credit
Agreement"; together with the Surviving Corporation Credit
Agreement, the "Credit Agreements") in an aggregate amount
of $400.0 million; (ii) the proceeds from the sale by CCP II
Holdings through Morgan Stanley of its senior subordinated
debentures in the aggregate principal amount of
$400.0 million (the "CCP II Holdings Senior Subordinated
Debentures"; together with the Surviving Corporation Senior
Subordinated Debentures, the "Senior Subordinated
Debentures"); (iii) the proceeds from the sale by CCP II
Holdings in a private placement of its pay-in-kind preferred
stock (the "CCP II Holdings PIK Preferred Stock") with an
aggregate stated value of $250.0 million and (iv) additional
<PAGE>
<PAGE> 22
equity capital (the "CCP II Equity Contribution") to be
contributed by the partners of CCP II in the aggregate
amount of $300.0 million.
Pursuant to a letter dated June 22, 1994, from Morgan
Stanley to Conseco (the "Morgan Stanley Highly Confident
Letter"), Morgan Stanley has confirmed to Conseco that,
based upon and subject to the matters set forth therein, it
is highly confident that it could arrange, as exclusive
placement agent or lead managing underwriter, the sale of
the Senior Subordinated Debentures referred to above.
The sources of the funds to pay the Aggregate
Acquisition Costs are expected to be as follows (in
millions):
<TABLE>
<S> <C>
Surviving Corporation Credit Agreement:
Senior Tranche A Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $523.5
Senior Tranche B Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200.0
Senior Bridge Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0*/
Surviving Corporation Senior
Subordinated Debentures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350.0
Restructuring:
Senior Term Loan to CCP II Holdings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 400.0
CCP II Holdings Senior Subordinated Debentures . . . . . . . . . . . . . . . . . . . . . . 400.0
CCP II Holdings PIK Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 250.0
CCP II Equity Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300.0
Kemper cash . . . . . . . . . . . . . . . . . . . 15.1
--------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$2,538.6
========
__________________
<FN>
*/ It is anticipated that the Senior Bridge Loan will
be repaid promptly following the Effective Time in part with
funds to be made available to the Surviving Corporation out
of assets no longer required to be maintained by KFS in
connection with its broker-dealer businesses as a result of
the KFS Broker-Dealer Transfer.
</TABLE>
Market Price and Dividend Data
Conseco Common Stock (symbol: CNC) and Kemper Common
Stock (symbol: KEM) are listed for trading on the NYSE.
<PAGE>
<PAGE> 23
The following table sets forth the last reported sales
prices per share of the Conseco Common Stock and Kemper
Common Stock on the NYSE Composite Transactions Tape on
June 24, 1994, the last trading day before announcement of
the Merger Agreement, and on October , 1994, the latest
practicable trading day before the printing of this Joint
Proxy Statement/Prospectus, and equivalent per share prices
for Kemper Common Stock based on the Conseco Common Stock
prices:
<TABLE>
<CAPTION>
Conseco Kemper Kemper
Common Stock Common Stock Equivalent*
------------ ------------ ----------
<S> <C> <C> <C>
June 24, 1994 . . . . . . . . $49 1/4 $61 3/8 $67
October , 1994
- ----------------------
<FN>
* Represents the equivalent of one share of Kemper Common
Stock calculated by adding the Cash Consideration per
share payable in the Merger to the product of the
Average Conseco Price and the Conversion Number. For
purposes of this calculation, (i) the Average Conseco
Price for June 24, 1994 was calculated using the
average of the closing prices of Conseco Common Stock
over the 20 trading day period ending on June 21, 1994,
which average was $55.45 and (ii) the Average Conseco
Price for October , 1994 was calculated using the
average of the closing prices of Conseco Common Stock
over the 20 trading day period ending on October ,
1994, which average was $______.
</TABLE>
The shares of Conseco's $3.25 Series D Cumulative
Convertible Preferred Stock (symbol: CNCpD) are listed for
trading on the NYSE. The following table sets forth the
high and low sales prices per share of such shares on the
NYSE Composite Transactions Tape on June 24, 1994, the last
trading day before announcement of the Merger Agreement, and
on October , 1994, the latest practicable trading day
before the printing of this Joint Proxy Statement/
Prospectus.
<PAGE>
<PAGE> 24
<TABLE>
<CAPTION>
Conseco
$3.25 Series D
Cumulative
Convertible
Preferred Stock
---------------
High Low
---- ---
<S> <C> <C>
June 24, 1994. . . . . . . . . $48 7/8 $47
October , 1994
</TABLE>
Selected Historical and Pro Forma Consolidated Financial
Data
The following tables present selected historical
consolidated financial data for each of Conseco and Kemper
and selected pro forma consolidated financial data for
Conseco and Kemper combined. The selected historical
consolidated financial data are derived from the historical
consolidated financial statements of Conseco and Kemper that
are incorporated by reference in this Joint Proxy
Statement/Prospectus. The selected pro forma consolidated
financial data are derived from the unaudited pro forma
condensed consolidated financial statements of Conseco and
Kemper included in this Joint Proxy Statement/Prospectus.
See "UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION". The information set forth below should be
read in conjunction with such historical and pro forma
financial statements and the notes thereto, the historical
financial statements of Statesman as of June 30, 1994 and
for the six months then ended contained in Statesman's
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1994 and as of December 31, 1993 and for the year
then ended contained in Statesman's Annual Report on
Form 10-K for the year ended December 31, 1993 and the
unaudited pro forma financial information of Conseco as of
June 30, 1994 and for the six months then ended and for the
year ended December 31, 1993 contained in Exhibit 99.1 to
Conseco's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1994. The historical consolidated
financial statements of Conseco have been audited by
Coopers & Lybrand, independent certified public accountants,
for each of the five years in the period ended December 31,
1993. The historical consolidated financial statements of
Kemper have been audited by KPMG Peat Marwick LLP, independent
certified public accountants, for each of the five years in
the period ended December 31, 1993. The historical
consolidated financial statements as of and for the six
months ended June 30, 1994 and 1993 are unaudited but, in
each of Conseco's and Kemper's opinion (with respect to its
own statements), reflect all adjustments, consisting of
normal recurring adjustments, necessary for a fair
presentation of its financial position and results of
operations for such periods. The results of operations for
the six months ended June 30, 1994 may not be indicative of
results of operations to be expected for a full year.
<PAGE>
<PAGE> 25
Conseco previously acquired certain insurance companies
through CCP I, an investment partnership (which has since
been dissolved) for which a wholly owned subsidiary of
Conseco acted as sole general partner. Conseco expects to
effect certain future acquisitions through CCP II, an
investment partnership for which a wholly owned subsidiary
of Conseco is acting as sole general partner. CCP II has
entered into an Agreement and Plan of Merger dated as of
May 1, 1994 to acquire Statesman. In conjunction with the
Merger, pursuant to the Restructuring CCP II will also
acquire the Life Companies and certain real estate interests
currently held by subsidiaries of Kemper. Because a
subsidiary of Conseco was the sole general partner of CCP I
(prior to its dissolution), Conseco unilaterally controlled
CCP I and, because a subsidiary of Conseco is the sole
general partner of CCP II, Conseco unilaterally controls CCP
II. Accordingly, the historical consolidated financial
statements of Conseco include all financial information of
CCP I and the companies owned by CCP I on a consolidated
basis for all relevant periods. Similarly, Conseco's
consolidated financial statements will include (and the
unaudited pro forma consolidated financial information for
Conseco and Kemper includes) all financial information of
CCP II and the companies owned by CCP II, including,
following the Statesman Acquisition, Statesman and,
following the Merger and the Restructuring, the Life
Companies and certain real estate interests currently held
by subsidiaries of Kemper. The interests of other investors
in CCP I and CCP II and the companies owned by them are
eliminated in the consolidated financial statements of
Conseco through a minority interest account. For purposes
of the selected pro forma consolidated financial data, such
other investors are assumed to have a 77% ownership interest
in CCP II. See "UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION".
<PAGE>
<PAGE> 26
Conseco, both directly and through CCP I, has effected
several transactions during the periods covered by the
historical financial statements included and incorporated
herein that significantly affect the comparability of the
financial information presented. Such transactions include
(i) the initial public offering of WNC on February 15, 1994,
which reduced Conseco's ownership interest therein to 40%
and caused WNC to be included in Conseco's financial
statements on the equity (rather than consolidated) basis
since the first quarter of 1994, (ii) the acquisition of
Bankers Life and Casualty Company ("Bankers Life") by CCP I
as of November 1, 1992 (the "November 1992 BLH
Acquisition"), the initial public offering of BLH in March
1993 and the subsequent acquisition by Conseco of
13.3 million additional shares of BLH common stock in
September 1993 (the "September 1993 BLH Stock Purchase"),
all of which resulted in the inclusion of BLH and its
subsidiaries in Conseco's financial statements on a
consolidated basis since November 1, 1992, (iii) the
acquisitions of Great American Reserve Insurance Company,
Jefferson National Life Insurance Company and Beneficial
Standard Life Insurance Company by CCP I on June 27, 1990,
November 27, 1990 and April 24, 1991, respectively, and
(iv) the formation, as of June 30, 1992, of CCP Insurance to
act as the holding company for the insurance companies
previously acquired by CCP I, and CCP Insurance's initial
public offering, which transactions caused CCP Insurance to
be included in Conseco's financial statements on the equity
(rather than the consolidated) basis since July 1, 1992, and
the purchase by Conseco of 2.0 million additional shares of
CCP Insurance common stock in September 1993 (the "September
1993 CCP Insurance Stock Purchase"), which increased
Conseco's ownership interest therein to 40%. See the notes
to the consolidated financial statements included in
Conseco's Annual Report on Form 10-K for the year ended
December 31, 1993, incorporated by reference herein, and the
pro forma financial information contained in Exhibit 99.1 to
Conseco's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1994, incorporated by reference
herein.
The selected pro forma consolidated financial data
for the year ended December 31, 1993 and the six months
ended June 30, 1994 reflect the consolidated operating
results for Conseco as if the initial public offering of
<PAGE>
<PAGE> 27
WNC, the September 1993 CCP Insurance Stock Purchase, the
initial public offering of BLH, the September 1993 BLH Stock
Purchase, the Statesman Acquisition, the Merger, the
Restructuring, the KFS Broker-Dealer Transfer and Kemper's
disposition (the "IFTC Disposition") of its interest in
Investors Fiduciary Trust Company ("IFTC") had all occurred
on January 1, 1993. The selected pro forma consolidated
balance sheet data give effect to the Statesman Acquisition,
the Merger, the Restructuring, the KFS Broker-Dealer
Transfer and the IFTC Disposition as if they had all
occurred on June 30, 1994. The pro forma financial data are
provided for informational purposes only and are not
necessarily indicative of the results of operations or
financial condition that would have been achieved had the
transactions set forth above actually occurred as of the
dates indicated or of the future results of operations or
financial condition of Conseco. The Merger will be
accounted for under the purchase method of accounting. See
"THE MERGER--Accounting Treatment" and "AVAILABLE
INFORMATION".<PAGE>
<PAGE> 28
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA - HISTORICAL
(dollars in millions, except per share data)
Year Ended December 31, Six Months Ended June 30,
------------------------------------------------------ -------------------------
1989 1990 1991 1992 1993 1993 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues $662.7 $753.3 $1,391.8 $1,523.9 $2,636.0 $1,370.6 $904.1
Earnings excluding realized
investment gains (losses)
and extraordinary charge (1) 32.1 39.0 84.0 162.7 301.9 187.9 123.6
Income before extraordinary charge 47.2 41.7 121.0 174.8 308.9 193.8 116.7
Net income 47.2 41.7 116.0 169.5 297.0 182.9 114.3
Preferred dividends 8.3 5.6 6.8 5.5 20.6 10.8 9.3
Earnings applicable to common stock 38.9 36.1 109.2 164.0 276.4 172.1 105.0
PER SHARE DATA:
Net income before extraordinary
charge, primary $1.75 $1.37 $ 4.30 $5.59 $9.86 $6.24 $3.92
Net income, primary 1.75 1.37 4.10 5.43 9.45 5.87 3.83
Net income before extraordinary
charge, fully diluted 1.26 1.36 4.22 5.56 9.12 5.75 3.66
Net income, fully diluted 1.26 1.36 4.02 5.40 8.77 5.42 3.58
Earnings excluding realized
investment gains (losses)
and extraordinary charge (1) .81 1.25 2.89 5.18 8.92 5.58 3.88
Dividends declared .050 .055 .070 .085 .300 .050 .250
Book value per outstanding common share 4.30 5.83 15.44 21.86 33.78 30.10 23.02
Ratio of earnings to fixed charges 1.26X 1.17X 1.32X 1.54X 2.19X 2.43X 3.29X
Ratio of earnings to fixed charges,
excluding interest on annuities
and financial products 2.49X 1.97X 3.41X 6.24X 8.85X 10.77X 5.59X
Ratio of earnings to fixed charges
and preferred dividends 1.20X 1.14X 1.30X 1.50X 2.04X 2.25X 2.74X
Ratio of earnings to fixed charges
and preferred dividends, excluding
interest on annuities and
financial products 1.94X 1.74X 2.99X 5.09X 6.00X 6.99X 3.98X
BALANCE SHEET DATA:
Total assets $5,267.1 $8,371.1 $11,832.4 $11,772.7 $13,749.3 $13,392.4 $5,599.4
Long-term debt for which
Conseco is directly liable 300.3 268.9 177.6 163.2 413.0 214.6 230.5
Notes payable of BLH, not direct
obligations of Conseco __ __ __ 392.0 290.3 298.2 279.7
Notes payable related to CCP
Insurance, not direct
obligations of Conseco __ 258.1 319.3 __ __ __ __
Shareholders' equity 158.3 180.2 431.6 594.3 1,142.6 1,088.9 854.9
_______________________
<FN>
(1) Represents net income excluding net realized gains (losses) and extraordinary charge, less applicable amortization, changes in
future policy benefits, taxes and minority interest.
</TABLE>
<PAGE>
<PAGE> 29
<TABLE>
<CAPTION>
KEMPER CORPORATION
SELECTED FINANCIAL DATA - HISTORICAL
(dollars in millions, except per share data)
Year Ended December 31, Six Months Ended June 30,
------------------------------------------------------ -------------------------
1989 1990 1991 1992 1993 1993 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues $1,790.6 $1,829.3 $1,815.8 $1,503.7 $1,549.2 $804.2 $874.2
Net income (loss) from
continuing operations 124.1 (69.9) 76.1 (214.7) (101.3) (41.5) 75.1
Net income (loss) before discontinued
operations, extraordinary charge and
cumulative effect of change in
accounting principle 124.1 (69.9) 76.1 (200.2) (89.4) (29.6) 75.1
Net income (loss) 307.4 11.9 204.5 (203.4) 235.5 (14.4) 77.6
Preferred dividends -- -- -- -- 18.7 6.9 11.8
Earnings (loss) applicable to
common stock 307.4 11.9 204.5 (203.4) 216.8 (21.3) 65.8
PER SHARE DATA (1):
Net income (loss) before discontinued
operations, extraordinary charge and
cumulative effect of change in
accounting principle, primary $2.39 $(1.44) $1.58 $(4.10) $(2.52) $(.74) $1.86
Net income (loss) from continuing
operations, primary 2.39 (1.44) 1.58 (4.39) (2.80) (.98) 1.86
Net income (loss), primary 5.96 .25 4.25 (4.16) 5.06 (.43) 1.93
Net income (loss) from continuing
operations, fully diluted 2.39 (1.44) 1.58 (4.39) (2.36) (.98) 1.78
Net income (loss) before discontinued
operations, extraordinary charge
and cumulative effect of change
in accounting principle,
fully diluted 2.39 (1.44) 1.58 (4.10) (2.11) (.74) 1.78
Net income (loss), fully diluted 5.96 .25 4.25 (4.16) 4.87 (.43) 1.84
Dividends declared .810 .920 .920 .920 .920 .460 .460
Book value per outstanding
common share 35.25 34.20 37.92 33.77 38.24 35.23 28.68
Ratio of earnings to fixed charges 1.33X (2) 1.17X (2) (2) (2) 1.54X
Ratio of earnings to fixed charges,
excluding interest on annuities
and financial products 2.32X (2) 1.90X (2) (2) (2) 3.32X
Ratio of earnings to fixed charges
and preferred dividends 1.33X (2) 1.17X (2) (2) (2) 1.50X
Ratio of earnings to fixed charges
and preferred dividends,
excluding interest on annuities
and financial products 2.32X (2) 1.90X (2) (2) (2) 2.72X
BALANCE SHEET DATA:
Total assets $11,295.7 $12,164.0 $13,104.6 $13,176.3 $14,038.1 $13,849.2 $13,349.7
Total long-term obligations and
redeemable securities 225.3 245.2 320.0 265.5 439.8 258.1 431.6
Shareholders' equity 1,724.3 1,625.9 1,838.5 1,766.1 1,619.0 2,112.8 1,324.2
_______________________
<FN>
(1) Net income per share for 1989 through 1993 and for the six months ended June 30, 1994, reflects the effect of employee interests
in Kemper Financial Companies, Inc. ("KFC").
(2) The ratios for the years ended December 31, 1990, 1992, 1993 and six months ended June 30, 1993, are not presented since fixed
charges exceeded available earnings by approximately $68.6 million, $274.0 million, $110.9 million and $42.0 million,
respectively.
</TABLE>
<PAGE>
<PAGE> 30
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA - PRO FORMA CONSOLIDATED
(dollars in millions, except per share data)
Year Ended Six Months Ended
December 31, 1993 June 30, 1994
----------------- --------------
<S> <C> <C>
OPERATING DATA:
Total revenues $4,176.0 $1,943.5
Net income before extraordinary charge 167.7 43.9
Preferred dividends 64.6 35.1
PER SHARE DATA:
Earnings before extraordinary charge, primary $3.94 $.98
Earnings before extraordinary charge, fully diluted 3.94 .98
Dividends declared (1) .30 .25
Book value per outstanding common share 30.71
Ratio of earnings to fixed charges 1.30x 1.23x
Ratio of earnings to fixed charges, excluding interest
on annuities and financial products 1.84x 1.62x
Ratio of earnings to fixed charges and preferred
dividends 1.19x 1.11x
Ratio of earnings to fixed charges and preferred
dividends, excluding interest on annuities and
financial products 1.47x 1.24x
BALANCE SHEET DATA:
Total assets $25,491.9
Total long-term debt for which Conseco is directly
liable 1,665.1
Total long-term debt, including debt for which Conseco
is not directly liable 3,011.6
Shareholders' equity 1,293.9
_______________________
<FN>
(1) Represents Conseco's historical dividend per share.
</TABLE>
<PAGE>
<PAGE> 31
COMPARATIVE PER SHARE DATA
The following table sets forth for Conseco Common Stock and
Kemper Common Stock certain historical, pro forma consolidated and pro forma
equivalent per share financial data for the six months ended June 30, 1994 and
for the year ended December 31, 1993. The following information should be read
in conjunction with and is qualified in its entirety by the consolidated
financial statements and accompanying notes of Conseco, Statesman and Kemper
included in the documents described under "INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE" and the pro forma condensed consolidated financial statements and
accompanying discussion and notes set forth under "UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION".
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1993 1994
---- ----
<S> <C> <C>
Conseco Common Stock
Earnings before extraordinary charge per fully
diluted common share and common equivalent
share:
Historical $9.12 $ 3.66
Pro forma consolidated 3.94 .98
Dividends per common share:
Historical .30 .25
Pro forma consolidated (1) .30 .25
Book value per common share at period end:
Historical 33.78 23.02
Pro forma consolidated N/A 30.71
Kemper Common Stock
Earnings (loss) before discontinued operations,
extraordinary charge and cumulative effect of
change in accounting principle, per fully diluted
common share:
Historical (2.11) 1.78
Pro forma equivalent (2) .82 .20
16% of historical amount (3) (.34) .28
Dividends per common share:
Historical .92 .46
Pro forma equivalent (3) .06 .05
16% of historical amount (3) .15 .07
Book value per common share at period end:
Historical 38.24 28.68
Pro forma equivalent (2) N/A 6.40
16% of historical amount (3) 6.12 4.59
________
<FN>
(1) Amounts represent historical dividends per share of Conseco Common Stock.
(2) Amounts are calculated by multiplying the Conseco pro forma consolidated
amounts by the Conversion Number. For purposes of this calculation, the
Conversion Number was calculated based on the Average Conseco Price over
the 20 trading day period ended on June 30, 1994.
(3) Kemper historical per common share data multiplied by .16 which is the
approximate percentage of the Merger Consideration payable in Conseco
Common Stock. Shown for comparative purposes only. For purposes of this
calculation, the Conversion Number was calculated based on the Average
Conseco Price over the 20 trading day period ended on June 30, 1994.
N/A--not applicable.
</TABLE>
<PAGE>
<PAGE> 32
THE MEETINGS
This Joint Proxy Statement/Prospectus is being
provided to the stockholders of Conseco and Kemper in
connection with the Conseco Meeting and the Kemper Meeting,
respectively. The meetings will be held on the date, at the
times, in the locations and to consider the matters set
forth under "--Conseco Meeting" and "--Kemper Meeting"
below. The Boards of Directors of Conseco and Kemper are
soliciting proxies for use at their respective meetings.
The applicable form of proxy is being provided to the
respective holders of Conseco Common Stock and Kemper Common
Stock with this Joint Proxy Statement/Prospectus.
Conseco Meeting
The Conseco Meeting is scheduled to be held at
.m., Time, on , 1994 at The Ritz
Charles, 12156 North Meridian Street, Carmel, Indiana. At
the Conseco Meeting, the holders of Conseco Common Stock
will be asked to consider and vote upon the Issuance and the
Name Change Amendment.
The Board of Directors of Conseco has, by a unanimous
vote of those directors present, approved the Merger and the
Issuance. The Board of Directors of Conseco has unanimously
approved the Name Change Amendment. The Conseco Board of
Directors unanimously recommends that the Conseco
stockholders vote FOR the approval of the Issuance and the
Name Change Amendment.
Conseco Record Date and Voting Rights. Only
holders of record of Conseco Common Stock on the Conseco
Record Date will be entitled to notice of, and to vote at,
the Conseco Meeting. As of the Conseco Record Date, there
were shares of Conseco Common Stock outstanding. Each
share of Conseco Common Stock will entitle the holder
thereof to one vote.
Conseco Stockholder Vote Required. Holders of at
least a majority of the outstanding shares of Conseco Common
Stock must be represented, either in person or by proxy, at
the Conseco Meeting for a quorum to be present. Because of
the number of shares of Conseco Common Stock to be issued in
the Merger, the rules and regulations of the NYSE require
that the Issuance be approved by the affirmative vote of the
holders of a majority of the shares of Conseco Common Stock
voted thereon at the Conseco Meeting; provided that holders
of a majority of the outstanding shares of Conseco Common
Stock are present, in person or by proxy, at the Conseco
Meeting and vote upon the Issuance. The affirmative vote of
the holders of shares representing a plurality of the shares
of Conseco Common Stock present, in person or by proxy, and
entitled to vote thereon at the Conseco Meeting is required
for the approval of the Name Change Amendment.
<PAGE>
<PAGE> 33
Holders of shares of Conseco Common Stock who are
present, in person or by proxy, at the Conseco Meeting but
who abstain from voting on the Issuance will be counted as
present for quorum purposes, and will be deemed to have
voted upon the Issuance, but such abstentions will have the
same effect as votes against the Issuance. Abstentions will
have no effect on the approval of the Name Change Amendment.
Brokers who hold shares of Conseco Common Stock in
"street name" who have not received instructions from the
beneficial owners of such shares and who are present, in
person or by proxy, at the Conseco Meeting will be counted
as present for quorum purposes and will be entitled to vote
upon the Name Change Amendment, but will be unable to vote
such shares on the Issuance ("broker non-votes").
Accordingly, the holders of such shares will not be counted
as having voted upon the Issuance.
Conseco Proxies. Each properly completed proxy
returned in time for voting at the Conseco Meeting will be
voted in accordance with the instructions indicated on the
proxy, or, if no instructions are provided, will be voted
FOR the approval of the Issuance and the Name Change
Amendment. It is not expected that any matters other than
the Issuance and the Name Change Amendment will be brought
before the Conseco Meeting. If, however, other matters are
properly presented, the persons named as proxy appointees
will vote in accordance with their best judgment on such
matters. The grant of a proxy will also confer
discretionary authority on the persons named in the proxy as
proxy appointees to vote in accordance with their best
judgment on matters incident to the conduct of the Conseco
Meeting.
A Conseco stockholder may revoke a proxy at any
time before it is voted by filing with the Corporate
Secretary of Conseco, Lawrence W. Inlow, 11825 N.
Pennsylvania Street, Carmel, Indiana 46032, an instrument
revoking the proxy, or by submitting a duly executed proxy
bearing a later date, or by attending the Conseco Meeting
and voting in person. Attendance at the Conseco Meeting
will not by itself constitute revocation of a proxy.
<PAGE>
<PAGE> 34
CONSECO STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH
THEIR PROXY CARDS AND WILL NOT EXCHANGE THEIR CERTIFICATES
AFTER THE MERGER.
Conseco Share Ownership. As of February 25, 1994,
Alex. Brown Investment Management ("Alex. Brown"), 135 East
Baltimore Street, Baltimore, MD 21202, reported beneficial
ownership of 4,247,150 shares of Conseco Common Stock or
16.6% of shares outstanding. Alex. Brown reported that it
had shared dispositive power and sole voting power with
respect to 424,764 shares, and sole dispositive power with
respect to 3,822,386 shares. According to Alex. Brown, all
of the shares were owned by its investment advisory clients.
As of February 11, 1994, KFS, 120 South LaSalle Street,
Chicago, Illinois 60603, reported beneficial ownership of
2,028,600 shares of Conseco Common Stock or 8.03% of shares
outstanding. KFS reported that it had shared dispositive
and voting power with respect to such shares. Conseco knows
of no other person who beneficially owned more than 5% of
any class of Conseco's voting securities as of ,
1994. As of the Conseco Record Date, the directors and
executive officers of Conseco and their respective
affiliates as a group beneficially owned shares ( %)
of Conseco Common Stock, including shares that the
directors, executive officers and their respective
affiliates had the right to acquire within 60 days after
, 1994 through the exercise of stock options, and
including shares as to which the directors, executive
officers and their respective affiliates either disclaimed
beneficial ownership or did not have sole dispositive and
voting power. The directors and executive officers of
Conseco have indicated that they intend to vote the shares
as to which they have sole voting power FOR the approval of
the Issuance and the Name Change Amendment.
Kemper Meeting
The Kemper Meeting is scheduled to be held at
.m., Time, on , 1994 at The First
National Bank of Chicago, One First National Plaza, Chicago,
Illinois. At the Kemper Meeting, the holders of Kemper
Common Stock will be asked to consider and vote upon the
approval and adoption of the Merger Agreement, the election
of Class II directors of Kemper and the ratification of the
appointment of KPMG Peat Marwick LLP as independent auditors for
1994. The approval and adoption of the Merger Agreement by
the holders of Kemper Common Stock will constitute approval
of each of the transactions contemplated by the Merger
Agreement.
<PAGE>
<PAGE> 35
The Board of Directors of Kemper has unanimously
approved the Merger Agreement. The Board of Directors of
Kemper has determined that the Merger is in the best
interests of Kemper and its stockholders, and unanimously
recommends that the stockholders of Kemper vote FOR the
approval and adoption of the Merger Agreement, the election
of each nominee as a Class II director and the ratification
of the appointment of KPMG Peat Marwick LLP as independent
auditors.
Kemper Record Date and Voting Rights. All holders
of record of Kemper Common Stock and Kemper Preferred Stock
on the Kemper Record Date will be entitled to notice of the
Kemper Meeting, but only holders of record of Kemper Common
Stock on the Kemper Record Date will be entitled to vote at
the Kemper Meeting. As of the Kemper Record Date, there
were shares of Kemper Common Stock outstanding. Each
share of Kemper Common Stock will entitle the holder thereof
to one vote.
Kemper Stockholder Vote Required. Holders of at
least a majority of the outstanding shares of Kemper Common
Stock must be represented, either in person or by proxy, at
the Kemper Meeting for a quorum to be present. The approval
and adoption of the Merger Agreement requires the
affirmative vote of the holders of a majority of the
outstanding shares of Kemper Common Stock. The election of
each director requires the affirmative vote of the holders
of a plurality of the outstanding shares of Kemper Common
Stock present, either in person or by proxy, at the Kemper
Meeting. The ratification of the appointment of KPMG Peat
Marwick LLP as independent auditors requires the affirmative
vote of the holders of a majority of the outstanding shares
of Kemper Common Stock represented, either in person or by
proxy, at the Kemper Meeting.
With regard to the election of directors, votes
may be cast in favor of or withheld from each nominee; votes
that are withheld will be excluded entirely from the vote
and will have no effect. Abstentions may be specified with
respect to the approval and adoption of the Merger Agreement
or the ratification of appointment of independent auditors
and will be counted as present for the purpose of
determining the existence of a quorum but will have the
effect of a negative vote due to the voting requirements
described in the previous paragraph with respect to such
proposals.
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<PAGE> 36
Under the rules of the NYSE, brokers who hold
shares in street name have the authority to vote on certain
items when they have not received instructions from
beneficial owners. Brokers that do not receive instructions
who are present, in person or by proxy, at the Kemper
Meeting will be counted as present for quorum purposes and
will be entitled to vote on the election of directors and
the ratification of the appointment of independent auditors
but will not be entitled to vote on the approval and
adoption of the Merger Agreement. Under applicable Delaware
law, a broker non-vote will have the effect of a negative
vote on the approval and adoption of the Merger Agreement.
Kemper Proxies. Each properly completed proxy
returned in time for voting at the Kemper Meeting will be
voted in accordance with the instructions indicated on the
proxy or, if no instructions are provided, will be voted FOR
the approval and adoption of the Merger Agreement, the
election of each nominee as a Class II director and the
ratification of the appointment of KPMG Peat Marwick LLP as
independent auditors for 1994. It is not expected that any
matters other than those referred to in this Joint Proxy
Statement/Prospectus will be brought before the Kemper
Meeting. If, however, other matters are properly presented,
the persons named as proxy appointees will vote in
accordance with their best judgment on such matters. The
grant of a proxy will also confer discretionary authority on
the persons named in the proxy as proxy appointees to vote
in accordance with their best judgment on matters incident
to the conduct of the Kemper Meeting.
Any Kemper stockholder may revoke a proxy at any
time before it is voted by filing with the Corporate
Secretary of Kemper an instrument revoking the proxy or by
returning a duly executed proxy bearing a later date, or by
attending the Kemper Meeting and voting in person. Any such
filing should be made to the attention of Kathleen A.
Gallichio, Corporate Secretary, One Kemper Drive, C-3,
Kemper Corporation, Long Grove, Illinois 60049. Attendance
at the Kemper Meeting will not by itself constitute
revocation of a proxy.
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<PAGE> 37
KEMPER STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH
THEIR PROXY CARDS. A TRANSMITTAL FORM WITH INSTRUCTIONS
WITH RESPECT TO THE SURRENDER OF KEMPER STOCK CERTIFICATES
WILL BE MAILED TO EACH KEMPER STOCKHOLDER AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE TIME.
Kemper Share Ownership. For information regarding
each beneficial owner of more than 5% of the Kemper Common
Stock, see "PRINCIPAL KEMPER STOCKHOLDERS". As of the
Kemper Record Date, the directors and executive officers of
Kemper and their respective affiliates as a group
beneficially owned shares ( %) of Kemper Common
Stock, including 1,492,382 shares that the directors,
executive officers and their respective affiliates had the
right to acquire through the exercise of stock options, all
of which are immediately exercisable, and including
shares as to which the directors, executive officers and
their respective affiliates either disclaimed beneficial
ownership or did not have sole dispositive and voting power.
The directors and executive officers of Kemper have
indicated that they intend to vote the shares as to which
they have sole voting power FOR the adoption and approval of
the Merger Agreement, the election of each nominee as a
Class II director and the ratification of KPMG Peat Marwick LLP
as independent auditors for 1994.
As of the Kemper Record Date, Kemper's
subsidiaries and the trusts established under certain Kemper
employee benefit plans held shares or % of
outstanding Kemper Common Stock, in various fiduciary,
representative and custodial capacities. Where a Kemper
subsidiary has shared voting power with respect to the
adoption and approval of the Merger Agreement, it will
permit the other party or parties with voting power to vote
on the Merger Agreement as such party or parties deem
appropriate. Where a Kemper subsidiary has sole voting
power, or where the other party or parties sharing voting
power do not exercise that power, the Kemper subsidiary will
vote in what it determines to be the best interests of the
beneficial owners of such shares.
<PAGE>
<PAGE> 38
CONSECO, INC.
Conseco is a holding company which owns, operates
and provides services to companies in the financial services
industry (primarily life insurance companies, to date).
Historically, Conseco's earnings have resulted from three
distinct activities: (i) operating life insurance companies
and other financial services businesses; (ii) providing
investment management, administrative and other fee-based
services to affiliated businesses as well as non-affiliates;
and (iii) acquiring and restructuring life insurance
companies in partnership with other investors. Recently,
Conseco has aggressively pursued a strategy to expand its
fee-based business, with special emphasis on increasing
assets under management. Conseco's operating strategy for
acquired businesses is to consolidate and streamline
management and administrative functions, to realize superior
investment returns through active asset management, to
eliminate unprofitable products and distribution channels
and to focus resources on the development and expansion of
profitable products and strong distribution channels. The
insurance companies Conseco targets for acquisition have
profitable niche products, strong distribution systems and
progressive management teams who can work with Conseco to
implement Conseco's operating and growth strategies.
Conseco was organized in 1979 as an Indiana
corporation and commenced operation in 1982. Its executive
offices are located at 11825 N. Pennsylvania Street, Carmel,
Indiana, 46032, and its telephone number is (317) 573-6100.
Since Conseco commenced operation in 1982, it has acquired
11 life insurance companies, the first seven as wholly owned
subsidiaries and the last four through an investment
partnership, CCP I. CCP I was dissolved in 1993 after
distributing to its partners the proceeds of the sale of, or
the securities of, the companies it had acquired. In early
1994, Conseco formed CCP II, its second investment
partnership to invest in acquisitions of life insurance
companies and related businesses. A wholly owned subsidiary
of Conseco is the sole general partner of CCP II, as was the
case with CCP I.
The insurance companies in which Conseco has made
investments develop, market, issue and administer primarily
annuities, individual health insurance and life insurance
products.
<PAGE>
<PAGE> 39
Conseco currently holds ownership interests in the
following life insurance businesses: (i) BLH, a NYSE listed
company in which Conseco currently holds a 56% interest (and
which is the parent company of Bankers Life, one of the
nation's largest writers of individual health insurance
policies and a leader in the market for Medicare supplement
and long-term care insurance products); (ii) WNC, a NYSE
listed company in which Conseco currently holds a
40% interest and which is the parent of Western National
Life Insurance Company ("Western National"), which develops,
markets and issues annuity products through niche
distribution channels; (iii) CCP Insurance, a NYSE listed
company which Conseco manages and in which Conseco currently
holds a 40% ownership interest (and which is the parent
company of Great American Reserve Insurance Company,
Beneficial Standard Life Insurance Company and Jefferson
National Life Insurance Company, which offer annuity, life
and employee benefit related insurance products); and
(iv) Bankers National Life Insurance Company, National
Fidelity Life Insurance Company and Lincoln American Life
Insurance Company, all of which are wholly owned by Conseco
and which have profitable blocks of in-force life business,
although new sales are currently not being emphasized.
On July 13, 1994, Conseco announced its intention
to explore the sale of its equity interest in one or more of
WNC, CCP Insurance and BLH and that Morgan Stanley had been
retained to identify potential buyers.
On February 7, 1994, Conseco announced the closing
of CCP II, an investment partnership formed to invest in
acquisitions of life insurance companies and related
businesses, and Conseco's second such investment
partnership. CCP II contemplates effecting acquisitions
using partnership equity capital, together with mezzanine
and debt financing from various sources. CCP II has equity
capital commitments of $623.8 million from limited partner
investors, primarily large institutional investors.
Commitments to CCP II include $100.0 million from Conseco,
$25.0 million from Bankers Life, $25.0 million from CCP
Insurance and $50.0 million from Western National. In
addition, certain executive officers and directors of
Conseco and its affiliates have committed $36.0 million to
CCP II. Conseco, through its direct investment and through
its equity interest in the investments made by Bankers Life,
CCP Insurance and Western National, is expected to have a
23% ownership interest in CCP II. As set forth above,
Conseco has announced its intention to explore the sale of
its equity interests in one or more of WNC, CCP Insurance
and BLH. Any such sale would have the additional effect of
reducing Conseco's ownership interest in CCP II. Companies
acquired by CCP II (including, as described below, the Life
Companies) will be included in Conseco's financial
statements on a consolidated basis because such companies
will be unilaterally controlled by Conseco. See "UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION".
<PAGE>
<PAGE> 40
CCP II currently expects to consummate the
Statesman Acquisition in the Fall of 1994. Statesman is the
indirect parent of American Life and Casualty Insurance
Company and Vulcan Life Insurance Company. See "UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION".
Conseco believes that the use of the partnership
vehicle for acquisitions of life insurance companies enables
it to (i) broaden its access to the capital markets,
(ii) increase the size and number of potential acquisitions
it can effect and (iii) generate fee income through
management of the acquired companies and their investments.
Conseco participates in the acquisitions effected by CCP II
through its direct and indirect ownership interest in CCP II
and through incentive compensation fees payable (if CCP II
generates returns in excess of prescribed targets) by CCP II
to the wholly-owned subsidiary of Conseco that acts as
general partner of CCP II.
As described under "THE RESTRUCTURING", in
connection with the consummation of the Merger, the Life
Company Dispositions will be effected, pursuant to which
CCP II Holdings, a subsidiary of CCP II, will purchase all
of the issued and outstanding shares of capital stock of the
Life Companies from the Surviving Corporation. In addition,
the Real Estate Transfers will be consummated, pursuant to
which certain real estate interests currently held by
subsidiaries of Kemper will be transferred, by merger or
otherwise, to subsidiaries of CCP II Holdings. It is
currently anticipated that the Surviving Corporation will be
paid an aggregate of approximately $1.35 billion in
connection with the Life Company Dispositions and the Real
Estate Transfers.
<PAGE>
<PAGE> 41
KEMPER CORPORATION
Kemper is a financial services holding company
that gathers, manages and protects the assets of individual,
corporate and institutional clients. Kemper's operations
include asset management, life insurance, securities
brokerage and real estate subsidiaries. The principal
executive offices of Kemper are located at One Kemper Drive,
Long Grove, Illinois 60049-0001. Its telephone number is
(708) 320-4700.
Asset Management
KFS, with $65.1 billion in assets under management
at June 30, 1994, is one of the nation's largest asset
managers. KFS' product offerings include 21 stock and bond
funds, each of which offers fund shareholders the choice of
three pricing configurations: (i) the traditional front-end
load option, (ii) a spread load (contingent deferred sales
charge) and annual distribution fees charged pursuant to a
plan complying with Rule 12b-1 under the General Rules and
Regulations under the Investment Company Act of 1940 ("12b-1
Fees") or (iii) a level load charging annual service and
12b-1 Fees with no advance commission on the sale. KFS'
products also include the 12th largest money market
portfolio in the country. KFS also offers investment
management and advisory services for individual and
institutional investors. KFS distributes its products and
services primarily through securities brokerage firms, banks
and other financial institutions, independent brokers and
agents, financial planners and corporate pension and profit-
sharing plans.
INVEST Financial Corporation ("INVEST"), a KFS
subsidiary, is also an important distributor of Kemper
products. INVEST, a registered broker-dealer, is the
nation's largest distributor of securities and insurance
products through financial institutions.
Life Insurance
FKLA is a leader in the term life insurance
market. FKLA's products are designed for individuals and
small business owners and include features such as premium
guarantee levels and premium reduction options. FKLA
distributes its products through independent general agents
and various other channels.
<PAGE>
<PAGE> 42
KILICO specializes in variable and fixed
annuities. KILICO has been offering products in the
variable annuity marketplace for more than 10 years. KILICO
markets its products primarily through financial
institutions, securities brokerage firms, financial planners
and other specialty distributors of financial products. In
1992, the management, operations and employees of KILICO
were integrated with those of FKLA to increase efficiencies
and coordinate strategic directions of both companies.
Securities Brokerage
Kemper Securities, Inc. ("KSI") is a full-service
securities brokerage firm, providing a wide array of
investment vehicles and advisory services to individual,
business and institutional investors. Although KSI's market
focus is primarily retail, the firm also provides investment
banking services to corporate and municipal clients. The
firm is also the largest distributor of KFS mutual funds and
one of the largest distributors of KILICO annuity products.
Real Estate
This segment includes Kemper's real estate
subsidiaries. These subsidiaries include companies which
act as general or limited partners in and lenders to various
joint ventures.
THE MERGER
Background of the Merger
In the Spring of 1993, representatives of Conseco,
including Rollin M. Dick, Conseco's Chief Financial Officer,
had discussions with representatives of KILICO with regard
to the possible purchase of two large blocks of annuity
business written by KILICO. During the course of the
discussions, Mr. Dick suggested to the KILICO
representatives that a more appropriate alternative from
Conseco's viewpoint would be for Conseco to purchase KILICO
itself. The KILICO representatives indicated they would not
be interested in such a transaction.
<PAGE>
<PAGE> 43
A short time later, in the early Summer of 1993,
Stephen C. Hilbert, Chairman of the Board, Chief Executive
Officer and President of Conseco, Mr. Dick and Ngaire E.
Cuneo, Executive Vice President, Corporate Development, of
Conseco, along with representatives of Conseco's placement
agent for the offering of partnership interests in CCP II,
made a presentation to representatives of KFS regarding the
possible interest of KFS in making a partnership investment
in CCP II. The representatives of KFS who attended the
presentation included Stephen B. Timbers, the President and
Chief Operating Officer of Kemper. During the course of
this meeting Mr. Hilbert and Mr. Dick were introduced to
Mr. Timbers. A short time after this meeting, Mr. Hilbert
telephoned Mr. Timbers and suggested that they meet, along
with David B. Mathis, Chairman of the Board and Chief
Executive Officer of Kemper, Mr. Dick and Ms. Cuneo, to talk
about ways the two companies could possibly work together.
This meeting took place on July 21, 1993, at the offices of
Kemper in Long Grove, Illinois. At the meeting Conseco
expressed an interest in purchasing all or a portion of
KILICO. No specific proposal was made by any party. It was
agreed, however, that Conseco would send Kemper a list of
documents regarding KILICO that Conseco would like to
review. Although a comprehensive list was prepared and
sent, as was a shorter list, Conseco received no information
in response to either list, and no further discussions
ensued regarding a Conseco purchase of KILICO.
In the Fall of 1993, Conseco began discussions
with investment bankers to explore the possibilities for
strategic investments outside the life insurance industry.
One of the opportunities discussed was the mutual fund
business. A list of possible acquisition opportunities in
the mutual fund business was prepared by Conseco in
cooperation with its investment bankers, and Kemper was one
of the companies included on the list. One of the
investment bankers made an inquiry in November 1993 to
Messrs. Mathis and Timbers as to whether Kemper might be
interested in selling its asset management business to
Conseco. Mr. Mathis and Mr. Timbers indicated at that time
that Kemper was not interested in such a transaction.
On January 25, 1994, Gary Wendt, President and
Chief Executive Officer of General Electric Capital
Corporation ("GECC"), a subsidiary of General Electric
Company ("GE"), telephoned Mr. Mathis and asked to meet the
next day to get acquainted. Mr. Mathis agreed to the
meeting. On January 26, 1994, Mr. Wendt arrived with Silas
Cathcart, a GE director, and Paul Street, Senior Vice
President of GECC. Mr. Wendt informed Mr. Mathis and
Mr. Timbers, who also attended the meeting, that GECC was
interested in acquiring Kemper on a friendly basis for $45
per share, but would need to review Kemper's real estate
portfolio before doing so. Following the meeting, in an
effort to pursue an acquisition of Kemper, Mr. Wendt and
other GECC representatives communicated again with
Mr. Mathis and with representatives of Goldman Sachs, which
had been retained by Kemper to provide general financial
advisory services.
<PAGE>
<PAGE> 44
At a special meeting of the Board of Directors of
Kemper held February 3, 1994, Mr. Mathis and Kemper's legal
and financial advisors reviewed with the Board GECC's
expression of interest and related matters, including
whether or not a sale of Kemper at such time was likely to
be in the best interests of stockholders. The next day
Mr. Wendt again expressed GECC's interest in acquiring
Kemper and sought to arrange a meeting between John
Welch, Jr., Chairman of the Board and Chief Executive
Officer of GE, and Mr. Mathis. Mr. Mathis said that Kemper
was not for sale at this time and declined. Mr. Wendt
stated that GECC would continue to pursue the matter.
In a letter dated March 2, 1994, Mr. Welch
reaffirmed GECC's intention to acquire Kemper and made a
firm proposal at a price of $55 per share, with the
possibility of a higher price based on limited due diligence
of Kemper, particularly its real estate portfolio. In
response, Mr. Mathis reiterated to Mr. Welch Kemper's
position that a sale at this time was not in the best
interests of its stockholders, but that the proposal would
be reviewed more formally at the Kemper Board of Directors'
next meeting. At that meeting, held March 17, 1994, the
Board reviewed Kemper's financial performance and future
prospects, Goldman Sachs advised the Board, based on its
review of such financial and other information, that in its
opinion the GECC offer of $55 per share was inadequate and,
after extensive discussions among the directors and with
Kemper's legal and financial advisors, the Board of
Directors unanimously rejected GECC's proposal and
determined that Kemper was not for sale at that time.
Following the public announcement of GECC's
$55 per share offer, Mr. Hilbert telephoned Mr. Timbers.
During their conversation, Mr. Hilbert indicated that, if
Kemper decided to look for an alternative buyer for all or
any part of Kemper, Conseco would be very interested.
Mr. Timbers stated that Kemper was not for sale at that
time, but he would keep Conseco in mind if the position of
Kemper's Board of Directors changed in that regard.
<PAGE>
<PAGE> 45
On March 24, 1994, GECC made a filing with the SEC
that indicated it would seek to elect to the Kemper Board of
Directors four former GE employees who were committed to a
sale or merger of Kemper for a price of at least $55 per
share. On or about April 4, 1994, GECC distributed a
definitive proxy statement with respect to its proposal. On
April 7, 1994, Kemper formally retained Goldman Sachs to
provide advisory services in connection with the proxy
contest. On April 9, 1994, Kemper mailed its proxy
statement for its annual meeting of stockholders to be held
May 11, 1994. Between April 4, 1994 and May 8, 1994, Kemper
and GECC filed with the SEC various solicitation materials
in connection with the proxy contest.
Shortly following the public announcement of
GECC's intention to conduct a proxy contest, Mr. Hilbert
again telephoned Mr. Timbers. He again expressed Conseco's
interest in Kemper, and Mr. Timbers reiterated that Kemper
was not for sale.
On May 8, 1994, Kemper and GECC entered into a
letter agreement by which, among other things, GECC
increased its offer to acquire Kemper to $60 in cash per
share, subject to the satisfactory completion of due
diligence and the satisfaction of certain other conditions.
Kemper and GECC also agreed to vote their respective proxies
at the Kemper annual meeting of stockholders to be held on
May 11, 1994 to adjourn such meeting until August 22, 1994
prior to taking any vote on any other action. In light of
the increased GECC offer, Kemper advised GECC pursuant to
the letter agreement that the Kemper Board of Directors had
authorized its management and advisors to take all
appropriate actions to maximize value for Kemper
stockholders.
At the Kemper annual meeting of stockholders held
on May 11, 1994, a motion to adjourn the annual meeting to
August 22, 1994 was submitted to stockholders and passed by
a majority vote.
Following the public announcement of the decision
of Kemper's Board of Directors to pursue actions to maximize
value for Kemper stockholders, Mr. Hilbert telephoned
Mr. Mathis and indicated that Conseco would be interested in
pursuing a possible transaction with Kemper. Mr. Mathis
suggested that Mr. Hilbert contact Goldman Sachs and arrange
for Conseco to be included as a potential buyer in the
process to be conducted by Kemper and its advisors.
<PAGE>
<PAGE> 46
On May 16, 1994, Conseco engaged Morgan Stanley to
act as its financial advisor in connection with a possible
transaction with Kemper.
On May 16, 1994, Kemper engaged Goldman Sachs to
investigate the possible sale of Kemper and to explore other
alternatives for providing value to Kemper stockholders,
including, without limitation, the sale of the various
business segments of Kemper. Kemper and its advisors
prepared a confidential selling memorandum and data rooms
for review by potential buyers and contacted over one
hundred entities to determine whether they would be
interested in acquiring Kemper or any of its segments. The
entities contacted by Kemper and its advisors included
potential strategic and financial buyers, as well as
domestic and foreign entities. Based on preliminary
indications of interest, Kemper and its advisors negotiated
confidentiality agreements with, and distributed copies of
the selling memorandum and other confidential information
about Kemper to, approximately 35 potential buyers,
including Conseco and GECC. During the same period, Kemper
and its advisors had conversations with various interested
parties, primarily to respond to inquiries and to attempt to
ascertain such parties' respective levels of interest. Such
conversations included a meeting held on May 19, 1994,
attended by Mr. Hilbert, Ms. Cuneo, Mr. Dick, Conseco's
financial advisors, Mr. Mathis, Mr. Timbers and Kemper's
financial advisors, in which Conseco's degree of potential
interest in acquiring Kemper was explored. Potential buyers
of the entire company were contacted before potential
segment buyers and, subject to demonstrated interest, were
given priority with respect to due diligence. Copies of the
selling memorandum were distributed to interested potential
segment buyers, but due diligence by potential segment
buyers was conducted only by several prospective buyers of
Kemper's real estate segment.
Three parties, including Conseco and GECC,
manifested a serious interest in being included in a bidding
process for the entire company and were invited to conduct
an extensive due diligence review of Kemper in preparation
for the submission of final acquisition proposals. The
three parties participated in parallel due diligence
processes, which included equal access to management, data
rooms and follow-up data and information for all Kemper
business segments. The parties also had equal access to
Kemper's legal and financial advisors.
<PAGE>
<PAGE> 47
On June 7, 1994, the Board of Directors of Conseco
held its regular annual meeting following the annual meeting
of stockholders of Conseco. At the Board meeting,
Mr. Hilbert reported on the discussions that had taken place
with Kemper and its advisors with respect to a possible
acquisition of Kemper, including a review of the proposal
made to Kemper by GECC and the subsequent proxy contest and
of Conseco's entry into the process. Mr. Hilbert described
the proposed transaction structure that would be employed by
Conseco in connection with any acquisition, the probable
sources and structure of the financing of any acquisition,
the due diligence that had been accomplished to date and the
likely structure and timing of any bid that Conseco
determined to make for Kemper. The Conseco Board authorized
the management of Conseco to continue investigating a
possible acquisition of Kemper, with the understanding that
a subsequent meeting would be held to authorize any actual
proposal.
On June 7 and June 13, 1994, Conseco's and
Kemper's legal and financial advisors held discussions, at
Conseco's request, regarding the likely structure of any
acquisition of Kemper by Conseco. In addition, Kemper's and
Conseco's advisors discussed various aspects of possible
elements of a potential bid.
On June 14, 1994, Mr. Hilbert, Ms. Cuneo and
Mr. Dick, together with Conseco's legal and financial
advisors, met with Mr. Mathis and Kemper's legal and
financial advisors. The Kemper representatives stated that
a draft merger agreement would be distributed after the
Kemper Board meeting scheduled for June 17 and that they
anticipated requesting final proposals for the acquisition
of Kemper during the last week of June. The Conseco
representatives advised the Kemper representatives that
Conseco was considering other possible transactions that it
would pursue if Conseco were not the successful bidder for
Kemper and that it was concerned about the length of time
the sale process was taking. The Conseco representatives
requested that the process be concluded with a single round
of sealed bids to be due on June 20, and that the bidding
procedures include expense reimbursement for any bidder that
submitted a bona fide bid in excess of $60 per share.
Conseco indicated to Kemper that it was prepared to submit a
final bid and requested a copy of the form of merger
agreement that had been prepared by Kemper and its advisors.
<PAGE>
<PAGE> 48
Between June 14 and June 17, various conversations
took place between Conseco's and Kemper's advisors,
including discussions with respect to the nature of
Conseco's financing commitments.
Kemper senior management determined it was
necessary to attempt to bring the sale process to a prompt
and orderly close in order to mitigate the risks inherent in
a prolonged process, particularly the disruption to Kemper's
businesses. In order to ascertain that none of the
potential bidders would be prejudiced by this course of
action, Kemper and its advisors consulted with the other two
potential bidders and their respective advisors during the
following days with respect to the status of their due
diligence reviews and to ascertain when they would be
prepared to submit final proposals for Kemper. At such
time, GECC and the other potential bidder indicated that
they needed additional time beyond the June 20, 1994 date
requested by Conseco to complete their due diligence review.
On June 17, 1994, the Kemper Board discussed in depth the
status of the potential bidders in the process, including
Conseco's request as to timing, determined to continue the
pending process until at least the last week in June and
instructed its advisors to inform Conseco that certain other
potential bidders were continuing their due diligence
reviews and that, in order to ensure that the sale process
was conducted in a fair and orderly manner, final proposals
for the acquisition of Kemper would not be requested until a
later date.
On June 18, 1994, Kemper distributed to the three
potential bidders a form of merger agreement containing
terms that Kemper recommended be utilized by prospective
acquirors in submitting a proposal for the acquisition of
Kemper, together with a letter indicating that specific
rules and procedures for the submission of final proposals
(then contemplated to be due at a specified time during the
week of June 27th) would be transmitted within the next
week.
While continuing its due diligence review, Conseco
began finalizing financing commitments for a potential
acquisition of Kemper. On June 21, 1994, Conseco received
the Citibank Commitment Letter, in which Citibank, N.A.
provided Conseco with financing commitments for senior
secured debt facilities of approximately $1.2 billion for
the proposed acquisition. On June 22, 1994, Conseco
received the Morgan Stanley Highly Confident Letter, in
which Morgan Stanley stated that, based upon and subject to
the matters set forth therein, it was highly confident that
it could arrange, as exclusive placement agent or lead
managing underwriter, up to $750 million of subordinated
debt financing for the proposed acquisition.
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<PAGE> 49
At a meeting of the Conseco Board of Directors
held on June 22, 1994, Mr. Hilbert reported on the status of
the due diligence review undertaken by Conseco and its
advisors and on the results of the discussions to date with
representatives of Kemper and its legal and financial
advisors. Mr. Hilbert then outlined for the Conseco Board
the terms of a proposal recommended by management under
which Conseco would acquire Kemper. The Conseco Board
discussed the potential risks and benefits to Conseco of an
acquisition of Kemper. Mr. Hilbert also reported that
Morgan Stanley had been engaged by Conseco to render a
fairness opinion on a transaction with Kemper.
Representatives of Morgan Stanley then advised the Conseco
Board of the results of Morgan Stanley's analyses of the
proposed acquisition, and advised the Conseco Board that it
was prepared to deliver a written opinion to the Board that
the consideration to be paid to the holders of Kemper Common
Stock under the proposal being considered by the Conseco
Board was fair from a financial point of view to Conseco,
which opinion was subsequently delivered on June 26, 1994.
The Conseco Board then reviewed the proposed financing
structure for the acquisition, including the Citibank
Commitment Letter and the Morgan Stanley Highly Confident
Letter, and the terms and conditions of the merger agreement
that would be included in Conseco's proposal to Kemper. The
Conseco Board then authorized management to make an
acquisition proposal to Kemper on the terms recommended by
management and to execute and deliver the Merger Agreement.
That evening Mr. Hilbert telephoned Mr. Mathis and informed
him that Conseco would deliver to Kemper the following day a
proposal for the acquisition of Kemper by Conseco.
Late on June 22, 1994, Kemper and its advisors
completed the preparation of a form of final bid letter that
contemplated the submission on July 5, 1994 of best and
final firm proposals for the acquisition of Kemper. On
June 23, 1994, prior to the distribution by Kemper of the
final bid letter, a letter from Mr. Hilbert was delivered to
Mr. Mathis offering to enter into the Merger Agreement with
Kemper (the "Conseco Offer"), pursuant to which a subsidiary
of Conseco would be merged into Kemper and each outstanding
share of Kemper Common Stock would be converted into the
right to receive $56.00 in cash and the fraction of a share
of Conseco Common Stock determined by dividing $11.00 by the
average closing price of Conseco Common Stock for a
specified period prior to the merger (such fraction not to
be more than 0.2418 or less than 0.1982). Mr. Hilbert's
letter stated that the Conseco Offer would expire if not
accepted by 11:59 p.m. on June 26, 1994.
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<PAGE> 50
On June 23, 1994, after receiving the Conseco
Offer, Kemper and its advisors contacted the other two
potential bidders to determine whether they anticipated
making an offer for Kemper within the range of the Conseco
Offer. On the same day, GECC issued a press release that
stated "in light of Conseco's $67 a share offer, GE Capital
has determined, after significant due diligence, that it
will not submit a firm bid for Kemper. We wish both Kemper
and Conseco success." In addition, from June 23 through
June 26, 1994, Kemper and Goldman Sachs had discussions with
the third potential bidder, which indicated that such third
party was not prepared to make an offer for Kemper by
June 26 and that at such time, if any, as it would be
prepared to make an offer, such offer would be below $67 per
share and would include substantial non-cash consideration.
From June 23 through June 26, 1994,
representatives of Kemper, together with their legal and
financial advisors, conducted a due diligence review of the
business and financial condition of Conseco. During the
same period, members of senior management of Conseco and
Kemper, together with their legal and financial advisors,
negotiated the provisions of the Merger Agreement.
On June 26, 1994, Kemper's Board of Directors held
a special meeting. At such meeting, the Kemper Board
reviewed with Kemper's senior management and its legal and
financial advisors the discussions and negotiations between
Kemper and the potential bidders since the last meeting of
the Kemper Board. The Kemper Board also heard presentations
by its legal advisors on the terms and conditions of the
proposed merger agreement, by Goldman Sachs of its analysis
of the Conseco Offer, by senior executive officers of
Conseco as to Conseco's rationale for the transaction and by
representatives of Citibank, N.A. and Morgan Stanley as to
the plan of financing for the transaction. Representatives
of Goldman Sachs then delivered the written opinion of
Goldman Sachs to the Kemper Board that, as of such date, the
consideration to be received by the holders of Kemper Common
Stock in the Merger was fair to such holders. After further
deliberations, the Kemper Board unanimously approved the
execution and delivery of the Merger Agreement as being in
the best interests of Kemper and its stockholders. The
Merger Agreement was executed later that day. For a
description of the factors considered by the Kemper Board in
reaching its decision, see "--Recommendations of the Boards
of Directors and Reasons for the Merger" below.
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<PAGE> 51
In light of the pending Merger, on July 18, 1994,
the Kemper Board postponed the Kemper annual meeting of
stockholders, which had been adjourned to August 22, 1994,
to enable the Kemper stockholders to consider and vote on
the adoption and approval of the Merger Agreement at such
meeting.
Recommendations of the Boards of Directors and Reasons for
the Merger
Conseco. The Board of Directors of Conseco
approved the Merger by a unanimous vote of those directors
present at the June 22 meeting. The Conseco Board
unanimously recommends that the stockholders of Conseco vote
FOR the approval of the Issuance.
In reaching its conclusion, the Conseco Board
considered information provided at the June 7 and 22 Board
meetings, including, among other things, (i) information
concerning the financial performance and condition, business
operations and prospects of Kemper, including an analysis of
Kemper's real estate portfolio (including with respect to
required reserves, expected cash flows and future funding
requirements), an analysis of possible cost savings and
synergies, and a qualitative overview of the individual
business segments, (ii) the potential long-term and short-
term effect of the transaction on Conseco's earnings per
share, (iii) the structure of the proposed transaction, (iv)
the terms of the Merger Agreement, (v) the presentation and
recommendation made by the management of Conseco and (vi)
the views of Conseco's financial advisor.
<PAGE>
<PAGE> 52
Conseco's principal strategic objective since it
commenced operations in 1982 has been to acquire financial
services companies and to increase their value by
implementing management strategies to reduce costs and
improve administrative efficiency, centralize asset
management, improve marketing and distribution, eliminate
unprofitable products and focus resources on the development
and expansion of profitable products. Conseco has completed
11 previous acquisitions of insurance companies and related
businesses (excluding the Statesman Acquisition) since it
commenced operations in furtherance of this strategy. In
addition, Conseco has, over the past year, pursued a
strategy of increasing the amount of assets it has under
management with specific emphasis on fee-based businesses.
In that connection, Conseco had engaged in ongoing
discussions with certain investment banking firms about the
possibility of acquiring an asset management (mutual fund)
firm and had from time to time evaluated specific
acquisition opportunities in this area. Such an acquisition
would serve to increase the percentage of Conseco's earnings
derived from recurring fee income. In addition, Conseco
believes that it would benefit from the similarities and
synergies between the asset management business and the
insurance business.
Accordingly, Conseco was interested in the
possibility of an acquisition of Kemper because, among other
reasons, Kemper owns a large, successful mutual fund asset
manager with a nationally recognized brand name and
experienced management teams. Conseco believes that the
mutual fund industry is experiencing significant pressure
for consolidation, and that the Kemper asset management
business is attractively positioned to succeed in this
environment because of its size, strong consumer name
recognition and product and distribution channel
diversification. After the Merger, Conseco would manage
approximately $85 billion in assets, which is more than four
times the approximately $19.0 billion of assets that Conseco
had under management at year-end 1993. In addition,
following the Merger, fee-based earnings would represent
more than 40% of Conseco's pro forma earnings for the year
ended December 31, 1993 as compared to approximately 5% of
Conseco's historical net income for such period. Conseco's
Board of Directors believes that Kemper's and Conseco's
businesses complement each other in several other
significant areas such as insurance (where Kemper's strong
position in the annuity market would add critical mass to
Conseco's operations and Kemper's status as a leading
provider of term insurance would help to diversify Conseco's
product offerings) and third party marketing (where Kemper's
subsidiary INVEST, the nation's largest distributor of
securities and insurance products through financial
institutions, would complement Conseco's existing strategy
of selling annuity and mutual fund products through its
affiliate, Marketing Distribution Systems Consulting Group,
Inc. ("Bankmark")). In addition, the acquisition of Kemper
represents a unique opportunity to acquire a leading
regional brokerage firm.
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<PAGE> 53
The Conseco Board of Directors believes that the
management of Kemper shares Conseco's philosophy for
building stockholder value (as evidenced by the significant
steps taken to address certain difficulties that Kemper has
experienced over the last several years, particularly with
respect to its real estate portfolio) and that Kemper is now
poised to see the results of these actions.
The Conseco Board of Directors believes that the
Merger offers Conseco and Kemper the opportunity to improve
their profitability and capitalization through the
achievement of economies of scale, the elimination of
redundancies and the enhancement of market position. By
consolidating certain operations and eliminating expenses,
Conseco expects to achieve, over time, significant savings
of operating costs. See "MANAGEMENT AND OPERATIONS AFTER
THE MERGER--Operations After the Merger".
Kemper. The Board of Directors of Kemper has
unanimously approved the Merger Agreement. The Board of
Directors of Kemper has determined that the Merger is in the
best interests of Kemper and its stockholders and
unanimously recommends that the stockholders of Kemper vote
FOR the approval and adoption of the Merger Agreement.
In determining to approve the Merger Agreement,
the Kemper Board of Directors considered a number of
factors, including, without limitation, the following:
(i) The facts that the Kemper Board had publicly
announced that it had authorized its management and
advisors to take all appropriate actions to maximize
value for Kemper stockholders; that the Kemper Board
had determined, in consultation with its advisors, that
the most likely way to maximize value was through the
sale of the whole company as opposed to the sale of
various segments; that procedures to elicit proposals
to acquire Kemper had been implemented; and that
negotiations had been conducted with several interested
parties in the context of a comprehensive sale process;
<PAGE>
<PAGE> 54
(ii) The fact that GECC's acquisition proposal for
Kemper was made public on March 14, 1994 and that since
May 11, 1994, Kemper and its advisors had contacted
more than 100 entities to determine whether they would
be interested in acquiring Kemper or any of its
segments;
(iii) The Kemper Board's review of presentations
from, and discussion of the terms and conditions of the
Merger (and the financing therefor) with, senior
executive officers of Kemper, representatives of its
legal counsel, representatives of Goldman Sachs, senior
executive officers of Conseco and representatives of
Citibank, N.A. and Morgan Stanley;
(iv) The assurances the Kemper Board received from
representatives of Citibank, N.A. and Morgan Stanley
with respect to the feasibility of Conseco's financing
plans;
(v) The Kemper Board's consideration of, among
other things, information with respect to the financial
condition, results of operations and business of
Kemper, on both an historical and a prospective basis,
and current industry, economic and market conditions;
(vi) The Kemper Board's review of the historical
market prices of Kemper Common Stock compared to the
Merger Consideration;
(vii) The Kemper Board's consideration of, among
other things, information with respect to the financial
condition, results of operations and business of
Conseco, on both an historical and a prospective basis,
its review of the historical market prices of Conseco
Common Stock and its consideration of certain pro forma
financial information with respect to the Merger;
(viii) The Kemper Board's determination, taking into
account, among other things, the public announcement on
June 23, 1994 by GECC that it would no longer pursue a
transaction with Kemper as well as discussions that
Kemper and Goldman Sachs had between June 23 and
June 26, 1994 with a third potential bidder, which
indicated that such third party was not prepared to
submit an offer by June 26, 1994 and that at such time,
if any, as it would be prepared to make an offer, such
offer would be below $67 per share and would include
substantial non-cash consideration;
<PAGE>
<PAGE> 55
(ix) The Kemper Board's consideration of the
provisions of the Merger Agreement which contemplate
that the sale process would continue unrestricted until
July 6, 1994 and permit, if another acquisition
proposal were received, the Kemper Board in the
exercise of its fiduciary duties to terminate the
Merger Agreement prior to such date with the payment of
a fee of $25 million plus Expenses (compared to a fee
of $100 million plus Expenses if terminated on or after
such date);
(x) The Kemper Board's receipt of the written
opinion of Goldman Sachs that, as of June 26, 1994, the
Merger Consideration to be received by the holders of
shares of Kemper Common Stock is fair to such holders;
(xi) The risk that prolonging the sale process
further and failing to reach an agreement with Conseco
by the deadline specified in the Conseco Offer could
result in the withdrawal of Conseco, which could have
adversely affected the Kemper Board's ability to
achieve the highest and best offer for Kemper's
stockholders, as well as its ability to obtain an
agreement with any of the remaining parties on the
terms then being proposed; and
(xii) The risk that prolonging the sale process
further could significantly disrupt Kemper's
businesses.
The Kemper Board of Directors did not assign
relative weights to the factors discussed above.
Opinions of Financial Advisors
Conseco. Morgan Stanley delivered to the Conseco
Board of Directors its written opinion dated June 26, 1994,
to the Board of Directors of Conseco that, as of such date,
the Merger Consideration was fair from a financial point of
view to Conseco. No limitations were imposed by Conseco
with respect to the investigations made or the procedures
followed by Morgan Stanley in rendering its opinion.
<PAGE>
<PAGE> 56
The full text of the opinion of Morgan Stanley,
which sets forth assumptions made, matters considered and
limitations on the review undertaken by Morgan Stanley, is
included as Annex 2 to this Joint Proxy
Statement/Prospectus. Conseco stockholders are urged to
read the opinion in its entirety. Morgan Stanley's opinion
is directed only to the Merger Consideration and does not
constitute a recommendation to any Conseco stockholder as to
how such stockholder should vote at the Conseco Meeting.
The summary of the opinion of Morgan Stanley 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 its opinion, Morgan Stanley
(i) analyzed certain publicly available financial statements
and other information of Kemper and Conseco; (ii) analyzed
certain internal financial statements and other financial
and operating data concerning Kemper prepared by the
management of Kemper; (iii) analyzed certain financial
projections prepared by the management of Kemper;
(iv) discussed the past and current operations and financial
condition and the prospects of Kemper with senior executives
of Kemper; (v) analyzed certain internal financial
statements and other financial and operating data concerning
Conseco prepared by the management of Conseco; (vi) analyzed
certain financial projections prepared by the management of
Conseco; (vii) discussed the past and current operations and
financial condition and prospects of Conseco with senior
executives of Conseco, and analyzed the pro forma impact of
the Merger on Conseco's earnings per share, consolidated
capitalization, credit ratings, cash flow and financial
ratios; (viii) reviewed the reported prices and trading
activity for Kemper Common Stock; (ix) compared the
financial performance of Kemper and the prices and trading
activity of Kemper Common Stock with that of certain other
comparable publicly traded companies and their securities;
(x) reviewed the financial terms, to the extent publicly
available, of certain comparable acquisition transactions;
(xi) reviewed and discussed with the senior management of
Conseco the strategic rationale for the Merger and the
benefits of the Merger to Conseco; (xii) participated in
discussions and negotiations among representatives of Kemper
and Conseco and their financial and legal advisors;
(xiii) reviewed the Merger Agreement and certain related
documents; (xiv) reviewed the plan under which CCP II will
acquire, through subsidiaries, the life insurance
subsidiaries of Kemper and certain real estate interests
currently held by subsidiaries of Kemper engaged in holding
interests in real estate businesses and related activities
(including the plan of financing for such acquisitions);
(xv) reviewed the plan under which the broker-dealer
businesses of KFS will be transferred into a new wholly
owned subsidiary; (xvi) reviewed financial information
provided by Kemper and discussed specific real estate assets
of Kemper with Kemper management; and (xvii) performed such
other analyses as it deemed appropriate.
<PAGE>
<PAGE> 57
Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of
the information reviewed by it for purposes of rendering its
opinion, including information provided to it regarding the
ownership structure and corresponding cash flows of Kemper's
real estate assets. Morgan Stanley also relied upon the
assumptions of Conseco's management regarding cost savings
to be realized in the Merger and regarding the effects on
statutory reserve capital of the KFS Broker-Dealer Transfer.
Morgan Stanley also assumed that the financial projections
provided to it were reasonably prepared on bases reflecting
the best currently available estimates and judgments of the
future financial performance of Kemper. Morgan Stanley did
not make any independent valuation or appraisals of the
assets or liabilities of Conseco or Kemper. Morgan
Stanley's opinion was based on the economic, market and
other conditions in effect on, and the information made
available to it as of, the date of the opinion.
The following is a summary of the analyses Morgan
Stanley utilized in arriving at its opinion as to the
fairness of the Merger Consideration and that Morgan Stanley
discussed with the Conseco Board of Directors on June 22,
1994.
Overview. Morgan Stanley summarized the principal
terms of and the structure of the proposed transaction,
evaluated the positions and strengths of the combined
company after the Merger and qualitatively reviewed the
significant issues and opportunities represented by the
transaction. Morgan Stanley reviewed certain
historical financial information for Kemper for the
five-year period ended December 31, 1993 and the first
quarters of 1993 and 1994. In addition, Morgan Stanley
reviewed the trading volume and price history of Kemper
Common Stock and the relationship between movements of
Kemper Common Stock and movements of the Standard &
Poor's 500 Index (the "S&P 500 Index") and a composite
index comprised of the common stock of certain
comparable companies. The comparable companies
included in the composite index are T. Rowe Price
Associates, Inc., Franklin Resources, Inc., The
Equitable Companies Incorporated, First Colony
Corporation, The Lincoln National Life Insurance
Company and Transamerica Corporation.
<PAGE>
<PAGE> 58
Kemper Valuation Analysis. Morgan Stanley arrived
at a range of values for Kemper by separately valuing
KFS, INVEST, KSI and the Life Companies. Morgan
Stanley utilized three principal valuation
methodologies in valuing these businesses: a
comparable company analysis; a precedent transactions
analysis and a discounted cash flow analysis.
Comparable company analysis analyzes a company's
operating performance and outlook relative to a group
of publicly traded peers to determine an implied
unaffected market trading value. Precedent
transactions analysis provides a valuation range based
upon financial information of companies in the same or
similar industries as the target which have been
acquired in selected recent transactions. Discounted
cash flow analysis provides insight into the intrinsic
value of a company based on projected earnings and
capital requirements and the subsequent cash flows
generated by the assets of the target company. No
company used in the comparable company analyses
described below is identical to KFS, INVEST, KSI or the
Life Companies and no transaction used in the precedent
transactions analyses described below is identical to
the Merger. Accordingly, an analysis of the results of
analyses described below necessarily involves complex
considerations and judgments concerning differences in
financial and operating characteristics of the
companies and other factors that could affect the
public trading value or the acquisition value of the
companies to which they are being compared.
KFS
Comparable Company Analysis. Morgan Stanley
compared certain financial information of KFS with
the following group of companies that Morgan
Stanley believed to be appropriate for comparison:
Franklin Resources, Inc., The John Nuveen Company,
T. Rowe Price Associates, Inc., The Pioneer Group,
Inc., Eaton Vance Corp., The Colonial Group, Inc.,
United Asset Management Corporation, Duff & Phelps
Corp., Atalanta/Sosnoff Capital Corporation,
Alliance Capital Management L.P., New England
Investment Companies, L.P. and
Oppenheimer Capital, L.P. The financial
information compared included market value, common
stock price, common stock price as a percentage of
the last 12-month's ("LTM") low and high sales
prices, assets under management, percentage of
mutual fund assets, LTM return on average equity,
the ratio of equity to assets, estimated 5-year
growth, income as a percentage of assets under
management, market value as a percentage of assets
under management and market price as a multiple of
(i) estimated adjusted earnings for 1994 and 1995,
(ii) book value and (iii) LTM revenue. This
analysis resulted in a range of values for KFS of
between $958.0 million and $1,643.0 million.
<PAGE>
<PAGE> 59
Precedent Transactions Analysis. The
transactions used in the analysis included PNC
Bank Corp.'s acquisition of Blackrock Financial
Management, L.P., Fleet Financial Group, Inc.'s
acquisition of IBM Credit Investment Management
Corporation, Mellon Bank Corporation's acquisition
of The Dreyfus Corporation, Torchmark
Corporation's acquisition of United Investors
Management Company, Clayton Dubilier & Rice,
Inc.'s acquisition of The Van Kampen Merritt
Companies, Inc. and Franklin Resources, Inc.'s
acquisition of Templeton, Galbraith & Hansberger,
Ltd. The financial information compared in the
analysis included aggregate transaction value,
assets under management, return on equity of the
acquired company and the price paid for the
acquired company as a multiple of (i) net income,
(ii) book value, (iii) market value and
(iv) assets under management. Applying the
multiples derived from the precedent transactions
resulted in a range of values for KFS of between
$730.2 million and $2,772.0 million.
Discounted Cash Flow Analysis. The stand-
alone valuation of KFS was determined by adding
(i) the present value of projected cash flows over
a 10-year period from 1994 through 2004 and
(ii) the present value of KFS's 2004 terminal
value. The terminal value of KFS's common equity
at the end of the 10-year period was determined by
applying a range of multiples (ranging from 11 to
13) to KFS's terminal year earnings. Earnings
were projected assuming KFS performed in
accordance with its management's forecast and
certain variations thereof. The cash flows and
terminal values of KFS were discounted to present
values using different discount rates (ranging
from 13% to 14%) chosen to reflect different
assumptions regarding KFS' estimated cost of
capital. This analysis resulted in a range of
values for KFS of between $1,454.5 million and
$1,675.9 million.
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<PAGE> 60
KFS Valuation Summary. By analyzing the
results obtained from utilizing the foregoing
methodologies, Morgan Stanley arrived at a
valuation range for KFS of between
$1,500.0 million and $1,625.0 million.
INVEST
Comparable Company Analysis. Morgan Stanley
compared certain financial information of INVEST
with the following group of companies that Morgan
Stanley believed to be appropriate for comparison:
Merrill Lynch & Company, Inc., Dean Witter,
Discover & Co., Morgan Stanley Group, Inc.,
Salomon Inc, The Bear Stearns Companies Inc.,
Lehman Brothers Inc., Paine Webber Group Inc.,
A. G. Edwards & Sons Inc., Alex. Brown Inc.,
Raymond James Financial, Inc., Legg Mason, Inc.,
Piper Jaffray Inc., Inter-Regional Financial
Group, Inc., Morgan Keegan & Company,
Incorporated, McDonald & Company Securities, Inc.,
The Advest Group, Inc., Jefferies & Company, Inc.
and Concord Financial Group, Inc. The financial
information compared included market value, stock
price, LTM net income, LTM net margin, LTM return
on average equity, the 1993 ratio of subordinated
debt to total capital, the 1993 ratio of total
capital to assets, the composition of
1993 revenues and market price as a multiple of
book value, LTM earnings, LTM revenues and
estimated earnings for 1994 and 1995. This
analysis resulted in a range of values for INVEST
of between $30.6 million and $65.1 million.
<PAGE>
<PAGE> 61
Precedent Transactions Analysis. The
transactions used in the analysis included the
management and employee acquisition of Furman Selz
Incorporated, Primerica Corporation, Inc.'s
acquisition of the domestic retail brokerage and
asset management businesses of Shearson Lehman
Brothers Holdings Inc. and Prudential Securities
Incorporated's acquisition of Thompson McKinnon,
Inc. The financial information reviewed included
aggregate transaction value and price paid as a
multiple of the number of registered
representatives and the number of branch offices.
Because of the absence of publicly available
information as to the net income, book value or
market value of the acquired companies in these
transactions, Morgan Stanley did not calculate a
range of values for INVEST using this methodology
but instead used it as a point of reference in
analyzing the other valuation methodologies.
Discounted Cash Flow Analysis. The stand-
alone valuation of INVEST was determined by adding
(i) the present value of projected cash flows over
a 10-year period from 1994 through 2004 and
(ii) the present value of INVEST's 2004 terminal
value. The terminal value of INVEST's common
equity at the end of the ten-year period was
determined by applying a range of multiples
(ranging from 8 to 10) to INVEST's terminal year
earnings. Earnings were projected assuming INVEST
performed in accordance with its management's
forecast and certain variations thereof. The cash
flows and terminal values of INVEST were
discounted to present values using different
discount rates (ranging from 12% to 13%) chosen to
reflect different assumptions regarding INVEST's
estimated cost of capital. This analysis resulted
in a range of values for INVEST of between
$90.5 million and $103.9 million.
INVEST Valuation Summary. By analyzing the
results obtained from utilizing the foregoing
methodologies, Morgan Stanley arrived at a
valuation range for Kemper's 95% interest in
INVEST of between $90.0 million and $95.0 million.
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KSI
Comparable Company Analysis. Morgan Stanley
compared certain financial information of KSI with
the following group of companies that Morgan
Stanley believed to be appropriate for comparison:
Merrill Lynch & Company, Inc., Dean Witter,
Discover & Co., Morgan Stanley Group, Inc.,
Salomon Inc, The Bear Stearns Companies Inc.,
Lehman Brothers Inc., Paine Webber Group Inc.,
A. G. Edwards & Sons Inc., Alex. Brown, Raymond
James Financial, Inc., Legg Mason, Inc., Piper
Jaffray Inc., Inter-Regional Financial Group,
Inc., Morgan Keegan & Company, Incorporated,
McDonald & Company Securities, Inc., The Advest
Group, Inc., Jefferies & Company, Inc. and Concord
Financial Group, Inc. The financial information
compared included market value, stock price, LTM
net income, LTM net margin, LTM return on average
equity, the 1993 ratio of subordinated debt to
total capital, the 1993 ratio of total capital to
assets, the composition of 1993 revenues and
market price as a multiple of book value, LTM
earnings, LTM revenues and estimated earnings for
1994 and 1995. This analysis resulted in a range
of values for KSI of between $127.5 million and
$172.0 million.
Precedent Transactions Analysis. The
transactions used in the analysis included the
management and employee acquisition of Furman Selz
Incorporated, Primerica Corporation, Inc.'s
acquisition of the domestic retail brokerage and
asset management businesses of Shearson Lehman
Brothers Holdings Inc. and Prudential Securities
Incorporated's acquisition of Thompson McKinnon,
Inc. The financial information reviewed included
aggregate transaction value and price paid as a
multiple of the number of registered
representatives and the number of branch offices.
Because of the absence of publicly available
information as to the net income, book value or
market value of the acquired companies in these
transactions, Morgan Stanley did not calculate a
range of values for KSI using this methodology but
instead used it as a point of reference in
analyzing the other valuation methodologies.
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Discounted Cash Flow Analysis. The stand-
alone valuation of KSI was determined by adding
(i) the present value of projected cash flows over
a 10-year period from 1994 through 2004 and
(ii) the present value of KSI's 2004 terminal
value. The terminal value of KSI's common equity
at the end of the 10-year period was determined by
applying a range of multiples (ranging from 7.5 to
8.5) to KSI's terminal year earnings. Earnings
were projected assuming KSI performed in
accordance with its management's forecast and
certain variations thereof. The cash flows and
terminal values of KSI were discounted to present
values using different discount rates (ranging
from 13% to 14%) chosen to reflect different
assumptions regarding KSI's estimated cost of
capital. This analysis resulted in a range of
values for KSI of between $170.1 million and
$193.6 million.
KSI Valuation Summary. By analyzing the
results obtained from utilizing the foregoing
methodologies, Morgan Stanley arrived at a range
of values for KSI of between $170.0 million and
$180.0 million.
Life Companies
Comparable Company Analysis. Morgan Stanley
compared certain financial information of the Life
Companies with groups of companies that Morgan
Stanley believed to be appropriate for comparison:
American General Corporation, BLH, Conseco,
Providian Corporation, The Equitable Companies
Incorporated, Equitable Life Insurance Company of
Iowa, First Colony Corporation, Jefferson-Pilot
Life Insurance Company, The Lincoln National Life
Insurance Company, Torchmark Corporation,
Transamerica Corporation, UNUM Corporation,
American Income Life Insurance Company, CCP
Insurance, Kansas City Life Insurance Company, The
Liberty Corporation, Life Partners Group, Inc.,
Northwestern National Life Insurance Company,
Protective Life Insurance Company, Provident
Life & Accident Insurance Company of America,
Washington National Insurance Company and WNC.
The financial information compared included market
capitalization, current price, price as a
percentage of the previous 52-weeks' high and low
sales price, estimated earnings per share for 1994
and 1995, 5-year growth rate, book value per
share, return on average equity, dividend yield
and price as a multiple of (i) estimated earnings
for 1994 and 1995 in accordance with generally
accepted accounting principles ("GAAP"), (ii) GAAP
book value, (iii) statutory net gain and
(iv) statutory book value. This analysis resulted
in a range of values for the Life Companies of
between $1,126.4 million and $1,362.7 million.
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Precedent Transactions Analysis. The
transactions used in the analysis included GECC's
acquisition of Heritage Insurance Group, Inc., the
Statesman Acquisition, Irish Life PLC's
acquisition of First Variable Life Insurance
Company, Primerica Corporation's acquisition of
The Travelers Corporation, GECC's acquisition of
United Pacific Reliance Life Insurance Company,
GECC's acquisition of GNA Corporation and UNUM
Corporation's acquisition of Colonial Companies,
Inc. The financial information compared in the
analysis included aggregate transaction value,
return on average equity of the acquired company
and the price paid for the acquired company as a
multiple of (i) GAAP and statutory (x) net income,
(y) book value and (z) net premiums and
(ii) market value. Applying the multiples derived
from the precedent transactions resulted in a
range of values for the Life Companies of between
$1,703.4 million and $2,271.2 million.
Discounted Cash Flow Analysis. The stand-
alone valuation of the Life Companies was
determined by adding (i) the present value of the
projected dividend streams of the Life Companies
over a 10-year period from 1994 through 2004 and
(ii) the present value of the Life Companies' 2004
terminal value. The terminal value of the Life
Companies' common equity at the end of the 10-year
period was determined by projecting a range of
real perpetual growth rates for dividends of from
1 to 3% after 2004. Earnings were projected
assuming the Life Companies performed in
accordance with the Life Companies' management's
forecast and certain variations thereof. The
dividend streams and terminal values of the Life
Companies were discounted to present values using
different discount rates (ranging from 11% to 12%)
chosen to reflect different assumptions regarding
the required rates of return of holders or
prospective buyers of the Life Companies' common
equity. This analysis resulted in a range of
values for the Life Companies of between
$1,143.9 million and $1,372.0 million.
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Life Companies Valuation Summary. By
analyzing the results obtained from utilizing the
foregoing methodologies, Morgan Stanley arrived at
a range of values for the Life Companies of
between $1,200.0 million and $1,300.0 million.
Projected Cost Savings. Cost savings estimated to
result from the Merger (see "MANAGEMENT AND OPERATIONS
AFTER THE MERGER--Operations After the Merger") were
analyzed by area of cost reduction. The comparison
included cost savings projected as a percentage of
total expense.
Real Estate Portfolio. Morgan Stanley reviewed
the available documentation for certain of the real
estate assets in the Kemper portfolio and discussed the
portfolio with representatives of Kemper who have
responsibility for the real estate assets. Morgan
Stanley then reviewed Kemper's valuation estimates and
recalculated values for certain real estate assets in
the portfolio based on current market capitalization
rates and discount rates, assuming an orderly
liquidation of the portfolio over a several year
period. Morgan Stanley also reviewed the cash flows
relating to the real estate portfolio, reviewed the
overhead levels for Kemper allocated to real estate
operations and estimated the future contractual funding
obligations of Kemper related to real estate assets.
Total Kemper Valuation. By combining the stand-
alone valuations for KFS, INVEST, KSI and the Life
Companies described above and making certain
adjustments to reflect corporate overhead, the real
estate portfolio, corporate debt and preferred stock
obligations, the assumed conversion of options and
estimated cost savings, Morgan Stanley arrived at a
valuation range for Kemper to Conseco of between
$2,795.0 million and $3,003.0 million, or from $66 to
$71 per share.
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The summary set forth above does not purport to be
a complete description of the analyses performed by Morgan
Stanley. The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to partial
analysis or summary description. Morgan Stanley believes
that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering all
analyses, would create an incomplete view of the process
underlying its opinion. In performing its analyses, Morgan
Stanley made numerous assumptions with respect to industry
performance, general business and economic conditions and
other matters, many of which are beyond the control of
Conseco or Kemper. The analyses performed by Morgan Stanley
are not necessarily indicative of actual values, which may
be significantly more or less favorable than suggested by
such analyses. Additionally, analyses relating to the
values of businesses do not purport to be appraisals or to
reflect the prices at which such businesses actually may be
sold. Because such analyses are inherently subject to
uncertainty, none of Conseco, the Conseco Board of Directors
or management, Morgan Stanley or any other person assumes
responsibility if future events do not conform to the
judgments reflected in the opinion of Morgan Stanley.
The Conseco Board of Directors retained Morgan
Stanley based upon its experience and expertise. Morgan
Stanley is a nationally recognized investment banking and
advisory firm. Morgan Stanley, as part of its investment
banking business, is continuously engaged in the valuation
of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate
and other purposes.
Pursuant to a letter agreement dated May 16, 1994,
between Conseco and Morgan Stanley (the "Engagement
Letter"), Conseco agreed to pay Morgan Stanley an advisory
fee based on time expended and estimated to be between
$250,000 and $300,000. If the Merger is consummated,
Conseco will pay Morgan Stanley a fee of $9,174,900, against
which any advisory fees paid will be credited. The
Engagement Letter with Morgan Stanley provides that Conseco
will reimburse Morgan Stanley for its reasonable out-of-
pocket expenses and will indemnify Morgan Stanley against
certain liabilities incurred in connection with its
services.
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The Engagement Letter also provides that, if, at
any time during the term of or within two years following
the termination or completion of the engagement of Morgan
Stanley, Conseco decides to recapitalize, spin off, sell
(privately or in a public offering) or otherwise dispose of
any interest in the assets, businesses or securities of
Kemper, Conseco will retain Morgan Stanley as its exclusive
financial advisor in executing such transactions, upon terms
and conditions, including compensation, mutually acceptable
to Conseco and to Morgan Stanley.
The Engagement Letter provides that Morgan Stanley
will have the option, to the extent that Conseco uses
external advisors, to act as lead manager or exclusive
placement agent, as the case may be, in connection with any
public or private debt or equity financing, real estate
financing, asset or real property sales or interest rate or
currency exposure exchanges or hedges in conjunction with
the assignment described in the Engagement Letter, upon
terms and conditions, including compensation, mutually
acceptable to Conseco and to Morgan Stanley.
Morgan Stanley has delivered to Conseco the Morgan
Stanley Highly Confident Letter, pursuant to which Morgan
Stanley has confirmed to Conseco that, based upon and
subject to the matters set forth therein, it is highly
confident that it could arrange, as exclusive placement
agent or lead managing underwriter, for the sale of the
Senior Subordinated Debentures. Pursuant to a letter
agreement dated June 22, 1994 between Conseco and Morgan
Stanley, Conseco agreed to pay Morgan Stanley a fee of
$8.0 million in consideration for issuance of the Morgan
Stanley Highly Confident Letter, payable at the time of
closing of the sale of the Senior Subordinated Debentures.
This amount will be credited against any financing fees
Morgan Stanley receives from underwriting these securities.
Morgan Stanley has been retained by Conseco to
provide financial advisory and financing services to Conseco
in connection with the Statesman Acquisition. Morgan
Stanley has also been retained by Conseco to provide
financial advisory services in connection with Conseco's
announced intention to explore the sale of its equity
interests in one or more of WNC, CCP Insurance and BLH.
Morgan Stanley will receive customary fees for the rendering
of these services.
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Kemper. Goldman Sachs has delivered its written
opinion dated June 26, 1994 to the Board of Directors of
Kemper that, as of such date, the Merger Consideration to be
received by the holders of Kemper Common Stock pursuant to
the Merger Agreement was fair to such holders. No
limitations were imposed by Kemper with respect to the
investigations made or the procedures followed by Goldman
Sachs in rendering its opinion.
The full text of the opinion of Goldman Sachs,
which sets forth assumptions made, matters considered and
limitations on the review undertaken by Goldman Sachs, is
included as Annex 3 to this Joint Proxy
Statement/Prospectus. Kemper stockholders are urged to read
the opinion in its entirety. Goldman Sachs' opinion does
not constitute a recommendation to any Kemper stockholder as
to how such stockholder should vote at the Kemper Meeting.
The summary of the opinion of Goldman Sachs set forth in
this Joint Proxy Statement/Prospectus is qualified in its
entirety by reference to the full text of such opinion.
In connection with its opinion, Goldman Sachs
reviewed, among other things, (i) the Merger Agreement;
(ii) the Annual Reports to Stockholders and Annual Reports
on Form 10-K of Kemper and Conseco for the 5 years ended
December 31, 1993; (iii) certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of Kemper
and Conseco; (iv) certain other communications from Kemper
and Conseco to their respective stockholders; and
(v) certain internal and other financial information,
analyses and forecasts for Kemper and Conseco prepared by
their respective managements. Goldman Sachs also held
discussions with members of the senior management of Kemper
and Conseco regarding the past and current business
operations, financial condition and future prospects of
their respective companies. Goldman Sachs also reviewed
with members of senior management of Kemper the results of
Kemper's due diligence examination of Conseco and also held
discussions with the independent auditors of each of Kemper
and Conseco regarding the financial and accounting affairs
of Kemper and Conseco. In addition, Goldman Sachs reviewed
the reported price and trading activity for Kemper Common
Stock and Conseco Common Stock, compared certain financial
and stock market information for Kemper and Conseco with
similar information for certain other companies the
securities of which are publicly traded, reviewed the
financial terms of certain recent business combinations in
the insurance and investment management industries
specifically and in other industries generally and performed
such other studies and analyses as it considered
appropriate.
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<PAGE> 69
Goldman Sachs relied without independent
verification upon the accuracy and completeness of all of
the financial and other information reviewed by it for
purposes of its opinion. In addition, Goldman Sachs did not
make an independent evaluation or appraisal of the assets
and liabilities of Kemper or Conseco or any of their
respective subsidiaries and Goldman Sachs was not furnished
with any such evaluation or appraisal.
The following is a summary of certain of the
financial analyses used by Goldman Sachs in connection with
providing its written opinion to Kemper's Board of Directors
on June 26, 1994.
(i) Historical Stock Trading Analysis. Goldman
Sachs reviewed and analyzed the historical trading
prices and volumes for Kemper Common Stock and analyzed
the consideration to be received by holders of Kemper
Common Stock pursuant to the Merger Agreement in
relation to historical market prices of Kemper Common
Stock. Such review of trading prices indicated that
the price per share of Kemper Common Stock to be paid
pursuant to the Merger Agreement represented a premium
of approximately 64% based on the closing NYSE market
price of $40.875 per share of Kemper Common Stock on
March 14, 1994, the trading day immediately prior to
GECC's first public announcement of its interest in
acquiring Kemper, assuming the Average Conseco Price is
between $45.50 and $55.50 per share.
(ii) Analysis of Consideration at Various Conseco
Stock Prices. Goldman Sachs analyzed and outlined the
value of the consideration per share of Kemper Common
Stock at various prices for the Conseco Common Stock.
Such analysis indicated that the consideration per
share of Kemper Common Stock to be paid pursuant to the
Merger Agreement equaled $67.00 based on a Conseco
Common Stock price of $45.50 to $55.50 per share. On
June 23, 1994, the trading day on which the first
public announcement was made of the Conseco Offer, the
market price for the Conseco Common Stock was $51.00
per share. This analysis also demonstrated that the
market price for Conseco Common Stock would have to
fall below $16.54 per share (or approximately 67%,
based on the market price on June 23, 1994) before the
consideration package offered by Conseco would be worth
less than the $60.00 per share offered by GECC prior to
the withdrawal of GECC's offer.
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(iii) Analysis of Conseco Stock Price. Goldman
Sachs also reviewed and analyzed historical market
prices of Conseco Common Stock. Goldman Sachs reviewed
a monthly indexed common stock history from May 31,
1989 to May 31, 1994 comparing Conseco's monthly
closing prices to (i) the S&P 500 Index and (ii) the
Standard & Poor's 56 Financial Index (the "S&P 56
Index"). This analysis revealed that the market price
of Conseco Common Stock rose over 1500% from May 31,
1989 to May 31, 1994, compared to substantially smaller
increases in the S&P 500 Index and the S&P 56 Index for
the corresponding period. Goldman Sachs also reviewed
and compared the daily stock prices of Kemper Common
Stock and Conseco Common Stock during the week of the
announcement of the Conseco Offer with (i) the S&P
500 Index, (ii) the S&P 56 Index and (iii) the Dow
Jones Industrial Average (the "DJIA"), which analysis
revealed that Conseco Common Stock rose approximately
1.0% on the day of the announcement, compared to
reductions in the S&P 500 Index, the S&P 56 Index and
the DJIA of approximately 0.8%, 0.8% and 0.7%,
respectively. In addition, Goldman Sachs reviewed and
analyzed a comparison of price/earnings ratios for
selected life insurance companies, which were based on
median I/B/E/S Inc. (Institutional Broker Estimate
System) projected earnings per share as of June 9,
1994. This analysis revealed that Conseco's estimated
price/earnings ratios for 1994 and 1995 were 7.0 and
5.8, respectively, compared to the estimated median
price/earnings ratios of the selected life insurance
companies for 1994 and 1995 of 8.6 and 7.4,
respectively. Furthermore, Goldman Sachs reviewed
Conseco's interests in its affiliates, CCP Insurance,
WNC and BLH, and noted that such interests had a fair
market value of approximately $1.1 billion as of
June 24, 1994.
(iv) Pro Forma Merger Analysis. Goldman Sachs
prepared pro forma analyses of the financial impact of
the Merger. Using earnings estimates for Kemper and
Conseco prepared by their respective managements for
the years 1995 and 1996, Goldman Sachs compared the
earnings per share ("EPS") of Conseco Common Stock on a
stand alone basis to the EPS of the common stock of the
combined companies on a pro forma basis. Goldman Sachs
performed this analysis based on a price of $50 per
share of Conseco Common Stock. Based on such analysis,
the proposed transaction would be slightly dilutive to
Conseco's stockholders on an earnings per share basis
in the years 1995 (3.8%) and 1996 (2.9%).
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(v) Breakup Analysis. Goldman Sachs reviewed a
hypothetical breakup analysis which outlined the
proceeds per share of Kemper Common Stock that Kemper
stockholders hypothetically could receive if Kemper's
business segments were sold independently, rather than
Kemper being sold as a whole company. In preparing
this analysis, it was assumed that each of its business
segments could be sold independently for certain
assumed prices or multiples (i.e., the assumed proceeds
from the separate sale of Kemper's businesses were:
$100.0 million for IFTC, $1.0-$1.35 billion for the
Life Companies and Kemper's real estate businesses,
$250.0 million for KSI and $1.4-$1.6 billion for KFS,
plus $171 million assumed proceeds from the exercise of
options, less $562 million for the repayment of debt
and perpetual preferred stock and less $100 million for
shutdown costs and other contingencies). Based on
these assumptions, the analysis indicated that total
proceeds from such segment sales would range from
$2.259 billion (or $53 per share of Kemper Common
Stock) to $2.809 billion (or $66 per share of Kemper
Common Stock). Goldman Sachs did not perform
independent analyses as to whether all of Kemper's
business segments could in fact be sold independently
or, if so, at what price.
In addition to the foregoing, Goldman Sachs also took into
account the fact that contact was made with over
100 potential buyers following May 11, 1994 and that,
although indications of interest were received from a
significant number of those contacted, except for GECC's
offer at $60 a share, no other offers were received. See
"-- Background of the Merger" above.
The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to partial
analysis or summary description. Selecting portions of the
analyses or of the summary set forth above, without
considering the analysis as a whole, could create an
incomplete view of the processes underlying Goldman Sachs'
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<PAGE> 72
opinion. In arriving at its fairness determination, Goldman
Sachs considered the results of all such analyses. No
company used in the above analysis as a comparison is
identical to Kemper or Conseco, and no transaction used in
the above analysis as a comparison is identical to the
contemplated transaction. The analyses were prepared solely
for purposes of Goldman Sachs providing its opinion as to
the fairness of the Merger Consideration to be received by
the holders of shares of Kemper Common Stock pursuant to the
Merger Agreement and do not purport to be appraisals or
necessarily reflect the prices at which businesses or
securities actually may be sold. Analyses based upon
forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or
less favorable than suggested by such analyses. As
described above, Goldman Sachs' opinion and presentation to
the Kemper Board of Directors was one of many factors taken
into consideration by the Kemper Board of Directors in
making its determination to approve the Merger Agreement.
The foregoing summary does not purport to be a complete
description of the analysis performed by Goldman Sachs and
is qualified by reference to the written opinion of Goldman
Sachs included as Annex 3 to this Joint Proxy
Statement/Prospectus.
Goldman Sachs, as part of its investment banking
business, is continually engaged in the valuation of
businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted
securities and private placements, and valuations for
estate, corporate and other purposes. Kemper selected
Goldman Sachs as its financial advisor because it is a
nationally recognized investment banking firm that has
substantial experience in transactions similar to the
Merger.
Goldman Sachs provides a full range of financial,
advisory and brokerage services and in the course of its
normal trading activities may from time to time effect
transactions and hold positions in the securities or options
on securities of Kemper and/or Conseco for its own account
and for the account of customers. In addition, Goldman
Sachs has provided certain investment banking services to
Kemper from time to time for which it has received, or
expects to receive, customary fees, including having acted
as managing underwriter for the issuance of $260 million of
preferred stock and $200 million of long-term debt of Kemper
in 1993, having acted as its financial advisor in Kemper's
divestiture of its reinsurance and risk management
subsidiaries in 1993 and having acted as its financial
advisor in connection with and having participated in
certain of the negotiations leading to the Merger Agreement.
Goldman Sachs is also familiar with Conseco, having provided
certain investment banking services to Conseco from time to
time for which it has received, or expects to receive,
customary fees, including having acted as co-manager of the
initial public offering of WNC earlier in 1994, and acting,
on June 26, 1994, as its financial advisor in connection
with a then-proposed acquisition.
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Pursuant to a letter agreement dated May 16, 1994,
supplementing an April 7, 1994 letter agreement (the
"Goldman Engagement Letter"), Kemper engaged Goldman Sachs
to act as its financial advisor in connection with the
contemplated transactions. Pursuant to the terms of the
Goldman Engagement Letter, Kemper agreed to pay Goldman
Sachs upon consummation of any such transaction (which would
include the Merger) a transaction fee equal to the greater
of (i) $6.5 million or (ii) the fee established in
accordance with a schedule based upon the aggregate value
received by the stockholders of Kemper. The schedule
provides that the fee payable to Goldman Sachs will be
$6.5 million if the price per share of Kemper Common Stock
is equal to $60.00 per share, $8.5 million if the price per
share of Kemper Common Stock is equal to $61.00 per share,
$10.0 million if the price per share of Kemper Common Stock
equal to $62.50 per share, $12.5 million if the price per
share of Kemper Common Stock is equal to $65.00 per share
and 50 basis points of the aggregate value of the
consideration if the price per share of Kemper Common Stock
is $67.50 or above. The schedule provides for the
interpolation of a fee if the price per share of Kemper
Common Stock is between the specified amounts, which would
result in a fee payable to Goldman Sachs of $13.2 million
based on the Merger Consideration. Kemper also paid Goldman
Sachs $1.0 million pursuant to a separate engagement letter
dated May 16, 1994 relating to potential transactions
involving Kemper's real estate interests. Kemper has agreed
to reimburse Goldman Sachs for its reasonable out-of-pocket
expenses, including attorney's fees, and to indemnify
Goldman Sachs against certain liabilities, including certain
liabilities under the Federal securities laws.
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Certain Considerations
In deciding whether to approve and adopt the
Merger Agreement or to approve the Issuance, respectively,
Kemper and Conseco stockholders should consider the
following factors, in addition to the other matters set
forth or incorporated by reference herein:
Real Estate Exposure. As of June 30, 1994, Kemper
held a $1.4 billion real estate portfolio (net of reserves
and write-downs), consisting of joint venture and third-
party mortgage loans and other real estate related-
investments. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" incorporated
in Kemper's Annual Report on Form 10-K for the year ended
December 31, 1993, and included in Kemper's Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 1994,
each of which is incorporated by reference herein. As
described under "THE RESTRUCTURING", immediately following
the Merger, the Real Estate Transfers will be effected,
pursuant to which certain real estate interests currently
held by subsidiaries of Kemper will be transferred, by
merger or otherwise, to one or more of CCP II Holdings' real
estate acquisition subsidiaries, and the Life Company
Dispositions will be effected, pursuant to which the Life
Companies (which also hold real estate loans and
investments) will be acquired by Life Insurance Holdings.
Accordingly, following the Merger, the Kemper real estate
portfolio will be held by CCP II. However, holders of
Conseco Common Stock are expected to continue to hold an
indirect 23% ownership interest in such portfolio through
Conseco's direct and indirect interest in CCP II, and the
financial statements of CCP II Holdings will be consolidated
with those of Conseco.
As of June 30, 1994, the total future legal
commitments relating to Kemper's real estate portfolio were
$570.2 million (the maximum amount that Kemper could be
required to fund under outstanding agreements related to
real estate). As of June 30, 1994, Kemper expected to fund
approximately $268.7 million of these commitments, along
with providing working capital to existing projects.
As of June 30, 1994, before reserves and
cumulative write-downs, Kemper had $1.1 billion of troubled
real estate investments, including $958.6 million of
nonaccrual loans, $69.4 million of real estate owned and
$59.5 million of performing restructured loans. As of
June 30, 1994, total reserves and cumulative write-downs
(excluding fair value adjustments to real estate owned) were
61.1% of total troubled real estate-related investments and
33.3% of Kemper's total real estate portfolio before
reserves and write-downs.
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Through June 30, 1994, Kemper has caused certain
of its real estate subsidiaries to acquire $804.1 million of
real estate assets from the Life Companies. Such
acquisitions were made to reduce the real estate assets of
the Life Companies. There can be no assurance that CCP II
Holdings will or will be able to continue such acquisitions
following the Restructuring. Additionally, the indebtedness
to be incurred by CCP II Holdings in connection with the
Restructuring could restrict the ability of CCP II Holdings
to provide future funding for development projects in the
real estate portfolio.
Real estate markets have been depressed in recent
periods in areas where most of Kemper's real estate
portfolio is located. Approximately half of Kemper's real
estate holdings are in California and Illinois. In
California, real estate market conditions have continued to
be worse than in many other areas of the country.
Undeveloped land (including certain real estate development
projects in Spain carried as equity investments in real
estate and representing approximately 10.9% of the book
value of Kemper's real estate portfolio as of June 30, 1994)
represented approximately 21.1% of the book value of
Kemper's real estate portfolio as of June 30, 1994. To
maximize the value of certain land and other projects,
additional development is proceeding or is planned. Such
development of existing projects may continue to require
substantial funding, either from Kemper or third parties.
In the present real estate markets, third-party financing
can require credit enhancing arrangements from Kemper. The
values of development projects are dependent on a number of
factors, including obtaining necessary permits and market
demand for the permitted use of the property. There can be
no assurance that such permits will be obtained as planned
or at all, nor that such expenditures will occur as
scheduled, nor that Kemper's plans with respect to such
projects may not change substantially.
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The real estate portfolio could continue to be
adversely affected by overbuilding and weak economic
conditions in certain real estate markets and by tight
lending practices by banks and other lenders. Stagnant or
worsening economic conditions in the areas in which Kemper
has made loans, or additional adverse information becoming
known through regular reviews or otherwise, could result in
further deterioration in the real estate portfolio.
Due to the adverse real estate environment
affecting Kemper's portfolio in recent years, Kemper has
devoted significant attention to its real estate portfolio,
enhancing monitoring of the portfolio and formulating
specific action plans addressing nonperforming and potential
problem credits. Since 1991, Kemper has intensified its
attention to evaluating the asset quality, cash flow and
prospects associated with each of its projects. However,
there can be no assurance that such efforts will result in
an improvement in the performance of the portfolio.
Merger Consideration. If the Trading Average for
Conseco Common Stock is less than $45.50, holders of Kemper
Common Stock will receive at the Effective Time, for each
share of Kemper Common Stock, in addition to the Cash
Consideration, a fraction of a share of Conseco Common Stock
having a value of less than $11.00. If the Trading Average
for Conseco Common Stock is greater than $55.50, holders of
Kemper Common Stock will receive at the Effective Time, for
each share of Kemper Common Stock, in addition to the Cash
Consideration, a fraction of a share of Conseco Common Stock
having a value of greater than $11.00. In addition, the
price of a share of Conseco Common Stock at the Effective
Time as well as at the date of this Joint Proxy
Statement/Prospectus and at the date of the Kemper Meeting
may vary as a result of changes in the business, operations
or prospects of Conseco, market assessments of the
likelihood that the Merger will be consummated and the
timing thereof, general market and economic conditions and
other factors. Because the Effective Time will occur after
the Kemper Meeting, there can be no assurance that the
closing price of Conseco Common Stock on the date of the
Kemper Meeting (or the average price during the period prior
to the Kemper Meeting) will be indicative of the closing
price of the Conseco Common Stock for the 20 trading days
immediately preceding the second trading day prior to the
Effective Time, which is the period during which the Trading
Average is calculated.
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Insurance Regulation. Kemper's insurance
companies (which, following the Merger and the
Restructuring, will be held by CCP II, in which holders of
Conseco Common Stock are expected to hold an indirect 23%
ownership interest) and Conseco's insurance companies are
subject to regulation by state insurance authorities of
various states in which they transact business. State
insurance authorities regulate, among other activities, the
payment of dividends and other transactions between
affiliates, impose solvency, capital and reserve standards,
limit the types of investments permitted and risks assumed,
set forth accounting and actuarial standards and require
reports of financial condition. Oversight of state
regulation by the National Association of Insurance
Commissioners (the "NAIC") has resulted recently in the
enactment or proposal of a number of significant regulatory
changes, including risk-based capital requirements
(discussed below), a proposed model investment law and a
proposed model regulation for reserves on term issuance. In
addition, pending in Congress are legislative proposals
pertaining to possible federal oversight of insurance. No
assurance can be given as to future legislative or
regulatory changes, nor that one or more changes will not
have a material adverse effect on the operations or
financial condition of Conseco.
The NAIC has adopted Risk-Based Capital ("RBC")
requirements, effective December 31, 1993, to evaluate the
adequacy of statutory capital and surplus in relation to
investment and insurance risks associated with: (i) asset
quality; (ii) mortality and morbidity; (iii) interest rate
risk and (iv) other business factors. The RBC formula is
intended to be used by the states as an early warning tool
to identify possible weakly capitalized companies for the
purpose of initiating regulatory action, and is not designed
to be a basis for ranking the relative financial strength of
insurance companies. In addition, the formula defines a new
minimum capital standard which will supplement the
prevailing system of low, fixed minimum capital and surplus
requirements on a state-by-state basis.
In states which adopt the NAIC regulations, the
new RBC requirements provide for four different levels of
regulatory attention depending on the ratio of the company's
total adjusted capital (defined as the total of its
statutory capital, surplus, valuation reserve and other
adjustments) to its RBC. The "Company Action Level" is
triggered if a company's total adjusted capital is less than
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200% but greater than or equal to 150% of its Authorized
Control Level RBC, or if a "negative trend" has occurred (as
defined by the regulations) and total adjusted capital is
less than 250% of Authorized Control Level RBC. At the
Company Action Level, the company must submit a
comprehensive plan to the state regulatory authority which
discusses proposed corrective actions to improve its capital
position. The "Regulatory Action Level" is triggered if a
company's total adjusted capital is less than 150% but
greater than or equal to 100% of its Authorized Control
Level RBC. At the Regulatory Action Level, the regulatory
authority may perform a special examination of the company
and issue an order specifying corrective actions that must
be followed. The "Authorized Control Level" is triggered if
a company's total adjusted capital is less than 100% but
greater than or equal to 70% of its Authorized Control Level
RBC (as determined under the RBC Formula), and the
regulatory authority may take any action it deems necessary,
including placing the company under regulatory control. The
"Mandatory Control Level" is triggered if a company's total
adjusted capital is less than 70% of its Authorized Control
Level RBC, and the regulatory authority is mandated to place
the company under its control.
Calculations using the NAIC formula and the
relevant statutory financial statements as of June 30, 1994,
indicate that the total adjusted capital of each of Western
National, CCP Insurance, Bankers Life, Conseco's wholly
owned insurance subsidiaries and each of the Life Companies
is in excess of its respective Company Action Level. Should
a future deficiency occur with respect to any such company,
such company will be subject to an increased level of
regulatory attention and possibly to actual control by
regulatory authorities. There can be no assurance that any
such deficiency will not occur in the future.
Indebtedness and Restrictions Imposed by the
Financing Agreements. Conseco, through the Surviving
Corporation and CCP II Holdings, is incurring substantial
consolidated indebtedness in connection with the Merger,
including under the Credit Agreements and through the
issuance of the Senior Subordinated Debentures. However,
Conseco will only be directly liable, as guarantor, for the
indebtedness outstanding under the Surviving Corporation
Credit Agreement. After giving effect to the borrowings
under the Credit Agreements and the issuance of the Senior
Subordinated Debentures, Conseco's pro forma total
consolidated indebtedness (which includes indebtedness for
which it is not directly liable) would have been 70% of
total capitalization as of June 30, 1994, compared to
Conseco's actual total consolidated indebtedness of 37% of
total capitalization as of such date and Kemper's actual
total consolidated indebtedness of 23% of total
capitalization as of such date.
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The Credit Agreements contain a number of
significant covenants that, among other things, restrict the
ability of Conseco and its subsidiaries and CCP II Holdings
and its subsidiaries to incur debt, pay dividends, create
liens, make capital expenditures and make certain
investments or acquisitions and otherwise restrict corporate
activities. The obligations arising under the Credit
Agreements and related documentation are secured by, among
other things, pledges of the stock of various subsidiaries
of Conseco (including the stock of the Surviving Corporation
owned by Conseco) and CCP II Holdings and by liens on
certain accounts receivable and certain other assets of
Conseco and its subsidiaries and CCP II Holdings and its
subsidiaries. In addition, Conseco, the Surviving
Corporation and CCP II Holdings will be required to maintain
specified consolidated financial ratios and tests, including
minimum interest coverage ratios. The ability of Conseco
and its subsidiaries and CCP II Holdings and its
subsidiaries to comply with such provisions will be affected
by certain events that are beyond their control. There can
be no assurance that Conseco and its subsidiaries and CCP II
Holdings and its subsidiaries will be able to achieve
results that comply with such provisions. The breach of any
of these covenants could result in a default under one or
both of the Credit Agreements. In the event of any such
default, the banks who are parties to such Agreement could
elect to declare all amounts borrowed under the applicable
Credit Agreement, together with accrued interest, to be due
and payable. Any such acceleration would also constitute a
default under the Surviving Corporation Senior Subordinated
Debentures or the CCP II Holdings Senior Subordinated
Debentures, as the case may be. See "PLAN OF FINANCING--
Description of Credit Agreements".
The Indentures under which the Senior Subordinated
Debentures will be issued will also contain a number of
significant covenants that, among other things, will
restrict the ability of the Surviving Corporation and its
subsidiaries or CCP II Holdings and its subsidiaries, as the
case may be, to incur debt, pay dividends, sell assets and
take certain other corporate actions. See "PLAN OF
FINANCING--Description of Senior Subordinated Debentures".
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Holding Company Structure. Conseco is a holding
company. All of its operating income is generated by its
subsidiaries. Conseco must rely on dividends or other
payments from its subsidiaries to generate the funds
necessary to meet Conseco's obligations. The ability of
such subsidiaries to pay such dividends or other amounts
will be subject to, among other things, applicable state
laws, including, in the case of insurance subsidiaries,
state insurance laws. See "-- Dividend Restrictions" below.
Dividend Restrictions. The current principal
operating subsidiaries of Conseco, as well as the Life
Companies (which after the consummation of the Restructuring
will be held by CCP II), are life insurance companies
organized under state laws and are subject to regulation by
state insurance authorities. These state insurance laws and
regulations limit the ability of insurance subsidiaries to
make cash dividends, loans or advances to a holding company
such as Conseco or CCP II Holdings. However, these laws
generally permit the payment, without prior notice or
approval, of dividends by subsidiaries which, when
aggregated with other dividends paid during the 12 months
preceding the proposed dividend, do not exceed the greater
of: (i) the subsidiary's net income for the prior calendar
year, or (ii) 10% of the subsidiary's surplus at the prior
year-end, both computed on the statutory basis of accounting
prescribed for insurance companies. Any proposed dividend
in excess of the amount determined pursuant to the foregoing
formula would be characterized as an "extraordinary
dividend" requiring prior regulatory approval. In any case,
the maximum amount of dividends that an insurance company
may pay is in general limited to its earned surplus, also
known as unassigned funds (although cash in such amounts
might not be readily available for payment to Conseco or
CCP II Holdings at any given time). As of June 30, 1994,
KILICO had negative unassigned surplus of $13.3 million.
While Conseco and Kemper do not believe that the foregoing
dividend limitations adversely affect the ability of Bankers
Life, Western National, Conseco's wholly owned insurance
companies and the Life Companies to pay dividends in the
amounts required for Conseco and CCP II to meet their
respective financial and operating obligations, no assurance
can be given that the cash flow provided by such insurance
companies, together with the other sources of cash available
to Conseco and CCP II, will be sufficient to meet such
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<PAGE> 81
obligations. In addition, there can be no assurance that
any request for an extraordinary dividend would be approved
or that future changes in applicable state laws will not
further limit the insurance companies' ability to pay
dividends. Finally, the maximum dividend permitted by law
is not necessarily indicative of an insurer's actual ability
to pay dividends, which may be constrained by business and
regulatory considerations, such as the impact of dividends
on surplus, which could affect an insurer's ratings or
competitive position, the amount of premiums that can be
written by such insurer and its ability to pay future
dividends. Furthermore, beyond the limits described above,
the state insurance regulators have discretion to limit the
payment of dividends by insurance companies domiciled in
their state.
Ability to Realize Cost Savings. Because of the
inherent uncertainties associated with merging two large
companies, there can be no assurance that the combined
company will be able to realize the full cost savings
Conseco currently expects to realize as a result of the
Merger and the consolidation of the operations of Conseco
and Kemper or that such savings will be realized at the
times currently anticipated. Furthermore, there can be no
assurance that cost savings which are realized will not be
offset by increases in other expenses, operating losses,
other charges to earnings or losses of revenue, including
losses due to problems in integrating the two companies.
See "MANAGEMENT AND OPERATIONS AFTER THE MERGER --
Operations After the Merger".
Effective Time
The Merger will become effective upon the filing
of a Certificate of Merger with the Secretary of State of
the State of Delaware or such later time as is specified in
such certificate. The filing with respect to the Merger
will occur at 1:00 p.m. on the second business day after
satisfaction or waiver of the conditions to the Merger,
unless another date is agreed to in writing by Kemper and
Conseco. See "THE MERGER AGREEMENT--Conditions to the
Consummation of the Merger".
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Merger Consideration
Upon consummation of the Merger, each share of
Kemper Common Stock issued and outstanding immediately prior
to the Effective Time (other than shares of Kemper Common
Stock beneficially owned by Conseco, Kemper or their
subsidiaries (excluding shares held in trust accounts,
managed accounts, custodial accounts and the like that are
beneficially owned by third parties and shares held in the
ordinary course of business by subsidiaries of Kemper or
Conseco that are insurance companies or broker-dealers) and
other than Dissenting Common Shares) will be converted into
the right to receive the Merger Consideration. Based upon
the capitalization of Conseco and Kemper as of
, 1994, the stockholders of Kemper
immediately prior to the consummation of the Merger will own
Conseco Common Stock representing approximately %
(assuming issuance of all shares reserved for issuance upon
exercise of options, warrants, conversion rights and other
rights to acquire Kemper Common Stock and assuming that the
Conversion Number is _______ (calculated using the Average
Conseco Price of $________ determined over the 20 trading
day period ending on ________)) of the shares of Conseco
Common Stock outstanding following consummation of the
Merger.
Each share of Kemper's Series A Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock issued and outstanding immediately
prior to the Effective Time (other than Dissenting Preferred
Shares) will remain outstanding as one validly issued, fully
paid and nonassessable share of preferred stock of the
Surviving Corporation subsequent to the Effective Time,
subject to the respective terms and covenants thereof.
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<PAGE> 83
Paying Agent; Procedures for Exchange of Certificates;
Dividends; No Fractional Shares
Paying Agent. The Merger Agreement requires
Conseco to deposit as of the Effective Time, with or for the
account of a bank or trust company designated by Conseco,
and reasonably satisfactory to Kemper (the "Paying Agent"),
for the benefit of the holders of shares of Kemper Common
Stock and the holders of shares of Series A Preferred Stock
and Series E Preferred Stock, cash in an aggregate amount
sufficient to pay the aggregate Cash Consideration and
certificates representing the shares of Conseco Common Stock
constituting the aggregate Stock Consideration (assuming in
each case the full conversion of all outstanding shares of
Series A Preferred Stock and Series E Preferred Stock).
Procedures for Exchange of Certificates. As soon
as practicable after the Effective Time (but in no event
more than 5 days thereafter), the Surviving Corporation will
cause the Paying Agent to send a transmittal form to each
holder of Kemper Common Stock. The transmittal form will
contain instructions with respect to the surrender of
certificates representing Kemper Common Stock to be
exchanged for Merger Consideration. No interest will be
paid or will accrue on any cash payable as Merger
Consideration.
KEMPER STOCKHOLDERS SHOULD NOT FORWARD KEMPER
STOCK CERTIFICATES TO THE PAYING AGENT UNTIL THEY HAVE
RECEIVED TRANSMITTAL FORMS. KEMPER STOCKHOLDERS SHOULD NOT
RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
Dividends. Until the certificates representing
Kemper Common Stock are surrendered for exchange after the
consummation of the Merger, holders of such certificates
will not be paid dividends on the Conseco Common Stock into
which such shares have been converted. When such
certificates are surrendered, any unpaid dividends will be
paid without interest. For all other purposes, however,
each certificate which represents shares of Kemper Common
Stock outstanding at the Effective Time will be deemed to
evidence ownership of the Merger Consideration into which
those shares have been converted by virtue of the Merger.
The Merger Consideration paid upon conversion of
shares of Kemper Common Stock (including any cash paid for
fractional shares), will be deemed to have been issued in
full satisfaction of all rights pertaining to such shares of
Kemper Common Stock, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any
other distributions with a record date prior to the
Effective Time which may have been declared or made by
Kemper on such shares of Kemper Common Stock in accordance
with the Merger Agreement on or prior to the Effective Time
and which remain unpaid at the Effective Time.
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No Fractional Shares. No fractional shares of
Conseco Common Stock will be issued to any Kemper
stockholder upon consummation of the Merger. For each
fractional share that would otherwise be issued, Conseco
will pay by check an amount equal to the product obtained by
multiplying the fractional share interest to which such
holder would otherwise be entitled by the Average Conseco
Price.
Stock Exchange Listing
It is a condition to each party's obligation to
consummate the Merger that the shares of Conseco Common
Stock to be issued in connection with the Merger be listed
on the NYSE, subject to official notice of issuance.
Conseco has agreed to use its best efforts to cause such
shares of Conseco Common Stock to be so listed, subject to
official notice of issuance, prior to the Effective Time.
Expenses
The Merger Agreement provides that (except under
the circumstances described under "--Certain Fees" below)
Conseco and Kemper each will pay their own expenses in
connection with the Merger and the transactions contemplated
thereby, including fees and expenses of their own financial
or other consultants, investment bankers, accountants and
counsel, except that Conseco and Kemper will divide equally
all expenses incurred in connection with printing and
mailing this Joint Proxy Statement/Prospectus and the
Registration Statement and all expenses incurred in
connection with preparing and distributing proxy materials
for and of holding the meetings of the registered investment
companies for which Kemper or any subsidiary acts as
investment adviser or sub-adviser.
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<PAGE> 85
Material Federal Income Tax Consequences
The following discussion summarizes the principal
Federal income tax consequences of the Merger to holders of
Kemper Common Stock. The discussion is based on the Federal
income tax laws and regulations as now in effect and
currently interpreted, and does not take into account
possible changes in such laws, regulations or
interpretations, which changes may be retroactive. The
discussion does not reflect the individual tax position of
any holder of Kemper Common Stock and may not be applicable
to holders of Kemper Common Stock with a special tax status
or tax situations, including but not limited to financial
institutions, broker-dealers, holders that are not citizens
or residents of the United States, tax-exempt entities and
holders that acquired Kemper Common Stock upon the exercise
of employee stock options or otherwise as compensation.
Holders of shares of Kemper Common Stock are urged to
consult with their own tax advisors regarding the tax
consequences of the Merger, including the effects of
Federal, state, local, foreign and other tax laws.
Dispositions of Kemper Common Stock pursuant to
the Merger will be taxable transactions for Federal income
tax purposes, and may also be taxable transactions under
applicable state, local, foreign and other tax laws. A
holder generally will recognize gain or loss equal to the
difference between (i) the sum of (A) the fair market value
of the Conseco Common Stock received by the holder pursuant
to the Merger and (B) the Cash Consideration received by the
holder pursuant to the Merger and (ii) the holder's
aggregate adjusted tax basis in the Kemper Common Stock the
holder disposes of pursuant to the Merger. Gain or loss
will be calculated separately for each block of Kemper
Common Stock exchanged pursuant to the Merger.
Gain or loss recognized by a holder will be
capital gain or loss if the Kemper Common Stock is held as
capital assets, and any such capital gain will be long-term
if, as of the date of the disposition, the Kemper Common
Stock was held for more than one year. Long-term capital
gains are taxable at a maximum Federal income tax rate of
28% for individuals and 35% for corporations. If the gain
does not qualify for long-term capital gain treatment, such
gain will be taxable at the same rate as ordinary income,
which rate may be up to 39.6% for individuals and 35% for
corporations. Capital losses are generally deductible only
to the extent of capital gains and, in the case of
individuals, to the extent of capital gains plus $3,000.
Unused capital losses may be carried forward indefinitely by
individuals. Unused capital losses may be carried back
three years and carried forward five years by corporations.
Holders will take a tax basis in the Conseco Common Stock
received pursuant to the Merger equal to the fair market
value of such stock, and the holding period for such stock
will begin on the day following the Merger.
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<PAGE> 86
The Paying Agent will be required to withhold, and
will withhold, 31% of the gross proceeds otherwise payable
to a holder or other payee pursuant to the Merger unless
either (i) the holder or other payee provides his taxpayer
identification number (i.e., social security number or
employer identification number) and certifies that such
number is correct or (ii) an exemption applies under the
applicable law and regulations concerning "backup
withholding" of United States Federal income tax. Each
holder will be required to complete and sign the main
signature form and the Substitute Form W-9 included in the
Letter of Transmittal, so as to provide the information and
certification necessary to avoid backup withholding, unless
an applicable exemption exists and is established in a
manner satisfactory to Conseco and the Paying Agent.
Accounting Treatment
Conseco intends to treat the Merger as a
"purchase" for accounting and financial reporting purposes.
Effect on Employee Benefit and Stock Plans
General. In the Merger Agreement, Conseco stated
that its current intention is to cause Kemper and its
subsidiaries, following the Effective Time, to maintain
employee benefit plans that provide aggregate benefits to
Kemper employees that are comparable to those currently
provided by Conseco to its employees.
In that regard, Conseco and Kemper agreed in the
Merger Agreement that each benefit plan made available to
employees of Kemper or any subsidiary after the Effective
Time will be offered without any waiting period and that
Kemper and, if applicable, Conseco will cause any
restrictions and limitations for pre-existing conditions or
insurability to be waived (other than any pre-existing
conditions or lack of insurability that constituted a
restriction or limitation with respect to the benefits
available to an employee immediately prior to the Effective
Time).
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<PAGE> 87
Conseco and Kemper also agreed in the Merger
Agreement that each employee of Kemper or any subsidiary
will be given full credit for his or her pre-Effective Time
service with Kemper or any of its subsidiaries (and, to the
extent such service is recognized under any benefit plan of
Kemper or any of its subsidiaries as of the Effective Time,
service with any predecessor employer) for all purposes
(other than for benefit accrual under any defined benefit
pension plan) under any benefit plan offered to employees of
Kemper or any subsidiary on or after the Effective Time.
Defined Contribution Plans. The Merger Agreement
provides that, as of the Effective Time, employees of Kemper
or any subsidiary participating in the defined contribution
benefit plans (including any non-contributory supplemental
benefit plans) of Kemper and each of its subsidiaries will
be fully vested as to all amounts contributed or accrued
through the Effective Time or, if later, as a result of the
provision described in the following sentence. In addition,
Conseco agreed to cause Kemper and each of its subsidiaries
or affiliates, as appropriate, to contribute to each of such
benefit plans (or in the case of an unfunded benefit plan,
to credit) for the benefit of Eligible Employees (as defined
below) on December 31, 1994, (x) all matching and salary
based contributions for 1994 provided for as of the date of
the Merger Agreement in such benefit plan not made prior to
the Effective Time and (y) subject to achievement of certain
specified performance goals, all discretionary contributions
for 1994 provided for as of the date of the Merger Agreement
in such benefit plans. As used herein, "Eligible Employees"
at any date means all employees of Kemper or any subsidiary
as of the Effective Time other than employees who have
resigned voluntarily prior to such date or whose employment
has been terminated for "cause" prior to such date. Because
consummation of the Merger Agreement effects a Change of
Control under the supplemental plan, as of the Effective
Time each participant in the supplemental plan will receive
the defined contribution portion of his or her supplemental
plan account in one lump sum.
Target Bonuses. Conseco and Kemper agreed in the
Merger Agreement that the Surviving Corporation and its
subsidiaries would, not later than February 28, 1995, pay
each bonus-eligible individual who is an Eligible Employee
on the date of payment an incentive cash bonus for 1994 not
less than a "Target Bonus" (or, in the case of an Eligible
Employee whose employment is terminated prior to
December 31, 1994, a pro rata Target Bonus) subject to the
achievement of certain specified performance goals. As used
herein, "Target Bonus" means (x) an individual's target
bonus as of the date of the Merger Agreement under the
incentive compensation program in which such individual
participates, or (y) if no such specific target exists as of
the date of the Merger Agreement, two-thirds of the
incentive cash bonus received by such individual for 1993
(or if such individual was not employed until after
January 1, 1993, the bonus received by similarly situated
individuals for 1993).
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Severance Benefits. The Merger Agreement provides
that the Surviving Corporation will maintain severance
benefits after the Effective Time for each employee of the
Surviving Corporation or any subsidiary that are no less
favorable to such employee of the Surviving Corporation or
any subsidiary than those provided under the severance plans
in effect on the date of the Merger Agreement, until the
first anniversary of the Effective Time (or until the second
anniversary of the Effective Time in the case of the Kemper
Corporation Change of Control Severance Program).
Retiree Medical Benefits. Conseco and Kemper
agreed in the Merger Agreement that the Surviving
Corporation would continue, after the Effective Time, to
make medical expense benefits available to each individual
retired as of the Effective Time and then participating in
the various retiree medical expense benefits programs and
plans sponsored as of the date of the Merger Agreement by
Kemper and its subsidiaries that are no less favorable to
such individuals than the medical expense benefits provided
under such programs or plans as of the date of the Merger
Agreement.
Restricted Stock. Pursuant to the Merger
Agreement, Conseco and Kemper have agreed that each share of
restricted stock granted under the 1993 Senior Executive
Long-Term Incentive Plan would be cancelled and that Kemper
would adopt a plan under which each individual who has had a
share of restricted stock so cancelled may receive
immediately prior to the Effective Time a cash payment up to
the sum of (x) the Cash Consideration plus (y) the Stock
Value Amount, multiplied by the number of shares cancelled.
As used herein, the term "Stock Value Amount" means the
product of (x) the Conversion Number and (y) the Average
Conseco Price (determined without regard to the proviso to
the definition thereof). Certain other restricted stock
grants vested on the date of the Merger Agreement.
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Options. As of the date of the Merger Agreement,
the unexercisable portion of each outstanding option to
purchase shares of Kemper Common Stock (a "Kemper Stock
Option") issued under Kemper's 1990 Stock Option Plan, 1985
Amended Stock Option Plan, 1982 Incentive Stock Option Plan
and Non-Management Director Stock Option Plan (collectively,
the "Kemper Stock Option Plans") became immediately
exercisable in full, subject to all expiration, lapse and
other terms and conditions thereof.
Certain Kemper Stock Options granted in 1994,
specified in a disclosure schedule to the Merger Agreement
and not exercised prior to the Effective Time, will be
assumed by Conseco (an "Assumed Option"). Each Assumed
Option will be exercisable for a number of shares of Conseco
Common Stock calculated by multiplying the number of shares
of Kemper Common Stock subject to such Kemper Stock Option
as of the Effective Time by a fraction, the numerator of
which is the sum of (1) the Stock Value Amount and (2) the
Cash Consideration and the denominator of which is the
Average Conseco Price. The exercise price for each share of
Conseco Common Stock under an Assumed Option will be
calculated by multiplying the exercise price for one share
of Kemper Common Stock under the related Kemper Stock Option
as of the Effective Time by a fraction, the numerator of
which is the Average Conseco Price and the denominator of
which is the sum of (1) the Stock Value Amount and (2) the
Cash Consideration.
Each Kemper Stock Option then outstanding (other
than Assumed Options) will be cancelled immediately prior to
the Effective Time in exchange for an amount in cash equal
to the product of (i) the number of shares of Kemper Common
Stock subject to such Kemper Stock Option immediately prior
to the Effective Time and (ii) the excess of (1) the sum of
(A) the Stock Value Amount and (B) the Cash Consideration
over (2) the per share exercise price of such Kemper Stock
Option.
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Interests of Certain Persons in the Merger
The Merger Agreement provides that Conseco will
maintain all rights of indemnification and exculpation from
liability for all acts or omissions occurring prior to the
Effective Time now existing in favor of the current or
former directors, officers and employees of Kemper and its
subsidiaries as provided in their respective certificates of
incorporation or by-laws for a period of not less than six
years from the Effective Time.
Conseco agreed in the Merger Agreement to cause to
be maintained for a period of not less than six years from
the Effective Time Kemper's current directors' and officers'
insurance and indemnification policy to the extent that it
provides coverage for events occurring prior to the
Effective Time (the "D&O Insurance") for all persons who are
directors, officers or employees of Kemper or any subsidiary
on the date of the Merger Agreement, so long as the annual
premium therefor would not be in excess of 200% of the last
annual premium paid prior to the date of the Merger
Agreement (200% of such premium, the "Maximum Premium");
provided, however, that Conseco may, in lieu of maintaining
such existing D&O Insurance as provided above, cause
comparable coverage to be provided under any policy
maintained for the benefit of the directors and officers of
Conseco or any of its subsidiaries, so long as (i) the
issuer thereof has at least an equal claims-paying rating
and (ii) the material terms thereof are no less advantageous
than the existing D&O Insurance to the extent commercially
available.
On March 18, 1994, Kemper and 13 senior
executives, including the five executive officers of Kemper
named in the table entitled "COMPENSATION OF KEMPER
EXECUTIVE OFFICERS" below (the "Executives"), entered into
termination protection agreements (the "Agreements") to
encourage the Executives to remain with Kemper during
periods of uncertainty with respect to Kemper's ownership
and to enhance their abilities to act in the best interests
of Kemper and its stockholders with respect to any offer for
Kemper, without being influenced by any uncertainties
surrounding their respective situations with Kemper.
The Agreements provide the Executives with the
severance benefits described below if the Executive's
employment is terminated by Kemper without Cause (as defined
below) or the Executive voluntarily terminates his or her
employment for "Good Reason" (as defined below) within the
three-year period following a Change of Control. The Kemper
Board's approval and recommendation of the Merger on
June 26, 1994 constituted a Change of Control under the
Agreements.
<PAGE>
<PAGE> 91
The following severance benefits are provided for
under the Agreements: (i) a payment equal to three times
the sum of the Executive's base salary, target bonus and
target equity awards (i.e., the value of the Executive's
target awards of options and restricted stock under Kemper's
long-term stock award program); (ii) a payment equal to
three times the Executive's target profit sharing
contribution from Kemper, reduced for each month of service
after the Change of Control; (iii) payment of a pro-rata
portion of the Executive's target bonus for the year of
termination; (iv) continued welfare benefits for three years
(or, if shorter, until the Executive becomes covered under a
new employer's plan); (v) payment of any accrued but unpaid
bonuses (for prior years) and any deferred compensation;
(vi) three years additional age and service credit towards
eligibility for post-retirement welfare benefits (offset by
additional age and participation actually credited after the
Change of Control); (vii) acceleration of vesting under
Kemper's supplemental retirement plans, payment of the
Executive's accrued benefit under these plans and, to the
extent the Executive is entitled to a benefit under the
defined benefit portion of any of these plans, three years
additional age and service credit towards eligibility for
all purposes, including benefit accrual and eligibility for
early retirement (offset by additional age and service
actually credited after the Change of Control); and
(viii) reimbursement for outplacement counseling services.
Any severance benefits payable are grossed-up to the extent
an Executive would be subject to an excise tax under
Section 4999 of the Internal Revenue Code due to the receipt
thereof. The Agreements preserve any applicable Change of
Control provisions under other agreements or arrangements,
such as Kemper's equity-based compensation programs. They
also preserve the Executive's indemnification rights,
require Kemper to maintain certain directors' and officers'
liability insurance coverage and impose certain
confidentiality obligations on the Executive.
Cause is defined generally as (i) willful
malfeasance which has a material adverse effect on Kemper or
(ii) conviction of a felony. As to any Executive, Good
Reason is defined to be any of the following actions,
<PAGE>
<PAGE> 92
without the Executive's express prior written approval,
other than due to the Executive's permanent disability or
death: (i) any diminution in the Executive's titles, duties,
responsibilities, status or reporting relationship from the
positions, duties, responsibilities, status or reporting
relationship existing immediately prior to the Change of
Control; (ii) removal of the Executive from, or any failure
to re-elect the Executive to, any of the positions the
Executive held immediately prior to the Change of Control;
(iii) failure to pay the Executive's base salary when due;
(iv) any reduction of the Executive's base salary, target
bonus or target equity award; (v) a material reduction in
the Executive's employee or fringe benefits; (vi) a change
of the Executive's principal place of employment to a
location more than 20 miles from the Executive's principal
place of employment immediately prior to the Change of
Control; or (vii) any material breach of any provision of
the Agreement.
On March 17, 1994, Kemper established the Kemper
Corporation Holding Company Change of Control Severance
Program, which provides that if an Eligible Employee
(defined to include, among other persons, all corporate
officers of Kemper who are not parties to a termination
protection agreement) is terminated without Cause or resigns
for Good Reason (the definitions of which are similar to the
definitions of such terms for purposes of the termination
protection agreements described above) within a two-year
period following a Change of Control, the Eligible Employee
will be entitled to the following severance benefits: (i) a
single lump sum payment, in cash, equal to the Eligible
Employee's monthly salary times the Eligible Employee's
number of years of service (but not less than six nor more
than 24); (ii) in the case of officers and certain other
employees, a single lump sum amount, in cash, equal to a pro
rata portion of such Eligible Employee's Target Bonus for
the year of termination; (iii) continued welfare benefits
until the earlier of the end of the Eligible Employee's
Severance Period (defined as the period commencing on the
termination date and continuing for a number of calendar
months equal to such Eligible Employee's number of years of
service, but not less than six nor more than 24 months) or
the date on which such Eligible Employee becomes employed by
a new employer; (iv) payment of any accrued but unpaid bonus
for the prior year and any deferred compensation and
(v) acceleration of vesting under Kemper's supplemental
retirement plans and payment of the Eligible Employee's
accrued benefit under these plans. See "-- Effect on
Employee Benefit and Stock Plans" above.
<PAGE>
<PAGE> 93
Resale of Conseco Common Stock
The Conseco Common Stock issued pursuant to the
Merger will be freely transferable under the Securities Act
except for shares issued to any Kemper stockholder who may
be deemed to be an "affiliate" of Conseco or Kemper for
purposes of Rule 145 under the Securities Act. It is
expected that each such affiliate will enter into an
agreement with Conseco providing that such affiliate will
not transfer any Conseco Common Stock received in the
Merger, except in compliance with the Securities Act. This
Joint Proxy Statement/Prospectus does not cover resales of
shares of Conseco Common Stock received by any person who
may be deemed to be an affiliate of Kemper.
No Solicitation
The Merger Agreement provides that Kemper may not,
nor may it permit any of its subsidiaries to, nor may it
authorize or permit any officer, director or employee of, or
any investment banker, attorney or other adviser or
representative of, Kemper or any of its subsidiaries to,
directly or indirectly (i) solicit, initiate or encourage
the submission of any Acquisition Proposal or
(ii) participate in any discussions or negotiations
regarding, or furnish to any person any information with
respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or
may reasonably be expected to lead to, any Acquisition
Proposal. However, following the receipt by Kemper of an
Acquisition Proposal that the Board of Directors of Kemper
determines in good faith, following consultation with
outside counsel, would permit the Board of Directors of
Kemper to take any of the actions referred to under "--Right
of the Kemper Board of Directors to Withdraw Recommendation"
below, any such person may participate in negotiations
regarding such Acquisition Proposal.
<PAGE>
<PAGE> 94
Right of the Kemper Board of Directors to Withdraw
Recommendation
Under the Merger Agreement, the Board of Directors
of Kemper may not (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Conseco or Merger
Sub, its approval or recommendation of the Merger Agreement
or the Merger, (ii) approve or recommend, or propose to
approve or recommend, any Acquisition Proposal or
(iii) enter into any agreement with respect to any
Acquisition Proposal, unless Kemper receives an Acquisition
Proposal and the Board of Directors of Kemper determines in
good faith, following consultation with outside counsel,
that in order to comply with its fiduciary duties to
stockholders under applicable law it is necessary for the
Board of Directors to withdraw or modify its approval or
recommendation of the Merger Agreement or the Merger,
approve or recommend such Acquisition Proposal, enter into
an agreement with respect to such Acquisition Proposal or
terminate the Merger Agreement. In the event the Board of
Directors of Kemper takes any of the foregoing actions, the
Merger Agreement requires Kemper to, concurrently with the
taking of any such action, pay to Conseco the fee described
below under "--Certain Fees".
Certain Fees
The Merger Agreement requires Kemper to pay to
Conseco on demand $100 million, plus all Expenses, if a bona
fide Acquisition Proposal is commenced, publicly proposed,
publicly disclosed or communicated to Kemper (or the
willingness of any person to make such an Acquisition
Proposal is publicly disclosed or communicated to Kemper)
and (i) the Board of Directors of Kemper in accordance with
the provision described under "--Right of the Kemper Board
of Directors to Withdraw Recommendation", withdraws or
modifies, in a manner adverse to Conseco or Merger Sub, its
approval or recommendation of the Merger Agreement or the
Merger, approves or recommends such Acquisition Proposal,
enters into an agreement with respect to such Acquisition
Proposal, terminates the Merger Agreement, approves any
transaction pursuant to certain sections of the Kemper
Rights Agreement or amends or waives any provision of the
Kemper Rights Agreement or redeems the Rights issued
thereunder or (ii) the requisite approval of Kemper's
stockholders for the Merger is not obtained at the Kemper
Meeting.
<PAGE>
<PAGE> 95
THE RESTRUCTURING
CCP II has organized CCP II Holdings to acquire
Life Insurance Holdings and to organize one or more real
estate acquisition subsidiaries. Immediately following the
Effective Time, the Surviving Corporation will effect the
Life Company Dispositions by selling all of the issued and
outstanding shares of capital stock of the Life Companies to
Life Insurance Holdings. In addition, immediately following
the Effective Time, the Real Estate Transfers (the transfer,
by merger or otherwise, of certain real estate interests
currently held by subsidiaries of Kemper into one or more of
CCP II Holdings' real estate acquisition subsidiaries) will
be effected. It is currently anticipated that the purchase
price to be paid to the Surviving Corporation by Life
Insurance Holdings in connection with the Life Company
Dispositions and the consideration to be paid in the Real
Estate Transfers (together with related transaction fees and
expenses) will aggregate approximately $1.35 billion. The
implementation of the Restructuring described above is an
integral part of the plan of financing for the Merger. See
"PLAN OF FINANCING".
PLAN OF FINANCING
General
The Aggregate Acquisition Costs, estimated to be
approximately $2.54 billion, will be financed from four
sources: (i) borrowings by the Surviving Corporation under
the Surviving Corporation Credit Agreement in an aggregate
amount of $823.5 million (consisting of (a) a Senior
Tranche A Term Loan in the amount of $523.5 million; (b) a
Senior Tranche B Term Loan in the amount of $200.0 million;
and (c) a Senior Bridge Loan in the amount of
$100.0 million); (ii) the proceeds from the sale by the
Surviving Corporation through Morgan Stanley of the
Surviving Corporation Senior Subordinated Debentures in the
aggregate principal amount of $350.0 million, (iii) the
proceeds to the Surviving Corporation of the Life Company
Dispositions and the Real Estate Transfers, which (together
with related transaction fees and expenses) are currently
expected to aggregate approximately $1.35 billion and to be
financed as described below and (iv) Kemper cash available
at the Effective Time. Immediately following the Effective
Time, KFS will effect the KFS Broker-Dealer Transfer by
transferring all of the broker-dealer businesses of KFS and
all of the property and assets related thereto into a new
wholly owned subsidiary of KFS. It is anticipated that the
Senior Bridge Loan will be repaid promptly following the
Effective Time in part with funds to be made available to
the Surviving Corporation out of assets no longer required
to be maintained by KFS in connection with its broker-dealer
businesses as a result of the KFS Broker-Dealer Transfer.
<PAGE>
<PAGE> 96
The total amount of funds required by CCP II
Holdings to pay to the Surviving Corporation the purchase
price for the Life Company Dispositions and the
consideration for the Real Estate Transfers (together with
related transaction fees and expenses) is currently
anticipated to be approximately $1.35 billion and will be
financed from four sources: (i) borrowings by CCP II
Holdings under the CCP II Holdings Credit Agreement in an
aggregate amount of $400.0 million; (ii) the proceeds from
the sale by CCP II Holdings through Morgan Stanley of the
CCP II Holdings Senior Subordinated Debentures in the
aggregate principal amount of $400.0 million; (iii) the
proceeds from the sale by CCP II Holdings in a private
placement of the CCP II Holdings PIK Preferred Stock with an
aggregate stated value of $250.0 million and (iv) the CCP II
Equity Contribution in the aggregate amount of
$300.0 million.
Pursuant to the Morgan Stanley Highly Confident
Letter, Morgan Stanley has confirmed to Conseco that, based
upon and subject to the matters set forth therein, it is
highly confident that it could arrange, as exclusive
placement agent or lead managing underwriter, for the sale
of the Senior Subordinated Debentures referred to above.
<PAGE>
<PAGE> 97
The sources of the funds to pay the Aggregate
Acquisition Costs are expected to be as follows (in
millions):
<TABLE>
<S> <C>
Surviving Corporation Credit Agreement:
Senior Tranche A Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $523.5
Senior Tranche B Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200.0
Senior Bridge Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0*/
Surviving Corporation Senior
Subordinated Debentures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350.0
Restructuring:
Senior Term Loan to CCP II Holdings. . . . . . . . . . . . . . . . . . . . . . . . . 400.0
CCP II Holdings Senior Subordinated Debentures . . . . . . . . . . . . . . . . . . . 400.0
CCP II Holdings PIK Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . . . 250.0
CCP II Equity Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300.0
Kemper cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1
--------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$2,538.6
========
______________
<FN>
*/ It is anticipated that the Senior Bridge Loan
will be repaid promptly following the Effective Time in part
with funds to be made available to the Surviving Corporation
out of assets no longer required to be maintained by KFS in
connection with its broker-dealer businesses as a result of
the KFS Broker-Dealer Transfer.
</TABLE>
Description of Credit Agreements
The following is a summary of certain provisions
contained in the Credit Agreements.
The Surviving Corporation Credit Agreement
provides for the following loans to the Surviving
Corporation: the $523,500,000 Senior Tranche A Term Loan,
the $200,000,000 Senior Tranche B Term Loan and the
$100,000,000 Senior Bridge Loan. The CCP II Holdings Credit
Agreement provides for a $400,000,000 Senior Term Loan to
CCP II Holdings.
<PAGE>
<PAGE> 98
Borrowings under the Senior Tranche A Term Loan
are repayable in quarterly installments, commencing at the
end of the first full fiscal quarter after the Effective
Time, with annual reductions of no less than:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
First Year $28,000,000
Second Year 68,000,000
Third Year 88,000,000
Fourth Year 20,000,000
Fifth Year 103,000,000
Sixth Year 102,500,000
Seventh Year 114,000,000
</TABLE>
Borrowings under the Senior Tranche B Term Loan
are repayable in quarterly installments, commencing at the
end of the first full fiscal quarter after the Effective
Time, with annual reductions of no less than:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
First Year $2,000,000
Second Year 2,000,000
Third Year 2,000,000
Fourth Year 2,000,000
Fifth Year 2,000,000
Sixth Year 17,500,000
Seventh Year 25,000,000
Eighth Year 147,500,000
</TABLE>
The Senior Bridge Loan is required to be repaid on
the second business day after the Effective Time (and is
expected to be paid in part with funds from KFS made
available as a result of the KFS Broker-Dealer Transfer).
Borrowings under the CCP II Term Loan are
repayable in annual installments, commencing April 3, 1995,
with reductions of no less than:
<TABLE>
<CAPTION>
Year Ending Amount
----------- ------
<S> <C>
April 3, 1995 $24,000,000
April 1, 1996 32,000,000
April 1, 1997 40,000,000
April 1, 1998 48,000,000
April 1, 1999 52,000,000
April 3, 2000 60,000,000
April 2, 2001 68,000,000
April 1, 2002 76,000,000
</TABLE>
<PAGE>
<PAGE> 99
The Surviving Corporation Credit Agreement
requires that all net cash proceeds from the sale of assets
of Conseco, the Surviving Corporation or their subsidiaries
(other than any Insurance Company Subsidiary (as defined
below) or a subsidiary of an Insurance Company Subsidiary
and excluding sales in the ordinary course of business and
certain other sales) and all proceeds from the issuance of
additional equity by Conseco or by the Surviving Corporation
(other than to Conseco or pursuant to stock option plans)
and 50% of Conseco's Excess Cash Flow (as defined in the
Surviving Corporation Credit Agreement), net of optional
repayments, be applied to prepay the loans outstanding under
the Surviving Corporation Credit Agreement. As used herein,
an "Insurance Company Subsidiary" of a person means a
subsidiary of that person that is a regulated insurance
company or is engaged in the business of selling, issuing or
underwriting insurance or reinsurance of any kind.
The CCP II Holdings Credit Agreement requires that
all net cash proceeds from the sale of assets of CCP II
Holdings or any of its subsidiaries (other than any
Insurance Company Subsidiary or a subsidiary of an Insurance
Company Subsidiary and excluding sales in the ordinary
course of business and certain other sales) and all proceeds
from the issuance of additional equity by CCP II Holdings
(other than the CCP II Holdings PIK Preferred Stock) and 50%
of CCP II Holdings' Excess Cash Flow (as defined in the
CCP II Holdings Credit Agreement), net of optional
repayments, be applied to prepay the loans outstanding under
the CCP II Holdings Credit Agreement.
The outstanding borrowings under the Credit
Agreements will bear interest payable at the Applicable
Margin above Citibank's Base Rate or, at the borrower's
option, Citibank's Eurodollar Rate (adjusted for reserves).
Interest based on the Base Rate will be payable quarterly in
arrears. Interest based on the Eurodollar Rate will be
payable in arrears at the earlier of the end of the
applicable interest period and quarterly. Eurodollar Rate
borrowings will be available for 1, 2, 3 or 6 month interest
periods. Citibank's "Base Rate" is a fluctuating interest
rate equal to the highest from time to time of (a) the rate
of interest announced publicly by Citibank in New York as
its base rate, (b) 1/2 of 1% per annum above the latest
three-week moving average of secondary market morning
offering rates for three-month certificates of deposit of
major U.S. money market banks, as determined weekly by
Citibank and adjusted for the cost of reserves and estimated
<PAGE>
<PAGE> 100
insurance assessments from the Federal Deposit Insurance
Corporation, and (c) a rate equal to 1/2 of 1% per annum
above the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as determined for
any day by Citibank. Citibank's Eurodollar Rate is the rate
per annum at which deposits in U.S. dollars are offered by
the principal office of Citibank in London, England to prime
banks in the London interbank market at 11:00 a.m. London
time two business days before the first day of the relevant
interest period in an amount substantially equal to
Citicorp's portion of the relevant borrowing to be
outstanding during the relevant interest period and for a
period equal to such interest period.
The "Applicable Margin" means (i) prior to
January 1, 1996, (a) in the case of each of the loans under
the Credit Agreements (other than the Senior Tranche B Term
Loan), 1.50% per annum for Base Rate borrowings and 2.75%
per annum for Eurodollar Rate borrowings and (b) in the case
of the Senior Tranche B Term Loan, 2.25% per annum for Base
Rate borrowings and 3.50% per annum for Eurodollar Rate
borrowings; and (ii) on or after January 1, 1996, rates per
annum specified in the applicable Credit Agreement (which
rates are equal to or less than those specified above)
determined by reference to the performance of the borrower
under such Agreement (and, in the case of the Surviving
Corporation Credit Agreement, Conseco) with respect to
certain financial targets and certain long-term senior
unsecured debt ratings specified in the applicable Credit
Agreement.
Conseco will unconditionally guaranty all of the
obligations of each other Loan Party (as defined in the
Surviving Corporation Credit Agreement) under the Surviving
Corporation Credit Agreement and related loan documentation.
Each subsidiary of Conseco or the Surviving Corporation that
is not an Insurance Company Subsidiary or a subsidiary of an
Insurance Company Subsidiary will unconditionally guaranty
all of the obligations of Conseco and the Surviving
Corporation under the Surviving Corporation Credit Agreement
and related loan documentation. The liability of each of
the guarantors (other than Conseco) under the guaranty will
not exceed the greater of (i) 95% of the Adjusted Net Assets
(as hereinafter defined) of such guarantor on the date of
execution of the guaranty and (ii) 95% of the Adjusted Net
Assets of such guarantor on the date of any payment
thereunder. The term "Adjusted Net Assets", with respect to
<PAGE>
<PAGE> 101
any of the guarantors at any date of determination, is
defined as the lesser of (A) the amount by which the fair
value of the property and assets of such guarantor exceeds
the total amount of liabilities (including, without
limitation, contingent liabilities, but excluding
liabilities under the loan documentation) of such guarantor
at such date and (B) the amount by which the present fair
salable value of the property and assets of such guarantor
at such date exceeds the amount that will be required to pay
the probable liability of such guarantor on its debts
(excluding debt in respect of the loan documentation) as
they become absolute and matured.
Each subsidiary of CCP II Holdings that is not an
Insurance Company Subsidiary or a subsidiary of an Insurance
Company Subsidiary will unconditionally guaranty all of the
obligations of CCP II Holdings under the CCP II Holdings
Credit Agreement and related loan documentation. The
liability of each of the guarantors under the guaranty will
be limited to 95% of its Adjusted Net Assets as described in
the preceding paragraph.
To secure all obligations under the Surviving
Corporation Credit Agreement and related loan documentation,
each of Conseco, the Surviving Corporation and each
subsidiary that is not an Insurance Company Subsidiary and
that at least 90% of the capital stock of which will be
directly or indirectly owned by Conseco or the Surviving
Corporation following the Merger and the Restructuring and
(each, a "Collateral Grantor") will grant a security
interest in the collateral described below: (i) (a) all
shares of capital stock of all direct subsidiaries of, and
all partnership interests of, Conseco or the Surviving
Corporation that are owned by Conseco, the Surviving
Corporation or any of their subsidiaries upon consummation
of the Merger (other than (1) shares of capital stock of any
regulated Insurance Company Subsidiary or any subsidiary of
any such Insurance Company Subsidiary, (2) capital stock of
any non-U.S. subsidiary in excess of 65% of the outstanding
shares of capital stock of such non-U.S. subsidiary and
(3) partnership interests that are prohibited by the
relevant partnership agreements from being pledged) and
(b) all intercompany debt and certain U.S. Treasury
securities and certain other investment securities held by
such Collateral Grantor, (ii) all right, title and interest
of such Collateral Grantor in and to all accounts
receivable, (iii) the cash collateral account established by
such Collateral Grantor for the purpose of holding payments
<PAGE>
<PAGE> 102
of pledged accounts receivable, (iv) all right, title and
interest in and to each Grantor Assigned Agreement (defined
in the Surviving Corporation Credit Agreement loan
documentation as all service agreements and certain other
agreements, including, without limitation, all advisory or
loan servicing agreements, executive management agreements
and administration agreements of the Collateral Grantors,
all tax sharing agreements to which the Surviving
Corporation is a party, and all agreements entered into by
any Collateral Grantor in connection with the Merger) to
which such Collateral Grantor is a party and (v) all
proceeds of any and all of the foregoing. Following receipt
of approval from insurance regulatory authorities in the
applicable jurisdictions, each Insurance Company Subsidiary
of Conseco or the Surviving Corporation will grant a
security interest in its right, title and interest in and to
each Insurance Company Assigned Agreement (defined in the
Surviving Corporation Credit Agreement loan documentation as
all service agreements and certain other agreements,
including, without limitation, all advisory or loan
servicing agreements, executive management agreements and
administration agreements).
To secure all obligations under the CCP II
Holdings Credit Agreement and related loan documentation,
each of CCP II (with respect to the collateral described in
clause (i) below), CCP II Holdings and each subsidiary of
CCP II Holdings (other than Life Insurance Holdings) that is
not an Insurance Company Subsidiary (each, a "CCP II
Holdings Collateral Grantor") will grant a security interest
in the collateral described below: (i) (a) all shares of
capital stock of all direct subsidiaries of, and all
partnership interests of, CCP II or CCP II Holdings that are
owned by CCP II, CCP II Holdings or any of their
subsidiaries upon consummation of the Merger (other than
(1) shares of capital stock of any regulated Insurance
Company Subsidiary or any subsidiary of any such Insurance
Company Subsidiary, (2) capital stock of any non-U.S.
subsidiary in excess of 65% of the outstanding shares of
capital stock of such non-U.S. subsidiary and
(3) partnership interests that are prohibited by the
relevant partnership agreements from being pledged) and
(b) all intercompany debt and certain U.S. Treasury
securities and certain other investment securities held by
such CCP II Holdings Collateral Grantor, (ii) the cash
collateral account of CCP II Holdings, (iii) all right,
title and interest in and to each Grantor Assigned Agreement
(defined in the CCP II Holdings Credit Agreement loan
<PAGE>
<PAGE> 103
documentation as all service agreements, including, without
limitation, all advisory or loan servicing agreements,
executive management agreements and administration
agreements of CCP II Holdings and its subsidiaries and all
agreements entered into by CCP II Holdings or any of its
subsidiaries in connection with the Merger) to which such
CCP II Holdings Collateral Grantor is a party and (iv) all
proceeds of any and all of the foregoing. Following receipt
of approval from insurance regulatory authorities in the
applicable jurisdictions, Life Insurance Holdings and each
Insurance Company Subsidiary of CCP II Holdings will grant a
security interest in its right, title and interest in and to
each Insurance Company Assigned Agreement (defined in the
CCP II Holdings Credit Agreement loan documentation as all
service agreements, including, without limitation, all
advisory or loan servicing agreements, executive management
agreements and administration agreements).
The granting clauses contained in the loan
documentation described in the preceding two paragraphs
provide that no security interest will be granted in any
assets to the extent such security interest is prohibited by
applicable law, rule, regulation or undertaking with any
governmental authority.
The obligation of each Lender (as defined in the
Surviving Corporation Credit Agreement) to make an advance
under the Surviving Corporation Credit Agreement is subject
to a number of conditions precedent, including the
following: (i) the Lenders' reasonable satisfaction with
the corporate and legal structure and capitalization of each
Loan Party and each of its subsidiaries to the extent that
any such structure or capitalization is not consistent with,
or was not otherwise previously disclosed as part of, the
Pre-Commitment Information (defined generally as information
furnished to or obtained by the Lenders prior to August 31,
1994); (ii) the consistency in all material respects with
the Pre-Commitment Information of, and the Lenders'
reasonable satisfaction with, the final terms and conditions
of the Merger and the Restructuring; the Lenders' reasonable
satisfaction with all legal and tax aspects of the Merger
and the Restructuring and the Lenders' reasonable
satisfaction with all documentation relating to each aspect
of the transactions; the compliance with and performance in
all material respects of the agreements and conditions set
forth in the Merger Agreement required to be complied with
or performed by each of Conseco, Merger Sub and the
Surviving Corporation on or prior to the Effective Time and
<PAGE>
<PAGE> 104
the effectiveness of the Merger Agreement; the absence of
any action or event that would constitute a default under
the Surviving Corporation Credit Agreement if all of the
covenants set forth therein were in effect with respect to
Conseco, Merger Sub and their subsidiaries as of the date of
the Surviving Corporation Credit Agreement; (iii) the
consummation of the Merger in accordance with the terms of
the Merger Agreement, without any waiver or amendment of any
material term, provision or condition set forth therein not
consented to by the Lenders and in compliance with all
applicable laws and with all necessary stockholder approvals
and the Lenders' satisfaction that the restrictions in
Section 203 of the Delaware General Corporation Law or any
other applicable state takeover law, and in any
supermajority charter provisions, are not applicable to the
Merger or that any conditions to avoiding the restrictions
contained therein have been satisfied; (iv) the consummation
of the Restructuring in accordance with all applicable laws
and on terms and conditions reasonably satisfactory to the
Lenders; (v) the Lenders' reasonable satisfaction with the
documentation relating to the Surviving Corporation Senior
Subordinated Debentures; (vi) the Lenders' reasonable
satisfaction with the 12b-1 Facility (a $200.0 million
credit agreement to be entered into prior to the Effective
Time among KFS, Conseco, the Surviving Corporation, KFC, the
lenders party thereto (the "12b-1 Facility Lenders") and
Citicorp, as agent) and related documentation, or the
Supermajority Lenders' (defined as Lenders and 12b-1
Facility Lenders holding greater than 80% of the sum of the
total commitments of the Lenders and the aggregate amount of
the 12b-1 Facility commitments) satisfaction with any other
arrangements for financing contingent deferred sales charge
arrangements with customers of KFS and its subsidiaries;
(vii) the absence of a material adverse change since
December 31, 1993; (viii) the absence of any additional
information relating to any Loan Party or any of its
subsidiaries or to any aspect of the transactions coming to
the attention of the Lenders that is inconsistent in any
material respect with the Pre-Commitment Information or that
could reasonably be expected to have a material adverse
effect; (ix) the obtaining of all consents and approvals of
any governmental authority and any other third party
necessary in connection with each aspect of the transactions
and the related financings and grants of security interests,
and the making of all related filings; the expiration of all
applicable waiting periods without any materially adverse
action being taken by any competent authority and the
inapplicability of any law or regulation in the judgment of
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the Lenders that restrains, prevents or imposes materially
adverse conditions upon any aspect of the transactions or
any of the financings thereof; (x) the Lenders' reasonable
satisfaction that all of the outstanding debt of Conseco,
Merger Sub, the Surviving Corporation and their respective
subsidiaries has been, or simultaneously with the initial
borrowing will be, prepaid, redeemed or defeased in full or
otherwise satisfied or extinguished; (xi) the Lenders'
reasonable satisfaction with all of the schedules and
exhibits to the Surviving Corporation Credit Agreement and
the related loan documentation, and any amendments and
supplements thereto, in each case to the extent not attached
thereto on August 31, 1994; (xii) the receipt by the
Surviving Corporation of at least $350.0 million in gross
cash proceeds from the issuance and sale of the Surviving
Corporation Senior Subordinated Debentures and the aggregate
amount of transaction costs not materially exceeding the
amount previously disclosed as part of the Pre-Commitment
Information; (xiii) the payment of certain fees and expenses
of the Administrative Agent and the Lenders; (xiv) the
Administrative Agent's receipt of, and the Lenders'
reasonable satisfaction with, the loan documentation,
related legal opinions, certificates, solvency letters and
additional financial, business and other requested
information; (xv) the correctness of the representations and
warranties contained in the Surviving Corporation Credit
Agreement and in the loan documentation on and as of the
Effective Time, before and after giving effect to the
initial borrowing and to the application of the proceeds
therefrom, as though made on and as of such date and
(xvi) the absence of any event that constitutes a default
under the Surviving Corporation Credit Agreement.
The obligation of each Lender (as defined in the
CCP II Holdings Credit Agreement) to make an advance under
the CCP II Holdings Credit Agreement is subject to a number
of conditions precedent, including the following: (i) the
Lenders' reasonable satisfaction with the corporate and
legal structure and capitalization of each Loan Party (as
defined in the CCP II Holdings Credit Agreement) and each of
its subsidiaries to the extent that any such structure or
capitalization is not consistent with, or was not otherwise
previously disclosed as part of, the Pre-Commitment
Information (defined generally as information furnished to
or obtained by the Lenders prior to August 31, 1994);
(ii) the consistency in all material respects with the Pre-
Commitment Information of, and the Lenders' reasonable
satisfaction with, the final terms and conditions of the
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<PAGE> 106
Merger and the Restructuring; the Lenders' reasonable
satisfaction with all legal and tax aspects of the Merger
and the Restructuring and the Lenders' reasonable
satisfaction with all documentation relating to each aspect
of the transactions; the compliance and performance in all
material respects of the agreements and conditions set forth
in the Merger Agreement required to be complied with or
performed by each of Conseco, Merger Sub and the Surviving
Corporation on or prior to the Effective Time and the
effectiveness of the Merger Agreement; the absence of any
action or event that would constitute a default under the
CCP II Holdings Credit Agreement if all of the covenants set
forth therein were in effect with respect to CCP II Holdings
and its subsidiaries as of the date of the CCP II Holdings
Credit Agreement; (iii) the consummation of the Merger in
accordance with the terms of the Merger Agreement, without
any waiver or amendment of any material term, provision or
condition set forth therein not consented to by the Lenders
and in compliance with all applicable laws and with all
necessary stockholder approvals; (iv) the consummation of
the Restructuring in accordance with all applicable laws and
on terms and conditions reasonably satisfactory to the
Lenders; (v) the Lenders' reasonable satisfaction with the
documentation relating to the CCP II Holdings Senior
Subordinated Debentures; (vi) the Lenders' reasonable
satisfaction with the CCP II Holdings PIK Preferred Stock;
(vii) the absence of a material adverse change since
December 31, 1993; (viii) the absence of any additional
information relating to any Loan Party or any of its
subsidiaries or to any aspect of the transactions coming to
the attention of the Lenders that is inconsistent in any
material respect with the Pre-Commitment Information or that
could reasonably be expected to have a material adverse
effect; (ix) the obtaining of all consents and approvals of
any governmental authority and any other third party
necessary in connection with each aspect of the
transactions, and the related financings and grants of
security interests, and the making of all related filings;
the expiration of all applicable waiting periods without any
materially adverse action being taken by any competent
authority and the inapplicability of any law or regulation
in the judgment of the Lenders that restrains, prevents or
imposes materially adverse conditions upon any aspect of the
transactions or any of the financings thereof; (x) the
Lenders' reasonable satisfaction that all of the outstanding
debt of CCP II Holdings and its subsidiaries has been, or
simultaneously with the initial borrowing will be, prepaid,
redeemed or defeased in full or otherwise satisfied or
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<PAGE> 107
extinguished; (xi) the Lenders' reasonable satisfaction with
all of the schedules and exhibits to the CCP II Holdings
Credit Agreement and the related loan documentation, and any
amendments and supplements thereto, in each case to the
extent not attached thereto on August 31, 1994; (xii) the
receipt by CCP II of at least $300.0 million in cash as a
capital contribution from Conseco and its other partners;
and the receipt by CCP II Holdings of at least (A) $400.0
million in gross cash proceeds from the issuance and sale of
the CCP II Holdings Senior Subordinated Debentures and
(B) $250.0 million in gross cash proceeds from the issuance
and sale of the CCP II Holdings PIK Preferred Stock and the
aggregate amount of transaction costs not materially
exceeding the amount previously disclosed as part the Pre-
Commitment Information; (xiii) the payment of certain fees
and expenses of the Administrative Agent and the Lenders;
(xiv) the Administrative Agent's receipt of, and the
Lenders' reasonable satisfaction with, the loan
documentation, related legal opinions, certificates,
solvency letters and additional financial, business and
other requested information; (xv) the correctness of the
representations and warranties contained in the CCP II
Holdings Credit Agreement and in the loan documentation on
and as of the Effective Time, before and after giving effect
to the initial borrowing and to the application of the
proceeds therefrom, as though made on and as of such date
and (xvi) the absence of any event that constitutes a
default under the CCP II Holdings Agreement.
The Credit Agreements contain representations and
warranties of, in the case of the Surviving Corporation
Credit Agreement, Conseco and the Surviving Corporation and,
in the case of the CCP II Holdings Credit Agreement, CCP II
Holdings, in each case as of the date of the respective
Credit Agreement, with respect to: due incorporation, good
standing and corporate power and authority; due
authorization of certain agreements; noncontravention of the
loan documentation with charter documents or applicable law
and absence of conflicts with material agreements; required
consents; due execution, delivery and enforceability of the
loan documentation; absence of litigation; surviving
indebtedness and preferred stock. The Credit Agreements
contain representations and warranties to be made at the
Effective Time with respect to the due organization,
qualification and corporate power and authority of each Loan
Party (as defined in the applicable Credit Agreement); the
subsidiaries of each Loan Party and the capitalization and
corporate status thereof; due authorization of the loan
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<PAGE> 108
documentation; noncontravention of the loan documentation
with charter documents or applicable law; no conflicts with
material agreements; required consents; due execution and
delivery and enforceability of the loan documentation;
financial statements; insurance regulatory matters; pro
forma financial information; forecasted financial
information; full disclosure; absence of litigation;
compliance with margin rules; use of proceeds, good title
and absence of liens; Employee Retirement Income Security
Act of 1974, as amended ("ERISA") and employee benefit
matters; environmental matters; burdensome agreements; tax
matters; securities law matters; solvency; preferred stock;
investments and insurance licenses.
The Credit Agreements contain certain covenants
(applicable to, in the case of the Surviving Corporation
Credit Agreement, Conseco, the Surviving Corporation and in
certain cases their subsidiaries and in the case of the
CCP II Holdings Credit Agreement, applicable to CCP II
Holdings and in certain cases its subsidiaries), including,
without limitation, the following: (a) affirmative covenants
with respect to compliance with laws and regulations;
payment of taxes and other obligations; compliance with
environmental laws; maintenance of appropriate and adequate
insurance; preservation of corporate existence; visitation
and inspection rights; keeping of books in accordance with
GAAP (and, in the case of each Insurance Company Subsidiary
in accordance with statutory accounting principles);
maintenance of properties; compliance with terms of
leaseholds; performance of certain agreements; conducting
transactions with affiliates on an arm's length basis;
maintenance of cash collateral accounts; further assurances
as to perfection and priority of security interests; in the
case of the Surviving Corporation Credit Agreement,
compliance by the Company Funds (as defined in the Merger
Agreement) with investment policies and restrictions set
forth in the most recent prospectus and statement of
additional information, if any, and in the case of the
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<PAGE> 109
CCP II Holdings Credit Agreement, interest rate hedging and
maintenance by Insurance Company Subsidiaries of a specified
claims paying rating; (b) financial and other reporting
requirements; (c) financial covenants including, in the case
of the Surviving Corporation Credit Agreement, with respect
to Conseco, net worth, cash flow, leverage, interest
coverage and fixed charge coverage, with respect to the
Surviving Corporation, net worth and, with respect to the
Insurance Company Subsidiaries of Conseco or the Surviving
Corporation, risk-based capital; and, in the case of the
CCP II Holdings Credit Agreement, with respect to CCP II
Holdings, net worth, leverage, interest coverage, cash
coverage and fixed charge coverage and, with respect to the
Insurance Company Subsidiaries of CCP II Holdings, minimum
surplus, risk-based capital and statutory EBT and
(d) negative covenants with respect to liens; debt,
guaranties or other contingent obligations; lease
obligations; mergers and consolidations; dispositions of
assets; loans, acquisitions and investments; creating new
subsidiaries; becoming a general partner in any partnership;
dividends, stock repurchases and other distributions to
stockholders; prepaying, redeeming or repurchasing debt;
operating leases; capital expenditures; new management
compensation and fee arrangements; negative pledges;
changing the nature of its business; amending organizational
documents; changing its accounting policies or reporting
practices; Insurance Company Subsidiary acquisitions;
reinsurance agreements; entering into inconsistent
agreements; and amending certain agreements. Under the CCP
II Holdings Credit Agreement, the subsidiaries of CCP II
Holdings succeeding to interests in real estate pursuant to
the Real Estate Transfers will not be considered
"subsidiaries" and, accordingly, will not be required to
comply with the covenants described above, although such
subsidiaries will be subject to certain other restrictions.
In addition, the CCP II Holdings Credit Agreement contains a
covenant permitting CCP II Holdings to enter into certain
transactions with respect to its real estate assets
(including making, extending, refinancing, or enforcing
loans; incurring credit support obligations; permitting the
existence of liens in favor of third parties and selling
assets) subject to certain limitations set forth therein.
The Credit Agreements contain events of default,
applicable, in most cases, to each Loan Party under the
applicable loan documentation, including, without
limitation, the following: (a) the failure to pay any
principal when due, or failure to pay any other sum within
three business days after such other sum becomes due;
(b) the material incorrectness when made of any
representation or warranty in any of the applicable loan
documentation; (c) the failure to perform or comply (within
30 days after notice or 20 days after knowledge, as
applicable, of such failure in the case of certain
covenants) with any term or covenant in any of the
applicable loan documentation; (d) default under any debt
obligation in excess of $20.0 million, in the case of the
Surviving Corporation Credit Agreement, or $10.0 million, in
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<PAGE> 110
the case of the CCP II Holdings Credit Agreement, if the
effect of such default is to cause or permit acceleration of
the maturity of such obligation; (e) certain events of
bankruptcy or insolvency; (f) the rendering of one or more
judgments for the payment of money aggregating in excess of
$20.0 million, in the case of the Surviving Corporation
Credit Agreement, or $10.0 million, in the case of the
CCP II Holdings Credit Agreement, or of a nonmonetary
judgment that could reasonably be expected to have a
material adverse effect, which in either case remains
unsatisfied and unstayed for 30 days or any enforcement
action shall be taken; (g) the unenforceability of any of
the applicable loan documentation; (h) the failure of any
collateral document to create a valid and perfected security
interest in any collateral purported to be covered thereby
(other than to the extent permitted by the terms thereof);
(i) in the case of the Surviving Corporation Credit
Agreement, the occurrence and continuance of an Event of
Default under the 12b-1 Facility; (j) the issuance by any
applicable regulatory authority of any order of
conservation, supervision, rehabilitation or liquidation or
any other order of similar effect of any of the Insurance
Company Subsidiaries or, in the case of the Surviving
Corporation Credit Agreement, any of the Investment Advisory
Subsidiaries (as defined in the Surviving Corporation Credit
Agreement); in the case of the Surviving Corporation Credit
Agreement, the termination or suspension (which suspension
continues for 10 business days) arising out of a regulatory
proceeding or investigation of Conseco's, the Surviving
Corporation's or any Investment Advisory Subsidiary's
federal or state licenses or registrations to act as an
investment advisor; in the case of the Surviving Corporation
Credit Agreement, the enjoining, barring or prohibiting of
Conseco, the Surviving Corporation or any Investment
Advisory Subsidiary from acting as an investment adviser to
any investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), or to any
other client; or in the case of the Surviving Corporation
Credit Agreement, the making of an application by the
Securities Investor Protection Corporation ("SIPC") for a
decree adjudicating that the customers of any broker-dealer
subsidiary are in need of protection under the Securities
Investor Protection Act of 1970, as amended ("SIPA"), and
the failure of such broker-dealer subsidiary to obtain the
dismissal of such application within 30 days; (k) the
occurrence of a change of control; (l) the occurrence of
certain ERISA events or (m) in the case of the CCP II
Holdings Credit Agreement, the occurrence of a material
adverse change.
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Description of Senior Subordinated Debentures
The following is a summary of certain terms of the
Senior Subordinated Debentures. The Senior Subordinated
Debentures are expected to be issued in concurrent public
offerings pursuant to separate registration statements. The
sales of the Senior Subordinated Debentures are expected to
be consummated concurrently with the consummation of the
Merger.
The Senior Subordinated Debentures will be
unsecured senior subordinated obligations of their
respective issuers, will bear interest, payable
semiannually, at rates to be determined based upon market
conditions at the time of issuance and will mature 10 years
from their date of issuance. The Senior Subordinated
Debentures are expected to be redeemable at the option of
their respective issuer (subject to any limitations imposed
by the applicable Credit Agreement) after the fifth
anniversary of their issuance at a redemption price
initially representing a premium over the principal amount
thereof plus accrued interest.
The Senior Subordinated Debentures will be
unsecured and amounts payable with respect to the Senior
Subordinated Debentures will be subordinated in right of
payment to the prior payment in full of all senior
indebtedness including, as applicable, the obligations of
the Surviving Corporation under the Surviving Corporation
Credit Agreement and the obligations of CCP II Holdings
under the CCP II Holdings Credit Agreement.
The indentures under which the Senior Subordinated
Debentures will be issued (the "Indentures") will contain
certain covenants which, among other things, will limit:
(i) the incurrence of indebtedness by the applicable issuer;
(ii) the incurrence of indebtedness and the issuance of
preferred stock by the subsidiaries of the applicable
issuer; (iii) the issuance and disposition of stock of the
subsidiaries of the applicable issuer and the sale of
certain assets of the applicable issuer and its
subsidiaries; (iv) the payment of dividends on and
redemptions of the capital stock of the applicable issuer
and its subsidiaries and the redemption of subordinated
obligations of the applicable issuer; (v) the making of
certain investments; (vi) the incurrence of restrictions on
distributions from the subsidiaries of the applicable
issuer; (vii) transactions with affiliates; (viii) certain
liens; (ix) business activities; (x) issuance of guarantees
of subsidiaries; and (xi) certain consolidations, mergers
and asset transfers.
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<PAGE> 112
Upon a change of control of the Surviving
Corporation or CCP II Holdings, each holder of the Senior
Subordinated Debentures of such issuer will have the right
to require that such issuer repurchase such holder's Senior
Subordinated Debentures at a purchase price in cash equal to
101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of the repurchase.
The Indentures will contain provisions under which
an event of default will occur if, among other things:
(i) there is a failure to pay when due the principal of or
premium, if any, on any of the applicable issuer's Senior
Subordinated Debentures; (ii) there is a failure to pay an
installment of interest on any of the applicable issuer's
Senior Subordinated Debentures for a specified period of
time; (iii) the applicable issuer fails to perform or
observe any other term, covenant or warranty for a specified
period of time after receiving notice of such failure to
perform or observe; (iv) a default occurs with respect to
any obligation of the applicable issuer or of a subsidiary
of such issuer (whether as a principal, guarantor, surety or
other obligor) under any indebtedness in excess of a
specified amount that results in the acceleration of such
indebtedness; (v) any holder or holders of secured
indebtedness of the applicable issuer in excess of a
specified amount commences foreclosure proceedings against
assets or properties of such issuer having a value in excess
of a specified amount; (vi) one or more final nonappealable
judgments, orders or decrees for the payment of money in
excess of a specified amount is entered against the
applicable issuer or any subsidiary of such issuer or any of
its properties which is not covered by insurance, is not
discharged, or either (A) an enforcement proceeding is
commenced upon such judgment, order or decree or (B) there
is a period during which a stay of enforcement of such
judgment, order or decree, by reason of any appeal or
otherwise, is not in effect; (vii) the occurrence of certain
events of bankruptcy, insolvency, rehabilitation,
liquidation, conservation or supervision with respect to the
applicable issuer or (viii) in the case of the Surviving
Corporation (A) the termination or suspension arising out of
a regulatory proceeding or investigation of the Surviving
Corporation or any of its subsidiaries' licenses or
registrations to act as an investment advisor or a
broker-dealer or (B) the making of an application by SIPC
for a decree adjudicating that the customers of any of the
Surviving Corporation's subsidiaries are in need of
protection under SIPA.
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Description of the CCP II Holdings PIK Preferred Stock
CCP II Holdings will issue 25,000 shares of CCP II
Holdings PIK Preferred Stock having an aggregate stated
value of $250.0 million to institutional investors
(including certain limited partners of CCP II) in a private
placement. As partial consideration for the purchase of the
CCP II Holdings PIK Preferred Stock, such investors will
also receive approximately 20% of the common stock of CCP II
Holdings.
The CCP II Holdings PIK Preferred Stock is
expected to (a) accrue cumulative paid-in-kind dividends at
an approximate annual rate of 13%, payable annually in
arrears, through the twelfth anniversary of its issuance
and, thereafter, accrue cumulative dividends at an
approximate annual rate of 15%, payable quarterly in arrears
in cash; (b) rank senior to the common stock of CCP II
Holdings with respect to dividends; (c) upon liquidation,
carry a liquidation preference equal to $10,000 per share
(plus accrued and unpaid dividends); (d) be subject to
optional redemption at any time at $10,000 per share (plus
accrued and unpaid dividends); and (e) be nonvoting. The
CCP II Holdings Credit Agreement and the CCP II Holdings
Senior Subordinated Debentures will generally prohibit
redemptions of the CCP II Holdings PIK Preferred Stock.
CERTAIN RELATED TRANSACTIONS
Amendment to Kemper Rights Agreement
Kemper has amended the Kemper Rights Agreement so
as to provide that neither Conseco nor Merger Sub will
become an "Acquiring Person" and that no "Stock Acquisition
Date" or "Distribution Date" (as such terms are defined in
the Kemper Rights Agreement) will occur solely as a result
of the approval, execution or delivery of the Merger
Agreement or the consummation of the Merger. See
"COMPARISON OF RIGHTS OF STOCKHOLDERS OF CONSECO AND KEMPER-
- -Rights Plan".
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<PAGE> 114
Other
In the ordinary course of conducting their
respective businesses prior to the Effective Time, each of
Conseco and Kemper, and their respective subsidiaries, may
do business and engage in transactions with the other party
and its subsidiaries. As described under "THE MEETINGS--
Conseco Meeting--Conseco Share Ownership", KFS, a subsidiary
of Kemper, reported beneficial ownership of 8.03% of the
outstanding shares of Conseco Common Stock as of
February 11, 1994.
THE MERGER AGREEMENT
The following is a brief summary of certain
provisions of the Merger Agreement, which is attached as
Annex 1 to this Joint Proxy Statement/Prospectus and is
incorporated herein by reference. Such summary is qualified
in its entirety by reference to the Merger Agreement.
The Merger
The Merger. The Merger Agreement provides that,
following the approval and adoption of the Merger Agreement
by the stockholders of Kemper and the approval of the
Issuance by the stockholders of Conseco and the satisfaction
or waiver of the other conditions to the Merger, Merger Sub
will be merged with and into Kemper (with Kemper being the
Surviving Corporation). The Effective Time will occur upon
the filing with the Secretary of State of the State of
Delaware of a duly executed Certificate of Merger or at such
time thereafter as is provided in the Certificate of Merger.
Certificate of Incorporation and By-laws. The
Merger Agreement provides that the Second Restated
Certificate of Incorporation of Kemper as in effect
immediately prior to the Effective Time will be amended as
of the Effective Time so that Article FOURTH thereof 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 7,000,100 shares which shall be
divided into two classes as follows: 7,000,000 shares of
Preferred Stock, without par value, and 100 shares of Common
Stock, par value $1.00 per share." As so amended, such
certificate of incorporation will be the Certificate of
Incorporation of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
The Bylaws of Kemper as in effect at the Effective Time will
become the Bylaws of the Surviving Corporation until
thereafter changed or amended as provided therein or by
applicable law.
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Directors and Officers. The directors of Kemper
at the Effective Time will become the directors of the
Surviving Corporation until their successors have been duly
elected and qualified or until their earlier resignation or
removal. As described in "MANAGEMENT AND OPERATIONS AFTER
THE MERGER -- Directors After the Merger," it is anticipated
that such directors will resign immediately following the
Effective Time and will appoint six executive officers of
Conseco as the Board of Directors of the Surviving
Corporation. The officers of Kemper at the Effective Time
will become the officers of the Surviving Corporation until
their successors have been duly appointed and qualified or
until their earlier resignation or removal.
Conversion of Kemper Stock in the Merger. At the
Effective Time each share of Kemper Common Stock issued and
outstanding immediately prior to the Effective Time (other
than shares of Kemper Common Stock that are owned by Kemper
or any subsidiary or by Conseco or any subsidiary (excluding
shares in trust accounts, managed accounts, custodial
accounts and the like that are beneficially owned by third
parties and shares held in the ordinary course of business
by subsidiaries of Kemper or Conseco that are insurance
companies or broker-dealers), all of which will be
cancelled, and other than Dissenting Common Shares) will be
converted into the right to receive the Merger
Consideration. No fractional shares of Conseco Common Stock
will be issued to any Kemper stockholder upon the
consummation of the Merger. See "THE MERGER--Procedures for
Exchange of Certificates; Dividends; No Fractional Shares".
Each share of (i) Series A Preferred Stock of
Kemper, (ii) Series C Preferred Stock of Kemper,
(iii) Series D Preferred Stock of Kemper and (iv) Series E
Preferred Stock of Kemper issued and outstanding immediately
prior to the Effective Time (other than Dissenting Preferred
Shares) will remain outstanding as one validly issued, fully
paid and nonassessable share of preferred stock of the
Surviving Corporation subsequent to the Effective Time,
subject to the respective terms and covenants thereof. In
addition, certain shares of Kemper restricted stock granted
under Kemper's 1993 Senior Executive Long-Term Incentive
Plan will be cancelled and the holders of such canceled
restricted stock will receive, immediately prior to the
Effective Time, a cash payment up to the sum of (x) the Cash
Consideration plus (y) the Stock Value Amount, multiplied by
the number of shares cancelled.
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<PAGE> 116
Representations and Warranties
The Merger Agreement includes various customary
representations and warranties of the parties thereto. The
Merger Agreement includes representations and warranties by
Kemper as to, among other things, (i) the corporate
organization, standing and power of Kemper and its
significant subsidiaries; (ii) Kemper's capital structure;
(iii) the authorization, execution, delivery, performance
and enforceability of the Merger Agreement and related
matters and the Merger Agreement's noncontravention of any
agreement, law, or charter or bylaw provision and the
absence of the need for governmental or third-party filings,
consents, approvals or actions with respect to any
transaction contemplated by the Merger Agreement;
(iv) documents filed by Kemper with the SEC and the accuracy
of information contained therein; (v) the accuracy of
information supplied by Kemper in connection with this Joint
Proxy Statement/Prospectus and the Registration Statement;
(vi) the absence of certain material changes or events since
the date of the most recent audited financial statements
filed with the SEC, including any change that would have a
material adverse effect on the business, financial condition
or results of operations of Kemper and its subsidiaries
taken as a whole, the declaration of any dividend (other
than regular quarterly cash dividends on Kemper Common Stock
and regular dividends on Kemper Preferred Stock, in each
case in accordance with Kemper's present dividend policy),
any split, reclassification or combination of capital stock,
certain increases in compensation, severance or termination
pay, entry into certain employment, severance or termination
agreements and certain changes in accounting methods,
principles or practices; (vii) the absence of certain
material changes in Kemper's benefit plans; (viii) the
compliance with applicable laws of Kemper's benefit plans
and certain other matters relating to ERISA; (ix) the filing
of tax returns and payment of taxes; (x) the absence of
"excess parachute payments" under the Internal Revenue Code
of 1986 (the "Code"); (xi) the voting requirements for the
approval of the Merger; (xii) compliance with applicable
laws; (xiii) the receipt of an opinion of Kemper's financial
advisor; (xiv) the inapplicability of Article Fifteenth of
the Second Restated Certificate of Incorporation of Kemper;
(xv) the amendment of the Rights Agreement; (xvi) certain
broker's fees and expenses; and (xvii) certain matters
relating to the 1940 Act and the Investment Advisers Act of
1940 (the "Advisers Act").
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<PAGE> 117
The Merger Agreement also includes representations
and warranties by Conseco and Merger Sub as to, among other
things, (i) the corporate organization, standing and power
of Conseco and Merger Sub and each significant subsidiary of
Conseco; (ii) Conseco's and Merger Sub's capital structure;
(iii) the authorization, execution, delivery, performance
and enforceability of the Merger Agreement and related
matters and the Merger Agreement's noncontravention of any
agreement, law, or charter or bylaw provision and the
absence of the need for governmental or third-party filings,
consents, approvals or actions with respect to any
transaction contemplated by the Merger Agreement;
(iv) documents filed by Conseco with the SEC and the
accuracy of information contained therein; (v) the accuracy
of information supplied by Conseco in connection with this
Joint Proxy Statement/Prospectus and the Registration
Statement; (vi) the absence of certain material changes or
events since the date of the most recent audited financial
statements filed with the SEC, including any change that
would have a material adverse effect on the business,
financial condition, results of operations of Conseco and
its subsidiaries taken as a whole, the declaration of any
dividend (other than regular quarterly cash dividends on
Conseco Common Stock and regular cash dividends on Conseco's
$3.25 Series D Cumulative Convertible Preferred Stock, in
each case in accordance with Conseco's current dividend
policy), any split, reclassification or combination of
capital stock, and certain changes in accounting methods,
principles or practices; (vii) the voting requirements for
the approval of the Issuance; (viii) the receipt of an
opinion of Conseco's financial advisor; (ix) compliance of
Conseco's benefit plans with applicable provisions of ERISA
and the Code; (x) the filing of tax returns and payment of
taxes; (xi) compliance with applicable laws; (xii) the
receipt of certain financing commitment letters; (xiii) the
absence of prior activities of Merger Sub; (xiv) certain
matters relating to the 1940 Act and the Advisers Act; and
(xv) certain broker's fees and expenses.
<PAGE>
<PAGE> 118
Business of Kemper Pending the Merger
Kemper has agreed that, prior to the Effective
Time, it will, and it will cause its subsidiaries to, act
and carry on their respective businesses in the ordinary
course of business and, to the extent consistent therewith,
use reasonable efforts to preserve intact their current
business organizations, keep available the services of their
current key officers and employees and preserve the goodwill
of those engaged in material business relationships with
them. Kemper has also agreed that prior to the Effective
Time it will not, and it will not permit any of its
subsidiaries to, among other things: (i) (x) declare, set
aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in
respect of, any of Kemper's outstanding capital stock (other
than regular quarterly cash dividends not in excess of $.23
per share of Kemper Common Stock and regular cash dividends
on Kemper Preferred Stock, in each case with usual record
and payment dates and in accordance with Kemper's present
dividend policy), (y) split, combine or reclassify any of
its outstanding capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of
or in substitution for shares of its outstanding capital
stock or (z) purchase, redeem or otherwise acquire any
shares of outstanding capital stock or any rights, warrants
or options to acquire any such shares except, in the case of
clause (z), for the acquisition of Kemper Common Stock from
holders of Kemper Stock Options in full or partial payment
of the exercise price payable by such holder upon the
exercise of Kemper Stock Options outstanding on the date of
the Merger Agreement or any mandatory redemption of the
securities of KFC, in accordance with the terms thereof and
as contemplated by the Merger Agreement; (ii) issue, sell,
grant, pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible
securities other than pursuant to the Kemper Corporation
Dividend Reinvestment and Stock Purchase Plan, upon the
exercise of Kemper Stock Options outstanding on the date of
the Merger Agreement, upon the conversion of Kemper
Preferred Stock outstanding on the date of the Merger
Agreement or the conversion of any floating rate convertible
<PAGE>
<PAGE> 119
subordinated debentures of KFC or the exercise of any stock
options respecting the common stock of KFC; (iii) amend its
certificate of incorporation or bylaws or other comparable
charter or organizational documents; (iv) acquire any
business or any corporation, partnership, joint venture,
association or other business organization or division
thereof except as set forth in the disclosure schedule to
the Merger Agreement; (v) sell, mortgage or otherwise
encumber or subject to any lien or otherwise dispose of any
of its properties or assets that are material to Kemper and
its subsidiaries taken as a whole, except in the ordinary
course of business, as set forth in the disclosure schedule
to the Merger Agreement or as contemplated by the Merger
Agreement; (vi) incur any indebtedness for borrowed money or
guarantee any such indebtedness, other than indebtedness
owing to or guarantees of indebtedness owing to Kemper, KFC
or any direct or indirect wholly-owned subsidiary of Kemper
or KFC or (y) make any loans or advances to any other
person, other than to Kemper, to KFC or to any direct or
indirect wholly-owned subsidiary of Kemper or KFC and other
than routine advances to employees, except in the case of
either (x) or (y) as set forth in the disclosure schedule to
the Merger Agreement or, with respect to Kemper Clearing
Corp., in the ordinary course of business; (vii) make any
tax election or settle or compromise any income tax
liability that could reasonably be expected to be material
to Kemper and its subsidiaries taken as a whole;
(viii) except as set forth in the disclosure schedule to the
Merger Agreement, pay, discharge, settle 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
consolidated financial statements (or the notes thereto) of
Kemper included in the reports, forms and other documents
filed by Kemper with the SEC since January 1, 1994, or
incurred since the date of such financial statements in the
ordinary course of business consistent with past practice;
(ix) except in the ordinary course of business, modify,
amend or terminate any material agreement, permit,
concession, franchise, license or similar instrument to
which Kemper or any subsidiary is a party or waive, release
or assign any material rights or claims thereunder; or
(x) authorize any of, or commit or agree to take any of, the
foregoing actions.
<PAGE>
<PAGE> 120
Business of Conseco Pending the Merger
Conseco has agreed that, prior to the Effective
Time, it will, and it will cause its subsidiaries to, carry
on their respective businesses in the usual, regular and
ordinary course substantially in the same manner as
conducted prior to the execution of the Merger Agreement
and, to the extent consistent therewith, use all reasonable
efforts to preserve intact their respective current business
organizations, keep available the services of their current
key officers and employees and preserve their relationships
with customers, suppliers, licensors, licensees,
distributors and others having business dealings with them
to the end that their goodwill and ongoing businesses will
not be impaired as of the Effective Time. Conseco has also
agreed that prior to the Effective Time, it will not, and it
will not permit any of its subsidiaries to, among other
things: (i) (x) declare or pay any dividends on, or make
any other distributions (whether in cash, stock or property)
in respect of, any of Conseco's outstanding capital stock
(other than regular quarterly cash dividends of $.125 per
share of Conseco Common Stock and regular cash dividends on
Conseco's $3.25 Series D Cumulative Convertible Preferred
Stock, in each case with usual record and payment dates and
in accordance with Conseco's present dividend policy), or
(y) split, combine or reclassify any of its outstanding
capital stock or issue, or authorize the issuance of, any
other securities in respect of, in lieu of or in
substitution for shares of Conseco's outstanding capital
stock (other than exchanges in the ordinary course under
Conseco's employee stock plans); (ii) issue, sell, grant,
pledge or otherwise encumber any shares of its capital
stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible
securities, in each case if any such action could reasonably
be expected to (A) delay materially the date of mailing of
this Joint Proxy Statement/Prospectus, or (B) if it were to
occur after such date of mailing, require an amendment of
this Joint Proxy Statement/Prospectus; (iii) acquire any
business or any corporation, partnership, joint venture,
association or other business organization or division
thereof, in each case if any such action could reasonably be
expected to (A) delay materially the date of mailing of this
Joint Proxy Statement/Prospectus, or (B) if it were to occur
after such date of mailing, require an amendment of this
Joint Proxy Statement/Prospectus; or (iv) authorize any of,
or commit or agree to take any of, the foregoing actions.
<PAGE>
<PAGE> 121
Certain Additional Agreements
The Merger Agreement contains additional covenants
of each party (i) to call its stockholders' meeting, (ii) to
obtain a "comfort letter" from its accountants, (iii) to
allow the other party reasonable access to its properties,
books, contracts, commitments, personnel, and records, (iv)
to use best efforts to take, or cause to be taken, all
actions necessary to consummate the Merger and the other
transactions contemplated by the Merger Agreement, (v) to
consult with the other party regarding any public
announcement regarding the transactions contemplated by the
Merger Agreement, (vi) to use its 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 and advisable to
consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions
contemplated by the Merger Agreement and (vii) to make and
cause their respective subsidiaries to make all necessary
filings in order to consummate the Merger and the other
transactions contemplated by the Merger Agreement, to use
best efforts to comply with all governmental requirements
applicable to the Merger and the other transactions
contemplated by the Merger Agreement and to obtain as
promptly as practicable all necessary permits, orders or
other consents of governmental entities and consents of all
third parties necessary for the consummation of the Merger
and the other transactions contemplated by the Merger
Agreement. In addition Conseco has agreed (i) to take the
actions with respect to the Kemper Stock Options and benefit
plans described under "THE MERGER--Effect on Employee
Benefit and Stock Plans", (ii) to maintain all rights of
indemnification in favor of current and former officers,
directors and employees of Kemper and its subsidiaries, and
to maintain Kemper's D & O Insurance as described under "THE
MERGER--Interests of Certain Persons in the Merger", (iii)
to use its best efforts to assure the satisfaction of the
conditions of Section 15(f) of the 1940 Act with respect to
each of the Company Funds (as hereinafter defined); (iv) to
use its best efforts to cause the shares of Conseco Common
Stock to be issued in the Merger to be approved for listing
on the NYSE; (v) to use its best efforts to obtain the
financing referred to in the Citibank Commitment Letter, the
Morgan Stanley Highly Confident Letter and the letter dated
June 23, 1994, from the general partner of CCP II to the
Chairman of the Board of Kemper (the "CCP II Letter") and to
cause its subsidiaries to cooperate with it and take all
reasonable actions necessary in order to assist it in
obtaining such financing.
<PAGE>
<PAGE> 122
Under the Merger Agreement, Kemper has agreed (i)
not to solicit other Acquisition Proposals or to withdraw
its recommendation of the Merger except as set forth under
"THE MERGER--No Solicitation" and "--Right of Kemper Board
of Directors to Withdraw Recommendation", (ii) (x) to, and
to cause each of KFS and the applicable subsidiaries of KFS
(collectively, with KFS, the "Asset Management
Subsidiaries") to, use their best efforts to cause the
boards of trustees/directors of the registered investment
companies for which Kemper or any subsidiary of Kemper acts
as investment adviser or sub-adviser (the "Company Funds")
to approve, and to solicit their respective shareholders as
promptly as practicable with respect to the approval of, new
investment advisory agreements with the Asset Management
Subsidiaries acting as investment advisers for such funds,
to be effective on or as promptly as practicable after the
Effective Time, pursuant to the provisions of Section 15 of
the 1940 Act, and consistent with all requirements of the
1940 Act applicable thereto and (y) to, and to cause each of
its Asset Management Subsidiaries to, use their best efforts
to ensure the satisfaction of the conditions set forth in
Section 15(f) of the 1940 Act with respect to each of the
Company Funds, (iii) as promptly as practicable, to cause
the non-investment company advisory clients of its Asset
Management Subsidiaries to be informed of the transactions
contemplated by the Merger Agreement and to give such
clients an opportunity to terminate their advisory contracts
with such Asset Management Subsidiaries or any of their
affiliates and (iv) to identify all persons who are, at the
time the Merger is submitted for approval to the
stockholders of Kemper, "affiliates" of Kemper for the
purposes of Rule 145 under the Securities Act and to use
best efforts to cause each such person not to dispose of
shares of Conseco Common Stock received by them in
connection with the Merger except in compliance with the
Securities Act.
Conditions to the Consummation of the Merger
Conditions to Each Party's Obligations to Effect
the Merger. The respective obligation of each party to
effect the Merger is subject to the satisfaction or waiver
of the following conditions: (i) the Merger Agreement shall
<PAGE>
<PAGE> 123
have been approved and adopted by the affirmative vote of
the stockholders of Kemper entitled to cast at least a
majority of the votes which all stockholders of Kemper are
entitled to cast thereon at the Kemper Meeting and the
Issuance shall have been approved by the affirmative vote of
the holders of a majority of the shares of Conseco Common
Stock present, or represented, and entitled to vote thereon
at the Conseco Meeting; (ii) all filings required to be made
prior to the Effective Time with, and all consents,
approvals, permits and authorizations required to be
obtained prior to the Effective Time from any governmental
agency or regulatory authority including, without
limitation, those set forth in a disclosure schedule to the
Merger Agreement, in connection with the execution and
delivery of the Merger Agreement and the consummation of the
transactions contemplated thereby by Kemper, Conseco and
Merger Sub will have been made or obtained (as the case may
be); provided, however, that such consents, approvals,
permits and authorizations may be subject to (x) conditions
customarily imposed by insurance regulatory authorities or
(y) other conditions that would not reasonably be expected
to have a material adverse effect on the business, financial
condition or results of operations of Conseco and its
subsidiaries taken as a whole (after giving effect to the
consummation of the Merger); (iii) the waiting period under
the HSR Act applicable to the Merger shall have expired or
been terminated; (iv) there shall not be in effect any
temporary restraining order, preliminary or permanent
injunction or other order of any court or other legal
restraint or prohibition preventing the consummation of the
Merger; (v) in accordance with Section 15 of the 1940 Act,
the respective boards of trustees/directors of the Company
Funds, including in each case a majority of
trustees/directors who are not parties to the investment
advisory contracts of such Company Funds or "interested
persons" (as such term is defined in the 1940 Act) of any
such party (the "Non-Interested Directors"), and holders of
a majority of the outstanding voting securities (as such
term is defined in the 1940 Act) of Company Funds which, as
of May 31, 1994, represented at least 90% of all of the net
assets of all of the Company Funds as of such date, shall
have approved new investment advisory contracts with the
Asset Management Subsidiaries acting as investment advisers
of such funds upon terms identical with those of each such
Company Fund (other than changes in the term of the
contract); and the board of trustees/directors, including a
majority of the Non-Interested Directors, of each of the
Company Funds which has approved a new investment advisory
<PAGE>
<PAGE> 124
contract shall have approved new underwriting, distribution
or dealer contracts, if any, with the applicable
subsidiaries of Kemper that are parties to such agreements
pursuant to Section 15 of the 1940 Act and any other
requirements applicable thereto contained in the 1940 Act;
(vi) Kemper shall have obtained the consent of non-
investment company advisory clients of the Asset Management
Subsidiaries who are not affiliated with Kemper and who, as
of May 31, 1994, represent at least 80% of all of the net
assets under management as of such date for all such
advisory clients not affiliated with Kemper; (vii) at the
time of the closing of the Merger: (x) at least 75% of the
members of the board of trustees/directors of each Company
Fund which has approved a new investment advisory contract
shall not be "interested persons" (as such term is defined
in the 1940 Act) of Conseco (or such other entity which will
act as adviser to such Company Funds following the Effective
Time), of Kemper or of any affiliate of Kemper that was the
investment adviser of any such Company Fund immediately
preceding the Effective Time; and (y) the requirements of
Section 15(f)(1)(B) of the 1940 Act shall have been complied
with in that no "unfair burden" shall have been imposed on
any of the Company Funds as a result of the Merger
Agreement, the transactions contemplated thereunder, new
investment advisory contracts or otherwise; (viii) Kemper
shall have divested its ownership interest in Investors
Fiduciary Trust Company or Conseco shall have obtained all
regulatory approvals required in connection with acquiring
the Kemper interest in IFTC; (ix) the shares of Conseco
Common Stock issuable to Kemper's stockholders pursuant to
the Merger Agreement shall have been approved for listing on
the NYSE, subject to official notice of issuance; and
(x) the Registration Statement will have become effective
and shall not be the subject of any stop order suspending
the effectiveness thereof or any proceeding seeking such a
stop order.
Conditions to the Obligations of Conseco and
Merger Sub. The obligations of Conseco and Merger Sub to
effect the Merger are further subject to the satisfaction or
waiver of the following conditions: (i) the representations
and warranties of Kemper set forth in the Merger Agreement
that are qualified as to materiality being true and correct,
and the representations and warranties of Kemper that are
not so qualified being true and correct in all material
respects, in each case as of the date of the Merger
Agreement and as of the closing date of the Merger (the
"Closing Date") as though made on and as of the Closing
<PAGE>
<PAGE> 125
Date, except to the extent such representations and
warranties speak as of an earlier date and Conseco shall
have received a certificate signed on behalf of Kemper by
the chief executive officer and chief financial officer of
Kemper to the foregoing effect; (ii) Kemper shall have
performed in all material respects all obligations required
to be performed by it under the Merger Agreement and Conseco
shall have received a certificate signed on behalf of Kemper
by the chief executive officer and chief financial officer
of Kemper to the foregoing effect; (iii) Conseco shall have
received agreements from each identified affiliate relating
to the resale of Conseco Common Stock and (iv) Conseco shall
have obtained all financing necessary to pay the aggregate
Cash Consideration payable in connection with the Merger.
Conditions to the Obligation of Kemper. The
obligation of Kemper to effect the Merger is further subject
to the satisfaction or waiver of the following conditions:
(i) the representations and warranties of Conseco and Merger
Sub set forth in the Merger Agreement that are qualified as
to materiality being true and correct, and the
representations and warranties of Conseco and Merger Sub
that are not so qualified being true and correct in all
material respects, in each case as of the date of the Merger
Agreement and as of the Closing Date as though made on and
as of the Closing Date, except to the extent such
representations and warranties speak as of an earlier date
and Kemper shall have received a certificate signed on
behalf of Conseco by the chief executive officer and the
chief financial officer of Conseco to the foregoing effect;
and (ii) Conseco and Merger Sub shall have performed in all
material respects all obligations required to be performed
by them under the Merger Agreement and Kemper shall have
received a certificate signed on behalf of Conseco by the
chief executive officer and the chief financial officer of
Conseco to the foregoing effect.
Termination, Amendment and Waiver
The Merger Agreement may be terminated at any time
prior to the Effective Time, whether before or after
approval of the matters presented in connection with the
Merger by the stockholders of Conseco or Kemper: (i) by
mutual written consent of Conseco and Kemper; (ii) by
either Conseco or Kemper if, upon a vote at a duly held
meeting of the stockholders of Kemper or Conseco or any
adjournment thereof, any required approval of the
<PAGE>
<PAGE> 126
stockholders of Kemper or Conseco, as the case may be, shall
not have been obtained; (iii) by either Conseco or Kemper if
the Merger shall not have been consummated on or before
March 31, 1995, unless the failure to consummate the Merger
is the result of a willful and material breach of the Merger
Agreement by the party seeking to terminate the Merger
Agreement; (iv) by either Conseco or Kemper if any
governmental entity shall have issued an order, decree or
ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become
final and nonappealable; or (v) by either Conseco or Kemper
if the Board of Directors of Kemper shall have taken any
action described under "THE MERGER--Right of the Kemper
Board of Directors to Withdraw Recommendation".
In the event of termination of the Merger
Agreement by either Kemper or Conseco, the Merger Agreement
will become void and have no effect, without liability or
obligation on the part of Conseco, Merger Sub or Kemper
other than under certain specified provisions of the Merger
Agreement dealing with confidentiality agreements, broker's
fees, the fee described under "THE MERGER--Certain Fees" and
fees and expenses, except that no party will be relieved of
any liability resulting from any wilful and material breach
of the representations, warranties, covenants or agreements
set forth in the Merger Agreement.
Subject to applicable law, (i) the Merger
Agreement may be modified or amended by written agreement
executed and delivered by the respective duly authorized
officers of Conseco, Merger Sub and Kemper (except that
after the Merger has been approved by the stockholders of
Kemper, no amendment may be made which reduces the
consideration payable in the Merger or adversely affects the
rights of Kemper's stockholders under the Merger Agreement
without the approval of such stockholders) and (ii) the
parties, by written agreement signed by each party, may
extend the time for performance of any of the obligations or
other acts of the other parties to the Merger Agreement,
waive inaccuracies in representations and warranties or
waive compliance with any of the agreements or conditions of
the other parties contained in the Merger Agreement.
<PAGE>
<PAGE> 127
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Directors After the Merger
The nine directors of Conseco at the Effective
Time will continue as the Board of Directors of Conseco
after the Effective Time. Immediately after the Effective
Time, the directors of Kemper prior to the Effective Time
(other than Charles M. Kierscht) will resign and will
appoint five executive officers of Conseco who, with Mr.
Kierscht, will serve as the Board of Directors of the
Surviving Corporation. Set forth below is certain
information about each member of the current Board of
Directors of Conseco who will continue to serve after the
Effective Time. Additional information about such persons
is contained in Conseco's Proxy Statement for its 1994
Annual Meeting of Shareholders, relevant portions of which
are incorporated herein by reference. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE" and "AVAILABLE INFORMATION".
<TABLE>
<CAPTION>
Conseco Directors
Director Positions with Conseco, Principal Term
Name and Age Since Occupation and Business Experience Expiring
- ------------ ----- ---------------------------------- --------
<S> <C> <C> <C>
Stephen C. Hilbert, 48 1979 Since 1979, Chairman of the Board and Chief 1995
Executive Officer, and Since 1988, President
of Conseco. Also Director of CCP Insurance,
Inc. and BLH.
Michael G. Browning, 47 1984 President of Browning Investments, Inc. (real 1996
(1, 2) estate development, construction, management
and investment). Also a Director of PSI
Resources, Inc. (electric utility and energy
services).
Ngaire E. Cuneo, 43 1994 Since 1992, Executive Vice President of 1997
Corporate Development of Conseco. From 1986
to 1992, Senior Vice President and Corporate
Officer of GECC. Also a Director of BLH.
Rollin M. Dick, 62 1986 Since 1986, Executive Vice President and Chief 1997
Financial Officer of Conseco. Also a Director
of CCP Insurance, BLH and Wholesale Cellular
USA, Inc.
Louis P. Ferrero, 51 1988 Chairman of the Board and Chief Executive 1996
(1,2,3) Officer of Anacomp, Inc. (computer-based
information storage and management).
Donald F. Gongaware, 58 1985 Since 1985, Executive Vice President of 1996
Conseco. Also a Director of CCP Insurance
and BLH.
M. Phil Hathaway, 64 1984 Retired. Formerly, Treasurer of Cook Group, 1995
(1,2) Inc. (medical equipment, property and casualty
insurance, and real estate development
operations).
James D. Massey, 59 1994 Retired. From 1986 to June 1992 President and 1997
Deputy Chief Executive Officer of Merchants
National Corp. and Chairman, President and
Chief Executive Officer of Merchants National
Bank (banking).
Dennis F. Murray, Sr., 54 1994 Since 1964, partner and/or principal of the 1997
Ohio law firm of Murray & Murray Co., L.P.A.
and its predecessor.
_____________________________________
<PAGE>
<PAGE> 128
<FN>
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
(3) On March 7, 1991, in response to a complaint filed by the Securities and Exchange Commission in the United
States District Court in Indianapolis, Indiana, against Mr. Ferrero and three other individuals, Mr. Ferrero,
without admitting or denying the allegations made in the complaint, consented to the entry of a judgment
permanently enjoining him from engaging in transactions, acts, practices or courses of business which would
constitute violations of Section 17(a) of the Securities Act or Sections 10(b) or 14(e) of the Exchange Act or
Rules 10b-5 or 14e-3 thereunder, and requiring him to pay a civil penalty of $277,750. The amount of the
penalty represented alleged profits realized and losses avoided in securities trading by the other defendants,
for whom Mr. Ferrero was allegedly a source of material nonpublic information concerning a pending transaction
involving Anacomp, Inc. It was not alleged that Mr. Ferrero or any member of his family used the information to
profit from securities trading in any of their own accounts.
</TABLE>
Management
After the Effective Time, the following individuals
currently serving as the executive officers of Conseco will continue
to serve as such:
<TABLE>
<CAPTION> Positions with Conseco
Officer Principal Occupation and
Name and Age 1/ Since Business Experience 2/
--------------- ----- -------------------------
<S> <C> <C>
Stephen C. Hilbert, 48 1979 Since 1979, Chairman of the
Board and Chief Executive
Officer, since 1988, President,
and from 1979 to 1986, Secretary
of Conseco.
Ngaire E. Cuneo, 43 1992 Since 1992, Executive Vice
President of Corporate
Development; from 1986 to 1992,
Senior Vice President and
Corporate Officer of GECC.
Rollin M. Dick, 62 1986 Since 1986, Executive Vice
President, Chief Financial
Officer and Director, and from
1988 to 1989, Treasurer, of
Conseco.
Donald F. Gongaware, 58 1985 Since 1985, Executive Vice
President and Director and,
since 1989, Chief Operations
Officer of Conseco.
Lawrence W. Inlow, 44 1986 Since 1986, Executive or Senior
Vice President, Secretary and
General Counsel of Conseco.
____________________
<FN>
1/ The executive officers serve as such at the discretion of the Board of
Directors and are elected at the annual meeting of the Board.
2/ Business experience is given for at least the last five years.
</TABLE>
<PAGE>
<PAGE> 129
Operations After the Merger
Consolidation of Operations; Projected Cost Savings.
Conseco expects to achieve substantial savings of operating costs
through the consolidation of certain operations and the elimination of
redundant expenses. Such savings would be realized over time as the
consolidation is completed. Conseco expects to realize annual savings
of approximately $95.0 million to $105.0 million within four years
following the Merger. Conseco expects to realize such savings
primarily through reductions in staff, the consolidation, elimination
or relocation of certain office facilities and the consolidation of
certain data processing and other back-office operations. In that
connection, Conseco has announced that it plans to move the operations
of the Life Companies, as well as Kemper's holding company functions,
to Conseco's headquarters in Carmel, Indiana. There can be no
assurance that such cost savings will be realized or that they will be
realized on the schedule indicated below. See "THE MERGER--Certain
Considerations". The following table sets forth Conseco's projected
cost savings by business line anticipated to be achieved within
three years following the Merger.
<PAGE>
<PAGE> 130
Projected Annual Cost Savings
<TABLE>
<CAPTION>
Area of Savings Amount
--------------- (in millions)
Year 1 Year 2 Year 3
------ ------ ------
<S> <C> <C> <C>
Life Insurance Operations $ 5 $ 7 $ 8
Holding Company Operations 8 8 8
Broker/Dealer Operations 8 11 15
Real Estate Operations 5 7 8
Data Processing and Technology 18 23 29
Other 17 17 17
--- --- ---
Total $61 $73 $85
=== === ===
</TABLE>
Restructuring Costs of Conseco. Restructuring costs of
approximately $52.0 million are expected to be recorded at the
Effective Time in connection with the Merger. These costs will
reflect the creation of reserves for severance and benefit costs
related to Kemper employees, costs for Kemper office facilities
expected to be closed, vacant space costs, systems conversion costs
and other restructuring expenses of Conseco and the Surviving
Corporation associated with the Merger and the Restructuring.
Potential Disposition of Certain Assets. Conseco is
evaluating the possibility of selling or otherwise disposing of a
significant amount of yet to be identified assets of Kemper, Conseco
and CCP II after the Effective Time. These assets may include
mortgage loans and real estate investments, strategic investments and
other assets that are not deemed essential to Conseco's post-Merger
strategic plan. As discussed above, Conseco is currently exploring
the disposition of its current strategic investments in three life
insurance holding companies. No buyer for any of such interests has
yet been identified, and the forms and terms of any such transaction
have not been determined. Some of such transactions would require
regulatory or other approvals, none of which has yet been sought.
There can be no assurance that any such transaction, or any other
transaction involving assets of Conseco or Kemper, will be consummated
in the near future. It is anticipated that the consideration received
by Conseco for any assets disposed of would be based on their fair
values as determined through independent appraisals or other objective
means at the time of disposition.
COMPARATIVE STOCK PRICES AND DIVIDENDS
Conseco Common Stock (symbol: CNC) and Kemper Common Stock
(symbol: KEM) are listed for trading on the NYSE. The following
<PAGE>
<PAGE> 131
table sets forth, for the periods indicated, the high and low sales
prices per share of Conseco Common Stock and Kemper Common Stock on
the NYSE Composite Transactions Tape and the quarterly cash dividends
per share paid, respectively, by Conseco and Kemper on such shares.
Conseco amounts have been adjusted to reflect a two-for-one stock
split as of April 1, 1992.
<TABLE>
<CAPTION>
Cash
Dividends
Conseco Kemper Per Share of
Common Stock Common Stock Common Stock
------------ ------------ ------------
High Low High Low
---- --- ---- ---- Conseco Kemper
------- ------
<S> <C> <C> <C> <C> <C> <C>
1992
First Quarter $41 1/2 $30 5/8 $46 1/8 $30 3/4 $0.02 $0.23
Second Quarter 36 1/4 20 5/8 30 7/8 23 1/4 0.02 0.23
Third Quarter 32 1/2 24 1/4 27 1/4 20 3/4 0.02 0.23
Fourth Quarter 47 3/8 29 1/4 30 1/8 21 1/2 0.02 0.23
1993
First Quarter $73 5/8 $45 3/8 $43 $26 1/8 $0.025 $0.23
Second Quarter 67 3/8 44 5/8 42 3/4 32 1/4 0.025 0.23
Third Quarter 75 1/4 57 3/4 42 1/4 32 7/8 0.025 0.23
Fourth Quarter 75 3/4 53 1/2 41 5/8 33 1/8 0.125 0.23
1994
First Quarter $66 1/4 $53 $62 1/8 $35 3/8 $0.125 $0.23
Second Quarter 55 1/8 46 3/8 65 55 5/8 0.125 0.23
Third Quarter
(to October )
</TABLE>
The following table sets forth the last reported
sales prices per share of the Conseco Common Stock and
Kemper Common Stock on the NYSE Composite Transactions Tape
on June 24, 1994, the last trading day before announcement
of the Merger Agreement, and on October , 1994, the latest
practicable trading day before the printing of this Joint
Proxy Statement/Prospectus, and equivalent per share prices
for Kemper Common Stock based on the Conseco Common Stock
prices:
<PAGE>
<PAGE> 132
<TABLE>
<CAPTION>
Conseco Kemper Kemper
Common Stock Common Stock Equivalent*
------------ ------------ -----------
<S> <C> <C> <C>
June 24, 1994 $49 1/4 $61 3/8 $67
October , 1994
- -------------------
<FN>
* Represents the equivalent of one share of Kemper Common
Stock calculated by adding the Cash Consideration per
share payable in the Merger to the product of the
Average Conseco Price and the Conversion Number. For
purposes of this calculation, (i) the Average Conseco
Price for June 24, 1994 was calculated using the
average of the closing prices of Conseco Common Stock
over the 20 trading day period ending on June 21, 1994,
which average was $55.45 and (ii) the Average Conseco
Price for October , 1994 was calculated using the
average of the closing prices of Conseco Common Stock
over the 20 trading day period ending on October ,
1994, which average was $______.
</TABLE>
The shares of Conseco's $3.25 Series D Cumulative
Convertible Preferred Stock (symbol: CNCpD) are listed for
trading on the NYSE. The following table sets forth the
high and low sales prices per share of such shares on the
NYSE Composite Transactions Tape on June 24, 1994, the last
trading day before announcement of the Merger Agreement, and
on October , 1994, the latest practicable trading day
before the printing of this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
Conseco
$3.25 Series D
Cumulative
Convertible
Preferred Stock
---------------
High Low
---- ---
<S> <C> <C>
June 24, 1994 $48 7/8 $47
October , 1994
</TABLE>
<PAGE>
<PAGE> 133
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated
statements of operations of Conseco for the year ended
December 31, 1993 and the six months ended June 30, 1994
present the consolidated operating results for Conseco as if
the Statesman Acquisition, the Merger, the Restructuring,
the KFS Broker-Dealer Transfer and the IFTC Disposition had
all occurred on January 1, 1993. The accompanying unaudited
pro forma condensed consolidated balance sheet as of
June 30, 1994 gives effect to these transactions as if they
had all occurred on June 30, 1994. The historical statement
of operations data for Conseco set forth in the unaudited
pro forma condensed consolidated statements of operations
for the year ended December 31, 1993 and for the six months
ended June 30, 1994 under the column "Pro Forma Conseco
Before the Statesman Acquisition and the Merger", to which
the pro forma adjustments for the Statesman Acquisition, the
Merger, the Restructuring, the KFS Broker-Dealer Transfer
and the IFTC Disposition are being applied, already reflect
the prior application of certain pro forma adjustments for
the following transactions, all of which occurred prior to
June 30, 1994, as if such transactions had occurred on
January 1, 1993: the initial public offering of WNC, the
initial public offering of BLH, the September 1993 BLH Stock
Purchase and the September 1993 CCP Insurance Stock
Purchase. These pro forma adjustments are set forth in
Exhibit 99.1 to Conseco's Form 10-Q for the quarterly period
ended June 30, 1994, incorporated by reference herein.
The unaudited pro forma condensed consolidated
financial information should be read in conjunction with the
accompanying notes, the historical financial statements and
notes thereto of Conseco and Kemper incorporated by
reference herein, the historical financial statements of
Statesman as of June 30, 1994 and for the six months then
ended contained in Statesman's Form 10-Q for the quarterly
period ended June 30, 1994, and as of December 31, 1993 and
for the year then ended contained in Statesman's Annual
Report on Form 10-K for the fiscal year ended December 31,
1993, and the unaudited pro forma financial information of
Conseco as of June 30, 1994 and for the six months then
ended and for the year ended December 31, 1993, contained in
Exhibit 99.1 to Conseco's Form 10-Q for the quarterly period
ended June 30, 1994.
<PAGE>
<PAGE> 134
The unaudited pro forma condensed consolidated
financial statements are provided for informational purposes
only and are not necessarily indicative of the results of
operations or financial condition that would have been
achieved had the Statesman Acquisition, the Merger, the
Restructuring, the KFS Broker-Dealer Transfer and the IFTC
Disposition actually occurred as of the dates indicated, or
of the future results of operations or financial condition
of Conseco. The pro forma adjustments are based upon
available information and certain assumptions that Conseco
currently believes are reasonable in the circumstances.
If these transactions are consummated, Conseco's financial
statements will reflect their effects only from the date
each such transaction occurs. The pro forma adjustments
(including those adjustments set forth in Exhibit 99.1 to
Conseco's Form 10-Q for the quarterly period ended June 30,
1994) are applied to the historical consolidated financial
statements of Conseco, Kemper and Statesman to account for
the Statesman Acquisition and the Merger using the purchase
method of accounting. Under purchase accounting, the total
purchase cost of Statesman and Kemper will be allocated to
the assets and liabilities acquired based on their relative
fair values as of the dates the transactions are closed,
with any excess of the total purchase costs over the fair
value of the assets acquired less the fair value of the
liabilities assumed recorded as goodwill. The cost
allocations will be based on appraisals and other studies,
which are not yet completed. Accordingly, the final
allocations will be different from the amounts reflected
herein. Although the final allocations will differ, the pro
forma condensed consolidated financial information reflects
Conseco management's best estimate based on currently
available information.
Conseco expects to effect certain future
acquisitions through CCP II, an investment partnership for
which a wholly owned subsidiary of Conseco is acting as sole
general partner. CCP II has entered into an Agreement and
Plan of Merger dated as of May 1, 1994 to acquire Statesman.
Following the Merger, pursuant to the Restructuring CCP II
will also acquire the Life Companies and certain real estate
interests currently held by subsidiaries of Kemper. Because
a subsidiary of Conseco is the sole general partner of CCP
II, Conseco unilaterally controls CCP II. Accordingly,
Conseco's consolidated financial statements will include
(and the unaudited pro forma condensed consolidated
financial information for Conseco and Kemper includes) all
financial information of CCP II and the companies owned by
<PAGE>
<PAGE> 135
CCP II, including, following the Statesman Acquisition,
Statesman and, following the Merger, pursuant to the
Restructuring, the Life Companies and certain real estate
interests currently held by subsidiaries of Kemper.
Conseco, through its direct investment and through its
equity interest in the investments made by Bankers Life, CCP
Insurance and Western National, is assumed to have a 23%
ownership interest in CCP II and in the common stock of the
companies owned by CCP II. All investors in CCP II, other
than Conseco and other than Bankers Life, CCP Insurance and
Western National to the extent of Conseco's interest
therein, are assumed to have a 77% ownership interest in
CCP II (the "CCP II Minority Interest") and in the common
stock of the companies owned by CCP II. Conseco, through
its direct investment and through its equity interest in the
investments made by Bankers Life, CCP Insurance and Western
National is assumed to have a 23% ownership interest in the
pay-in-kind preferred stock issued by the companies owned by
CCP II. All investors in CCP II, other than Conseco and
other than Bankers Life, CCP Insurance and Western National
to the extent of Conseco's interest therein, are assumed to
have a 77% ownership interest in the pay-in-kind preferred
stock (the "PIK Preferred Minority Interest") to be issued
by certain companies owned by CCP II. The CCP II Minority
Interest in the consolidated net income and the common
equity of the companies owned by CCP II, and the PIK
Preferred Minority Interest in the dividends on and in the
pay-in-kind preferred stock to be issued by certain of such
companies, are eliminated in the consolidated financial
statements of Conseco through a minority interest account.
<PAGE>
<PAGE> 136
<TABLE>
<CAPTION>
Conseco, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 1993
(dollars in millions, except per share amounts)
(unaudited)
Pro Forma Pro Forma Pro Forma
Conseco Before Pro Forma Conseco Before Adjustments
the Statesman Adjustments the Merger Relating to
Acquisition Relating to the And After the the Merger
and the Statesman Statesman Statesman Kemper and the Pro Forma
Merger Historical Acquisition (A) Acquisition Historical Restructuring (B) Conseco
------ ---------- --------------- ----------- ---------- ----------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income $1,272.7 $50.0 ($0.4) (1) $1,322.3 $235.4 $6.3 (27) $1,564.0
Investment activity:
Net investment income 279.5 298.9 (0.2) (2) 577.8 517.2 99.6 (28) 1,190.0
(0.4) (2) (6.1)(29)
1.5 (30)
Net trading income (loss) 44.9 44.9 43.8 88.7
Net realized gain (loss) 64.9 24.8 (13.0) (2) 76.7 (255.7) 361.7 (28) 182.7
Fee and commission revenue 41.5 41.5 986.3 1,027.8
Equity in earnings of
CCP Insurance 40.1 40.1 (.1)(29) 40.0
Equity in earnings of WNC 47.4 47.4 (.2)(29) 47.2
Other income 1.4 5.5 6.9 33.5 (4.8)(30) 35.6
------- ----- ------ ------ ------ ----- -------
Total revenues 1,792.4 379.2 (14.0) 2,157.6 1,560.5 457.9 4,176.0
------- ----- ------ ------ ------ ----- -------
Benefits and expenses:
Insurance policy benefits
and change in future
policy benefits 943.2 31.7 974.9 130.4 1,105.3
Interest expense on
annuities and
financial products 75.4 195.9 271.3 383.9 655.2
Interest expense on
long-term debt 54.4 6.1 24.8 (3) 85.3 47.7 174.7 (31) 305.0
(2.7)(32)
Interest expense on
short-term debt 4.4 4.4 36.8 (1.4)(31) 39.8
Amortization related
to operations 134.2 31.7 4.4 (1) 174.9 108.4 27.8 (27) 360.4
4.6 (4) 49.3 (33)
Amortization and change
in future policy
benefits related to
realized gains 47.6 9.8 (3.2) (5) 54.2 63.7 (34) 117.9
Investment management
expenses -- 295.8 295.8
Securities brokerage
expenses -- 617.4 (30.0)(35) 587.4
Other operating costs
and expenses 219.6 35.5 255.1 49.2 (5.5)(36) 308.5
9.7 (37)
------- ----- ------ ------ ------ ----- ------
Total benefits
and expenses 1,478.8 310.7 30.6 1,820.1 1,669.6 285.6 3,775.3
------- ----- ------ ------ ------ ----- -------
Income (loss)
before income
taxes 313.6 68.5 (44.6) 337.5 (109.1) 172.3 400.7
Income tax expense (benefit) 99.0 22.5 (13.0) (6) 108.5 (19.7) 38.3 (38) 127.1
------- ----- ------ ------ ------ ----- ------
Income (loss) before
minority interest 214.6 46.0 (31.6) 229.0 (89.4) 134.0 273.6
Less minority interest 56.3 8.8 (.1) (7) 66.2 7.0 (39) 105.9
(4.5) (8) 32.7 (40)
5.7 (9)
------- ----- ------ ------ ------ ----- ------
Income (loss) before
discontinued operations,
extraordinary charge
and cumulative effect
of change in accounting
principle $158.3 $37.2 ($32.7) $162.8 ($89.4) $94.3 $167.7
====== ===== ====== ====== ====== ===== ======
Earnings before
discontinued operations,
extraordinary charge and
cumulative effect of
change in accounting
principle per common
share and common
equivalent share:
Primary:
Weighted average
shares 29,245,000 29,245,000 8,123,000 (41) 37,368,000
========== ========== ========= ==========
Earnings before
discontinued
operations,
extraordinary
charge and
cumulative
effect of
change in
accounting
principle $4.71 $4.86 $3.94
===== ===== =====
Fully diluted:
Weighted average
shares 33,495,000 33,495,000 8,123,000 (41) 41,618,000
========== ========== ========= ==========
Earnings before
discontinued
operations,
extraordinary
charge and
cumulative
effect of
change in
accounting
principle $4.62 $4.76 $3.94
===== ===== =====
<FN>
The accompanying notes are an integral part of the pro forma condensed consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 137
<TABLE>
<CAPTION>
Conseco, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Statement of Operations
For the Six Months Ended June 30, 1994
(dollars in millions, except per share amounts)
(unaudited)
Pro Forma Pro Forma Pro Forma
Conseco Before Pro Forma Conseco Before Adjustments
the Statesman Adjustments the Merger Relating to
Acquisition Relating to the And After the the Merger
and the Statesman Statesman Statesman Kemper and the Pro Forma
Merger Historical Acquisition (A) Acquisition Historical Restructuring (B) Conseco
------ ---------- --------------- ----------- ---------- ----------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income $633.9 $26.3 ($.2) (1) $660.0 $120.2 $3.0 (27) $783.2
Investment activity:
Net investment income 142.4 160.8 (0.3) (2) 302.7 267.4 62.1 (28) 629.9
(0.2) (2) (3.1)(29)
0.8 (30)
Net trading income (loss) (2.4) (2.4) 5.9 3.5
Net realized gain (loss) (7.4) 5.1 (3.9) (2) (6.2) 24.8 (20.2)(28) (1.6)
Fee and commission revenue 28.1 28.1 443.1 471.2
Equity in earnings of
CCP Insurance 17.2 17.2 17.2
Equity in earnings of WNC 20.3 20.3 (.1)(29) 20.2
Other income 0.2 2.7 2.9 19.8 (2.8)(30) 19.9
------- ----- ------ ------ ------ ----- ------
Total revenues 832.3 194.9 (4.6) 1,022.6 881.2 39.7 1,943.5
------- ----- ------ ------ ------ ----- -------
Benefits and expenses:
Insurance policy benefits
and change in future
policy benefits 476.7 16.3 493.0 64.4 557.4
Interest expense on
annuities and
financial products 32.8 102.8 135.6 171.9 307.5
Interest expense on
long-term debt 24.2 4.1 11.3 (3) 39.6 24.2 85.3 (31) 147.0
(2.1)(32)
Interest expense on
short-term debt 4.9 4.9 20.5 (0.7)(31) 24.7
Amortization related
to operations 64.0 19.5 1.4 (1) 87.2 68.2 46.3 (27) 226.3
2.3 (4) 24.6 (33)
Amortization and change
in future policy
benefits related to
realized gains (0.3) 2.8 (1.8) (5) 0.7 1.9 (34) 2.6
Investment management
expenses -- 133.0 133.0
Securities brokerage
expenses -- 259.1 (6.0)(35) 253.1
Other operating costs
and expenses 103.6 17.3 120.9 20.9 (2.7)(36) 144.2
5.1 (37)
------- ----- ------ ------ ------ ----- ------
Total benefits
and expenses 705.9 162.8 13.2 881.9 762.2 151.7 1,795.8
------- ----- ------ ------ ------ ----- -------
Income before
income taxes 126.4 32.1 (17.8) 140.7 119.0 (112.0) 147.7
Income tax expense 37.7 10.3 (5.4) (6) 42.6 43.9 (30.0)(38) 56.5
------- ----- ------ ------ ------ ----- ------
Income before
minority interest 88.7 21.8 (12.4) 98.1 75.1 (82.0) 91.2
Less minority interest 22.6 4.5 1.3 (7) 29.4 (.2) (39) 47.3
(2.2) (8) 18.1 (40)
3.2 (9)
------- ----- ------ ------ ------ ----- ------
Income (loss) before
discontinued operations
and extraordinary charge $ 66.1 $17.3 ($14.7) $ 68.7 $75.1 ($99.9) $ 43.9
====== ===== ====== ====== ====== ===== ======
Earnings before
discontinued operations
and extraordinary charge
per common share and common
equivalent share:
Primary:
Weighted average
shares 27,396,000 27,396,000 8,123,000 (41) 35,519,000
========== ========== ========= ==========
Earnings before
discontinued
operations and
extraordinary
charge $2.07 $2.17 $ .98
===== ===== =====
Fully diluted:
Weighted average
shares 31,905,000 31,905,000 8,123,000 (41) 40,028,000
========== ========== ========= ==========
Earnings before
discontinued
operations and
extraordinary
charge $2.07 $2.16 $ .98
===== ===== =====
<FN>
The accompanying notes are an integral part of the pro forma condensed consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 138
<TABLE>
<CAPTION>
Conseco, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Balance Sheet
June 30, 1994
(dollars in millions)
Pro Forma Pro Forma Pro Forma
Conseco Before Pro Forma Conseco Before Adjustments
the Statesman Adjustments the Merger Relating to
Acquisition Relating to the And After the the Merger
and the Statesman Statesman Statesman Kemper and the Pro Forma
Merger Historical Acquisition (A) Acquisition Historical Restructuring(B) Conseco
------ ---------- --------------- ----------- ---------- ---------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments
Fixed maturities
Actively managed $2,788.5 $2,612.0 $1,240.5 (10) $6,641.0 $5,268.2 $11,909.2
Held to maturity -- 1,396.0 (1,240.5)(10) --
(155.5)(11)
Equity securities 14.7 22.6 37.3 34.1 112.5 (52) 183.9
Mortgage loans and real
estate investments 77.2 71.0 0.9 (11) 149.1 1,370.7 (550.0)(42) 969.8
Credit-tenant loans 46.0 46.0 46.0
Policy loans 116.9 58.1 175.0 371.7 546.7
Investment in CCP
Insurance 218.1 218.1 218.1
Investment in WNC 193.1 193.1 193.1
Other invested assets 49.2 18.6 67.8 73.1 140.9
Trading account securities 27.8 27.8 203.4 231.2
Short-term investments 472.0 110.5 2.3 (12) 612.4 431.8 210.9 (43) 1,111.0
422.0 (12) 2,523.5 (43)
(378.0)(13) (2,538.6)(44)
(16.4)(14) (94.0)(45)
(35.0)(46)
Assets held in separate
accounts 73.7 10.7 84.4 1,826.5 1,910.9
-------- -------- ------ --------- --------- -------- ---------
Total investments 4,077.2 4,299.5 (124.7) 8,252.0 9,579.5 (370.7) 17,460.8
Cash -- 2.3 (2.3)(12) 210.9 (210.9)(43) --
Securities purchased under
resale agreements -- 180.0 180.0
Accounts receivable from
brokerage firms and
customers -- 833.0 833.0
Other accounts and
notes receivable -- 307.3 307.3
Accrued investment income 56.9 56.7 113.6 190.2 303.8
Reinsurance receivables 39.4 39.4 801.5 840.9
Deferred income taxes 48.0 45.3 16.0 (15) 109.3 137.8 20.7 (47) 267.8
Cost of policies purchased 621.6 478.2 (16) 1,099.8 1,197.8 (48) 2,297.6
Cost of policies produced 216.7 346.2 (346.2)(17) 216.7 643.8 (643.8)(49) 216.7
Deferred investment product
sales cost -- -- -- -- 181.8 181.8
Goodwill 316.0 2.8 240.7 (18) 559.5 5.2 1,528.4 (50) 2,093.1
Property and equipment 74.3 9.9 2.2 (11) 86.4 155.1 241.5
Securities segregated for
the future redemption of
preferred stock of wholly
owned subsidiary -- 36.9 (1.1)(11) 35.8 35.8
Other assets 149.3 20.2 (5.2)(19) 164.3 123.6 (5.5)(51) 231.8
(50.6)(52)
-------- -------- ------ --------- --------- -------- ---------
Total assets $5,599.4 $4,819.8 $257.6 $10,676.8 $13,349.7 $1,465.4 $25,491.9
======== ======== ====== ========= ========= ======== =========
<FN>
The accompanying notes are an integral part of the pro forma condensed consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 139
<TABLE>
<CAPTION>
Conseco, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Balance Sheet
June 30, 1994
(dollars in millions)
Pro Forma Pro Forma Pro Forma
Conseco Before Pro Forma Conseco Before Adjustments
the Statesman Adjustments the Merger Relating to
Acquisition Relating to the And After the the Merger
and the Statesman Statesman Statesman Kemper and the Pro Forma
Merger Historical Acquisition (A) Acquisition Historical Restructuring(B) Conseco
------ ---------- --------------- ----------- ---------- ---------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Liabilities
Insurance liabilities $3,527.6 $4,479.4 $8,007.0 $8,095.8 ($16.4)(53) $16,086.4
Income tax liabilities -- 13.3 13.3
Investment borrowings 189.7 189.7 152.5 342.2
Securities sold, not yet
purchased, at market -- 68.3 68.3
Accounts payable to
brokerage firms and
customers -- 333.5 333.5
Other liabilities 258.2 46.4 22.5 (20) 353.7 708.8 1.4 (54) 1,128.7
(3.5)(21) 64.8 (55)
30.1 (22)
Liabilities related to
separate accounts 72.9 10.7 83.6 1,826.5 1,910.1
Convertible debentures
of subsidiary -- 40.6 (40.6)(56) --
Short-term debt -- 394.2 (24.1)(56) 370.1
Long-term debt 230.5 230.5 391.0 1,082.7 (56) 1,665.1
(39.1)(57)
Notes payable of CCP II
entities, not direct
obligations of Conseco -- 124.0 182.8 (23) 306.8 760.0 (56) 1,066.8
Notes payable of BLH,
not direct obligations
of Conseco 279.7 279.7 279.7
-------- -------- ------ --------- --------- -------- ----------
Total liabilities 4,558.6 4,660.5 231.9 9,451.0 12,024.5 1,788.7 23,264.2
-------- -------- ------ --------- --------- -------- ----------
Minority interest 185.9 95.4 81.6 (24) 368.9 1.0 123.9 (58) 933.8
6.0 (25) 440.0 (59)
Statesman Redeemable
Preferred Stock -- 3.7 (3.7)(26) --
Shareholders' equity
Preferred stock 287.5 287.5 360.5 (230.5)(60) 287.5
(130.0)(58)
Series Preferred Stock -- 0.3 (0.3)(26) --
Common stock and
additional paid-in
capital 172.4 65.5 (65.5)(26) 172.4 661.5 (661.5)(61) 601.4
429.0 (62)
Treasury stock -- (1,022.6) 1,022.6 (61) --
Unrealized loss on
foreign currency
translations -- (44.2) 44.2 (61) --
Unrealized appreciation
(depreciation) (118.5) (99.9) 99.9 (26) (118.5) (231.0) 231.0 (61) (118.5)
Retained earnings 513.5 94.3 (94.3)(26) 515.5 1,600.0 (1,600.0)(61) 523.5
2.0 (14) 8.0 (45)
-------- -------- ------ --------- --------- -------- ----------
Total shareholders'
equity 854.9 60.2 (58.2) 856.9 1,324.2 (887.2) 1,293.9
-------- -------- ------ --------- --------- -------- ----------
Total liabilities
and shareholders'
equity $5,599.4 $4,819.8 $257.6 $10,676.8 $13,349.7 $1,465.4 $25,491.9
======== ======== ====== ========= ========= ======== =========
<FN>
The accompanying notes are an integral part of the pro forma condensed consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 140
CONSECO, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
PRO FORMA ADJUSTMENTS
(A) Transactions Relating to the Statesman
Acquisition. CCP II and Statesman signed an Agreement and
Plan of Merger dated as of May 1, 1994 providing for the
merger of Statesman with a subsidiary of CCP II. The
agreement provides for all Statesman stockholders to receive
$15.25 in cash per common equivalent share plus the
contingent right to receive up to another $2.00 in cash per
common equivalent share (the "Contingent Consideration")
based on the outcome of Statesman's pending litigation
against the U.S. Government concerning Statesman's former
savings bank subsidiary.
The Statesman Acquisition and related transactions
will be funded with: (i) $45.0 million of cash
contributions made to CCP II by its partners,
(ii) $57.0 million in cash from the sale in a private
placement of the pay-in-kind preferred stock of Statesman
(the "Statesman PIK Preferred Stock"), (iii) $150.0 million
in cash from the sale in a public offering by a subsidiary
of CCP II which will be merged into a subsidiary of
Statesman (the "Merger Corp.") of its senior subordinated
notes (the "Statesman Senior Subordinated Notes") and
(iv) $200.0 million in cash from a senior secured loan (the
"Statesman Senior Loan") to be obtained by the Merger Corp.
(collectively referred to herein as the "Statesman
Financing"). The sources and uses of this financing are
summarized below (dollars in millions).
<PAGE>
<PAGE> 141
<TABLE>
<S> <C>
Sources of Funds:
Statesman Senior Loan:
Borrowed upon closing of Statesman
Acquisition $170.0
Borrowed upon determination of
pending litigation 30.0 (i)
Statesman Senior Subordinated Notes 150.0
Statesman PIK Preferred Stock 57.0
Common equity contribution from CCP II 45.0
------
Total sources $452.0
======
Uses of Funds:
Payment of cash consideration to
acquire Statesman $311.3 (ii)
Payment upon determination of pending
litigation 30.1 (i)
Repayment of bank indebtedness of a
subsidiary of Statesman 61.0 (iii)
Transaction fees and expenses 14.8
Purchase of surplus note from
American Life (the principal
operating subsidiary of Statesman) 24.0
Cash retained 10.8
------
Total uses $452.0
======
_____________________
<FN>
(i) In the event of an unfavorable determination of
Statesman's pending litigation against the U.S.
Government, $30.1 million will be paid to the holders of
Statesman's 1988 Series I and II Preferred Stock, $1 Par
(the "Statesman 1988 Series Preferred Stock"), which is
currently held by the U.S. Government. In the event of a
favorable determination of this litigation, the Contingent
Consideration will be paid to the former stockholders of
Statesman.
(ii) This amount assumes conversion of all outstanding 6-1/4%
Convertible Subordinated Debentures due 2003 of Statesman
(the "Statesman Convertible Debentures"), which are
convertible into an aggregate of 4,528,125 shares of
Statesman common stock. To the extent that any holders of
the Statesman Convertible Debentures do not convert such
securities, the proceeds which would have been used to pay
such holders will be used by Statesman for general
corporate purposes until the Statesman Convertible
Debentures mature or are converted or redeemed by
Statesman.
(iii) A subsidiary of Statesman is currently the borrower under
a credit facility with an outstanding principal balance of
$51.9 million as of June 30, 1994. The facility bears
interest at a floating rate which, as of June 30, 1994,
was approximately 5.4% and is repayable in quarterly
installments through April 8, 1998. All outstanding
amounts under this facility (assumed to be $61.0 million
at the assumed date of the Statesman Acquisition) will be
repaid with the proceeds of the Statesman Financing.
</TABLE>
<PAGE>
<PAGE> 142
Adjustments to give effect to the Statesman
Acquisition and related transactions are summarized as
follows:
(1) Amortization of deferred acquisition costs
and the recognition of deferred revenues for policies sold by
Statesman prior to January 1, 1993 are replaced with the
amortization of cost of policies purchased (amortized in
relation to estimated profits on the policies purchased
with interest equal to the liability or contract rates
ranging from 5.3% to 8.2%). See Note 16 below.
(2) Net investment income and net realized gains
of Statesman are adjusted to include the effect of the
restatement of (i) fixed maturities, (ii) mortgage loan
investments and (iii) interest rate swap and collar
agreements to estimated fair value as of January 1, 1993,
the assumed date of the Statesman Acquisition. The reported
value and estimated fair value of fixed maturities, mortgage
loan investments and interest rate swap and collar
agreements as of January 1, 1993 are as follows (dollars in
millions):
<TABLE>
<CAPTION>
Reported Estimated Fair
Value Value
----- -----
<S> <C> <C>
Fixed maturities $2,910.6 $2,980.0
Mortgage loan investments 87.1 88.2
Interest rate swap
and collar agreements (.7) (7.5)
</TABLE>
<PAGE>
<PAGE> 143
In addition, net investment income is reduced to reflect the
reduction in short-term investments in connection with the
purchase of investments in CCP II and Statesman PIK
Preferred Stock by Conseco and its consolidated
subsidiaries.
No additional investment income is assumed to be earned on
the cash retained from the proceeds of the Statesman
Financing after payment of the costs of the Statesman
Acquisition and related transactions. Pro forma net
realized gain (loss) represents the difference between
(i) the actual proceeds from the sales of investments and
(ii) the fair value of the investments as of the assumed
date of the Statesman Acquisition, adjusted for the
accretion of discount or premium based on the new cost
basis.
(3) Interest expense is adjusted to reflect the
following transactions as if they occurred as of the assumed
date of the Statesman Acquisition:
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, 1993 June 30, 1994
----------------- -------------
<S> <C> <C>
Use of proceeds to repay
certain bank indebtedness
of a subsidiary of
Statesman $(2.4) $(1.6)
The assumed conversion of all
of the Statesman
Convertible Debentures (3.3) (2.4)
The borrowing of the Statesman
Senior Loan (i) 12.1 6.1
The issuance of the Statesman
Senior Subordinated
Notes (ii) 17.3 8.6
Amortization of debt issuance
costs (iii) 1.1 .6
----- -----
$24.8 $11.3
===== =====
------------------
<FN>
(i) Based on borrowings of $170.0 million ($130.0 million at an
assumed interest rate of 7.0% and $40.0 million at an
assumed interest rate of 7.5%).
(ii) Based on a principal amount of $150.0 million at an assumed
interest rate of 11.5%.
(iii) Based on debt issuance costs of $6.8 million and
$8.0 million related to the Statesman Senior Subordinated
Notes and the Statesman Senior Loan, respectively, which are
amortized at a level yield over the term of such debt.
</TABLE>
<PAGE>
<PAGE> 144
A change in interest rates on the Statesman Senior Loan and
the Statesman Senior Subordinated Notes of .5% would result
in (i) an increase (or decrease) in pro forma interest
expense of $1.6 million and $.8 million for the year ended
December 31, 1993 and the six months ended June 30, 1994,
respectively, and (ii) a decrease (or increase) in pro forma
net income of $.2 million and $.1 million for the same
respective periods. Under the terms of the Statesman Senior
Loan, $30 million will remain available to borrow at a later
date when needed to pay the Contingent Consideration or to
pay to the holders of the Statesman 1988 Series Preferred
Stock upon the determination of the litigation against the
U.S. Government. If such $30 million were outstanding
during 1993 and the six months ended June 30, 1994 (with an
assumed interest rate of 7.0% during such periods), pro
forma interest expense would increase by $2.1 million and
$1.1 million, respectively, and pro forma net income would
decrease by $.3 million and $.2 million, respectively.
(4) Amortization of goodwill calculated as of
January 1, 1993 is recognized over a 40-year period on a
straight-line basis.
(5) Anticipated returns, including realized gains
and losses, from the investment of policyholder balances are
considered in determining the amortization of the cost of
policies purchased. Amortization of cost of policies
purchased is adjusted to reflect pro forma gains realized by
Statesman during the period.
<PAGE>
<PAGE> 145
(6) All applicable pro forma adjustments to
operations are tax effected at the appropriate rate.
Additionally, for the year ended December 31, 1993 income
tax expense is increased by $1.1 million to reflect the
effect of the increase in the corporate income tax rate to
35% from 34% on adjustments to deferred income tax
liabilities resulting from pro forma adjustments.
(7) The CCP II Minority Interest in the
consolidated net income of Statesman is eliminated.
(8) After the Statesman Acquisition, investment
advisory services will be provided to Statesman by a
subsidiary of Conseco. Statesman's historical net
investment income is not reduced to reflect the advisory
fees to be paid under the agreement in excess of investment
expenses incurred prior to the Statesman Acquisition, since,
in accordance with GAAP, such intercompany fees are
eliminated in consolidation. Minority interest, however, is
adjusted to charge the CCP II Minority Interest for its
portion of such investment advisory fees. Net investment
income is not increased to reflect any additional investment
income and realized gains which may be earned as a result of
services provided by the Conseco subsidiary.
(9) Income is reduced to reflect the dividends
accrued on the Statesman PIK Preferred Stock attributable to
the PIK Preferred Minority Interest.
(10) After the Statesman Acquisition, all of the
existing fixed maturity investment portfolio will be
classified as available-for-sale. Fixed maturities
previously classified as held-to-maturity are reclassified
as available-for-sale.
(11) Statesman's fixed maturity investments,
mortgage loans, property and equipment and securities
segregated for the future redemption of preferred stock of a
wholly owned subsidiary are restated to market value as of
the assumed date of the Statesman Acquisition.
(12) After the Statesman Acquisition, Conseco
intends to invest all cash in short-term investments.
Short-term investments are increased to reflect the gross
proceeds from the Statesman Financing.
<PAGE>
<PAGE> 146
(13) Short-term investments are reduced for the
estimated amounts for disbursements related to the Statesman
Acquisition.
(14) Short-term investments are reduced to reflect
the investment of Conseco and its consolidated subsidiaries
in CCP II related to the Statesman Acquisition and in
Statesman PIK Preferred Stock, offset by fees of
$4.0 million paid to Conseco. Retained earnings is
increased by $2.0 million to reflect net income attributable
to the fees collected from the CCP II Minority Interest.
(15) All of the applicable pro forma balance sheet
adjustments are tax effected at the appropriate rate.
(16) Cost of policies purchased reflects the
estimated fair value of the business in force and represents
the portion of the cost to acquire Statesman that is
allocated to the value of the right to receive future cash
flows from insurance contracts existing as of the assumed
date of the Statesman Acquisition. Such value is the
present value of the actuarially determined projected cash
flows from the acquired policies.
The 15% discount rate used to determine such value
is the rate of return required by CCP II to invest in the
business being acquired. In determining such rate of
return, the following factors are considered:
-- The magnitude of the risks associated with each
of the actuarial assumptions used in determining
expected future cash flows.
-- Cost of capital available to fund the
acquisition.
-- The perceived likelihood of changes in
insurance regulations and tax laws.
-- Complexity of the acquired company.
-- Prices paid (i.e., discount rates used in
determining valuations) on similar blocks of business
sold recently.
The value allocated to cost of policies purchased
is based on a preliminary valuation; accordingly, this
allocation may be adjusted upon final determination of such
value. On a pro forma basis, assuming that the Statesman
Acquisition occurred as of June 30, 1994, expected gross
amortization using current assumptions and accretion of
interest based on an interest rate equal to the liability or
contract rate (such rates ranging from 5.3% to 7.7%) for
each of the years in the five-year period ending June 30,
1999 is as follows (dollars in millions):
<PAGE>
<PAGE> 147
<TABLE>
<CAPTION>
Year ended Beginning Gross Accretion Net Ending
June 30 Balance Amortization of Interest Amortization Balance
------- ------- ------------ ----------- ------------- -------
<S> <C> <C> <C> <C> <C>
1995 $478.2 $68.5 $24.9 $43.6 $434.6
1996 434.6 69.6 22.0 47.6 387.0
1997 387.0 65.7 19.5 46.2 340.8
1998 340.8 61.4 17.1 44.3 296.5
1999 296.5 56.2 14.8 41.4 255.1
</TABLE>
(17) Deferred acquisition costs of Statesman are
eliminated since such amounts are reflected in the
determination of the cost of policies purchased.
(18) Goodwill reflects the excess of cost of
investment in Statesman over the net assets acquired.
(19) Several deferred costs of Statesman that are
not relevant after the acquisition are eliminated as of the
assumed date of the Statesman Acquisition.
(20) A liability is established to reflect the
fair value of interest rate swap and collar agreements of
Statesman outstanding as of the assumed date of the
Statesman Acquisition. The fair value was determined based
on estimates obtained from an unaffiliated dealer in such
instruments.
(21) Deferred revenues on certain life insurance
and annuity policies of Statesman are eliminated, since such
amounts are reflected in the determination of the cost of
policies purchased.
(22) A liability is established for the amount
payable when the outcome of Statesman's pending litigation
against the U.S. Government is determined.
<PAGE>
<PAGE> 148
(23) Long-term debt is reduced as of June 30, 1994
to reflect the repayment of the bank debt of a subsidiary of
Statesman (with a principal balance as of June 30, 1994 of
$51.9 million), repayment of notes payable issued by
Statesman's employee stock ownership plan (principal balance
as of June 30, 1994 of $4.0 million) and the assumed
conversion and retirement of the Statesman Convertible
Debentures. Additionally, long-term debt is increased to
reflect (i) $170.0 million gross proceeds from the Statesman
Senior Loan and (ii) $150.0 million gross proceeds from the
Statesman Senior Subordinated Notes, reduced by
$14.8 million to reflect the costs associated with the
issuance of such debt. Under the terms of the Statesman
Senior Loan, $30.0 million will remain available to borrow
when needed to pay the Contingent Consideration or to pay to
the holder of the Statesman 1988 Series Preferred Stock upon
the determination of Statesman's pending litigation against
the U.S. Government. See Note 22 above.
(24) An adjustment is made to reflect the CCP II
Minority Interest in the common equity of Statesman and the
PIK Preferred Minority Interest related to the Statesman PIK
Preferred Stock.
(25) The carrying value of the preferred stock of
a subsidiary of Statesman is adjusted to its estimated fair
value as of the assumed date of the Statesman Acquisition.
(26) The prior shareholders' equity and the
redeemable preferred stock of Statesman are eliminated in
conjunction with the Statesman Acquisition and related
transactions.
(B) Transactions Relating to the Merger, the
Restructuring, the KFS Broker-Dealer Transfer and the IFTC
Disposition. On June 26, 1994, Conseco and Kemper signed
the Merger Agreement. At the Effective Time, subject to
certain exceptions described in this Joint Proxy
Statement/Prospectus with respect to shares owned by
Conseco, Kemper or their subsidiaries, each outstanding
share of Kemper Common Stock (other than Dissenting Common
Shares) will be converted into the right to receive the
Merger Consideration. Based on the closing price of Conseco
Common Stock on Thursday, June 30, 1994, the Merger
Consideration would be $67.00, and the total value of the
transaction would be $3.25 billion (based on the number of
fully converted shares of Kemper Common Stock outstanding
and the amount of existing debt and non-convertible
preferred stock).
<PAGE>
<PAGE> 149
Immediately following the Effective Time, the
Restructuring will be effected, pursuant to which the
Surviving Corporation will sell all of the issued and
outstanding shares of capital stock of the Life Companies to
Life Insurance Holdings, a subsidiary of CCP II Holdings,
and certain real estate interests currently held by
subsidiaries of Kemper will be transferred to one or more of
CCP II Holdings' real estate acquisition subsidiaries. It
is currently anticipated that the amounts to be paid to the
Surviving Corporation in connection with the Restructuring
(together with related transaction fees and expenses) will
aggregate approximately $1.35 billion. It is also
anticipated that, immediately following the Effective Time,
KFS will effect the KFS Broker-Dealer Transfer by
transferring all of the broker-dealer businesses of KFS and
all of the property and assets related thereto into a new
wholly owned subsidiary of KFS.
Sources and uses of funds relating to the Merger
and the Restructuring are summarized below (dollars in
millions).
<PAGE>
<PAGE> 150
<TABLE>
<CAPTION>
Conseco CCP II Total
------- ------ -----
<S> <C> <C> <C>
Sources of Funds:
Surviving Corporation Credit
Agreement:
Senior Tranche A Term Loan $ 523.5 $ -- $ 523.5
Senior Tranche B Term 200.0 -- 200.0
Senior Bridge Loan 100.0 -- 100.0
Surviving Corporation Senior
Subordinated Debentures 350.0 -- 350.0
CCP II Holdings Credit Agreement -- 400.0 400.0
CCP II Holdings Senior
Subordinated Debentures -- 400.0 400.0
CCP II Holdings PIK
Preferred Stock -- 250.0 250.0
CCP II Equity Contribution -- 300.0 300.0
Kemper cash 15.1 -- 15.1
-------- -------- --------
Total sources $1,188.6 $1,350.0 $2,538.6
======== ======== ========
Uses of Funds:
Payment of Cash Consideration $2,298.2 $ -- $2,298.2
Life Company Dispositions
and Real Estate Transfers (1,296.9) 1,296.9 --
Transaction fees and expenses 56.0 53.1 109.1
Restructuring costs 52.0 -- 52.0
Debt refinanced at Effective Time 79.3 -- 79.3
-------- -------- --------
Total uses $1,188.6 $1,350.0 $2,538.6
======== ======== ========
</TABLE>
It is anticipated that the Senior Bridge Loan will
be repaid promptly following the Effective Time in part with
funds to be made available to the Surviving Corporation out
of assets no longer required to be maintained by KFS in
connection with its broker-dealer businesses as a result of
the KFS Broker-Dealer Transfer.
<PAGE>
<PAGE> 151
Adjustments to give effect to the Merger, the
Restructuring, the KFS Broker-Dealer Transfer and the IFTC
Disposition are summarized as follows:
(27) Amortization of deferred acquisition costs
for policies sold by the Life Companies prior to
January 1, 1993 are replaced with the amortization of cost
of policies purchased (amortized in relation to estimated
profits on the policies purchased with interest equal to the
liability or contract rates ranging from 4.3% to 7.8%).
Certain previously deferred policy charges collected during
the periods for policies sold by the Life Companies prior to
January 1, 1993, are recognized as revenue (net of deferred
revenues previously recognized), since these amounts are
considered in determining the cost of policies purchased and
the amortization thereof. See Note 48 below.
(28) Net investment income and net realized gains
(losses) of Kemper are adjusted to include the effect of the
restatement of (i) fixed maturities, (ii) mortgage loan and
real estate investments and (iii) interest rate swap
agreements to estimated fair value as of January 1, 1993,
the assumed Effective Time. The reported value and
estimated fair value of fixed maturities, mortgage loan and
real estate investments and interest rate swap agreements as
of January 1, 1993 are as follows (dollars in millions):
<TABLE>
<CAPTION>
Reported Estimated
Value Fair Value
----- ----------
<S> <C> <C>
Fixed maturities(i) $4,523.5 $4,523.5
Mortgage loan and real
estate investments 1,951.3 917.8
Interest rate swap agreements -0- 14.8
__________________
<FN>
(i) Amortized cost value was $4,440.2 million.
</TABLE>
Pro forma net realized gains (losses) represent the
difference between (i) the actual proceeds from the sales of
investments and (ii) the fair value of the investments as of
the assumed Effective Time, adjusted for the accretion of
discount or premium based on the new cost basis.
<PAGE>
<PAGE> 152
After the Merger and the Restructuring, the
estimated fair values of the mortgage loan and real estate
acquired becomes the new cost basis for such investments.
The estimated fair values assigned to the mortgage loan and
real estate investments are based on preliminary valuations
which may be adjusted upon final determination of such
values and the final determination of investment strategies
with respect to such investments after the Effective Time.
Differences between the estimated fair values of mortgage
loan investments and the estimated cash flows derived from
such investments are amortized based on the expected cash
flows and the accretion of interest based on the market
interest rates used to determine the estimated fair values
(such interest rates range from 12% to 21% determined based
on consideration of the risk associated with such investments
and other factors). See Note 42 below.
(29) Net investment income is reduced to reflect
the reduction in invested assets resulting from the use of
cash held by Kemper to fund the Merger and the repayment of
the $100 million Senior Bridge Loan subsequent to the Merger
and the Restructuring. In addition, net investment income
is reduced to reflect the reduction in short-term
investments in connection with the purchase of investments
in CCP II and CCP II Holdings PIK Preferred Stock by Conseco
and its consoldiated subsidiaries. Additionally, equity in
the earnings of CCP Insurance and equity in the earnings of
WNC have been reduced to reflect the reduction in the
investment income of these companies resulting from their
investments in CCP II and CCP II Holdings PIK Preferred
Stock.
(30) Subsequent to June 30, 1994, Kemper signed a
letter of intent to sell IFTC, a 50%-owned subsidiary, to
State Street Boston Corporation ("State Street"). State
Street plans to exchange its common stock with an
approximate market value of $112.5 million for Kemper's
share of IFTC. Consummation of the transaction is subject
to certain regulatory actions and approvals. Revenues are
adjusted to eliminate the earnings related to IFTC as if the
sale had occurred on January 1, 1993. Investment income
equal to dividends declared on State Street common stock of
$1.5 million in 1993 and $.8 million during the six months
ended June 30, 1994 are assumed to be earned on the common
stock received in exchange for Kemper's interest in IFTC.
(31) Interest expense on long-term debt is
increased to reflect the net of (i) the additional
borrowings set forth below at the assumed interest rates,
(ii) the amortization of debt issuance costs and (iii) the
repayment of certain existing debt as follows (dollars in
millions):
<PAGE>
<PAGE> 153
<TABLE>
<CAPTION>
Interest
Expense for Interest
the Year Expense for
Assumed Ended the Six
Principal Interest December 31, Months Ended
Amount Rate 1993 June 30, 1994
------ ---- ---- -------------
<S> <C> <C> <C> <C>
Surviving Corporation Credit
Agreement:
Senior Tranche A Term Loan $523.5 7.3% $38.3 $18.1
Senior Tranche B Term Loan 200.0 8.1% 16.1 8.0
Surviving Corporation Senior
Subordinated Debentures 350.0 11.0% 38.5 19.3
CCP II Holdings Senior Term Loan 400.0 7.3% 29.2 13.7
CCP II Holdings Senior
Subordinated Debentures 400.0 11.0% 44.0 22.0
Amortization of debt issue
costs 11.5 5.8
Less interest on debt repaid (2.9) (1.6)
------ -----
$174.7 $85.3
====== =====
</TABLE>
A change in interest rates on the borrowings summarized
above of .5% would result in (i) an increase (or decrease)
in pro forma interest expense of $9.3 million and
$4.5 million for the year ended December 31, 1993 and the
six months ended June 30, 1994, respectively, and (ii) a
decrease (or increase) in pro forma net income of
$4.1 million and $2.0 million for the same respective
periods. Interest expense on short-term debt is adjusted to
reflect the repayment of certain existing debt.
(32) Interest expense on long-term debt of Kemper
that will remain outstanding is adjusted to reflect current
interest rates as of the assumed Effective Time.
(33) Amortization of goodwill calculated as of
January 1, 1993 is recognized over a 40-year period on a
straight-line basis.
(34) Anticipated returns, including realized gains
and losses, from the investment of policyholder balances are
considered in determining the amortization of the cost of
policies purchased. Amortization of cost of policies
purchased is adjusted to reflect pro forma gains realized by
Kemper during the period.
<PAGE>
<PAGE> 154
(35) Expenses are reduced to eliminate a special
addition to Kemper's legal reserve in 1993 and principally
to reflect certain recoveries in 1994 that were credited to
the legal reserve.
(36) Operating expense is adjusted to reflect
current market rental rates for office space leased under
operating leases by Kemper as of the assumed Effective Time.
(37) Other operating expenses (principally
commissions paid in excess of ultimate renewal commission
rates) incurred by Kemper in 1993 and the first six months
of 1994 on policies issued prior to 1993 had previously been
capitalized. Costs incurred after the Merger related to
policies in force as of the assumed Effective Time are not
capitalized under purchase accounting methods; therefore,
such amounts capitalized in 1993 and the first six months of
1994 are not expensed. However, such costs are considered
in determining the present value of future profits of
acquired business and the amortization thereof.
(38) All applicable pro forma adjustments to
operations are tax effected at the appropriate rate.
Additionally, for the year ended December 31, 1993 income
tax expense is decreased by $8.9 million to reflect the
effect of the increase in the corporate income tax rate to
35% from 34% on adjustments to the deferred tax assets
resulting from pro forma adjustments. The increase to the
valuation allowance of $31.4 million to reduce the deferred
tax asset recognized by Kemper in 1993 is eliminated since,
based on Conseco's judgment, the deferred tax asset is more
likely to be realized than not.
(39) The CCP II Minority Interest in the
consolidated net income of CCP II Holdings is eliminated.
(40) Minority interest reflects dividends on the
preferred stock of subsidiaries. Such amount includes
(i) dividends on the Series C Preferred Stock which will
remain outstanding after the Effective Time as Surviving
Corporation Preferred Stock, (ii) dividends on the Series D
Preferred Stock which will remain outstanding after the
Effective Time as Surviving Corporation Preferred Stock and
(iii) dividends on the CCP II Holdings PIK Preferred Stock
attributable to the PIK Preferred Minority Interest.
<PAGE>
<PAGE> 155
(41) Shares outstanding and earnings per share
are adjusted to reflect the issuance of approximately
8.1 million shares of Conseco Common Stock in connection
with the Merger as though they were outstanding since
January 1, 1993.
(42) The carrying values of mortgage loan and real
estate investments in Kemper's historical financial
statements generally reflect the underlying value of the
collateral, calculated by discounting the properties'
estimated future cash flows at the contractual rates of
interest on such mortgage loan and real estate investments
(approximately 8% on a weighted average basis) in accordance
with Statement of Financial Accounting Standards No. 114.
In connection with the Merger and the Restructuring, Conseco
will calculate the carrying value of these assets in
accordance with purchase accounting by valuing such cash
flows discounted at current market interest rates
(determined based on the risks associated with those
investments and other factors), which are estimated to range
from 12% to 21%. The carrying values are also adjusted to
reflect Conseco's disposition strategies for these assets.
No purchase accounting adjustment has been reflected in the
accompanying pro forma financial statements for foreclosed
real estate. The estimated fair values assigned to the
mortgage loan and real estate investments are based on
preliminary valuations which may be adjusted upon final
determination of such values and the final determination of
investment strategies with respect to such investments
after the Effective Time.
(43) After the Merger and the Restructuring,
Conseco intends to invest all cash in short-term
investments. Short-term investments are increased to
reflect the gross proceeds from the financings related to
the Merger and the Restructuring.
(44) Short-term investments are reduced for the
estimated amounts for disbursements related to the Merger
and the Restructuring.
(45) Short-term investments are reduced to reflect
the investment of Conseco and its consolidated subsidiaries
in CCP II and in CCP II Holdings PIK Preferred Stock related
to the Merger and the Restructuring, offset by fees of
$16.0 million paid to Conseco. Retained earnings is
increased by $8.0 million to reflect net income attributable
to fees collected from the CCP II Minority Interest.
<PAGE>
<PAGE> 156
(46) Short-term investments are reduced to reflect
the repayment of principal and accrued interest under a bank
revolving credit agreement of Conseco.
(47) All of the applicable pro forma balance sheet
adjustments are tax effected at the appropriate rate. In
addition, certain additional adjustments have been made to
the historical tax accounts including:
(i) The Real Estate Transfers will be treated as
an asset purchase resulting in no temporary
differences between GAAP and tax bases at the
assumed Effective Time. Therefore, all historical
deferred tax balances for the real estate
operations are eliminated.
(ii) The valuation allowance recorded in Kemper's
historical financial statements has been
eliminated on a pro forma basis because, in the
opinion of Conseco management, after the Merger,
the deferred tax asset is more likely to be
realized than not.
(iii) Kemper will recognize a net tax loss upon
the Life Company Dispositions and the Real Estate
Transfers which can be carried back to recover
capital gains tax paid in previous years resulting
in a tax receivable at the assumed Effective Time.
(iv) A tax liability was recorded at the
appropriate rate for the IFTC Disposition.
(48) Cost of policies purchased reflects the same
issues described in Note 16. The value allocated to cost of
policies purchased is based on a preliminary determination
of such value; accordingly, this allocation may be adjusted
upon final determination of such value. On a pro forma
basis, assuming an Effective Time of June 30, 1994, expected
gross amortization using current assumptions and accretion
of interest based on an interest rate equal to the liability
or contract rate (such rates ranging from 4.3% to 8.0%) for
each of the years in the five-year period ended June 30,
1999 is as follows (dollars in millions):
<PAGE>
<PAGE> 157
<TABLE>
<CAPTION>
Year ended Beginning Gross Accretion Net Ending
June 30 Balance Amortization of Interest Amortization Balance
------- ------- ------------ ----------- ------------- -------
<S> <C> <C> <C> <C> <C>
1995 $1,197.8 $237.8 $69.8 $168.0 $1,029.8
1996 1,029.8 209.3 60.0 149.3 880.5
1997 880.5 183.5 51.4 132.1 748.4
1998 748.4 158.8 43.9 114.9 633.5
1999 633.5 134.4 37.3 97.1 536.4
</TABLE>
(49) Deferred acquisition costs of the Life
Companies are eliminated since such amounts are reflected in
the determination of the cost of policies purchased.
(50) Goodwill reflects the excess of cost of
investment in Kemper over the net assets acquired.
(51) Previously deferred debt issue costs of
Kemper are eliminated as of the assumed Effective Time since
all existing debt is prepaid or adjusted to fair value.
(52) The balance sheet accounts are adjusted to
reflect the IFTC Disposition described in Note 30 as if the
sale had occurred on June 30, 1994.
(53) Deferred revenues on certain life insurance
and annuity policies of Kemper are eliminated, since such
amounts are reflected in the determination of the cost of
policies purchased.
(54) Other liabilities are increased to reflect
the actuarially determined amount allocated to pension,
postretirement and postemployment benefit obligations.
(55) Other liabilities are increased to reflect
the excess of existing operating lease obligations over the
fair value of such obligations, based on current market
rental rates.
<PAGE>
<PAGE> 158
(56) Long-term debt, convertible debentures of a
subsidiary and short-term debt are reduced as of June 30,
1994, to reflect the repayment of certain outstanding debt.
Additionally, long-term debt, for which Conseco is directly
liable, is increased to reflect (i) $523.5 million gross
proceeds from the Senior Tranche A Term Loan,
(ii) $200.0 million gross proceeds from the Senior Tranche B
Term Loan and (iii) $350.0 million gross proceeds from the
Surviving Corporation Senior Subordinated Debentures,
reduced by $41.2 million to reflect the costs associated
with the issuance of such debt. Long-term debt of CCP II,
for which Conseco is not directly liable, is increased to
reflect (i) $400.0 million gross proceeds from the CCP II
Holdings Senior Term Loan and (ii) $400.0 million gross
proceeds from the CCP II Holdings Senior Subordinated
Debentures, reduced by $40.0 million to reflect the costs
associated with the issuance of such debt.
(57) The value of Kemper's existing long-term debt
remaining after the Merger and the Restructuring is adjusted
to reflect current interest rates.
(58) Shares of Series C Preferred Stock and
Series D Preferred Stock that are to remain outstanding as
Surviving Corporation Preferred Stock are transferred to
minority interest and are adjusted to fair value.
(59) An adjustment is made to reflect the CCP II
Minority Interest in the common equity of CCP II Holdings
and the PIK Preferred Minority Interest related to the
CCP II Holdings PIK Preferred Stock.
(60) It is assumed that all holders of Series A
Preferred Stock and Series E Preferred Stock will convert
such shares to Kemper Common Stock at or prior to the
assumed Effective Time.
(61) The prior shareholders' equity of Kemper is
eliminated in conjunction with the Merger and the
Restructuring.
(62) Conseco Common Stock and paid-in capital
accounts are adjusted to reflect the issuance of
approximately 8.1 million shares of stock issued in
connection with the Merger. For the purpose of this
calculation the Conversion Number was calculated based on
the Average Conseco Price over the 20 day trading period
ending on June 30, 1994.
<PAGE>
<PAGE> 159
COMPARISON OF RIGHTS OF COMMON STOCKHOLDERS
OF CONSECO AND KEMPER
The rights of Conseco stockholders are governed by
Conseco's Amended and Restated Articles of Incorporation
(the "Conseco Articles of Incorporation"), its Amended and
Restated Code of By-laws (the "Conseco By-laws") and the
Indiana Corporation Law. The rights of Kemper stockholders
are governed by its Second Restated Certificate of
Incorporation (the "Kemper Certificate of Incorporation"),
its Bylaws (the "Kemper Bylaws") and the Delaware
Corporation Law. After the Effective Time, the rights of
Kemper stockholders who become Conseco stockholders will be
governed by the Conseco Articles of Incorporation, the
Conseco By-laws and the Indiana Corporation Law. In most
respects, the rights of Conseco stockholders and Kemper
stockholders are similar. The following is a summary of the
material differences between the rights of Conseco
stockholders and the rights of Kemper stockholders.
Voting with Respect to Certain 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).
Under the Kemper Certificate of Incorporation, a
"Business Combination" (defined as any merger, consolidation
or sale, lease, exchange or other disposition of all, or a
substantial part, of the property and assets of Kemper other
than in the usual course of business) must be approved by
the affirmative vote of the holders of at least 80% of the
outstanding stock entitled to vote generally in the election
of directors, voting as a single class, unless a majority of
the "Continuing Directors" vote to approve such Business
Combination even if they are not a quorum of the entire
Board of Directors. A "Continuing Director" is defined as
(i) any member of the Board of Directors of Kemper on
May 20, 1987, (ii) any successor of a Continuing Director
described in clause (i) who is recommended, or elected, to
succeed a Continuing Director by the affirmative vote of a
majority of Continuing Directors then on the Board of
Directors of Kemper or (iii) any director who is
recommended, or elected, by the affirmative vote of a
majority of Continuing Directors then on the Board of
Directors of Kemper to fill a vacancy or a newly created
directorship.
<PAGE>
<PAGE> 160
Right to Call Special Meeting. Under the Conseco
By-laws, a special meeting of stockholders may be called by
the president, the Board of Directors or stockholders
holding at least one-fourth of the total number of shares of
Conseco Common Stock entitled to vote on the proposed
business to be transacted at such meeting.
Under the Kemper Certificate of Incorporation, a
special meeting of stockholders may only be called by the
Board of Directors of Kemper.
Right to Bring Business Before a Special Meeting
of Stockholders. The Conseco Articles of Incorporation and
the Conseco By-laws do not contain any restriction on the
ability of stockholders to bring business before a special
meeting of stockholders.
Under the Kemper Certificate of Incorporation,
only business that has been approved by the Board of
Directors may be brought before a special meeting of
stockholders.
Notice of Stockholder Business. The Conseco
Articles of Incorporation and the Conseco By-laws do not
impose conditions on the submission of matters for a vote at
stockholder meetings.
Under the Kemper Bylaws, a stockholder must give
at least 30 days' prior written notice to Kemper's Corporate
Secretary of any business the stockholder wishes to bring
before an annual meeting of stockholders for a vote;
provided, however, that if there has been less than 40 days'
prior notice or public disclosure of the annual meeting then
the stockholder must give notice of such business within
10 days following the mailing of notice of or public
disclosure of the annual meeting. The notice must contain a
brief description of the business, the reason for conducting
such business at the meeting, the name and address of the
stockholder proposing the business, the class and number of
shares of Kemper stock the stockholder beneficially owns and
any material interest of the stockholder in such business.
<PAGE>
<PAGE> 161
Notice of Director Nominations. The Conseco
Articles of Incorporation and the Conseco By-laws do not
impose conditions on the submission of director nominations
by Conseco stockholders.
Under the Kemper Bylaws, a stockholder must give
at least 30 days' prior written notice to Kemper's Corporate
Secretary if the stockholder wishes to nominate any person
for election as a Kemper director at a stockholder meeting
at which directors are to be elected; provided, however,
that if there has been less than 40 days' prior notice or
public disclosure of such stockholder meeting then the
stockholder must give notice of such nomination within
10 days following the mailing of notice of or public
disclosure of such stockholder meeting. The notice must
contain the following information: with respect to each
person the stockholder wishes to nominate, all information
relating to the person required to be disclosed in
solicitations of proxies for election of directors or
otherwise required pursuant to Regulation 14A under the
Exchange Act, including such person's written consent to be
named in the proxy statement as a nominee and to serving as
a director if elected; the name and address of the
stockholder making the nomination; and the class and number
of shares of Kemper stock the stockholder beneficially
owns.
Stockholder Action by Written Consent. The
Conseco By-laws specifically authorize stockholder action by
written consent of all the stockholders entitled to vote on
such action.
The Kemper Certificate of Incorporation prohibits
stockholder action by written consent and requires that any
stockholder action be taken at a meeting of stockholders.
Removal of Directors. Both the Conseco Articles
of Incorporation and the Kemper Certificate of Incorporation
provide for a classified ("staggered") board of directors.
Each board of directors is divided into three classes.
However, under the Conseco By-laws, a director may be
removed, either for or without cause, at any special meeting
of stockholders called for that purpose, by the affirmative
vote of a majority in number of shares of the stockholders
present in person or by proxy and entitled to vote for the
election of such director.
<PAGE>
<PAGE> 162
Under the Kemper Certificate of Incorporation, a
director may be removed only for cause and only by the
affirmative vote of 80% of the combined voting power of the
then outstanding shares of stock entitled to vote generally
in the election of directors, voting as a single class,
subject to the rights of holders of Kemper Preferred Stock
to elect directors under specified circumstances.
Director Liability. The Conseco Articles of
Incorporation and the Conseco By-laws 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 Kemper Certificate of Incorporation provides
that no director of Kemper will be liable to Kemper or its
stockholders for monetary damages for breach of a fiduciary
duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to Kemper or its
stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware
Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit.
Indemnification. The Conseco By-laws provide that
any person will be indemnified for all reasonable expenses
incurred in connection with any action to which he is made a
party by reason of being a director, officer or employee of
Conseco or of any corporation which he served as such at the
request of Conseco except in relation to matters as to which
it shall be adjudged in such matter that such officer,
director or employee is liable for negligence or misconduct.
<PAGE>
<PAGE> 163
The Kemper Bylaws provide that directors, officers
and certain other persons will be indemnified to the fullest
extent authorized by Delaware law. Under Delaware law, a
corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason
of the fact that he is or was a director, officer, employee
or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. A
corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason
of the fact that he is or was a director, officer, employee
or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of
the corporation and except that no indemnification may be
made in respect of any claim, issue or matter as to which
such person has been adjudged to be liable to the
corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was
brought determines upon application that, despite the
adjudication of liability but in view of all the
circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court deems proper.
<PAGE>
<PAGE> 164
The Conseco By-laws do not specify whether a
person otherwise entitled to indemnification is entitled to
indemnification with respect to a suit against Conseco
initiated by such person. The Kemper By laws permit
indemnification with respect to any suit against Kemper
(other than a suit to enforce indemnification rights)
initiated by a person otherwise entitled to indemnification
only if such suit was authorized by the Kemper Board of
Directors.
The Conseco By-laws do not specify whether a
person is entitled to any indemnification with respect to a
suit by, or against, Conseco regarding the enforcement of
indemnification rights. Under the Kemper Bylaws, a person
is entitled to indemnification for the expense of
prosecuting a suit against, or defending a suit by, Kemper
regarding the enforcement of indemnification rights only if
such person is successful in prosecuting or defending such
suit, in whole or in part.
The Conseco Articles of Incorporation and Conseco
By-laws do not provide for the advancement of expenses.
However, under the Indiana Corporation Law, a corporation
may advance expenses if (i) the director furnishes the
corporation a written affirmation of the director's good
faith belief that the director has met the standard of
conduct called for by Section 23-1-37-8 of the Indiana
Corporation Law (which states that a corporation may
indemnify an individual made a party to a proceeding because
the individual is or was a director against liability
incurred in the proceeding if: (1) the individual's conduct
was in good faith; and (2) the individual reasonably
believed: (A) in the case of conduct in the individual's
official capacity with the corporation, that the
individual's conduct was in its best interests; and (B) in
all other cases, that the individual's conduct was at least
not opposed to its best interests; and (3) in the case of
any criminal proceeding, the individual either: (A) had
reasonable cause to believe the individual's conduct was
lawful; or (B) had no reasonable cause to believe the
individual's conduct was unlawful), (ii) the director
furnishes a written undertaking to repay the advance if it
is ultimately determined that he did not meet such standard
of conduct and (iii) a determination is made that the facts
then known would not preclude indemnification under Indiana
laws.
Under the Kemper Bylaws, Kemper must advance
expenses incurred by a director, officer, employee or agent
in defending an action prior to final disposition of such
action; provided, however, officers and directors, but not
employees and agents, are required to give an undertaking to
repay amounts advanced if it is ultimately determined that
they were not entitled to be indemnified.
<PAGE>
<PAGE> 165
Rights Plan. On July 18, 1990, the Board of
Directors of Kemper declared a dividend of one preferred
share purchase right (a "Right") for each outstanding share
of Kemper Common Stock. Each Right entitles the registered
holder to purchase from Kemper one two-hundredth of a share
(a "Unit") of Series B Junior Participating Preferred Stock,
without par value (the "Kemper Series B Preferred"), of
Kemper at a price of $220 per Unit, subject to adjustment.
The description and terms of the Rights are set forth in the
Kemper Rights Agreement.
The Rights are attached to all Kemper Common Stock
certificates. The Rights will separate from the Kemper
Common Stock and the "Distribution Date" of the Rights will
occur upon the earlier of (i) 10 business days following a
public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 20%
or more of the outstanding shares of Kemper Common Stock
(the date of such announcement being the "Stock Acquisition
Date"), or (ii) 10 business days following the commencement
of a tender offer or exchange offer that would result in a
person or group beneficially owning 30% or more of such
outstanding shares of Kemper Common Stock.
The Rights are not exercisable until the
Distribution Date and will expire at the close of business
on July 29, 2000, unless earlier redeemed by Kemper as
described below. Holding unexercised Rights alone gives
rise to no rights as a stockholder of Kemper, including,
without limitation, any right to vote or to receive
dividends.
In the event that, at any time following the
Distribution Date, (i) Kemper (or its subsidiary) is the
surviving corporation in a merger, consolidation or other
business combination with an Acquiring Person in which
Kemper Common Stock is not changed or exchanged, (ii) any
person becomes the beneficial owner of more than 20% of the
then outstanding shares of Kemper Common Stock (other than
pursuant to a tender offer or exchange offer for all
outstanding shares of Kemper Common Stock at a price and on
terms determined by the independent members of the Board of
Directors to be fair to stockholders and otherwise in the
best interests of Kemper), (iii) an Acquiring Person engages
in one or more "self-dealing" transactions as set forth in
the Kemper Rights Agreement, or (iv) during such time as
there is an Acquiring Person, an event occurs which results
in such person's ownership interest being increased by more
than 1% (e.g., a reverse stock split), each holder of a
Right will thereafter have the right to receive, upon
exercise, Kemper Common Stock (or, in certain circumstances,
cash, property or other securities of Kemper) having a value
equal to two times the exercise price of the Right.
Notwithstanding any of the foregoing, following the
occurrence of any of the events set forth in this paragraph,
all Rights that are, or (under certain circumstances
specified in the Rights Agreement) were, beneficially owned
by any Acquiring Person will be null and void.
<PAGE>
<PAGE> 166
In the event that, at any time following any Stock
Acquisition Date, (i) Kemper is acquired in a merger or
other business combination transaction (other than a merger
which follows a tender or exchange offer described in the
preceding paragraph), or (ii) 50% or more of Kemper's assets
or earning power is sold or transferred, each holder of a
Right (except Rights which are void because held by an
Acquiring Person) will thereafter have the right to receive,
upon exercise, common stock of the acquiring company having
a value equal to two times the exercise price of the Right.
At any time until 10 business days following the
Stock Acquisition Date, Kemper may redeem the Rights in
whole, but not in part, at a price of $.01 per Right,
payable, at the election of Kemper, in cash, shares of
Kemper Common Stock or such other consideration as the
Kemper Board of Directors may determine.
Kemper has amended the Kemper Rights Agreement so
as to provide that neither the approval, execution or
delivery of the Merger Agreement nor the consummation of the
Merger will cause the Rights issued thereunder to become
exercisable.
The Board of Directors of Conseco has not declared
a comparable rights dividend.
General. The foregoing discussion of certain
similarities and material differences between the rights of
Conseco stockholders and the rights of Kemper stockholders
is only a summary of certain provisions and does not purport
to be a complete description of such similarities and
differences, and is qualified in its entirety by reference
to the Indiana Corporation Law and the common law
thereunder, the Delaware Corporation Law and the common law
thereunder, the full text of the Certificate or Articles, as
the case may be, of Incorporation and By-laws of Conseco and
Kemper and the Kemper Rights Agreement.
<PAGE>
<PAGE> 167
OTHER MATTERS
Regulatory Approvals Required
The consummation of the Merger and the
Restructuring is subject to, among other approvals, the
prior approval of the Illinois Insurance Department and the
expiration or termination of the relevant waiting period
under the HSR Act. Applications for such approvals are
being prepared or have been submitted and the HSR Act
notification and report forms are being prepared or have
been filed. The waiting period under the HSR Act applicable
to the Merger (but not the Restructuring) has been
terminated.
Certain Pending Litigation
Since March 15, 1994, Kemper and certain of its
directors, including directors who are also executive
officers, have been named defendants in six complaints filed
in the Court of Chancery in the State of Delaware. The
complaints were brought by stockholders of Kemper,
individually and purportedly as class actions on behalf of
all other stockholders of Kemper. The complaints allege
breaches of fiduciary duty by Kemper and its directors
arising primarily from the unsolicited GECC proposal and the
defendants' alleged wrongful actions with respect thereto.
The complaints seek injunctive relief prohibiting Kemper
from, among other things, utilizing certain defensive
measures. The complaints also seek damages and other
relief. On March 31, 1994, one of the complaints was
amended to allege further that, among other things, the
preliminary proxy statement (the "preliminary proxy") filed
by Kemper in connection with the 1994 annual meeting of
stockholders that was originally scheduled to be held on
May 11, 1994 and was adjourned and then postponed as
described in "THE MERGER -- Background of the Merger" did
not provide full and fair disclosure with respect to the
Agreements or the Board's unanimous decision to reject the
GECC proposal. On April 4, 1994, plaintiffs filed a motion
for expedited discovery with respect to the amended
allegations. The Court of Chancery granted limited
discovery with respect to the disclosure contained in the
preliminary proxy concerning the Board's decision. On
May 4, 1994, the court heard oral argument on the motion for
a preliminary injunction. As a consequence of the letter
agreement, dated May 8, 1994, between Kemper and GECC
pursuant to which Kemper and GECC agreed to adjourn the
Kemper annual meeting of stockholders to be held on May 11,
1994, to August 22, 1994, and following consultation with
the parties, the Court of Chancery determined to withhold
issuance of an opinion with respect to plaintiffs' motion
for a preliminary injunction.
<PAGE>
<PAGE> 168
NAME CHANGE AMENDMENT
At the Conseco Meeting, holders of Conseco Common
Stock will be requested to approve the Name Change
Amendment, a proposed amendment to Article I of the Conseco
Articles of Incorporation to change the name of the
corporation to Kemper, Inc. at, and subject to the
occurrence of, the Effective Time. The Board of Directors
of Conseco has unanimously approved the Name Change
Amendment. The Conseco Board of Directors unanimously
recommends that the Conseco stockholders vote FOR the Name
Change Amendment. Approval of the Name Change Amendment is
not required for the consummation of the Merger.
The Conseco Board of Directors is recommending the
Name Change Amendment because it believes that the Kemper
name is a nationally recognized brand name that will raise
Conseco's profile with the investor, analyst and consumer
communities, the Kemper name carries with it a tradition of
excellence in financial services and it is appropriate to
recognize the significant contribution to the corporation
represented by the Kemper businesses being acquired in the
Merger.
APPRAISAL RIGHTS
Record holders of Kemper Common Stock and Kemper
Preferred Stock are entitled to appraisal rights under
Section 262 of the Delaware Corporation Law in connection
with the Merger. The following discussion is not a complete
statement of the law pertaining to appraisal rights under
the Delaware Corporation Law and is qualified in its
entirety by the full text of Section 262 which is reprinted
in its entirety as Annex 4 to this Joint Proxy
Statement/Prospectus. Except as set forth herein,
stockholders of Conseco and Kemper will not be entitled to
appraisal rights in connection with the Merger.
<PAGE>
<PAGE> 169
Section 262. Under the Delaware Corporation Law,
record holders of shares of Kemper Common Stock or Kemper
Preferred Stock who follow the procedures set forth in
Section 262 and who, in the case of holders of shares of
Kemper Common Stock, have not voted in favor of the Merger
will be entitled to have their shares of Kemper Common Stock
or Kemper Preferred Stock appraised by the Delaware Court of
Chancery and to receive payment of the "fair value" of such
shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a
fair rate of interest, as determined by such court.
Under Section 262, where a merger agreement is to
be submitted for approval and adoption at a meeting of
stockholders, as in the case of the Kemper Meeting, not less
than 20 days prior to the meeting, Kemper must notify each
of the holders of Kemper Common Stock and Kemper Preferred
Stock at the close of business on the Kemper Record Date
that such appraisal rights are available and include in each
such notice a copy of Section 262. This Joint Proxy
Statement/Prospectus constitutes such notice. Any such
stockholder who wishes to exercise appraisal rights should
review the following discussion and Annex 4 carefully
because failure to timely and properly comply with the
procedures specified in Section 262 will result in the loss
of appraisal rights under the Delaware Corporation Law.
A holder of shares of Kemper Common Stock or
Kemper Preferred Stock wishing to exercise appraisal rights
must deliver to Kemper, before the vote on the approval and
adoption of the Merger Agreement at the Kemper Meeting, a
written demand for appraisal of such holder's shares of
Kemper Common Stock or Kemper Preferred Stock. In addition,
a holder of shares of Kemper Common Stock or Kemper
Preferred Stock wishing to exercise appraisal rights must
hold of record such shares on the date the written demand
for appraisal is made and must continue to hold such shares
through the Effective Time.
Only a holder of record of shares of Kemper Common
Stock or Kemper Preferred Stock is entitled to assert
appraisal rights for the shares of Kemper Common Stock or
Kemper Preferred Stock registered in that holder's name. A
demand for appraisal should be executed by or on behalf of
the holder of record fully and correctly, as the holder's
name appears on the stock certificates.
<PAGE>
<PAGE> 170
If the shares of Kemper Common Stock or Kemper
Preferred Stock are owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, execution of
the demand should be made in that capacity, and if the
shares of Kemper Common Stock or Kemper Preferred Stock are
owned of record by more than one person, as in a joint
tenancy or tenancy in common, the demand should be executed
by or on behalf of all joint owners. An authorized agent,
including one or more joint owners, may execute a demand for
appraisal on behalf of a holder of record; however, the
agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, the agent
is agent for such owner or owners. A record holder such as
a broker who holds Kemper Common Stock or Kemper Preferred
Stock as nominee for several beneficial owners may exercise
appraisal rights with respect to the Kemper Common Stock or
Kemper Preferred Stock held for one or more beneficial
owners while not exercising such rights with respect to the
Kemper Common Stock or Kemper Preferred Stock held for other
beneficial owners; in such case, the written demand should
set forth the number of shares as to which appraisal is
sought and where no number of shares is expressly mentioned
the demand will be presumed to cover all Kemper Common Stock
or Kemper Preferred Stock held in the name of the record
owner. Holders of Kemper Common Stock or Kemper Preferred
Stock who hold their shares in brokerage accounts or other
nominee forms and who wish to exercise appraisal rights are
urged to consult with their brokers to determine the
appropriate procedures for the making of a demand for
appraisal by such nominee. All written demands for
appraisal of Kemper Common Stock or Kemper Preferred Stock
should be sent or delivered to Kathleen A. Gallichio, Senior
Vice President, General Counsel and Corporate Secretary,
Kemper Corporation, One Kemper Drive, C-3, Long Grove,
Illinois 60049 so as to be received before the vote on the
approval and adoption of the Merger Agreement at the Kemper
Meeting.
<PAGE>
<PAGE> 171
Within 10 days after the Effective Time, Kemper,
as the surviving corporation in the Merger, must send a
notice as to the effectiveness of the Merger to each person
who has satisfied the appropriate provisions of Section 262.
Within 120 days after the Effective Time, but not
thereafter, Kemper, or any holder of shares of Kemper Common
Stock or Kemper Preferred Stock entitled to appraisal rights
under Section 262 and who has complied with the foregoing
procedures, may file a petition in the Delaware Court of
Chancery demanding a determination of the fair value of such
shares. Kemper is not under any obligation, and has no
present intention, to file a petition with respect to the
appraisal of the fair value of the shares of Kemper Common
Stock or Kemper Preferred Stock. Accordingly, it is the
obligation of the stockholders to initiate all necessary
action to perfect their appraisal rights within the time
prescribed in Section 262.
Within 120 days after the Effective Time, any
record holder of shares of Kemper Common Stock or Kemper
Preferred Stock who has complied with the requirements for
exercise of appraisal rights will be entitled, upon written
request, to receive from Kemper a statement setting forth
the aggregate number of shares of the Kemper Common Stock or
Kemper Preferred Stock with respect to which demands for
appraisal have been received and the aggregate number of
holders of such shares. Such statements must be mailed
within 10 days after a written request therefor has been
received by Kemper.
If a petition for an appraisal is timely filed,
after a hearing on such petition, the Delaware Court of
Chancery will determine the holders of shares of Kemper
Common Stock or Kemper Preferred Stock entitled to appraisal
rights and will appraise the "fair value" of the shares of
Kemper Common Stock or Kemper Preferred Stock, exclusive of
any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to
be the fair value. Holders considering seeking appraisal
should be aware that the fair value of their shares of
Kemper Common Stock or Kemper Preferred Stock as determined
under Section 262 could be more than, the same as or less
than the value of the Merger Consideration that they would
otherwise receive, in the case of any holders of Kemper
Common Stock, or the Surviving Corporation Preferred Stock
that they would otherwise continue to hold, in the case of
holders of Kemper Preferred Stock, if they did not seek
appraisal of their shares of Kemper Common Stock or Kemper
Preferred Stock. The Delaware Supreme Court has stated that
"proof of value by any techniques or methods which are
generally considered acceptable in the financial community
and otherwise admissible in court" should be considered in
the appraisal proceedings. In addition, Delaware courts
have decided that the statutory appraisal remedy, depending
on factual circumstances, may or may not be a dissenter's
exclusive remedy. The Court will also determine the amount
of interest, if any, to be paid upon the amounts to be
received by persons whose shares of Kemper Common Stock or
Kemper Preferred Stock have been appraised. The costs of
the action may be determined by the Court and taxed upon the
parties as the Court deems equitable. The Court may also
order that all or a portion of the expenses incurred by any
holder of shares of Kemper Common Stock or Kemper Preferred
Stock in connection with an appraisal, including, without
limitation, reasonable attorneys' fees and the fees and
expenses of experts utilized in the appraisal proceeding, be
charged pro rata against the value of all of the shares of
Kemper Common Stock or Kemper Preferred Stock entitled to
appraisal.<PAGE>
<PAGE> 172
Any holder of shares of Kemper Common Stock or
Kemper Preferred Stock who has duly demanded an appraisal in
compliance with Section 262 will not, after the Effective
Time, be entitled to vote the shares of Kemper Common Stock
or Kemper Preferred Stock subject to such demand for any
purpose or be entitled to the payment of dividends or other
distributions on those shares (except dividends or other
distributions payable to holders of record of shares of
Kemper Common Stock or Kemper Preferred Stock as of a date
prior to the Effective Time).
If any holder of shares of Kemper Common Stock who
demands appraisal of shares under Section 262 fails to
perfect, or effectively withdraws or loses, the right to
appraisal, as provided in the Delaware Corporation Law, the
shares of Kemper Common Stock of such holder will be
converted into Merger Consideration in accordance with the
Merger Agreement. If any holder of shares of Kemper
Preferred Stock who demands appraisal of shares under
Section 262 fails to perfect, or effectively withdraws or
loses, the right to appraisal, as provided in the Delaware
Corporation Law, the shares of Kemper Preferred Stock of
such holder will be treated as if they had remained
outstanding as of the Effective Time. A holder of shares of
Kemper Common Stock or Kemper Preferred Stock will fail to
perfect, or effectively lose, the right to appraisal if no
petition for appraisal is filed within 120 days after the
Effective Time. A holder may withdraw a demand for
appraisal by delivering to Kemper a written withdrawal of
the demand for appraisal and acceptance of the Merger,
except that any such attempt to withdraw made more than
60 days after the Effective Time will require the written
approval of the Surviving Corporation.
<PAGE>
<PAGE> 173
Failure to follow the steps required by Section
262 of the Delaware Corporation Law for perfecting appraisal
rights may result in the loss of such rights.
The foregoing is a summary of certain of the
provisions of Section 262 of the General Corporation Law of
the State of Delaware and is qualified in its entirety by
reference to the full text of such Section, a copy of which
is attached hereto as Annex 4.
SOLICITATION OF PROXIES
Each of Conseco and Kemper will bear the cost of
the solicitation of proxies from its stockholders, except
that Conseco and Kemper will share equally the cost of
printing and mailing this Joint Proxy Statement/Prospectus.
The solicitation is being made by mail, telephone, facsimile
and personal interview. Arrangements will also be made with
brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of solicitation material to
the beneficial owners of shares held of record by such
persons, and Conseco and Kemper will reimburse such
custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses in connection therewith. In
addition, directors, officers and regular employees of
Conseco, Kemper and their respective subsidiaries may
solicit proxies from stockholders of their respective
companies, without additional compensation, except for
out-of-pocket expenses in connection therewith.
In addition, will assist in the
solicitation of proxies by Conseco for a fee of $ ,
plus reasonable out-of-pocket expenses.
STOCKHOLDER PROPOSALS
Proposals of stockholders for inclusion in the
proxy statement for the 1995 annual meeting of Conseco
stockholders must be received on or before , 1994.
Proposals should be mailed to Conseco Corporate Secretary's
Office, 11825 N. Pennsylvania Street, Carmel, Indiana 46032.
<PAGE>
<PAGE> 174
If the Merger is not consummated, stockholder
proposals intended to be presented at the next Kemper annual
meeting in 1995 should be directed to the corporate
secretary of Kemper and must be received by Kemper no later
than _______, 1995 for inclusion in the proxy statement and
proxy card relating to the meeting.
KEMPER STOCKHOLDER LIST
A certified list of Kemper stockholders entitled
to be present and vote at the Kemper Meeting will be
available at the office of Kemper's corporate secretary,
Long Grove, Illinois, and at the office of Kemper's transfer
agent, Harris Trust and Savings Bank, 311 West Monroe
Street, 11th floor, Chicago, Illinois, for inspection by any
stockholder during normal business hours from ________, 1994
to one day prior to the date of the Kemper Meeting and at
the Kemper Meeting site on the day of the Kemper Meeting.
PRINCIPAL KEMPER STOCKHOLDERS
Based on reports filed with Kemper since
January 1, 1994, the following are the only persons known to
Kemper management who may be deemed to beneficially own more
than 5% of the outstanding voting securities of Kemper:
<TABLE>
<CAPTION>
Amount and
Nature of Percent
Title of Name and Address Beneficial of
Class of Beneficial Owner Ownership Class (a)
----- ------------------- --------- ---------
<S> <C> <C> <C>
Common Stock Franklin Resources, Inc. 3,145,498 (b) [9.3%]
($5 par value) 777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777
Common Stock Neuberger & Berman 1,658,310 (c) [4.9%]
($5 par value) 605 Third Avenue
New York, New York 10158-3698
Common Stock Southeastern Asset Management, Inc. 2,635,700 (d) [7.8%]
($5 par value) 860 Ridgelake Boulevard
Memphis, Tennessee 38120
<PAGE>
<PAGE> 175
<FN>
(a) Based on the number of shares of Kemper Common Stock
outstanding on August 1, 1994 and an assumption that
share totals beneficially owned have remained equal to
those reported as held as of year-end 1993 or, with
respect to Southeastern Asset Management, Inc., as of
March 15, 1994.
(b) In a report dated January 31, 1994, Franklin Resources,
Inc. reported that as of year-end 1993 it or its
investment advisory subsidiaries had sole voting power
as to 2,797,998 shares, shared voting power as to
347,500 shares, sole dispositive power as to no shares
and shared dispositive power as to 3,145,498 shares.
(c) In a report dated January 31, 1994, Neuberger & Berman
reported that, on behalf of many unrelated clients (no
one of which held an interest relating to 5% or more of
Kemper's outstanding voting securities), as of year-end
1993 it had the sole voting power as to 402,025 shares,
shared voting power as to 325,000 shares, sole
dispositive power as to no shares and shared
dispositive power as to 1,658,310 shares. Neuberger &
Berman also reported that partners of the firm owned
155,450 shares in their personal securities accounts.
Neuberger & Berman disclaimed beneficial ownership of
these partners' shares, noting such shares were
purchased with each partner's personal funds, and these
partners had exclusive dispositive and voting power
over the shares held in their respective accounts.
(d) In a report dated March 15, 1994, Southeastern Asset
Management, Inc. reported that, as an investment
advisor to various discretionary and non-discretionary
accounts of its clients, as of such date it had sole
voting power as to 2,018,700 shares, shared voting
power as to 500,000 shares, no voting power as to
117,000 shares, sole dispositive power as to 2,135,700
shares and shared dispositive power as to 500,000
shares.
</TABLE>
<PAGE>
<PAGE> 176
ELECTION OF KEMPER DIRECTORS
The Kemper Certificate of Incorporation provides
that the Kemper Board of Directors shall be divided as
nearly as possible among three equal classes which are
designated as Class I, II or III, with each class serving
for a three-year term of office. Any person elected to fill
a vacancy or a newly-created directorship holds office for
the remainder of the full term of the class to which such
person is elected.
On March 17, 1994, the Kemper Board of Directors
nominated John T. Chain Jr., George D. Kennedy, David
B. Mathis and Kenneth A. Randall, the current Class II
directors, to stand for re-election at the annual meeting
and, if elected, they shall hold office until the 1997
annual meeting of stockholders of Kemper or until their
earlier resignation as described under "MANAGEMENT AND
OPERATIONS AFTER THE MERGER--Directors After the Merger"
above.
After the June 26, 1994 board meeting at which the
Merger Agreement was unanimously approved, Joseph E. Luecke
retired from the Kemper Board to pursue more of a full-time
retirement and to attend to various personal and family
matters. On September 7, 1994, the Kemper Board, on the
recommendation of its Nominating Committee, reduced the
number of members of the Kemper Board to 12 in accordance
with the Kemper Certificate of Incorporation. The Kemper
Board agreed that reducing the size of the Kemper Board was
advisable, in lieu of filling the vacancy created by
Mr. Luecke's retirement, due to the pendency of the Merger
and thus the abbreviated term of office any replacement
director could be expected to serve.
The persons named on the enclosed proxy card
(Peter B. Hamilton, George D. Kennedy and David B. Mathis)
have agreed to represent holders of Kemper Common Stock
submitting properly executed proxy cards and to vote for the
election of the four nominees listed herein, unless
otherwise directed by the authority granted or withheld on
the proxy cards. Although the Kemper Board of Directors has
no reason to believe that any of the nominees will be unable
to serve as directors, if any one or more of the nominees
shall not be available for election, the persons named on
the proxy card have agreed to vote for the election of such
other nominees as may be proposed by the Kemper Board of
Directors. The names of the four nominees for election at
this annual meeting, the names of the directors whose terms
continue after the meeting and the principal occupations of
all such persons during the past five years are as follows:
<PAGE>
<PAGE> 177
Nominees to be elected for terms expiring at the 1997 Annual
Meeting (Class II):
John T. Chain Jr. Age 59
Executive Vice President, Burlington Northern Railroad
Co., Fort Worth, TX (railroad transportation) since
January 1991; prior thereto, Commander in Chief,
Strategic Air Command, and Director, Joint Strategic
Target Planning Staff. Director of Northrop
Corporation, RJR Nabisco Holdings and various
subsidiaries of Burlington Northern Railroad Co.
Director since 1991
George D. Kennedy Age 68
Chairman of Mallinckrodt Group Inc. (formerly, IMCERA
Group, Inc.), Mundelein, IL (mining, manufacturing).
Director of American National Can Company, Brunswick
Corporation, Medical Care America, Inc., Illinois Tool
Works, Inc., Mallinckrodt Group Inc., the Kemper
National Insurance Companies, Scotsman Industries, Inc.
and Stone Container Corp.
Director since 1982
David B. Mathis Age 56
Chairman of the Board and Chief Executive Officer of
Kemper since February 1992; prior thereto, President
from May 1990 to September 1992, and Chief Operating
Officer from May 1990 to February 1992; prior thereto,
Executive Vice President. Chairman of the Board and
Chief Executive Officer of Kemper Reinsurance Company
until March 1990. Director of KFC and several other
Kemper subsidiaries.
Director since 1989
Kenneth A. Randall Age 67
Corporate Director. Director of Dominion Resources,
Inc., Dominion Energy, Inc. and Prime Retail, Inc., and
trustee of the principal Oppenheimer mutual funds.
Director since 1981
Directors continuing in office with terms expiring at the
1995 Annual Meeting (Class I):
<PAGE>
<PAGE> 178
J. Reed Coleman Age 61
Chairman of the Board of Madison-Kipp Corporation,
Madison, WI (manufacturer of precision components
serving the automotive and durable goods industries).
Director of the Kemper National Insurance Companies,
Lunar Corp., Madison-Kipp Corporation, NIBCO, Inc.,
Regal-Beloit Corporation and Xeruca Corporation.
Director since 1968
Raymond F. Farley Age 69
Corporate Director. Prior to January 1990, President
and Chief Executive Officer of S.C. Johnson & Son,
Inc., Racine, WI (manufacturer of household and
commercial cleaners, wax, insecticides and personal
care products). Director of Hartmarx Corporation,
Johnson International, Inc., Johnson Worldwide
Associates and Snap-On Tools Corp.
Director since 1983
Richard D. Nordman Age 47
President and Chief Operating Officer of Lawter
International, Inc., Northbrook, IL (manufacturer of
products for the graphic arts, adhesive and coatings
industries). Director of Lawter International, Inc.
Director since 1989
Stephen B. Timbers Age 50
President and Chief Operating Officer of Kemper since
September 1992; Chief Investment Officer of Kemper
Corporation from May 1991 until May 1993. Senior
Executive Vice President and Chief Investment Officer
of KFS from March 1990 until November 1993; prior
thereto, Executive Vice President and Chief Investment
Officer. Director of KFC, several other Kemper
subsidiaries, Gillett Holdings, Inc. and LTV
Corporation.
Director since 1992
Directors continuing in office with terms expiring at the
1996 Annual Meeting (Class III):
John H. Fitzpatrick Age 37
Executive Vice President and Chief Financial Officer of
Kemper since May 1993; prior thereto, Senior Vice
President and Chief Financial Officer from May 1990;
prior thereto, Vice President. Executive Vice
President and Chief Financial Officer of KFC since
January 1994. Director of KFC and several other Kemper
subsidiaries.
<PAGE>
<PAGE> 179
Director since 1990
Peter B. Hamilton Age 47
Vice President and Chief Financial Officer of Cummins
Engine Company, Inc., Columbus, IN (manufacturer of
diesel engines and related products). Director of
various corporations that are wholly-owned by Cummins
Engine Company, Inc.
Director since 1992
Charles M. Kierscht Age 55
Executive Vice President since May 1993. Chairman of
the Board, President and Chief Executive Officer of KFC
since July 1991; prior thereto, Executive Vice
President. Chairman, President and Chief Executive
Officer of KFS since July 1991; prior thereto,
President and Chief Operating Officer. President and
director or trustee of all of the registered investment
companies which are managed by KFS. Director of KFC,
several other Kemper subsidiaries, IFTC (which is
indirectly 50% owned by Kemper) and ICI Mutual
Insurance Company.
Director since 1991
Daniel R. Toll Age 66
Corporate and civic director. Director of Brown Group,
Inc., A.P. Green Industries, Inc., Mallinckrodt Group
Inc., the Kemper National Insurance Companies, Lincoln
National Convertible Securities Fund, Inc., Lincoln
National Income Fund, Inc. and NICOR, Inc.
Director since 1986
Messrs. Chain, Coleman, Farley, Hamilton, Kennedy, Mathis,
Nordman, Randall and Toll are presently directors of
Fidelity Life Association, a Kemper-affiliated mutual life
insurance company.
<PAGE>
<PAGE> 180
SECURITY OWNERSHIP OF KEMPER DIRECTORS AND
EXECUTIVE OFFICERS
The following table shows the shares of Kemper
Common Stock beneficially owned as of August 1, 1994 by the
directors, nominees and other persons within the group of
five most highly-compensated executive officers of Kemper
during 1993, and by all directors, nominees and the 1993
executive officers of Kemper as a group:
<TABLE>
<CAPTION>
Shares of Kemper Common Percent
Name of Beneficial Owner Stock Beneficially Owned of Class
- ------------------------ ------------------------ --------
<S> <C> <C>
John T. Chain Jr. 8,000(1) *
J. Reed Coleman 1,518,382(1)(3)(4)(5) [4.6%]
Raymond F. Farley 8,750(1) *
John H. Fitzpatrick 145,658(2)(5) *
Peter B. Hamilton 7,000(1) *
George D. Kennedy 1,500,382(1)(4) [4.5%]
Charles M. Kierscht 84,160(2)(6) *
David B. Mathis 299,994(2) *
Richard D. Nordman 9,000(1) *
Kenneth A. Randall 9,684(1)(5) *
Stephen B. Timbers 99,000(2) *
Daniel R. Toll 1,501,382(1)(4) [4.5%]
Kathleen A. Gallichio 86,782(2) *
Directors, nominees and executive
officers as a group (15 persons,
including the above) 2,405,307(2)(3)(4) [7.1%]
<FN>
* Less than 1%.
(1) Includes 8,000 shares which each of Messrs. Coleman,
Farley, Kennedy, Nordman, Randall and Toll, 7,000
shares which General Chain, and 6,000 shares which
Mr. Hamilton, can acquire under stock options granted
pursuant to the Kemper Corporation Non-Management
Director Stock Option Plan. All of such options became
immediately exercisable in full on June 26, 1994 when
the Kemper Board's approval and recommendation of the
Merger effected a Change of Control under such plan.
The Kemper non-management directors as a group can thus
presently acquire 61,000 shares under these stock
options.
<PAGE>
<PAGE> 181
(2) Includes the following number of shares which the
following persons or group have the right to acquire
pursuant to stock options granted under the Kemper
Corporation 1982 Incentive Stock Option Plan, 1985
Amended Stock Option Plan or 1990 Stock Option Plan:
Mr. Fitzpatrick, 132,540 shares; Mr. Kierscht, 63,680
shares; Mr. Mathis, 256,765 shares; Mr. Timbers, 91,000
shares; Ms. Gallichio, 81,340 shares; and all directors
and executive officers as a group, 731,665 shares.
Those options granted prior to June 26, 1993 became
exercisable in full on June 26, 1994 when the Kemper
Board's approval and recommendation of the Merger
effected a Change of Control under such plans. Options
granted after June 26, 1993 became exercisable in full
pursuant to the Merger Agreement.
(3) Excludes 6,876 shares held in several trusts created by
Lumbermens Mutual Casualty Company ("Lumbermens"),
principal company of the Kemper National Insurance
Companies, for the prospective retirement benefit of
certain Lumbermens officers. As a member of the
distribution committee of these trusts, Mr. Coleman
presently shares voting and investment power over, but
disclaims beneficial ownership of, such shares.
(4) Includes 1,492,382 shares held by Lumbermens, the James
S. Kemper Foundation, American Manufacturers Mutual
Insurance Company ("AMM"), another of the Kemper
National Insurance Companies, and several trusts
established for the benefit of Lumbermens' officers
which certain of Kemper's directors, to the extent they
are also members of Lumbermens' or AMM's boards of
directors, or trustees of the foundation, could be
deemed to control either through voting or dispositive
power. Such directors disclaim beneficial ownership of
such shares.
(5) Includes shares owned by or for the benefit of the
spouse, minor children or other relatives of the
director, nominee or executive officer.
(6) Mr. Kierscht beneficially owns 44,822.46 shares of
Class B Common Stock of KFC, a publicly-reporting
subsidiary of Kemper, 1,024.23 shares owned directly
and an aggregate of 43,798.23 shares which he: (i) can
acquire within 60 days of August 1, 1994 upon the
conversion of various presently convertible series of
floating rate convertible subordinated debentures
issued by KFC; or (ii) can acquire within 60 days of
August 1, 1994 pursuant to stock options issued under
KFC's 1986 and 1988 Stock Option Plans. KFC issued
debentures to various officers and designated employees
of its subsidiaries during a period extending from 1986
through 1990. The debentures were issued in groups of
five series (the series having staggered conversion and
maturity dates) and are convertible into shares of KFC
Class B Common Stock based on a formula price for such
stock applicable when the particular series were
issued. Also see "COMPENSATION OF KEMPER EXECUTIVE
OFFICERS" later in this Joint Proxy Statement/
Prospectus. Mr. Kierscht beneficially owns
approximately 8.5% of KFC's outstanding Class B Common
Stock and approximately 1.6% of all series of KFC
floating rate convertible subordinated debentures
outstanding at August 1, 1994, and he would own
approximately 2.6% of the outstanding KFC Class B
Common Stock, assuming all of KFC's outstanding
convertible securities and options at such date,
including Mr. Kierscht's, had previously been converted
or exercised.
/TABLE
<PAGE>
<PAGE> 182
COMMITTEES OF THE KEMPER BOARD
Effective January 14, 1994, the configuration and
membership of the various committees of the Kemper Board of
Directors were changed to rebalance and streamline board
committee participation to promote efficiencies. Also see
"COMPENSATION OF KEMPER DIRECTORS" later in this Joint Proxy
Statement/Prospectus.
Kemper has a five-member Executive Committee presently
consisting of Messrs. Mathis (chairman), Chain, Farley,
Kennedy and Timbers. The function of the committee is to
exercise the authority of the Kemper Board of Directors in
the management of the business and the affairs of Kemper as
necessary and appropriate during the interim between
meetings of the full board.
Kemper has an Audit Committee composed of three
non-management directors. (A non-management director is one
other than a present officer of Kemper or of any affiliate
thereof.) Members currently serving on the committee are
Messrs. Coleman (chairman), Hamilton and Nordman. This
committee oversees the selection and retention of an
independent auditor and has responsibility for the content
and oversight of Kemper's audit program, including review of
the effectiveness of corporate accounting and financial
practices and the adequacy of internal controls.
<PAGE>
<PAGE> 183
The Investment Committee of Kemper (formerly the
Finance Committee) currently consists of three non-
management directors: Messrs. Randall (chairman), Farley
and Toll. The function of the committee is to exercise the
authority of the Kemper Board of Directors principally in
connection with the supervision of investment policies and
performance of Kemper's life insurance subsidiaries'
portfolios, including the related activities of KFS,
investment adviser to the portfolios. Investments made
under the committee's general guidelines are approved by the
respective investment committees and boards of directors of
Kemper's life insurance subsidiaries.
The Corporate Public Policy Committee of Kemper
presently consists of three non-management directors:
Messrs. Chain (chairman), Kennedy and Randall. The
committee is responsible for review of corporate policies
with respect to corporate responsibility, legislative and
regulatory matters and industry and consumer relations.
Commencing in 1994, the Corporate Public Policy Committee
maintains a regular subcommittee on Intercompany Conflicts,
Accountability and Relationships. The subcommittee will
scrutinize, evaluate, avoid where possible and resolve
conflicts of interest among Kemper or its subsidiaries and
those companies within the organization whose ownership
constituencies and interests are distinct from those of
Kemper and its stockholders; explore the equities and
ethical considerations applicable to intercompany dealings;
and review procedures and activities of management dealing
with individual and intercompany conflicts of interest.
Mr. Kennedy will be the representative of Kemper at
subcommittee meetings, Mr. Randall will represent Fidelity
Life Association and Mr. Kierscht will be the invited
representative of KFC. While its functions will now be
exercised as a subcommittee of the Corporate Public Policy
Committee, during 1993, Kemper maintained a Board Committee
on Intercompany Conflicts, Accountability and Relationships
composed of a chairman and board representatives for Kemper,
KFC and Fidelity Life Association. During 1993, Mr. Luecke
was the chairman of the committee, Mr. Farley was the
representative of Kemper, Mr. Kierscht represented KFC and
Mr. Nordman represented Fidelity Life Association.
The Committee on Compensation and Organization is
currently comprised of three non-management directors:
Messrs. Kennedy (chairman), Chain and Farley. The committee
is responsible for reviewing with management (1) the overall
objectives, structure, cost and administration of Kemper's
compensation and benefit programs, (2) executive
management's performance and (3) officer succession plans.
<PAGE>
<PAGE> 184
The Nominating Committee of Kemper is currently
composed of all non-management directors not standing for
re-election within one year and not serving on the Executive
Committee, except for the chairman who is appointed by the
Kemper Board of Directors. Members currently serving on the
committee are Messrs. Toll (chairman), Coleman, Hamilton and
Nordman. The committee has the responsibility of
recommending nominees to the full board to fill
directorships which expire at the annual meeting of
stockholders, board vacancies and newly-created
directorships. Any stockholder who wishes to have the
committee consider a candidate should submit in writing the
name of the candidate along with any biographical or other
relevant information regarding the qualifications of such
individual and the written consent of the proposed candidate
to serve if nominated and elected. Such recommendations
should be addressed to the Chairman of the Nominating
Committee, in care of the Corporate Secretary of Kemper, at
One Kemper Drive, C-3, Long Grove, Illinois 60049.
During 1993, 11 Board meetings, 9 Executive Committee
meetings, 6 Audit Committee meetings, 4 Finance (now
Investment) Committee meetings, 2 Corporate Public Policy
Committee meetings, 9 Committee on Compensation and
Organization meetings, 1 Nominating Committee meeting and 2
meetings of the Committee on Intercompany Conflicts,
Accountability and Relationships of Kemper were held.<PAGE>
<PAGE> 185
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF KEMPER
AS OF DECEMBER 31, 1993
Kemper
Officer Principal Business Experience
Name, Age and Position Since During Past Five or More Years(1)
- ---------------------- ----- ---------------------------------
<S> <C> <C>
David B. Mathis (56)
Chairman of the Board
and Chief Executive
Officer 1989 Chairman of the Board and
Chief Executive Officer from
February 1992; prior thereto,
President from May 1990 until
February 1992 and Chief
Operating Officer from May
1990 until February 1992;
prior thereto, Executive Vice
President. Chairman of the
Board and Chief Executive
Officer of Kemper Reinsurance
Company until March 1990.
Stephen B. Timbers (50)
President, Chief
Operating Officer and
Director 1991 President and Chief Operating
Officer since September 1992;
Chief Investment Officer from
May 1991 until May 1993.
Senior Executive Vice
President and Chief
Investment Officer of KFS
from March 1990 until
November 1993; prior thereto,
Executive Vice President and
Chief Investment Officer.
Charles M. Kierscht (55)
Executive Vice President
and Director 1993 Executive Vice President from
May 1993. Also Chairman of
the Board, President and
Chief Executive Officer of
KFC and KFS from July 1991;
prior thereto, Executive Vice
President of KFC and
President and Chief Operating
Officer of KFS.
<PAGE>
<PAGE> 186
John H. Fitzpatrick (37)
Executive Vice President,
Chief Financial Officer
and Director 1986 Executive Vice President and
Chief Financial Officer from
May 1993; prior thereto,
Senior Vice President and
Chief Financial Officer from
May 1990; prior thereto, Vice
President.
Alan J. Baltz (58)
Senior Vice President 1990 Senior Vice President from
May 1990; prior thereto,
Controller of Lumbermens.
Kathleen A. Gallichio (39)
Senior Vice President,
General Counsel and
Corporate Secretary 1990 Senior Vice President from
January 1994 and General
Counsel and Corporate
Secretary from May 1991;
prior thereto, Corporate
Counsel and Corporate
Secretary from May 1990;
prior thereto, Assistant
General Counsel of
Lumbermens.
John W. Burns (42)
Treasurer (principal
accounting officer) 1986 Treasurer from January 1994;
prior thereto, Treasurer and
principal accounting officer
from May 1990; prior thereto,
Assistant Treasurer from
April 1989. Treasurer of
Lumbermens until May 1990.
<FN>
(1) All executive officers have similar business experience
with various Kemper subsidiaries. Where indicated as
having had business experience with Lumbermens, the
executive officers also had similar business experience
with Lumbermens' subsidiaries and affiliates.
</TABLE>
<PAGE>
<PAGE> 187
<TABLE>
COMPENSATION OF KEMPER EXECUTIVE OFFICERS
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
------------------------------------ ---------------------------
All
Other Restricted Stock Other
Name and Annual Stock Underlying Compen-
Principal Compen- Awards Options sation
Position Year Salary Bonus sation(1) (2) (Number) (3)
- ----------------------------- ---- ------ ----- --------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
David B. Mathis,
Chairman of the Board
and Chief Executive Officer 1993 $531,308 $960,000 $193,357 $560,625(4) 45,000 $111,811
1992 473,846 360,000 167,658 131,250 15,000 24,219
1991 400,000 480,000 164,503 253,750 25,000 53,329
Stephen B. Timbers,
President and Chief
Operating Officer 1993 448,269 816,000 25,508 560,625(4) 40,000 143,455
1992 412,500 500,000 7,706 110,250 10,000 106,789
1991 360,000 307,200(5) 6,744 119,625 10,000 57,344
Charles M. Kierscht,
Executive Vice President 1993 440,000 412,000 17,980 149,500(4) 20,867 188,398
1992 400,000 650,000 10,629 110,250 10,000 115,648
1991 387,500 300,000(5) 13,415 119,625 10,000 190,466
John H. Fitzpatrick,
Executive Vice President
and Chief Financial Officer 1993 240,462 360,000 21,117 373,750(4) 25,000 59,675(6)
1992 210,000 210,000 11,176 84,000 8,600 15,072(6)
1991 190,000 250,000 9,948 108,750 10,000 86,935(6)
Kathleen A. Gallichio,
Senior Vice President,
General Counsel and
Corporate Secretary 1993 200,385 175,000 16,873 224,250(4) 15,000 39,183
1992 175,000 112,000 10,130 70,875 6,800 6,006
1991 135,100 140,000 7,749 72,500 6,000 9,721
<PAGE>
<PAGE> 188
<FN>
(1) The amounts disclosed in this column include:
(a) Compensation income reported in 1993 of $145,625,
in 1992 of $132,750, and in 1991 of $127,000, for
Mr. Mathis based upon the market value on the
vesting date of restricted stock awarded in 1988,
1987 and 1986, respectively, under the Kemper
Corporation Senior Executive Long-Term Incentive
Plan.
(b) Compensation amounts paid to each of the named
executive officers as non-preferential dividend
equivalents on shares of restricted stock awarded
at various times.
(c) The cash value of shares of Kemper Common Stock
when awarded under the Kemper Corporation
Anniversary Award Program. Employees of Kemper or
participating subsidiaries are awarded shares on
an increasing scale beginning with their 10th year
of employment and every 5 years thereafter, with a
pro rata award at retirement.
(d) The taxable benefit from personal use of an
employer-provided automobile, adjusted for the
related tax expense.
(2) The values shown are based on the closing price for the
Kemper Common Stock on the date any restricted stock
was awarded applied to the number of award shares. A
five-year restriction period on transfers or other
dispositions applied to all awards of restricted stock
when made. The Kemper Board's approval and recommenda-
tion of the Merger on June 26, 1994 effected a Change
of Control under the pertinent provisions of the Kemper
Corporation 1989 Senior Executive Long-Term Incentive
Plan and thus each of the named executive officers
vested in all of the shares reflected in the table
which were awarded in 1991 and 1992. See footnote (4)
below for further information respecting the shares of
restricted stock awarded in 1993.
Until the shares of restricted stock vested, dividend
equivalents, calculated based on the amount of the per
share dividend declared and paid on Kemper Common
Stock, were paid as additional compensation income to
the named individuals when dividends were paid to
Kemper's stockholders. Participants may settle their
tax obligations on the vesting of restricted shares by
utilizing a portion of the award shares.
<PAGE>
<PAGE> 189
As of December 31, 1993 Mr. Mathis held a total 42,000
shares of restricted stock, with an aggregate value
(based on the closing price for the Kemper Common Stock
as of the date each award was granted) of $1,526,875;
Mr. Timbers held a total 22,500 shares of restricted
stock, with an aggregate value of $790,500;
Mr. Kierscht held a total 11,500 shares of restricted
stock, with an aggregate value of $379,375;
Mr. Fitzpatrick held a total 16,200 shares of
restricted stock, with an aggregate value of $556,500;
and Ms. Gallichio held a total 10,700 shares of
restricted stock, with an aggregate value of $367,625.
But see footnote (4) below for further information
respecting the cancellation since year-end 1993 of the
restricted stock awards made in 1993.
(3) Except for the amounts otherwise described in footnote
(6) below with respect to Mr. Fitzpatrick, this column
includes only the amounts of employer contributions and
forfeitures allocated to the accounts of the named
persons under profit sharing plans maintained by
Kemper, in the case of Messrs. Mathis, Timbers and
Fitzpatrick and Ms. Gallichio, or by KFS in the case of
Mr. Kierscht, or under supplemental plans maintained by
both employers to provide benefits in excess of
applicable ERISA limitations.
Kemper's profit sharing plan was contributory, with
Kemper matching 50% of participant 401(k)
contributions. Participants may elect 401(k)
contributions of up to 5% of annual compensation.
Discretionary profit sharing contributions are
considered by the Kemper Board of Directors annually.
A discretionary contribution of $1.95 for each 401(k)
dollar contributed was approved for eligible
participants in Kemper's plan for 1993.
Under the provisions of the KFS profit sharing plan,
the net profits of KFS were sufficient for a 1993
contribution to be made to the accounts of eligible
participants in the amount of 15% of annual
compensation.
Under both the Kemper and KFS profit sharing plans,
annual compensation which is attributable to restricted
stock vesting or stock option exercise is not taken
into account for employer contributions.
Kemper's supplemental plan provides for an accelerated
lump sum distribution of vested amounts credited to
that plan which are attributable to Kemper's profit
sharing plan upon a Change of Control. The Kemper
Board's approval and recommendation of the Merger on
June 26, 1994 constituted a Change of Control under
this plan.
<PAGE>
<PAGE> 190
Effective with the 1994 plan year, Kemper and KFS
adopted uniform profit sharing provisions providing for
a 50% match of the first 5% of participants' elective
401(k) contributions; a discretionary year-end profit
contribution of up to 7 1/2% of eligible annual
compensation based on Kemper's level of attainment of
profit objectives; and a basic contribution of 5% of
annual compensation (to a separate plan account) for
eligible employees who continue employment through the
end of the calendar year.
(4) In connection with the execution of the Merger
Agreement, the restricted stock awards shown in the
table for 1993 were cancelled. Pursuant to the Kemper
Corporation Bonus Restoration Plan, on June 30, 1994,
the Compensation and Organization Committee of the
Kemper Board of Directors (the "Committee"), in its
discretion, granted cash awards (which awards were
ratified by the Kemper Board of Directors on July 19,
1994) to the named individuals entitling each of them
to receive an amount in cash immediately prior to the
Effective Time equal to the product of the number of
shares of restricted stock previously granted to such
individual under the 1993 Senior Executive Long-Term
Incentive Plan times the sum of (x) the Cash
Consideration plus (y) the Stock Value Amount.
As a result of these cash awards, Mr. Mathis will be
eligible to receive a cash amount based on the
15,000 shares of restricted stock previously awarded to
him in 1993 and 9,200 shares of restricted stock
awarded to him in 1994; Mr. Timbers will be eligible to
receive a cash amount based on the 15,000 shares of
restricted stock previously awarded to him in 1993 and
7,800 shares of restricted stock awarded to him in
1994; Mr. Kierscht will be eligible to receive a cash
award based on the 4,000 shares of restricted stock
previously awarded to him in each of 1993 and 1994;
Mr. Fitzpatrick will be eligible to receive a cash
amount based on the 10,000 shares of restricted stock
previously awarded to him in 1993 and 5,000 shares of
restricted stock awarded to him in 1994 and
Ms. Gallichio will be eligible to receive a cash amount
based on the 6,000 shares of restricted stock
previously awarded to her in 1993 and 2,700 shares of
restricted stock awarded to her in 1994.
<PAGE>
<PAGE> 191
(5) Excludes a portion of Mr. Kierscht's bonuses earned in
each of 1987 through 1989, $393,643 in the aggregate,
and a portion of Mr. Timbers' bonuses earned in the
same years, $154,027 in the aggregate, deferred under a
mandatory contingent deferred plan maintained until
December 31, 1990 by KFS and paid in 1991.
(6) Includes $3,368, $3,368 and $61,135 paid to
Mr. Fitzpatrick by Kemper in 1993, 1992 and 1991,
respectively, to compensate him for the inability to
continue to accrue any potential additional value under
the various securities or options issued to him by KFC
due to the mandatory redemption or lapse of such
securities or options when his employment with KFS
terminated in May 1990 upon commencement of his
employment by Kemper.
Mr. Timbers owned various KFC securities interests
which became subject to mandatory redemption or lapsed
when his KFS employment terminated at year-end 1992
upon commencement of his employment by Kemper. During
a period extending to December 31, 2001, Mr. Timbers
will, subject to continued employment by Kemper or one
of its subsidiaries, be eligible to elect to receive
phantom compensation amounts from Kemper based on the
future appreciation, if any, which may pertain to the
interests in KFC securities he previously owned. No
such phantom compensation amounts were paid during any
of the years reported in the table.
</TABLE>
<PAGE>
<PAGE> 192
<TABLE>
<CAPTION>
KEMPER OPTION GRANTS IN 1993
Potential Realizable Value of
Assumed Annual Rates of Stock
Price Appreciation for
Individual Grants Option Terms(4)
-------------------------------------------------- -----------------------------
% of Total
Options
Number Granted to
of Shares Employees Exercise
Underlying in of Value of 1993
Options Fiscal Base Price Expiration Stock Options
Name Granted(1) Year(2) Per Share(3) Date 5% 10% in Merger(5)
---- ---------- ------- ------------ ---- -- --- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
David B. Mathis 45,000 3.0% $38.375 April 30, 2003 $1,086,022 $2,752,194 $1,288,125
Stephen B. Timbers 40,000 2.7% $38.375 April 30, 2003 965,353 2,446,395 1,145,000
Charles M. Kierscht 15,000 1.0% $38.375 April 30, 2003 362,007 917,398 429,375
5,867 .4% $41.75 September 1, 2003 154,045 390,382 148,142
John H. Fitzpatrick 25,000 1.7% $38.375 April 30, 2003 603,346 1,528,997 715,625
Kathleen A. Gallichio 15,000 1.0% $38.375 April 30, 2003 362,007 917,398 429,375
<PAGE>
<PAGE> 193
<FN>
(1) Each of the options reflected in the table, when
granted, were subject to installment vesting provisions
whereby only a portion of the underlying stock would
become eligible for exercise on successive
anniversaries of the date of grant. Notwithstanding
these vesting provisions, the option granted to
Mr. Kierscht on September 1, 1993 became fully
exercisable pursuant to the Merger Agreement and the
other options reflected in the table became fully
exercisable on June 26, 1994 when the Kemper Board's
approval and recommendation of the Merger effected a
Change of Control of Kemper under the Kemper
Corporation 1990 Stock Option Plan.
(2) Based on 1,481,100 shares, the total number of shares
granted under options in 1993. This total includes
886,400 shares granted under options on September 1,
1993 to employees of KSI and subsidiary employee
holders of KFC debentures under special incentive award
programs. Of the named executive officers, only
Mr. Kierscht participated in this award as a holder of
KFC debentures.
(3) The option exercise price assigned by the Committee was
the last sale price for Kemper Common Stock on the date
of the respective grants.
(4) The assumed annual rates of stock price appreciation
are prescribed in the proxy rules and are not intended
to forecast any future appreciation in the market price
for the Kemper Common Stock.
The options disclosed in the table contain a "reload"
feature which would, subject to certain conditions,
entitle an optionee who pays all or any portion of the
exercise price of an option with shares of Kemper
Common Stock to receive a new non-qualified stock
option to purchase a number of shares equal to the
number of shares of Kemper Common Stock tendered in
payment. Due to the pendency of the Merger, however,
and the resultant inability, in all likelihood, of any
optionee to satisfy the vesting provisions of the new
option prior to the Effective Time, the reload features
under any of Kemper's outstanding options are not
expected to become operative.
(5) Assumes that the Merger Consideration will be $67 at
the Effective Time.
</TABLE>
<PAGE>
<PAGE> 194
AGGREGATE KEMPER OPTION EXERCISES IN 1993
AND OPTION VALUES AT YEAR-END 1993
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options Options
Shares at FY-End at FY-End(1) Value of all
Acquired on Value Exercisable/ Exercisable Stock Options
Name Exercise Realized Unexercisable Unexercisable in Merger(3)
- ------------------------- -------- -------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
David B. Mathis -- -- 146,955/87,510(2) $1,086,402/$358,898(2) $8,648,479
Stephen B. Timbers -- -- 12,500/47,500 25,000/ 75,000 2,139,000
Charles M. Kierscht -- -- 17,900/28,367(2) 116,584/ 75,000(2) 1,790,389
John H. Fitzpatrick -- -- 63,430/47,710 425,068/ 193,710 4,100,808
Kathleen A. Gallichio -- -- 41,480/31,360 287,443/ 141,148 2,663,045
<FN>
(1) Based on a value per share of $36.25 as of December 31, 1993 over the exercise price, if less.
(2) Where needed, the figures are adjusted to reflect the 3-for-1 stock split in June 1986.
(3) Assumes that the Merger Consideration will be $67 at the Effective Time and includes the value of stock options granted
in April 1994 to each of the named individuals and a special incentive
option granted to Mr. Kierscht in February 1994.
</TABLE>
<PAGE>
<PAGE> 195
Retirement Plan
The following table shows the estimated annual pension
benefits payable to a covered participant at normal
retirement age under the final pay formula contained in the
Kemper Corporation Retirement Plan, a qualified defined
benefit plan (the "Retirement Plan"), including any pension
amounts which would be provided under Kemper's non-qualified
supplemental retirement plan due to benefit limitations
imposed by ERISA. The Retirement Plan includes an
alternative career average benefit formula based on
compensation earned during all years of plan participation
(1.85% of the participant's first $10,000 of eligible
compensation for each plan year and 2.40% of eligible
compensation above $10,000), but Kemper estimates that the
Retirement Plan's final pay formula will produce the greater
benefit to the persons identified in the "SUMMARY
COMPENSATION TABLE" who participate in the Retirement Plan.
<TABLE>
PENSION PLAN TABLE
<CAPTION>
Years of Plan Participation
Five-Year
Average
Compensation 20 25 30 35 40
------------ -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$ 200,000 $ 38,110 $ 47,638 $ 57,165 $ 66,693 $ 76,220
250,000 48,110 60,138 72,165 84,193 96,220
300,000 58,110 72,638 87,165 101,693 116,220
350,000 68,110 85,138 102,165 119,193 136,220
400,000 78,110 97,638 117,165 136,693 156,220
450,000 88,110 110,138 132,165 154,193 176,220
500,000 98,110 122,638 147,165 171,693 196,220
600,000 118,110 147,638 177,165 206,693 236,220
700,000 138,110 172,638 207,165 241,693 276,220
800,000 158,110 197,638 237,165 276,693 316,220
900,000 178,110 222,638 267,165 311,693 356,220
1,000,000 198,110 247,638 297,165 346,693 396,220
</TABLE>
A participant's remuneration covered by the Retirement
Plan's final pay formula is his or her average annual salary
plus bonus as reported in the "SUMMARY COMPENSATION TABLE",
plus the value of any award received under Kemper's
Anniversary Stock Award Program (except that bonuses are
covered in the year they are paid rather than when they
accrue for purposes of the Retirement Plan), for the
60 months preceding a participant's retirement or, in the
case of a participant who has participated in the plan for
less than 60 months, the period of his or her participation.
The estimated credited years of plan participation at normal
retirement age for the named executive officers
participating in the Retirement Plan as of December 31,
1993, were the Retirement Plan to continue in effect, are as
follows: 42 years for Mr. Mathis, 17 years for Mr. Timbers,
37 years for Mr. Fitzpatrick and 31 years for Ms.
Gallichio. Actual years of participation for each
individual are 33, 1, 10 and 5 years, respectively.
<PAGE>
<PAGE> 196
Benefits shown are computed as a straight life single
annuity beginning at age 65, and are not subject to
reduction for social security or other offset amounts.
Because KFS has not adopted the Retirement Plan,
Mr. Kierscht is not eligible to participate. Mr. Timbers,
formerly a KFS employee, commenced participation in the
Retirement Plan effective January 1, 1993.
The consummation of the Merger will constitute a Change
of Control under the Retirement Plan. As a result, at the
Effective Time of the Merger, the Retirement Plan will
provide for the following protections for plan participants:
(i) participants will become vested in all accrued benefits,
regardless of length of service; (ii) plan assets will be
allocated to provide the benefits accrued as of such date
through the purchase of guaranteed annuities; and
(iii) surplus assets, if any, which become available after
all accrued benefits have been provided for will be
allocated to provide additional accrued benefits for
participants. Kemper's supplemental plan provides for a
lump sum distribution of the actuarial equivalent of accrued
benefits attributable to the Retirement Plan portion of the
supplemental plan upon a Change of Control. The Kemper
Board's approval and recommendation of the Merger effected a
Change of Control under this plan.
Notwithstanding anything to the contrary set forth in any of
Kemper's previous filings under the Securities Act or the
Exchange Act that might incorporate future filings,
including this Joint Proxy Statement/Prospectus, in whole or
in part, the following report and the performance graph on
page [ ] shall not be incorporated by reference into any
such filings.
<PAGE>
<PAGE> 197
REPORT ON KEMPER EXECUTIVE COMPENSATION OF THE COMMITTEE ON
COMPENSATION AND ORGANIZATION
Compensation Philosophy
Kemper's executive compensation program has
traditionally been founded on certain guiding principles
designed to align compensation with Kemper's business
strategy, performance and realization of stockholder value.
Overall objectives have been designed to:
- Attract and retain key executives critical to the long-
term success of Kemper;
- Reinforce a common direction among Kemper's distinct
business units;
- Reward executives for long-term strategic management by
delivering appropriate ownership interests in Kemper;
- Support a performance-oriented environment that
differentiates rewards based on contributions to
business results;
- Integrate the compensation program with Kemper's
strategic planning and performance measurement process;
and
- Provide competitive total compensation opportunities
consistent with those of other leading diversified
financial organizations.
Consistent with this policy, Kemper has developed
compensation strategy and corresponding compensation plans
that have tied a significant portion of executive
compensation to success in meeting specified performance
goals as well as in building stockholder value. As an
executive's level of responsibility increases, a greater
portion of potential total compensation is based on
performance incentives and long-term equity awards and less
on salary and employee benefits, often causing greater
variability in the individual's compensation level from year
to year.
<PAGE>
<PAGE> 198
In evaluating competitor practices, Kemper's various
operating subsidiaries have been compared with their
specific industry peers while compensation elements for
executive officers of Kemper have been measured against
those of diversified financial companies. Each year, Kemper
has participated in several compensation studies to
determine the competitiveness of its executive compensation
program. The peer group used at the Kemper level consists
of approximately twenty selected diversified financial
companies providing a cross-section of the diversified
financial services industry. The group evaluated provides a
relevant competitive frame of reference for the major
segments of Kemper's business portfolio, including asset
management, securities brokerage and life insurance.
Specific peer group companies have also been selected on the
basis of comparable asset size, business portfolio and
corporate strategy, and represent Kemper's most direct
competitors for executive talent. Some of the companies
comprising either the Dow Jones Insurance (Full Line) Peer
Group or the Dow Jones Financial Services (Diversified) Peer
Group are included within the industry peer group analyzed
for compensation purposes. While peer group financial
performance has not been directly analyzed, the influence of
results on industry compensation practices have produced an
indirect effect over time.
Compensation Vehicles
Traditionally, the key elements of Kemper's executive
compensation program have been base salary, annual incentive
bonus and long-term equity awards.
Base Salaries
Base salary levels for Kemper's executive officers and
subsidiary officers have been normally positioned somewhat
below those for comparable positions in competitor
companies. In determining base salary levels and annual
salary adjustments for executive officers, the Committee
considers market compensation comparisons as well as the
individual's performance and relative contribution to the
organization. In the case of a head of a functional or
operating unit, that unit's operating results have also
generally been considered.
Annual Incentive Bonus Awards
Kemper's executives have been eligible for an annual
cash bonus. Goals have been established at the beginning of
each year for Kemper, and for each functional and operating
unit, to provide the basis for achieving bonus awards.
These include threshold, target and maximum performance
goals which have been clearly linked with resultant bonus
opportunities at each level.
<PAGE>
<PAGE> 199
Bonus award opportunities throughout Kemper have been
generally positioned above standard industry practices and
have been contingent upon business results. As such, a
greater portion of the executive's compensation would be
placed at risk and tied more directly to operating
performance. Bonus awards for executives in a functional or
operating unit have reflected results of the particular unit
whereas consolidated results have been the primary basis for
bonuses for Kemper's officers and staff.
Long-Term Equity Awards
Kemper's past practices respecting equity awards have
been designed to foster significant ownership interests in
Kemper Common Stock for key executives, thereby promoting
greater identity between Kemper's management and its
stockholders. Two types of awards have been granted to
executive officers of Kemper and its major functional and
operating units as well as to other key employees:
Stock Options -- a right to purchase shares of Kemper Common
Stock over a ten-year period at the fair market value per
share as of the date the option was granted; and
Restricted Stock Awards -- shares of Kemper Common Stock
which, when granted, provided the recipient could not sell
or otherwise dispose of the shares awarded until a requisite
employment period had lapsed.
Kemper's past practices in granting options and
restricted stock have been designed to provide opportunities
fully competitive with those offered by other diversified
financial companies. In establishing grant levels, the
executive's responsibilities, past contributions to Kemper
and attainment of corporate and personal objectives,
together with the practices of the same peer companies
utilized for all aspects of the compensation program
(verified by external surveys), have been evaluated closely.
The Committee has considered the particular executive's
accomplishments, as measured against preset three-year goals
focused on creating longer term stockholder value, in
determining the number of shares awarded. The measurement
goals have been established for Kemper as well as for each
executive officer and generally include important strategic
initiatives as measurement factors. Prior equity grants can
and have influenced the Committee's determination of grant
levels for a given period, particularly when evaluated
against attainment of long-term performance objectives over
the multi-year cycle of the overall compensation program.
<PAGE>
<PAGE> 200
Effect of Merger on Compensation
Annual Incentive Bonus -- Pursuant to the terms of the
Merger Agreement, Conseco and Kemper have agreed that the
Surviving Corporation and its subsidiaries would, not later
than February 28, 1995, pay each bonus eligible individual
who is an Eligible Employee on the date the annual cash
incentive is otherwise payable a payment of not less than
the Target Bonus for 1994 (or, in the case of an Eligible
Employee whose employment is terminated prior to
December 31, 1994, a pro rata Target Bonus) subject to the
achievement of certain specified performance goals. See
"THE MERGER -- Effect on Employee Benefit and Stock Plans".
Stock Options and Long-Term Equity Awards -- As a
result of the Kemper Board's approval and recommendation of
the Merger on June 26, 1994, which effected a Change of
Control under the pertinent plans, all options granted prior
to June 26, 1993 became fully exercisable and all shares of
restricted stock granted prior to 1993 became fully vested.
Options granted after June 26, 1993 became exercisable in
full pursuant to the Merger Agreement.
In connection with the execution of the Merger
Agreement, restricted stock awards under the 1993 Senior
Executive Long-Term Incentive Plan were cancelled. On
June 30, 1994 the Committee adopted the Kemper Corporation
Bonus Restoration Plan, the purpose of which is to
compensate key employees for the cancelation of awards of
restricted stock previously made during 1993 and 1994. In
the exercise of its sole discretion pursuant to this plan,
the Committee has granted cash awards to those actively-
employed key employees who had been granted restricted stock
during 1993 and 1994, entitling such employees to receive an
amount in cash at the Effective Time equal to the product of
the number of such shares of restricted stock previously
granted to each such individual times the sum of (x) the
Cash Consideration plus (y) the Stock Value Amount.
Generally, under normal circumstances, the Committee seeks
to preserve all available tax deductions respecting each
element of Kemper's executive compensation program. Earlier
in 1994, the Committee had proposed various measures
designed to preserve the deductibility of Kemper's annual
incentive bonus awards and the compensation income realized
on the vesting of its awards of restricted stock pursuant to
Section 162(m) of the Internal Revenue Code.
Section 162(m), commencing from January 1, 1994, inhibits
the ability of public companies to deduct compensation
expense in excess of $1.0 million paid in any taxable year
to a chief executive officer or any other person included
<PAGE>
<PAGE> 201
within the five named executive officers identified by a
company as among its highest paid executive officers for
such year unless such compensation is sufficiently
performance-based so as to continue to qualify for
deduction. Due to the advisability of eliminating various
compensation-related uncertainties during the pendency of
the Merger, however, the Committee endorsed the Merger
Agreement's vesting of various outstanding long-term equity
awards as well as its guarantee of Target Bonus payments and
granted the bonus restoration awards, as each are described
above. These measures, by fixing the right to receive at
least these minimum compensation elements, preclude such
forms of compensation from being considered performance-
based within the meaning of Section 162(m). The Committee
believes that, in Kemper's present circumstances, any desire
to attempt to preserve tax deductibility was far outweighed
by the employee relations and business transition objectives
supported by these measures.
Compensation of the Chairman of the Board and Chief
Executive Officer of Kemper
The Committee increased Mr. Mathis' base salary
effective February 1, 1993 from $480,000 to $530,000 to
recognize his achievements in repositioning Kemper for the
future as a focused financial services organization
dedicated to producing higher and more consistent earnings
for its stockholders.
Mr. Mathis' bonus for 1993 reflects the fact Kemper met
or exceeded each of its 1993 performance targets established
early in the year. Under Mr. Mathis' leadership, Kemper
exceeded its target operating earnings goal and its
objectives to increase the market price of the Kemper Common
Stock, both on an absolute basis as well as relative to the
Standard & Poor's 500 Index. Kemper also reduced its
exposure to real estate-related assets beyond the level the
Committee set to qualify for maximum performance-based
compensation and, by divesting four major subsidiary
operations in the year, met its targeted restructuring goal.
The Committee recognized these excellent accomplishments in
each of the measurement areas in establishing the bonus
awards for Mr. Mathis as well as the other named executive
officers.
The significant progress over the three-year
compensation plan cycle in Kemper's restructuring efforts as
well as in the various categories underlying the
above-described performance targets, together with the
overall improvements in Kemper's financial position, were
all considered by the Committee in establishing awards of
stock options, restricted stock and bonuses to Mr. Mathis
and each of the other named executive officers.
<PAGE>
<PAGE> 202
Committee on Compensation and Organization
Kemper's Committee on Compensation and Organization is
comprised of the following non-management directors:
George D. Kennedy (Chairman)
John T. Chain Jr.
Raymond F. Farley<PAGE>
<PAGE> 203
KEMPER VERSUS SELECTED COMPOSITE INDICES
Until it divested its reinsurance operations, risk
management subsidiary and two property-casualty subsidiaries
during 1993, Kemper believed the most appropriate peer group
for purposes of the following comparisons was the Dow Jones
Insurance (Full Line) Peer Group. With such divestitures
completed and Kemper's focus on the asset management, life
insurance and securities brokerage businesses confirmed,
Kemper believes comparison to the Dow Jones Financial
Services (Diversified) Peer Group is now more appropriate.
Both comparisons are set forth below in a performance graph, but Kemper
expects comparison to only the diversified financial services peer group will
be presented in future periods. The performance graph was filed supplementally
with the Branch Chief and is represented by the following table of data points:
<TABLE>
Five-year Cumulative Total Return
1988-1993
<CAPTION>
1988 1989 1990 1991 1992 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Kemper Corporation 100 200 104 172 138 174
S&P 500 100 132 128 166 179 197
Dow Jones Financial Services
(Diversified) Peer Group 100 135 110 157 183 211
Dow Jones Insurance (Full Line)
Peer Group 100 132 99 136 162 190
Assumes $100 invested on December 31, 1988 in Kemper Common
Stock, S&P 500, Dow Jones Financial Services (Diversified)
Peer Group and Dow Jones Insurance (Full Line) Peer Group.
(1) Assumes reinvestment of dividends on a quarterly basis.
(2) Dow Jones Financial Services (Diversified) Peer Group
consists of: Alexander & Alexander Services Inc.,
American Express Company, Beneficial Corp., Dreyfus
Corporation, Federal Home Loan Mortgage Corporation,
Federal National Mortgage Association, Household
International, Inc., Marsh and McLennan Companies Inc.,
The Travelers Corp. and Student Loan Marketing
Association.
(3) Dow Jones Insurance (Full Line) Peer Group consists of:
Aetna Life & Casualty Company, Aon Corporation, CIGNA
Corporation, Kemper, Lincoln National Corp.,
Transamerica Corporation and Unitrin Inc.
/TABLE
<PAGE>
<PAGE> 204
COMPENSATION OF KEMPER DIRECTORS
1993 Compensation
During 1993, Kemper paid all non-management directors
an annual retainer of $17,500. Kemper paid the chairman of
the Finance Committee an additional annual retainer of
$12,000 (earned and paid on a monthly basis) and the
chairmen of the Audit, Nominating and Corporate Public
Policy Committees and the Committees on Compensation and
Organization and Intercompany Conflicts, Accountability and
Relationships an additional annual retainer of $7,500 each
(with these retainers paid semi-annually but earned 25%
quarterly). Kemper also provided reimbursement for
necessary travel and accommodation expenses incurred for
attendance at each meeting of the Board of Directors of
Kemper or committee thereof, and paid the following meeting
fees during 1993:
<TABLE>
<CAPTION>
Meetings 1993 Compensation
-------- -----------------
<S> <C>
Board A fee of $1,000 for each meeting attended.
Executive Committee A fee of $1,500 for each meeting attended.
Audit Committee A fee of $750 for each meeting attended.
Corporate Public Policy
Committee A fee of $500 for each meeting attended.
Committee on
Compensation and
Organization A fee of $500 for each meeting attended.
Nominating Committee A fee of $1,000 for each meeting attended.
Finance Committee A fee of $500 for each meeting attended.
The retainer paid the chairman of the
committee was in lieu of any meeting fees.
</TABLE>
Kemper paid a fee of $500 to its representative serving
on the Committee on Intercompany Conflicts, Accountability
and Relationships for each meeting attended during 1993.
1994 Compensation
Effective January 14, 1994, the Kemper Board changed
the membership and configuration of its committees and the
director compensation program. Such changes were designed
to rebalance and streamline board committee participation to
promote efficiencies; facilitate contemporaneous committee
meetings to free additional time for full Board
deliberations; de-emphasize meeting fees in favor of
standardized retainers to better equalize director
compensation; and increase total director compensation to
better align with emerging standards for financial services
companies. The cash compensation program for non-management
directors was last amended in mid-1990.
<PAGE>
<PAGE> 205
As a result of these changes, effective January 1,
1994, all non-management directors receive an annual
retainer of $35,000 for Kemper Board service and an
additional $15,000 annual retainer for committee service,
the latter amount applying regardless of the number of
committees on which a director serves. These retainers are
earned quarterly but paid semi-annually.
Kemper continues to provide reimbursement for necessary
travel and accommodation expenses incurred for attendance at
each meeting of the Kemper Board of Directors or committee
thereof, and will pay the following meeting fees:
<TABLE>
<CAPTION>
Meetings 1994 Compensation
-------- ------------------
<S> <C>
Board A fee of $500 for each meeting attended.
Executive Committee A fee of $250 for each meeting attended.
Audit Committee A fee of $500 for each meeting attended.
Corporate Public Policy
Committee A fee of $1,000 for each meeting attended.
Committee on
Compensation and
Organization A fee of $250 for each meeting attended.
Investment Committee A fee of $500 for each meeting attended.
Nominating Committee A fee of $2,000 for each meeting attended.
</TABLE>
Other than the above compensation, non-management
directors receive no additional cash remuneration from
Kemper. Directors who are salaried employees of Kemper or
any of its subsidiaries do not receive any annual retainer
or meeting fees for service as a director or on any board
committee.
Director Stock Options
Until 1994, non-qualified stock options had
automatically been granted once each year under the Kemper
Corporation Non-Management Director Stock Option Plan (the
"Director Plan") to Kemper's non-management directors. Two
types of non-qualified stock options have been issuable
under the Director Plan. An initial option to purchase up
to 5,000 shares of Kemper Common Stock was granted to each
of Kemper's non-management directors elected or continuing
in office on May 16, 1990 and would be granted to any new
non-management director on the date of the organizational
Board meeting (the Board meeting immediately following the
annual stockholders' meeting) at which he or she first
serves as a member of the Kemper Board.
<PAGE>
<PAGE> 206
Also, each non-management director annually receives a
non-qualified stock option to purchase 1,000 shares of
Kemper Common Stock on the date of the organizational board
meeting next following the date on which such director
received an initial option and on the date of each
succeeding organizational board meeting during the period of
such director's incumbency. No organizational Board meeting
has been convened thus far in 1994 since Kemper has yet to
conduct its full 1994 annual meeting of stockholders. As
such, no options have been granted under the Director Plan
since May, 1993 and, in accordance with the terms of the
Merger Agreement, no options will be granted under the
Director Plan on the date of the organizational Board
meeting which will follow the Kemper Meeting.
The option exercise price of each option granted under
the Director Plan was equal to the last sale price of Kemper
Common Stock at the date of the automatic grant. Shares
purchased through the exercise of an option must be paid for
in full either in cash or with an amount of Kemper Common
Stock having a fair market value equal to the exercise
price, or a combination of both.
The Director Plan provides that each option granted
thereunder has a ten-year term and is not exercisable during
the first year from the date the option was granted.
Thereafter, the director may purchase up to one-fourth of
the shares covered by the option in the second year after
grant, up to an additional one-fourth of the total shares in
the third year after grant (one-half of the total shares
cumulatively), up to an additional one-fourth of the total
shares in the fourth year after grant (or cumulatively, for
three-fourths) and become fully exercisable in or after the
fifth year following grant. Notwithstanding these
installment purchase provisions applicable to each of the
options granted under the Director Plan, such options become
fully exercisable upon the retirement of the director from
Kemper's Board if such retirement occurs after one year from
the date the particular option was granted.
Any option granted under the Director Plan also becomes
fully exercisable upon the occurrence of one of certain
enumerated events resulting in a Change of Control of
Kemper, provided such event occurs at least one year after
the date the option was granted to a director. The Kemper
Board's approval and recommendation of the Merger on June
26, 1994 effected a Change of Control under the Director
Plan and fully vested all outstanding director options,
including those held by Mr. Luecke.
<PAGE>
<PAGE> 207
Other Director Benefits
Non-management directors have been able to elect to
participate in the Kemper Corporation Director Deferred
Compensation Plan prior to the commencement of any calendar
year in which director compensation is earned. A decision
to defer compensation is irrevocable once the relevant
period begins. The deferred compensation and any earnings
credited thereon can be accumulated in an Income Account
(credited at the prime rate of interest), a phantom Stock
Unit Account (credited with an amount based on the market
performance and dividend rate of Kemper Common Stock) or a
combination of both. All deferred compensation and any
accumulated credited earnings are payable to the director
either in quarterly payments, a single lump sum or partial
lump sum payments, in each case commencing with the first
quarter following cessation of service as a director or such
later date(s) as earlier designated by the director. John
C. Stetson deferred fees under this plan until his
retirement from the Kemper Board in May, 1993. The Kemper
Board's approval and recommendation of the Merger on
June 26, 1994 effected a Change of Control under the
Deferred Compensation Plan. As a result, each participating
non-management director will be entitled to immediate
payment of any deferred amounts upon termination of board
membership.
The Kemper Corporation Director Retirement Plan
provides that each non-management director (who is not
entitled to a benefit under any qualified pension or profit
sharing plan sponsored by Kemper or any of its subsidiaries)
shall, upon the later of retirement or attaining age 72,
receive a retirement benefit payable quarterly for ten years
or the number of plan quarters in which the director served
as a director of Kemper, whichever is less. Payments cease
after the date of death of the director. The retirement
benefit presently accrues at $3,000 per quarter. The
average of the accrual rates for the last forty quarters of
service (or the director's service period, if less)
determines the amount of the quarterly retirement benefit.
The Kemper Board's approval and recommendation of the Merger
on June 26, 1994 effected a Change of Control under the
Director Retirement Plan entitling each non-management
director to the actuarial equivalent of his retirement
benefit in a lump sum.
For their periods of incumbency, the non-management
directors are each provided life insurance coverage (without
cash value) in the amount of $50,000, and accidental death
and dismemberment insurance coverage while traveling on
Kemper business (without cash value) in the amount of
$250,000, in each case payable to the beneficiaries
designated from time to time by each such director. Such
coverages are reduced to the extent coverage is provided by
an employee or retiree benefit plan sponsored by Kemper or
any of its subsidiaries.
<PAGE>
<PAGE> 208
Director Emeritus
Mr. Stetson, who served as a director of Kemper from
1973 to 1977 and again from 1979 to 1993 (having served as
Secretary of the United States Air Force during the
interim), retired from the Kemper Board effective with the
May 12, 1993 annual meeting of stockholders and became
director emeritus of Kemper. As director emeritus,
Mr. Stetson may attend meetings of the board or any
committee on which he previously served prior to his
retirement. He will be paid fees for any meeting attended
equal to those payable to directors and will continue to
receive the annual board retainer of $30,000. His
participation in the Director Deferred Compensation Plan and
the Director Retirement Plan, as well as under the insurance
coverages afforded directors, terminated effective with the
1993 annual meeting. His outstanding stock options became
exercisable in accordance with their post-retirement
exercise provisions and were exercised in April 1994.
RATIFICATION OF APPOINTMENT OF KEMPER'S INDEPENDENT AUDITORS
Stockholder action at the Kemper Meeting is also
requested with respect to the ratification of Kemper Board
action appointing KPMG Peat Marwick LLP as independent
auditors for Kemper for the calendar year ending
December 31, 1994. Representatives of KPMG Peat Marwick LLP
are expected to be present at the Kemper Meeting, will have
an opportunity to make a statement, if they so desire, and
will be available to respond to appropriate questions raised
at the meeting.
The Kemper Board of Directors unanimously recommends a
vote FOR ratification of the appointment of KPMG Peat
Marwick LLP.
EXPERTS
The consolidated financial statements of Conseco and
subsidiaries appearing in Conseco's Annual Report on Form
10-K as of and for the year ended December 31, 1993, have
been audited by Coopers & Lybrand, independent auditors, as
set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated
financial statements are incorporated herein 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 Kemper and
subsidiaries appearing in Kemper's Annual Report on
Form 10-K as of and for the year ended December 31, 1993
have been audited by KPMG Peat Marwick LLP, independent
auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the
authority of said firm as experts in accounting and
auditing.
<PAGE>
<PAGE> 209
The consolidated financial statements of Statesman and
subsidiaries appearing in Statesman's Annual Report on
Form 10-K as of and for the year ended December 31, 1993
have been audited by Ernst & Young LLP, independent auditors, as
set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of said
firm as experts in accounting and auditing.
Representatives of Coopers & Lybrand L.L.P. are expected to be
present at the Conseco Meeting and representatives of KPMG
Peat Marwick LLP are expected to be present at the Kemper
Meeting. In each case, such representatives are expected to
be available to respond to appropriate questions.
LEGAL MATTERS
The validity of the shares of Conseco Common Stock
offered hereby will be passed upon for Conseco by
Lawrence W. Inlow, Executive Vice President, Secretary and
General Counsel of Conseco. As of , 1994,
Mr. Inlow had a direct or indirect interest in shares
of Conseco Common Stock and had options to purchase an
additional shares, of which options were
exercisable.
<PAGE> 1
ANNEX 1
AGREEMENT AND PLAN OF MERGER
DATED AS OF JUNE 26, 1994,
AMONG
CONSECO, INC.,
KC ACQUISITION, INC.
AND
KEMPER CORPORATION
<PAGE>
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I
THE MERGER
SECTION 1.1. The Merger 5
SECTION 1.2. Closing 5
SECTION 1.3. Effective Time 6
SECTION 1.4. Effects of the Merger 6
SECTION 1.5. Certificate of Incorporation; By-laws 6
SECTION 1.6. Directors 6
SECTION 1.7. Officers 7
ARTICLE II
EFFECT OF THE MERGER ON THE SECURITIES OF THE CONSTITUENT
CORPORATIONS
SECTION 2.1. Effect on Capital Stock 7
SECTION 2.2. Stock Option Plans 9
SECTION 2.3. Exchange of Certificates 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of
the Company 13
SECTION 3.2. Representations and Warranties of
the Parent and Sub 23
<PAGE>
<PAGE> 3
Page
----
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO
MERGER
SECTION 4.1. Conduct of Business of the Company 29
SECTION 4.2. Other Actions 32
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1. Preparation of Form S-4 and the
Joint Proxy Statement 32
SECTION 5.2. Meetings of Stockholders 33
SECTION 5.3. Letter of Company's Accountants 33
SECTION 5.4. Letter of Parent's Accountants 33
SECTION 5.5. Access to Information; Confidentiality 34
SECTION 5.6. Best Efforts 34
SECTION 5.7. Benefit Plans and Employment Agreements 34
SECTION 5.8. Indemnification and Insurance 37
SECTION 5.9. Public Announcements 38
SECTION 5.10. Acquisition Proposals 38
SECTION 5.11. Fiduciary Duties 39
SECTION 5.12. Consents, Approvals and Filings 39
SECTION 5.13. Company Satisfaction of the Conditions
of Section 15 of the 1940 Act 39
SECTION 5.14. Advisory Contract Consents 40
SECTION 5.15. Certain Fees and Expenses 40
SECTION 5.16. Compliance with Section 15(f) of the
1940 Act by Parent 41
SECTION 5.17. Affiliates and Certain Stockholders 41
SECTION 5.18 NYSE Listing 41
SECTION 5.19. Stockholder Litigation 41
SECTION 5.20. Financing 42
SECTION 5.21. Board Action Relating to Stock Option Plans 42
<PAGE>
<PAGE> 4
Page
----
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. Conditions to Each Party's Obligation
To Effect the Merger 42
SECTION 6.2. Conditions to Obligations of Parent
and Sub 44
SECTION 6.3. Conditions to Obligation of the Company 45
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. Termination 45
SECTION 7.2. Effect of Termination 46
SECTION 7.3. Amendment 46
SECTION 7.4. Extension; Waiver 46
SECTION 7.5. Procedure for Termination, Amendment,
Extension or Waiver 47
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1. Nonsurvival of Representations and
Warranties 47
SECTION 8.2. Fees and Expenses 47
SECTION 8.3. Definitions 47
SECTION 8.4. Notices 48
SECTION 8.5. Interpretation 49
SECTION 8.6. Counterparts 49
SECTION 8.7. Entire Agreement; Third-Party Beneficiaries 49
SECTION 8.8. Governing Law 49
SECTION 8.9. Assignment 50
SECTION 8.10. Enforcement 50
SECTION 8.11. Severability 50
EXHIBIT A - Affiliate Letter<PAGE>
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
DATED AS OF JUNE 26, 1994
AMONG
CONSECO, INC.,
AN INDIANA CORPORATION ("PARENT"),
KC ACQUISITION, INC.
A DELAWARE CORPORATION AND A WHOLLY OWNED SUBSIDIARY OF
PARENT ("SUB"),
AND
KEMPER CORPORATION,
A DELAWARE CORPORATION (THE "COMPANY").
WHEREAS, the Board of Directors of each of Parent, Sub and the
Company has adopted resolutions approving this Agreement, pursuant to which Sub
shall be merged with and into the Company and the Company shall become a wholly
owned direct subsidiary of Parent (the "Merger"); and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the representations,
warranties, covenants and agreements contained in this Agreement, the parties
agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, 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). Upon the Effective
Time, the separate existence of Sub shall cease, and the Company shall continue
as the surviving corporation (the "Surviving Corporation").
SECTION 1.2. Closing. Unless this Agreement shall have been
terminated and the transactions herein contemplated shall have been abandoned
pursuant to Section 7.1 and subject to the satisfaction or waiver of the
conditions set forth in Article VI, the closing of the Merger (the "Closing")
will take place at 1:00 p.m. on the second business day following the date on
which the last to be fulfilled or waived of the conditions set forth in Section
6.1 and subsections (c) and (d) of Section 6.2 shall be fulfilled or waived in
accordance with this Agreement (the "Closing Date"), at the offices of Cravath,
Swaine & Moore, 825 Eighth Avenue, New York, New York, unless another date,
time or place is agreed to in writing by the parties hereto.
<PAGE>
<PAGE> 6
SECTION 1.3. Effective Time. The parties hereto will file with the
Secretary of State of the State of Delaware (the "Delaware Secretary of State")
on the date of the Closing (or on such other date as Parent and the Company may
agree) a certificate of merger or other appropriate documents, executed in
accordance with the relevant provisions of the DGCL, and make all other filings
or recordings required under the DGCL in connection with the Merger. The
Merger shall become effective upon the filing of the certificate of merger with
the Delaware Secretary of State, or at such later time as is specified in the
certificate of merger (the "Effective Time").
SECTION 1.4. Effects of the Merger. The Merger shall have the
effects set forth in Section 259 of the DGCL. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time, all the
properties, rights, privileges, powers and franchises of the Company and Sub
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of the Company and Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
SECTION 1.5. Certificate of Incorporation; By-laws. (a) The Second
Restated Certificate of Incorporation of the Company (the "Charter"), as in
effect immediately prior to the Effective Time, shall be amended as of the
Effective Time so that Article FOURTH of the Charter 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 7,000,100 shares which shall be
divided into two classes as follows: 7,000,000 shares of Preferred Stock,
without par value, and 100 shares of Common Stock, par value $1.00 per share."
and, as so amended the Charter shall, from and after the Effective Time, be
the Certificate of Incorporation of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
(b) The By-laws of the Company as in effect at the Effective Time
shall, from and after the Effective Time, be the By-laws of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law.
SECTION 1.6. Directors. The directors of the Company at the
Effective Time shall, from and after the Effective Time, 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.
<PAGE>
<PAGE> 7
SECTION 1.7. Officers. The officers of the Company at the Effective
Time shall, from and after the Effective Time, 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.
ARTICLE II
EFFECT OF THE MERGER ON THE SECURITIES OF THE CONSTITUENT
CORPORATIONS
SECTION 2.1. Effect on Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of (i)
any shares of common stock, par value $5.00 per share, of the Company (the
"Common Stock") or any other shares of capital stock of the Company or (ii) any
shares of capital stock of Sub:
(a) Common Stock of Sub. Each share of common stock of Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and become one validly issued, fully paid and nonassessable
share of Common Stock, par value $1.00 per share, of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Common Stock.
Each share of Common Stock issued and outstanding immediately prior to the
Effective Time that is owned by the Company or by any subsidiary of the Company
or by Parent, Sub or any other subsidiary of Parent (other than shares in trust
accounts, managed accounts, custodial accounts and the like that are
beneficially owned by third parties and shares held in the ordinary course of
business by subsidiaries of the Company or Parent that are insurance companies
or broker-dealers) shall automatically be cancelled and retired and shall cease
to exist, and no cash or other consideration shall be delivered or deliverable
in exchange therefor.
(c) Conversion of Common Stock. Each share of Common Stock
issued and outstanding immediately prior to the Effective Time (other than
shares to be cancelled in accordance with Section 2.1(b) and other than
Dissenting Common Shares (as defined in Section 2.1(e)) shall be converted into
the right to receive (i) $56.00 per share, without interest (the "Cash
Consideration"), and (ii) the fraction (rounded to the nearest ten-thousandth
of a share) (the "Conversion Number") of a validly issued, fully paid and
nonassessable share of common stock, without par value, of Parent ("Parent
Common Stock") determined by dividing $11.00 by the Average Parent Price (as
defined below) (the "Stock Consideration"). The "Average Parent Price" shall
be equal to the average of the closing prices of the Parent Common Stock on the
New York Stock Exchange ("NYSE") Composite Transactions Reporting System, as
reported in The Wall Street Journal, for the 20 trading days immediately
preceding the second trading day prior to the Effective Time (the "Trading
Average"); provided, however, that if the Trading Average is less than $45.50,
then the Average Parent Price shall be $45.50, and if the Trading Average is
greater than $55.50, then the Average Parent Price shall be $55.50. The Cash
Consideration, the Stock Consideration and any cash to be paid in accordance
with Section 2.3 in lieu of fractional shares of Parent Common Stock are
referred to collectively as the "Merger Consideration".
<PAGE>
<PAGE>8
(d) Preferred Stock. Each share of (i) Series A Cumulative
Convertible Preferred Stock of the Company (the "Series A Preferred Stock"),
(ii) Series C Cumulative Preferred Stock of the Company (the "Series C
Preferred Stock"), (iii) Series D Index Exchangeable Preferred Stock of the
Company (the "Series D Preferred Stock") and (iv) Series E Cumulative
Convertible Preferred Stock of the Company (the "Series E Preferred Stock")
issued and outstanding immediately prior to the Effective Time (other than
Dissenting Preferred Shares (as defined in Section 2.1(e))) will remain
outstanding as one validly issued, fully paid and nonassessable share of
preferred stock of the Surviving Corporation subsequent to the Effective Time,
subject to the respective terms and covenants thereof. The Series A Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock are referred to collectively as the "Company Preferred Stock".
(e) Dissenting Shares. (i) Notwithstanding anything in this
Agreement to the contrary, shares of Common Stock issued and outstanding
immediately prior to the Effective Time held by a holder (if any) who has the
right to demand, and who properly demands, an appraisal of such shares in
accordance with Section 262 of the DGCL (or any successor provision)
("Dissenting Common Shares") shall not be converted into a right to receive
Merger Consideration unless such holder fails to perfect or otherwise loses
such holder's right to such appraisal, if any. If, after the Effective Time,
such holder fails to perfect or loses any such right to appraisal, each such
share of such holder shall be treated as a share that had been converted as of
the Effective Time into the right to receive Merger Consideration in accordance
with this Section 2.1. The Company shall give prompt notice to Parent of any
demands received by the Company for appraisal of shares of Common Stock, and
Parent shall have the right to participate in and direct all negotiations and
proceedings with respect to such demands. The Company shall not, except with
the prior written consent of Parent, make any payment with respect to, or
settle or offer to settle, any such demands.
(ii) Notwithstanding anything in this Agreement to the contrary,
shares of Company Preferred Stock issued and outstanding immediately prior to
the Effective Time held by a holder (if any) who has the right to demand, and
who properly demands, an appraisal of such shares in accordance with Section
262 of the DGCL ("Dissenting Preferred Shares") shall not be deemed to remain
outstanding as of the Effective Time unless such holder fails to perfect or
otherwise loses such holder's right to such appraisal, if any. If, after the
Effective Time, such holder fails to perfect or loses any such right to
appraisal, such shares shall be treated as if they had remained outstanding as
of the Effective Time. The Company shall give prompt notice to Parent of any
demands received by the Company for appraisal of shares of Company Preferred
Stock, and Parent shall have the right to participate in and direct all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, make any payment with
respect to, or settle or offer to settle, any such demands.
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(f) Cancellation and Retirement of Common Stock. As of the
Effective Time, all certificates representing shares of Common Stock, other
than certificates representing shares to be cancelled in accordance with
Section 2.1(b) or Dissenting Common Shares, issued and outstanding immediately
prior to the Effective Time, shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each
holder of a certificate representing any such shares of Common Stock shall
cease to have any rights with respect thereto, except the right to receive the
Merger Consideration upon surrender of such certificate in accordance with
Section 2.3.
(g) Cancellation of Certain Restricted Stock Grants. Immediately
following the execution and delivery of this Agreement each share of restricted
stock granted under the 1993 Senior Executive Long-Term Incentive Plan shall
be cancelled. In addition, Parent hereby consents to the adoption by the
Company of a plan under which each individual who has had a share cancelled
pursuant to this Section 2.1(g) may receive immediately prior to the Effective
Time a cash payment up to the sum of (x) the Cash Consideration plus (y) the
Stock Value Amount, multiplied by the number of shares cancelled. For purposes
of this Agreement, the term "Stock Value Amount" shall mean the product of (x)
the Conversion Number and (y) the Average Parent Price (determined without
regard to the proviso to the definition thereof).
SECTION 2.2. Stock Option Plans. (a) As of the date hereof, the
unexercisable portion of each outstanding option to purchase shares of Common
Stock (a "Company Stock Option") issued under the Company's 1990 Stock Option
Plan, 1985 Amended Stock Option Plan, 1982 Incentive Stock Option Plan and Non-
Management Director Stock Option Plan (collectively, the "Company Stock Option
Plans") shall become immediately exercisable in full, subject to all
expiration, lapse and other terms and conditions thereof.
(b) The Company Stock Options set forth on Section 2.2 of the
disclosure schedule (the "Disclosure Schedule") delivered to Parent by the
Company at the time of execution of this Agreement shall be assumed by Parent
(an "Assumed Option"). Each Assumed Option shall be exercisable for a number
of shares of Parent Common Stock calculated by multiplying the number of shares
of Common Stock subject to such Company Stock Option as of the Effective Time
by a fraction, the numerator of which is the sum of (1) the Stock Value Amount
and (2) the Cash Consideration and the denominator of which is the Average
Parent Price. The exercise price for each share of Parent Common Stock under
an Assumed Option shall be calculated by multiplying the exercise price for one
share of Common Stock under the related Company Stock Option as of the
Effective Time by a fraction, the numerator of which is the Average Parent
Price and the denominator of which is the sum of (1) the Stock Value Amount and
(2) the Cash Consideration.
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<PAGE> 10
(c) Each Company Stock Option then outstanding (other than Assumed
Options) shall be cancelled immediately prior to the Effective Time in exchange
for an amount in cash equal to the product of (i) the number of shares of
Common Stock subject to such Company Stock Option immediately prior to the
Effective Time and (ii) the excess of (1) the sum of (A) the Stock Value Amount
and (B) the Cash Consideration over (2) the per share exercise price of such
Company Stock Option.
SECTION 2.3. Exchange of Certificates. (a) Paying Agent. As of
the Effective Time, Parent shall deposit, or shall cause to be deposited, with
or for the account of a bank or trust company designated by Parent, which shall
be reasonably satisfactory to the Company (the "Paying Agent"), for the benefit
of the holders of shares of Common Stock and the holders of shares of Series
A Preferred Stock and Series E Preferred Stock (together, the "Convertible
Preferred Stock"), cash in an aggregate amount sufficient to pay the aggregate
Cash Consideration and certificates representing the shares of Parent Common
Stock representing the aggregate Stock Consideration (assuming in each case the
full conversion of all outstanding shares of Series A Preferred Stock and
Series E Preferred Stock) (such amount and certificates, together with any
dividends or distributions with respect to such certificates, being hereinafter
referred to as the "Payment Fund").
(b) Exchange Procedures. As soon as practicable after the Effective
Time, each holder of an outstanding certificate or certificates which prior
thereto represented shares of Common Stock shall, upon surrender to the Paying
Agent of such certificate or certificates and acceptance thereof by the Paying
Agent, be entitled to the amount of cash and a certificate representing that
number of whole shares of Parent Common Stock (and cash in lieu of fractional
shares of Parent Common Stock as contemplated by this Section 2.3) which the
aggregate number of shares of Common Stock previously represented by such
certificate or certificates surrendered shall have been converted into the
right to receive pursuant to Section 2.1(c) of this Agreement. The Paying
Agent shall accept such certificates upon compliance with such reasonable terms
and conditions as the Paying Agent may impose to effect an orderly exchange
thereof in accordance with normal exchange practices. If the
consideration to be paid in the Merger (or any portion thereof) is to be
delivered to any person other than the person in whose name the certificate
representing shares of Common Stock surrendered in exchange therefor is
registered, it shall be a condition to such exchange that the certificate so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the person requesting such exchange shall pay to the Paying
Agent any transfer or other taxes required by reason of the payment of such
consideration to a person other than the registered holder of the certificate
surrendered, or shall establish to the satisfaction of the Paying Agent that
such tax has been paid or is not applicable. After the Effective Time, there
shall be no further transfer on the records of the Company or its transfer
agent of certificates representing shares of Common Stock and if such
certificates are presented to the Company for transfer, they shall be cancelled
against delivery of the Merger Consideration as hereinabove provided. Until
surrendered as contemplated by this Section 2.3(b), each certificate
representing shares of Common Stock (other than certificates representing
shares to be cancelled in accordance with Section 2.1(b) or Dissenting Common
Shares), shall be deemed at any time after the Effective Time to represent only
the right to receive upon such surrender the Merger Consideration, without any
interest thereon, as contemplated by Section 2.1. No interest will be paid
or will accrue on any cash payable as Merger Consideration.
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(c) Letter of Transmittal. Promptly after the Effective Time (but
in no event more than 5 days thereafter), the Surviving Corporation shall
require the Paying Agent to mail to each record holder of certificates that
immediately prior to the Effective Time represented shares of Common Stock
which have been converted pursuant to Section 2.1, a form of letter of
transmittal and instructions for use in surrendering such certificates and
receiving the consideration to which such holder shall be entitled therefor
pursuant to Section 2.1.
(d) Distributions with Respect to Unexchanged Shares. No dividends
or other distributions with respect to Parent Common Stock with a record date
after the Effective Time shall be paid to the holder of any certificate that
immediately prior to the Effective Time represented shares of Common Stock
which have been converted pursuant to Section 2.1, until the surrender for
exchange of such certificate in accordance with this Article II. Following
surrender for exchange of any such certificate, there shall be paid to the
holder of such certificate, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to the number of whole
shares of Parent Common Stock into which the shares of Common Stock represented
by such certificate immediately prior to the Effective Time were converted
pursuant to Section 2.1, and (ii) at the appropriate payment date, the amount
of dividends or other distributions with a record date after the Effective
Time, but prior to such surrender, and with a payment date subsequent to such
surrender, payable with respect to such whole shares of Parent Common Stock.
(e) No Further Ownership Rights in Common Stock. The Merger
Consideration paid upon the surrender for exchange of certificates representing
shares of Common Stock in accordance with the terms of this Article II shall
be deemed to have been issued and paid in full satisfaction of all rights
pertaining to the shares of Common Stock theretofore represented by such
certificates, subject, however, to the Surviving Corporation's obligation (if
any) to pay any dividends or make any other distributions with a record date
prior to the Effective Time which may have been declared by the Company on such
shares of Common Stock in accordance with the terms of this Agreement or prior
to the date of this Agreement and which remain unpaid at the Effective Time.
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<PAGE> 12
(f) No Fractional Shares. (i) No certificates or scrip
representing fractional shares of Parent Common Stock shall be issued upon the
surrender for exchange of certificates that immediately prior to the Effective
Time represented shares of Common Stock which have been converted pursuant to
Section 2.1, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of Parent.
(ii) Notwithstanding any other provisions of this Agreement, each
holder of shares of Common Stock who would otherwise have been entitled to
receive a fraction of a share of Parent Common Stock (after taking into account
all certificates delivered by such holder) shall receive, in lieu thereof, cash
(without interest) in an amount equal to such fractional part of a share of
Parent Common Stock multiplied by the Average Parent Price.
(g) Termination of Payment Fund. Any portion of the Payment Fund
which remains undistributed to the holders of the certificates representing
shares of Common Stock or Convertible Preferred Stock for 120 days after the
Effective Time shall be delivered to Parent, upon demand, and any holders of
shares of Common Stock who have not theretofore complied with this Article II
shall thereafter look only to Parent and only as general creditors thereof for
payment of their claim for any Merger Consideration and any dividends or
distributions with respect to Parent Common Stock.
(h) No Liability. None of Parent, Sub, the Surviving Corporation
or the Paying Agent shall be liable to any person in respect of any cash,
shares, dividends or distributions payable from the Payment Fund delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law. If any certificates representing shares of Common Stock shall not
have been surrendered prior to five years after the Effective Time (or
immediately prior to such earlier date on which any Merger Consideration in
respect of such certificate would otherwise escheat to or become the property
of any Governmental Entity (as defined in Section 3.1(c))), any such cash,
shares, dividends or distributions payable in respect of such certificate
shall, to the extent permitted by applicable law, become the property of the
Surviving Corporation, free and clear of all claims or interest of any
person previously entitled thereto.
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<PAGE> 13
(i) Investment of Payment Fund. The Paying Agent shall invest the
Payment Fund, as directed by Parent, in (i) direct obligations of the United
States of America, (ii) obligations for which the full faith and credit of the
United States of America is pledged to provide for the payment of principal and
interest or (iii) commercial paper rated the highest quality by both Moody's
Investors Services, Inc. and Standard & Poor's Corporation, and any net
earnings with respect thereto shall be paid to Parent as and when requested by
Parent; provided that any such investment or any such payment of earnings shall
not delay the receipt by holders of shares of Common Stock of the Merger
Consideration or holders of shares of Convertible Preferred Stock of the
amounts then due with respect to any shares of Convertible Preferred Stock
theretofore converted in accordance with the terms thereof or otherwise impair
such holders' respective rights hereunder. In the event the Payment Fund shall
realize a loss on any such investment, Parent shall promptly thereafter deposit
in such Payment Fund on behalf of the Surviving Corporation cash in an amount
sufficient to enable such Payment Fund to satisfy all remaining obligations
originally contemplated to be paid out of such Payment Fund.
(j) Conversion of the Convertible Preferred Stock. Until the
Payment Fund is terminated pursuant to Section 2.3(g), Parent and the Surviving
Corporation shall, and shall require the Paying Agent to, make the Payment Fund
available for the purpose of paying amounts due with respect to any shares of
Convertible Preferred Stock theretofore converted in accordance with the terms
thereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of the Company. The
Company represents and warrants to Parent and Sub as follows:
(a) Organization, Standing and Corporate Power. Each of the
Company and each Significant Subsidiary of the Company (as hereinafter
defined) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated
and has the requisite corporate power and authority to carry on its
business as now being conducted. Each of the Company and each Significant
Subsidiary of the Company is duly qualified or licensed to do business and
is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed (individually or in the
aggregate) would not have a material adverse effect on the business,
financial condition or results of operations of the Company and its
subsidiaries taken as a whole. The Company has delivered to Parent
complete and correct copies of its Charter and By-laws, as amended to the
date of this Agreement. For purposes of this Agreement, a "Significant
Subsidiary" of the Company means each of Federal Kemper Life Assurance
Company, Kemper Financial Companies, Inc. ("KFC"), Kemper Financial
Services, Inc. ("KFS"), Kemper Investors Life Insurance Company, Kemper
Securities Holdings, Inc. and Kemper Securities, Inc ("KSI") and any other
subsidiary of the Company that would constitute a Significant Subsidiary
within the meaning of Rule 1-02 of Regulation S-X of the Securities and
Exchange Commission (the "SEC").
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<PAGE> 14
(b) Capital Structure. The authorized capital stock of the Company
consists of (i) 200,000,000 shares of Common Stock, par value $5.00 per
share, and (ii) 20,000,000 shares of preferred stock, without par value
(the "Preferred Stock"). At the close of business on May 31, 1994:
(i) 33,545,959 shares of Common Stock were issued and outstanding,
4,060,388 shares of Common Stock were reserved for issuance pursuant to
outstanding Company Stock Options, 53,928 shares of Common Stock were
reserved for issuance upon conversion of shares of Series A Preferred
Stock, 4,755,996 shares of Common Stock were reserved for issuance upon
conversion of shares of Series E Preferred Stock and 31,611,214 shares of
Common Stock were held by the Company in its treasury; (ii) 6,690,636.5
shares of Preferred Stock, consisting of 23,998 shares of Series A
Preferred Stock, 2,000,000 shares of Series C Preferred Stock, 66,638.5
shares of Series D Preferred Stock and 4,600,000 shares of Series E
Preferred Stock, were issued and outstanding; and (iii) 500,000 shares of
Series B Junior Participating Preferred Stock were reserved for issuance
upon exercise of the rights (the "Rights") distributed to the holders of
Common Stock pursuant to the Rights Agreement dated as of July 18, 1990,
between the Company and Harris Trust and Savings Bank, as Rights Agent
(the "Rights Agreement"). Except as set forth above, at the close of
business on May 31, 1994, no shares of capital stock or other equity
securities of the Company were issued, reserved for issuance or
outstanding. All outstanding shares of capital stock of the Company are,
and all shares which may be issued pursuant to the Company Stock Option
Plans or the Kemper Corporation Stock Purchase and Dividend Reinvestment
Plan (the "Dividend Reinvestment Plan") or upon the conversion of the
Series A Preferred Stock and the Series E Preferred Stock or the exchange
of the Series D Preferred Stock will be, when issued, duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights. Except as set forth in Section 3.1(b) of the Disclosure Schedule,
no bonds, debentures, notes or other indebtedness of the Company or any
Significant Subsidiary of the Company having the right to vote (or
convertible into, or exchangeable for, securities having the right to
vote) on any matters on which the stockholders of the Company or any
Significant Subsidiary of the Company may vote are issued or outstanding.
Except as disclosed in Section 3.1(b) of the Disclosure Schedule, all the
outstanding shares of capital stock of each Significant Subsidiary of the
Company have been validly issued and are fully paid and nonassessable and
are owned by the Company, by one or more subsidiaries of the Company or
by the Company and one or more such subsidiaries, free and clear of all
pledges, claims, liens, charges, encumbrances and security interests
of any kind or nature whatsoever (collectively, "Liens"). Except as set
forth above or in Section 3.1(b) of the Disclosure Schedule, neither the
Company nor any Significant Subsidiary of the Company has any outstanding
option, warrant, subscription or other right, agreement or commitment
which either (i) obligates the Company or any Significant Subsidiary of
the Company to issue, sell or transfer, repurchase, redeem or otherwise
acquire or vote any shares of the capital stock of the Company or any
Significant Subsidiary of the Company or (ii) restricts the transfer of
Common Stock. The authorized capital stock of KFC consists of 150,000,000
shares of common stock, par value $.10 per share, which shares are divided
into 135,000,000 shares of Class A Common Stock and 15,000,000 shares of
Class B Common Stock. At the close of business on March 31, 1994,
43,268,038 shares of Series A Common Stock of KFC and 8,334.6464 shares
of Series B Common Stock of KFC were issued and outstanding, 192,645
shares of Series B Common Stock of KFC were reserved for issuance pursuant
to outstanding KFC employee stock options, no shares of Preferred Stock
of KFC were outstanding and $44.2 million aggregate principal amount of
KFC's floating rate convertible subordinated debentures was outstanding
and not subject to mandatory redemption, which are convertible into an
aggregate of 1,690,580.0017 shares of Series B Common Stock of KFC. $33.7
million aggregate principal amount of KFC's floating rate convertible
subordinated debentures outstanding and not subject to mandatory
redemption is currently redeemable, and all outstanding KFC floating rate
convertible subordinated debentures will be redeemable on and after May
10, 1995. If determined as of March 31, 1994 in accordance with the terms
of KFC's Fourth Restated Certificate of Incorporation, the formula
purchase price per share for repurchases by KFC of shares of its Series
B Common Stock would be negative $9.25 per share.
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(c) Authority; Noncontravention. The Company has the
requisite corporate power and authority to enter into this Agreement and,
subject to the approval of its stockholders as set forth in Section 6.1(a)
with respect to the consummation of the Merger, to consummate the
transactions contemplated by this Agreement. The execution and delivery
of this Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of the Company, subject, in the
case of the Merger, to the approval of its stockholders as set forth in
Section 6.1(a). This Agreement has been duly executed and delivered by
the Company and, assuming this Agreement constitutes the valid and binding
agreement of Parent and Sub, constitutes a valid and binding obligation
of the Company, enforceable against the Company in accordance with its
terms. Except as disclosed in Section 3.1(c) of the Disclosure Schedule,
the execution and delivery of this Agreement do not, and the consummation
of the transactions contemplated by this Agreement and compliance with the
provisions hereof will not, (i) conflict with any of the provisions of the
Charter or By-laws of the Company or the comparable documents of any
Significant Subsidiary of the Company, (ii) subject to the governmental
filings and other matters referred to in the following sentence, conflict
with, result in a breach of or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a material
benefit under, or require the consent of any person under, any indenture
or other agreement, permit, concession, franchise, license or similar
instrument or undertaking to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or any of
their assets is bound or affected, or (iii) subject to the governmental
filings and other matters referred to in the following sentence,
contravene any law, rule or regulation of any state or of the United
States or any political subdivision thereof or therein, or any order,
writ, judgment, injunction, decree, determination or award currently in
effect, which, in the case of clauses (ii) and (iii) above, singly or
in the aggregate, would have a material adverse effect on the business,
financial condition or results of operations of the Company and its
subsidiaries taken as a whole. No consent, approval or authorization of,
or declaration or filing with, or notice to, any governmental agency or
regulatory authority (a "Governmental Entity") which has not been received
or made, is required by or with respect to the Company or any of its
subsidiaries in connection with the execution and delivery of this
Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby, except for (i) the filing of premerger
notification and report forms under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") with respect to the
Merger and with respect to the transactions contemplated by the Citibank
Commitment Letter (as hereinafter defined), (ii) the filings and/or
notices required under the insurance laws of the jurisdictions set forth
in Section 3.1(c)(i) of the Disclosure Schedule, (iii) the filing with the
SEC of (x) a proxy statement relating to the approval by the stockholders
of the Company of the Merger and certain other corporate matters (such
proxy statement, together with the proxy statement relating to the
approval of the issuance of Parent Common Stock in the Merger by an
affirmative vote of the holders of a majority of the shares of the Parent
Common Stock present, or represented, and entitled to vote thereon at the
meeting of holders of Parent Common Stock to be called therefor (the
"Parent Stockholder Approval"), in each case as amended or supplemented
from time to time, the "Joint Proxy Statement"), and (y) such reports
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as may be required in connection with this Agreement and the
transactions contemplated by this Agreement, (iv) the filing of the
certificate of merger with the Delaware Secretary of State and appropriate
documents with the relevant authorities of other states in which the
Company is qualified to do business, (v) the consents, approvals and
notices as are set forth in Sections 5.13 and 5.14 of this Agreement
required under the Investment Company Act of 1940, as amended (the "1940
Act"), and the Investment Advisers Act of 1940, as amended (the
"Advisers Act"), (vi) such other consents, approvals, authorizations,
filings or notices as are set forth in Section 3.1(c)(ii) of the
Disclosure Schedule and (vii) any applicable filings under state
anti-takeover laws, or filings, authorizations, consents or approvals the
failure to make or obtain which, in the aggregate, would not have a
material adverse effect on the business, financial condition or results
of operations of the Company and its subsidiaries taken as a whole.
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(d) SEC Documents. (i) The Company has filed all required reports,
schedules, forms, statements and other documents with the SEC since
January 1, 1994 (such reports, schedules, forms, statements and other
documents other than those that were filed by the Company with the SEC in
connection with the proxy contest initiated by General Electric Capital
Corporation are hereinafter referred to as the "SEC Documents"); (ii) as
of their respective dates, the SEC Documents complied in all material
respects with the requirements of the Securities Act of 1933, as amended
(the "Securities Act"), or the Exchange Act, as the case may be, and the
rules and regulations of the SEC promulgated thereunder applicable to such
SEC Documents, and none of the SEC Documents as of such dates contained
any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading; and (iii) the consolidated financial statements of
the Company included in the SEC Documents comply as to form in all
material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles
(except, in the case of unaudited consolidated quarterly statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto) and
fairly present the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended
(subject, in the case of unaudited quarterly statements, to normal
year-end audit adjustments). Except to the extent that information
contained in any SEC Document has been revised or superseded by a later
Filed SEC Document (as defined in Section 3.1(f)), none of the SEC
Documents contains any untrue statement of a material fact or omits 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 were made, not misleading.
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(e) Information Supplied. None of the information supplied or to
be supplied by the Company specifically for inclusion or incorporation by
reference in (i) the registration statement on Form S-4 to be filed with
the SEC by Parent in connection with the issuance of Parent Common Stock
in the Merger (the "Form S-4") will, at the time the Form S-4 is filed
with the SEC, at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading
or (ii) the Joint Proxy Statement will, at the date it is first mailed to
the Company's stockholders or at the time of the Stockholders Meeting (as
defined in Section 5.2), 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. The Joint
Proxy Statement will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations thereunder,
except that no representation or warranty is made by the Company with
respect to statements made or incorporated by reference therein based on
information supplied by Parent or Sub specifically for inclusion or
incorporation by reference in the Joint Proxy Statement.
(f) Absence of Certain Changes or Events. Except as disclosed in
the SEC Documents filed and publicly available prior to the date of this
Agreement (the "Filed SEC Documents") or in Section 3.1(f) of the
Disclosure Schedule, since the date of the most recent audited financial
statements included in the Filed SEC Documents, the Company and its
subsidiaries have conducted their business only in the ordinary course,
and there has not been (i) any change which would have a material adverse
effect on the business, financial condition or results of operations of
the Company and its subsidiaries taken as a whole, (ii) any declaration,
setting aside or payment of any dividend or other distribution (whether
in cash, stock or property) with respect to any of the Company's
outstanding capital stock (other than regular quarterly cash
dividends of $.23 per share of Common Stock and regular cash dividends on
Company Preferred Stock, in each case in accordance with usual record and
payment dates and in accordance with the Company's present dividend
policy), (iii) any split, combination or reclassification of any of its
outstanding capital stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its outstanding capital stock, (iv) (x) any
granting by the Company or any of its subsidiaries to any executive
officer or other employee 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 Filed 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 pay, except in the ordinary course
of business consistent with prior practice or as was required under any
employment, severance or termination agreements in effect as of the date
of the most recent audited financial statements included in the Filed 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 except in the ordinary course of business consistent with prior
practice (it being understood that, as used in this clause (iv), "prior
practice" shall mean the practice of the Company and its subsidiaries
prior to 1994) or (v) any change in accounting methods, principles or
practices by the Company or any of its subsidiaries materially affecting
its assets, liabilities or business, except insofar as may have been
required by a change in generally accepted accounting principles. Parent
acknowledges that there may be or have been disruptions to the Company's
business as a result of the anticipation of a merger or acquisition
involving the Company and/or its subsidiaries, and Parent and Sub agree
that such disruptions and any changes attributable thereto shall not
constitute a breach of clause (i) of this Section 3.1(f).
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<PAGE> 18
(g) Absence of Changes in Benefit Plans. Except as disclosed in the
Filed SEC Documents or in Section 3.1(g) of the Disclosure Schedule, since
the date of the most recent audited financial statements included in the
Filed SEC Documents, there has not been any adoption or amendment in any
material respect by the Company or any of its subsidiaries of any
collective bargaining agreement or any Benefit Plan (as defined in Section
3.1(h)). Except as disclosed in the Filed SEC Documents or in Section
3.1(g) of the Disclosure Schedule, there exist no employment, consulting,
severance, termination or indemnification agreements, arrangements or
understandings between the Company or any of its subsidiaries and any
current or former employee, officer or director of the Company or any of
its subsidiaries.
(h) Benefit Plans. (i) Each "employee pension benefit plan" (as
defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) (hereinafter a "Pension Plan"), "employee
welfare benefit plan" (as defined in Section 3(1) of ERISA) (hereinafter
a "Welfare Plan"), and each other plan, arrangement or policy (written or
oral) relating to stock options, stock purchases, compensation, deferred
compensation, severance, fringe benefits or other employee benefits, in
each case maintained or contributed to, or required to be maintained or
contributed to, by the Company and its subsidiaries for the benefit of any
present or former officers, employees, agents, directors or independent
contractors of the Company or any of its subsidiaries (all the foregoing
being herein called "Benefit Plans") has been administered in accordance
with its terms except where failure to administer in accordance with such
terms would not have a material adverse effect on the business, financial
condition or results of operations of the Company and its subsidiaries
taken as a whole. The Company, its subsidiaries and all the Benefit Plans
are in compliance with the applicable provisions of ERISA, the Internal
Revenue Code of 1986, as amended (the "Code"), all other applicable laws
and all applicable collective bargaining agreements except where failure
to comply would not have a material adverse effect on the business,
financial condition or results of operations of the Company and its
subsidiaries taken as a whole.
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<PAGE> 19
(ii) None of the Company or any other person or entity that together
with the Company is treated as a single employer under Section 414(b),
(c), (m) or (o) of the Code (each a "Commonly Controlled Entity") (a) has
incurred any liability to a Pension Plan covered by Title IV of ERISA
(other than for contributions not yet due) or to the Pension Benefit
Guaranty Corporation (other than for the payment of premiums not yet due)
that, when aggregated with other such liabilities, would result in a
material liability to the Company, which liability has not been fully paid
as of the date hereof.
(iii) No Commonly Controlled Entity is required to contribute to any
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) or has
withdrawn from any multiemployer plan where such withdrawal has resulted
or would result in any "withdrawal liability" (within the meaning of
Section 4201 of ERISA) that has not been fully paid.
(i) Taxes. (i) Each of the Company and its subsidiaries has filed
all tax returns and reports required to be filed by it or requests for
extensions to file such returns or reports have been timely filed, granted
and have not expired, except to the extent that such failures to file or
to have extensions granted that remain in effect individually and in the
aggregate would not have a material adverse effect on the business,
financial condition or results of operations of the Company and its
subsidiaries taken as a whole. All tax returns filed by the Company and
each of its subsidiaries are complete and accurate except to the extent
that such failure to be complete and accurate would not have a material
adverse effect on the business, financial condition or results of
operations of the Company and its subsidiaries taken as a whole. The
Company and each of its subsidiaries has paid (or the Company has paid
on the subsidiaries' behalf) all taxes shown as due on such returns, and
the most recent financial statements contained in the Filed SEC Documents
reflect an adequate reserve for all taxes payable by the Company and its
subsidiaries for all taxable periods and portions thereof accrued through
the date of such financial statements.
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<PAGE> 20
(ii) No deficiencies for any taxes have been proposed, asserted or
assessed against the Company or any of its subsidiaries that are not
adequately reserved for, except for deficiencies that individually or in
the aggregate would not have a material adverse effect on the business,
financial condition or results of operations of the Company and its
subsidiaries taken as a whole, and, except as set forth on Section 3.1(j)
of the Disclosure Schedule, no requests for waivers of the time to assess
any such taxes have been granted or are pending. The Federal and Illinois
income tax returns of the Company and each of its subsidiaries
consolidated in such returns have been examined by and settled with the
United States Internal Revenue Service or the Illinois Department of
Revenue, as the case may be, or the statute of limitations on assessment
or collection of any Federal or Illinois income taxes due from the
Company or any of its subsidiaries has expired, for all taxable years of
the Company or any of its subsidiaries through the taxable year ended
December 31, (a) 1983 for Federal income taxes, (b) 1979 for Illinois
insurance unitary income taxes and (c) 1987 for Illinois non-insurance
unitary income taxes.
(iii) As used in this Agreement, "taxes" shall include all Federal,
state, local and foreign income, property, sales, excise, employment,
payroll, withholding and other taxes, tariffs or governmental charges of
any nature whatsoever.
(j) No Excess Parachute Payments; Section 162(m) of the Code. (i)
Except as disclosed in Section 3.1(j) of the Disclosure Schedule, any
amount that could be received (whether in cash or property or the vesting
of property) as a result of any of the transactions contemplated by this
Agreement by any employee, officer or director of the Company or any of
its affiliates who is a "disqualified individual" (as such term is defined
in proposed Treasury Regulation Section 1.280G-1) under any employment,
severance or termination agreement, other compensation arrangement or
Benefit Plan currently in effect would not be characterized as an "excess
parachute payment" (as such term is defined in Section 280G(b)(1) of the
Code).
(ii) Except as disclosed in Section 3.1(j) of the Disclosure
Schedule, the disallowance of a deduction under Section 162(m) of the Code
for employee remuneration will not apply to any amount paid or payable by
the Company or any subsidiary of the Company under any contract, Benefit
Plan, program, arrangement or understanding currently in effect.
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<PAGE> 21
(k) Voting Requirements. The affirmative vote of a majority of the
votes cast by the holders of the shares of Common Stock entitled to vote
thereon at the Stockholders Meeting with respect to the approval of the
Merger is the only vote of the holders of any class or series of the
Company's capital stock necessary to approve this Agreement and the
transactions contemplated by this Agreement.
(l) Compliance with Applicable Laws. (i) Each of the Company and
its subsidiaries and the Company Funds has in effect all Federal, state,
local and foreign governmental approvals, authorizations, certificates,
filings, franchises, licenses, notices, permits and rights ("Permits")
necessary for it to own, lease or operate its properties and assets and
to carry on its business as now conducted, and there has occurred no
default under any such Permit, except for the lack of Permits and for
defaults under Permits which lack or default individually or in the
aggregate would not have a material adverse effect on the business,
financial condition or results of operations of the Company and its
subsidiaries taken as a whole. Except as disclosed in the Filed SEC
Documents, the Company and its subsidiaries and the Company Funds are in
compliance with all applicable statutes, laws, ordinances, rules,
orders and regulations of any Governmental Entity, except for possible
noncompliance which individually or in the aggregate would not have a
material adverse effect on the business, financial condition or results
of operations of the Company and its subsidiaries taken as a whole.
Except as disclosed in the Filed SEC Documents and except for routine
examinations by state Governmental Entities charged with supervision of
insurance companies ("Insurance Regulators"), as of the date of this
Agreement, to the knowledge of the Company, no investigation by any
Governmental Entity with respect to the Company or any of its subsidiaries
or any of the Company Funds is pending or threatened, other than, in each
case, those the outcome of which, as far as reasonably can be foreseen,
will not have a material adverse effect on the business, financial
condition or results of operations of the Company and its subsidiaries
taken as a whole.
(ii) The Annual Statements (including without limitation the Annual
Statements of any separate accounts) for the year ended December 31, 1993,
together with all exhibits and schedules thereto, and financial statements
relating thereto, and any actuarial opinion, affirmation or certification
filed in connection therewith, and the Quarterly Statements for the
periods ended after January 1, 1994, together with all exhibits and
schedules thereto, with respect to each subsidiary of the Company that is
a regulated insurance company (an "Insurance Company"), in each case as
filed with the applicable Insurance Regulator of its jurisdiction of
domicile, were prepared in conformity with statutory accounting practices
prescribed or permitted by such Insurance Regulator applied on a
consistent basis ("SAP"), present fairly, to the extent required by and
in conformity with SAP, the statutory financial condition of such
Insurance Company at their respective dates and the results of operations,
changes in capital and surplus and cash flow of such Insurance Company for
each of the periods then ended, and were correct in all material respects
when filed and there were no material omissions therefrom when filed. No
deficiencies or violations material to the financial condition or
operations of any Insurance Company have been asserted in writing by any
Insurance Regulator which have not been cured or otherwise resolved to
the satisfaction of such Insurance Regulator and which have not been
disclosed in writing to Parent prior to the date of this Agreement.
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<PAGE> 22
(m) Opinion of Financial Advisor. The Company has received the
opinion of Goldman, Sachs & Co., dated the date hereof, to the effect
that, as of such date, the consideration to be received in the Merger by
the Company's stockholders is fair to the Company's stockholders.
(n) Article Fifteenth of the Charter. The Board of Directors of the
Company (including a majority of the "Continuing Directors", as defined
in the Charter) has approved the execution and delivery by the Company of
this Agreement and the consummation of the Merger and the other
transactions contemplated by this Agreement, and such approval is
sufficient to render inapplicable to this Agreement, the Merger and the
other transactions contemplated by this Agreement the restrictions
contained in Article Fifteenth of the Charter.
(o) Rights Agreement. The Rights Agreement has been amended so as
to provide that neither Parent nor Sub will become an "Acquiring Person",
and that no "Stock Acquisition Date" or "Distribution Date" (as such terms
are defined in the Rights Agreement) will occur, solely as a result of the
approval, execution or delivery of this Agreement or the consummation of
the Merger.
(p) Brokers. No broker, investment banker, financial advisor or
other person, other than Goldman, Sachs & Co., the fees and expenses of
which will be paid by the Company, is entitled to any broker's, finder's,
financial advisor'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 the Company.
(q) Ineligible Persons. None of the Company or any "affiliated
person" (as defined in the 1940 Act) thereof (i) is ineligible pursuant
to Section 9(a) of the 1940 Act to serve as an investment adviser (or in
any other capacity contemplated by the 1940 Act) to a registered
investment company or (ii) to the best knowledge of the senior officers
of the Company as of the date hereof, has engaged in any of the conduct
specified in Section 9(b) of the 1940 Act or Section 203(e) of the
Advisers Act prior to the date hereof that would be reasonably likely to
result in SEC action to disqualify the Company or any of its affiliates
as an investment adviser.
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<PAGE> 23
SECTION 3.2. Representations and Warranties of Parent and Sub.
Parent and Sub represent and warrant to the Company as follows:
(a) Organization, Standing and Corporate Power. Each of Parent and
Sub and each Significant Subsidiary of Parent (as hereinafter defined) is
a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is incorporated and has the
requisite corporate power and authority to carry on its business as now
being conducted. Each of Parent and Sub and each Significant Subsidiary
of Parent is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure
to be so qualified or licensed (individually or in the aggregate) would
not have a material adverse effect on the business, financial condition
or results of operations of Parent and its subsidiaries taken as a
whole. Parent has delivered to the Company complete and correct copies
of its Articles of Incorporation and By-laws, as amended to the date of
this Agreement. For purposes of this Agreement, a "Significant
Subsidiary" of Parent means any subsidiary of Parent that would constitute
a Significant Subsidiary within the meaning of Rule 1-02 of Regulation S-X
of the SEC.
(b) Capital Structure. The authorized capital stock of Parent
consists of 500,000,000 shares of Parent Common Stock, without par value,
and 20,000,000 shares of preferred stock, without par value. At the close
of business on June 24, 1994, (i) 24,435,774 shares of Parent Common Stock
and 5,749,725 shares of $3.25 Series D Cumulative Convertible Preferred
Stock of Parent were issued and outstanding, (ii) 16,138,366 shares of
Parent Common Stock were held by subsidiaries of Parent or by Parent in
its treasury, (iii) 5,986,666 shares of Parent Common Stock were reserved
for issuance pursuant to outstanding options to purchase shares of Parent
Common Stock granted under Parent's stock option plans (the "Parent Stock
Plans") and (iv) 4,509,509 shares of Parent Common Stock were reserved for
issuance upon conversion of Parent's $3.25 Series D Cumulative Convertible
Preferred Stock. Except as set forth above, at the close of business on
June 24, 1994, no shares of capital stock or other voting securities of
Parent were issued, reserved for issuance or outstanding. All outstanding
shares of capital stock of Parent are, and all shares which may be issued
pursuant to this Agreement will be, when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
The authorized capital stock of Sub consists of 1,000 shares of common
stock, par value $1.00 per share, all of which have been validly issued,
are fully paid and nonassessable and are owned by Parent free and clear
of any Lien. No bonds, debentures, notes or other indebtedness of Parent
or any Significant Subsidiary of Parent having the right to vote (or
convertible into, or exchangeable for, securities having the right to
vote) on any matters on which the stockholders of Parent or any
Significant Subsidiary of Parent may vote are issued or outstanding. All
the outstanding shares of capital stock of each Significant Subsidiary of
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<PAGE> 24
Parent (other than Bankers Life Holding Corporation) have been validly
issued and are fully paid and nonassessable and are owned by Parent, free
and clear of all Liens. Except as set forth above, neither Parent nor any
Significant Subsidiary of Parent has any outstanding option, warrant,
subscription or other right, agreement or commitment which either (i)
obligates Parent or any Significant Subsidiary of Parent to issue, sell
or transfer, repurchase, redeem or otherwise acquire or vote any shares
of the capital stock of Parent or any Significant Subsidiary of Parent or
(ii) restricts the transfer of Parent Common Stock.
(c) Authority; Noncontravention. Parent and Sub have all requisite
corporate power and authority to enter into this Agreement and, subject
to the Parent Stockholder Approval with respect to the issuance of Parent
Common Stock in the Merger, to consummate the transactions contemplated
by this Agreement. The execution and delivery of this Agreement by Parent
and Sub and the consummation by Parent and Sub of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of Parent and Sub and by the stockholder of
Sub, subject, in the case of the issuance of Parent Common Stock in the
Merger, to the Parent Stockholder Approval. This Agreement has been duly
executed and delivered by and, assuming this Agreement constitutes the
valid and binding agreement of the Company, constitutes a valid and
binding obligation of each of Parent and Sub, enforceable against such
party in accordance with its terms. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated
by this Agreement and compliance with the provisions of this Agreement
will not (i) conflict with any of the provisions of the Articles of
Incorporation or By-laws of Parent, the Certificate of Incorporation or
By-laws of Sub or the comparable documents of any Significant Subsidiary
of Parent, (ii) subject to the governmental filings and other matters
referred to in the following sentence, conflict with, result in a breach
of or default (with or without notice or lapse of time, or both) under,
or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of a material benefit under, or require the consent
of any person under, any indenture, or other agreement, permit,
concession, franchise, license or similar instrument or undertaking to
which Parent or any of its subsidiaries is a party or by which Parent or
any of its subsidiaries or any of their assets is bound or affected, or
(iii) subject to the governmental filings and other matters referred to
in the following sentence, contravene any law, rule or regulation of any
state or of the United States or any political subdivision thereof or
therein, or any order, writ, judgment, injunction, decree, determination
or award currently in effect, which, in the case of clauses (ii) and (iii)
above, singly or in the aggregate, would have a material adverse effect
on the business, financial condition or results of operations of Parent
and its subsidiaries taken as a whole. No consent, approval or
authorization of, or declaration or filing with, or notice to, any
Governmental Entity which has not been received or made is required by or
with respect to Parent or Sub in connection with the execution and
delivery of this Agreement by Parent or Sub or the consummation by Parent
or Sub, as the case may be, of any of the transactions contemplated by
this Agreement, except for (i) the filing of premerger notification and
report forms under the HSR Act with respect to the Merger and with respect
to the transactions contemplated by the Citibank Commitment Letter, (ii)
the filings and/or notices required under the insurance laws of the
jurisdictions set forth in Section 3.1(c)(i) of the Disclosure Schedule,
(iii) the filing with the SEC of the Form S-4, the Joint Proxy Statement
relating to the Parent Stockholder Approval and such reports under the
Exchange Act as may be required in connection with this Agreement and the
transactions contemplated hereby, (iv) the filing of the certificate of
merger with the Delaware Secretary of State, and appropriate documents
with the relevant authorities of other states in which the Company is
qualified to do business, (v) such other consents, approvals,
authorizations, filings or notices as are set forth in Section 3.1(c)(ii)
of the Disclosure Schedule and (vi) any applicable filings under state
anti-takeover laws, or filings, authorizations, consents or approvals the
failure to make or obtain which, in the aggregate, would not have a
material adverse effect on the business, financial condition or
results of operations of Parent and its subsidiaries taken as a whole.
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<PAGE> 25
(d) SEC Documents. Parent has filed all required reports,
schedules, forms, statements and other documents with the SEC since
January 1, 1994 (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 the rules and regulations of the SEC promulgated thereunder
applicable to such Parent SEC Documents, and none of the Parent SEC
Documents as of such dates contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of Parent included in the Parent SEC Documents comply as to
form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, have
been prepared in accordance with generally accepted accounting principles
(except, in the case of 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 in the notes thereto) and fairly present
the consolidated financial position of Parent and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments). Except
to the extent that information contained in any Parent SEC Document has
been revised or superseded by a later Filed Parent SEC Document (as
defined in Section 3.2(f)), none of the Parent SEC Documents contains any
untrue statement of a material fact or omits 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 were made, not
misleading.
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<PAGE> 26
(e) Information Supplied. None of the information supplied or to
be supplied by Parent or Sub specifically for inclusion or incorporation
by reference in (i) the Form S-4 will, at the time the Form S-4 is filed
with the SEC, at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading,
or (ii) the Joint Proxy Statement will, at the date the Joint Proxy
Statement is first mailed to Parent's stockholders or at the time of the
Parent Stockholders Meeting (as defined in Section 5.2), 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. The Form S-4 will comply as to form in all material
respects with the requirements of the Securities Act and the rules and
regulations promulgated thereunder and the Joint Proxy Statement will
comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations promulgated thereunder, except
that no representation or warranty is made by Parent or Sub with respect
to statements made or incorporated by reference in either the Form S-4 or
the Joint Proxy Statement based on information supplied by the Company
specifically for inclusion or incorporation by reference therein.
(f) Absence of Certain Changes or Events. Except as disclosed in
the Parent SEC Documents filed and publicly available prior to the date
of this Agreement (the "Filed Parent SEC Documents"), since the date of
the most recent audited financial statements included in the Filed Parent
SEC Documents, Parent has conducted its business only in the ordinary
course, and there has not been (i) any change which would have a material
adverse effect on the business, financial condition or results of
operations of Parent and its subsidiaries, taken as a whole, (ii) any
declaration, setting aside or payment of any dividend or distribution
(whether in cash, stock or property) with respect to any of Parent's
outstanding capital stock (other than regular quarterly cash dividends of
$.125 per share on Parent Common Stock and regular cash dividends on the
Parent's $3.25 Series D Cumulative Convertible Preferred Stock, in each
case in accordance with usual record and payment dates and in accordance
with the Parent's present dividend policy), (iii) any split, combination
or reclassification of any of its outstanding capital stock or any
issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock,
or (iv) any change in accounting methods, principles or practices by
Parent materially affecting its assets, liabilities or business, except
insofar as may have been disclosed in the Filed Parent SEC Documents or
required by a change in generally accepted accounting principles.
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<PAGE> 27
(g) Voting Requirements. The affirmative vote of the holders of a
majority of the shares of Parent Common Stock present, or represented, and
entitled to vote thereon at the Parent Stockholders Meeting with respect
to the issuance of shares of Parent Common Stock in the Merger is the only
vote of the holders of any class or series of Parent's capital stock
necessary to approve this Agreement and the transactions contemplated by
this Agreement.
(h) Opinion of Financial Advisor. Parent has received the opinion
of Morgan Stanley & Co. Incorporated, to the effect that, as of the date
of this Agreement, the consideration to be paid to the Company's
stockholders in the Merger is fair to Parent from a financial point of
view.
(i) Benefit Plans. Parent and its subsidiaries are in compliance
in all material respects with the applicable provisions of ERISA and the
Code with respect to each material "employee benefit plan" (as defined in
Section 3(3) of ERISA) maintained, contributed to or required to be
maintained or contributed to by Parent or its subsidiaries for the benefit
of any present officers, employees or directors of Parent or any of its
subsidiaries in the United States.
(j) Taxes. (i) Each of Parent and its subsidiaries has filed all
tax returns and reports required to be filed by it or requests for
extensions to file such returns or reports have been timely filed, granted
and have not expired, except to the extent that such failures to file or
to have extensions granted that remain in effect individually or in the
aggregate would not have a material adverse effect on Parent. All tax
returns filed by Parent and each of its subsidiaries are complete and
accurate in all material respects to the knowledge of Parent. Parent and
each of its subsidiaries have paid (or Parent has paid on its
subsidiaries' behalf) all taxes shown as due on such returns, and the most
recent financial statements contained in the Filed Parent SEC Documents
reflect an adequate reserve for all taxes payable by Parent and its
subsidiaries for all taxable periods and portions thereof accrued through
the date of such financial statements.
(ii) No deficiencies for any taxes have been proposed, asserted or
assessed against Parent or any of its subsidiaries that are not adequately
reserved for, except for deficiencies that individually or in the
aggregate would not have a material adverse effect on Parent, and no
requests for waivers of the time to assess any such taxes have been
granted or are pending. The Federal and Indiana income tax returns of
Parent and each of its subsidiaries consolidated in such returns have been
examined by and settled with the United States Internal Revenue Service
or the Indiana Department of Revenue, as the case may be, or the statute
of limitations for the assessment or collection of Federal or Indiana
income taxes due from Parent or its subsidiaries has expired, for all
taxable years of Parent or any of its subsidiaries through and including,
the taxable year ended December 31, 1989, for Federal income taxes and
December 31, 1991, for Indiana income taxes.
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<PAGE> 28
(k) Compliance with Applicable Laws. Each of Parent, its
subsidiaries and any other entity controlled by or under common control
with Parent the business, financial condition or results of operations of
which is material to Parent and its subsidiaries, taken as a whole (a
"Material Parent Entity") has in effect all Permits necessary for it to
own, lease or operate its properties and assets and to carry on its
business as now conducted, and there has occurred no default under any
such Permit, except for the lack of Permits and for defaults under Permits
which lack or default individually or in the aggregate would not have a
material adverse effect on the business, financial condition or results
of operations of Parent and its subsidiaries taken as a whole. Except as
disclosed in the Filed Parent SEC Documents, Parent, its subsidiaries and
the Material Parent Entities are in compliance with all applicable
statutes, laws, ordinances, rules, orders and regulations of any
Governmental Entity, except for possible noncompliance which individually
or in the aggregate would not have a material adverse effect on the
business, financial condition or results of operations of Parent and its
subsidiaries taken as a whole.
(l) Commitment Letters. True and correct copies of the Senior
Facilities Commitment Letter dated June 21, 1994, from Citibank, N.A., and
Citicorp Securities, Inc. to Parent (the "Citibank Commitment Letter"),
the letter dated June 22, 1994, from Morgan Stanley & Co. Incorporated
to Parent (the "Morgan Stanley Highly Confident Letter") and the letter
dated June 23, 1994, from the general partner of Conseco Capital Partners
II, L.P. to the Chairman of the Board of the Company (the "CCP II Letter")
have been delivered to the Company.
(m) No Prior Activities. Sub has not incurred, and will not incur,
directly or through any subsidiary, any liabilities or obligations for
borrowed money or otherwise, except incidental liabilities or obligations
not for borrowed money incurred in connection with its organization and
except in connection with obtaining financing in connection with the
Merger. Except as contemplated by this Agreement, Sub (i) has not
engaged, directly or through any subsidiary, in any business activities
of any type or kind whatsoever, (ii) has not entered into any agreements
or arrangements with any person or entity, and (iii) is not subject to or
bound by any obligation or undertaking.
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<PAGE> 29
(n) Ineligible Persons. None of Parent or any "affiliated person"
(as defined in the 1940 Act) thereof (i) is ineligible pursuant to Section
9(a) of the 1940 Act to serve as an investment adviser (or in any other
capacity contemplated by the 1940 Act) to a registered investment company
or (ii) to the best knowledge of the senior officers of Parent as of the
date hereof, has engaged in any of the conduct specified in Section 9(b)
of the 1940 Act or Section 203(e) of the Advisers Act prior to the date
hereof that would be reasonably likely to result in SEC action to
disqualify Parent or any of its affiliates as an investment adviser.
(o) Brokers. No broker, investment banker, financial advisor or
other person, other than Morgan Stanley & Co. Incorporated, the fees and
expenses of which will be paid by Parent, is entitled to any broker's,
finder's, financial advisor'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.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO
MERGER
SECTION 4.1. (a) Conduct of Business of the Company. Except as
contemplated by this Agreement, during the period from the date of this
Agreement to the Effective Time, the Company shall, and shall cause its
subsidiaries to, act and carry on their respective businesses in the ordinary
course of business and, to the extent consistent therewith, use reasonable
efforts to preserve intact their current business organizations, keep available
the services of their current key officers and employees and preserve the
goodwill of those engaged in material business relationships with them. Without
limiting the generality of the foregoing, during the period from the date of
this Agreement to the Effective Time, the Company shall not, and shall not
permit any of its subsidiaries to, without the prior consent of Parent:
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<PAGE> 30
(i) (x) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, stock or property) in respect of,
any of the Company's outstanding capital stock (other than regular
quarterly cash dividends not in excess of $.23 per share of Common Stock
and regular cash dividends on Company Preferred Stock, in each case with
usual record and payment dates and in accordance with the Company's
present dividend policy), (y) split, combine or reclassify any of its
outstanding capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
outstanding capital stock, or (z) purchase, redeem or otherwise acquire
any shares of outstanding capital stock or any rights, warrants or options
to acquire any such shares except, in the case of clause (z), for the
acquisition of shares of Common Stock from holders of Company Stock
Options and Director Options in full or partial payment of the exercise
price payable by such holder upon exercise of Company Stock Options or
Director Options outstanding on the date of this Agreement, any mandatory
redemption of the securities of KFC in accordance with the terms thereof
and as contemplated by Section 2.2(c);
(ii) issue, sell, grant, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities other than (w)
pursuant to the Dividend Reinvestment Plan, (x) upon the exercise of
Company Stock Options and Director Options outstanding on the date of this
Agreement, (y) upon the conversion of shares of Preferred Stock
outstanding on the date of this Agreement or (z) in accordance with their
respective terms, upon the conversion of any floating rate convertible
subordinated debentures of KFC or the exercise of any stock options
respecting the common stock of KFC;
(iii) amend its articles of organization, by-laws or other
comparable charter or organizational documents;
(iv) acquire any business or any corporation, partnership, joint
venture, association or other business organization or division thereof,
except as disclosed in Section 4.1(a)(iv) of the Disclosure Schedule;
(v) sell, mortgage or otherwise encumber or subject to any Lien or
otherwise dispose of any of its properties or assets that are material to
the Company and its subsidiaries taken as a whole, except in the ordinary
course of business, as disclosed in Section 4.1(a)(v) of the Disclosure
Schedule or as contemplated by Section 6.1(g) hereof;
(vi) (x) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, other than indebtedness owing to or
guarantees of indebtedness owing to the Company, KFC or any direct or
indirect wholly-owned subsidiary of the Company or KFC or (y) make any
loans or advances to any other person, other than to the Company, to KFC
or to any direct or indirect wholly-owned subsidiary of the Company or KFC
and other than routine advances to employees, except in the case of either
(x) or (y) as disclosed in Section 4.1(a)(vi) of the Disclosure Schedule
or, with respect to Kemper Clearing Corp., in the ordinary course of
business;
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(vii) make any tax election or settle or compromise any income
tax liability that could reasonably be expected to be material to the
Company and its subsidiaries taken as a whole;
(viii) except as disclosed in Section 4.1(a)(viii) of the Disclosure
Schedule, pay, discharge, settle 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 consolidated financial statements (or the
notes thereto) of the Company included in the Filed SEC Documents or
incurred since the date of such financial statements in the ordinary
course of business consistent with past practice;
(ix) except in the ordinary course of business, modify, amend or
terminate any material agreement, permit, concession, franchise, license
or similar instrument to which the Company or any subsidiary is a party
or waive, release or assign any material rights or claims thereunder; or
(x) authorize any of, or commit or agree to take any of, the
foregoing actions.
(b) Conduct of Business by Parent. During the period from the date
of this Agreement to the Effective Time, Parent shall, and shall cause its
subsidiaries to, carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and,
to the extent consistent therewith, use all reasonable efforts to preserve
intact their current business organizations, keep available the services of
their current officers and employees and preserve their relationships with
customers, suppliers, licensors, licensees, distributors and others having
business dealings with them to the end that their goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Without limiting the
generality of the foregoing, during the period from the date of this Agreement
to the Effective Time, Parent shall not, and shall not permit any of its
subsidiaries to:
(i) (x) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any
outstanding capital stock of Parent (other than regular quarterly cash
dividends of $.125 per share of Parent Common Stock and regular cash
dividends on the Parent's $3.25 Series D Cumulative Convertible Preferred
Stock, in each case with usual record and payment dates and in accordance
with Parent's present dividend policy) or (y) split, combine or reclassify
any of its outstanding capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for
shares of Parent's outstanding capital stock (other than exchanges in the
ordinary course under Parent's employee stock plans);
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(ii) issue, sell, grant, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities, in each case if any
such action could reasonably be expected to (A) delay materially the date
of mailing of the Joint Proxy Statement or, (B) if it were to occur after
such date of mailing, require an amendment of the Joint Proxy Statement;
(iii) acquire any business or any corporation, partnership, joint
venture, association or other business organization or division thereof,
in each case if any such action could reasonably be expected to (A) delay
materially the date of mailing of the Joint Proxy Statement or, (B) if it
were to occur after such date of mailing, require an amendment of the
Joint Proxy Statement; or
(iv) authorize any of, or commit or agree to take any of, the
foregoing actions.
SECTION 4.2. Other Actions. The Company and Parent shall not,
and shall not permit any of their respective subsidiaries to, take any action
that would, or that could reasonably be expected to, result in (i) any of the
representations and warranties of such party set forth in this Agreement that
are qualified as to materiality becoming untrue, (ii) any of such
representations and warranties that are not so qualified becoming untrue in any
material respect or (iii) any of the conditions of the Merger set forth in
Article VI not being satisfied.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1. Preparation of Form S-4 and the Joint Proxy
Statement. (a) As soon as practicable following the date of this Agreement,
the Company and Parent shall prepare and file with the SEC the Joint Proxy
Statement and Parent shall prepare and file with the SEC the Form S-4, in which
the Joint Proxy Statement will be included as a prospectus. Each of the
Company and Parent shall use its best efforts to have the Form S-4 declared
effective under the Securities Act as promptly as practicable after such
filing. The Company will use its best efforts to cause the Joint Proxy
Statement to be mailed to the Company's stockholders, and Parent will use its
best efforts to cause the Joint Proxy Statement to be mailed to Parent's
stockholders, in each case as promptly as practicable after the Form S-4 is
declared effective under the Securities Act. Parent shall also take any action
(other than qualifying to do business in any jurisdiction in which it is not
now so qualified) required to be taken under any applicable state securities
laws in connection with the issuance of Parent Common Stock in the Merger and
the Company shall furnish all information concerning the Company and the
holders of the Common Stock as may be reasonably requested in connection with
any such action.
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SECTION 5.2. Meetings of Stockholders. The Company will take all
action necessary in accordance with applicable law and its Charter and By-laws
to convene a meeting of its stockholders (the "Stockholders Meeting") to
consider and vote upon the approval of the Merger. Parent will take all action
necessary in accordance with applicable law and its Articles of Incorporation
and By-laws to convene a meeting of its stockholders (the "Parent Stockholders
Meeting") to consider and vote upon the approval of the issuance of Parent
Common Stock in the Merger. Subject to Section 5.11 hereof in the case of the
Company, the Company and Parent will, through their respective Boards of
Directors, recommend to their respective stockholders approval of the foregoing
matters. Without limiting the generality of the foregoing, the Company agrees
that, subject to its right to terminate this Agreement pursuant to Section
5.11, its obligations pursuant to the first sentence of this Section 5.2 shall
not be affected by (i) the commencement, public proposal, public disclosure or
communication to the Company of any Acquisition Proposal (as defined in Section
5.10) or (ii) the withdrawal or modification by the Board of Directors of
the Company of its approval or recommendation of this Agreement or the Merger.
Parent and the Company will use reasonable efforts to hold the Stockholders
Meeting and the Parent Stockholders Meeting on the same day and use their best
efforts to hold such Meetings as soon as practicable after the date hereof.
SECTION 5.3. Letter of the Company's Accountants. The Company
shall use its best efforts to cause to be delivered to Parent a letter of KPMG
Peat Marwick, the Company's independent public accountants, dated a date within
two business days before the date on which the Form S-4 shall become effective
and a letter of KPMG Peat Marwick, dated a date within two business days before
the Closing Date, each addressed to Parent, in form and substance reasonably
satisfactory to Parent and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4.
SECTION 5.4. Letter of Parent's Accountants. Parent shall use its
best efforts to cause to be delivered to the Company a letter of Coopers &
Lybrand, Parent's independent public accountants, dated a date within two
business days before the date on which the Form S-4 shall become effective and
a letter of Coopers & Lybrand, dated a date within two business days before the
Closing Date, each addressed to the Company, in form and substance reasonably
satisfactory to the Company and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4.
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SECTION 5.5. Access to Information; Confidentiality. Each of the
Company and Parent shall, and shall cause each of its respective subsidiaries
to, afford to the other party and to the officers, employees, counsel,
financial advisors and other representatives of such other party reasonable
access during normal business hours during the period prior to the Effective
Time to all its properties, books, contracts, commitments, personnel and
records and, during such period, each of the Company and Parent shall, and
shall cause each of its respective subsidiaries to, furnish as promptly as
practicable to the other party such information concerning its business,
properties, financial condition, operations and personnel as such other party
may from time to time reasonably request. Except as required by law, Parent
will hold, and will cause its respective directors, officers, partners,
employees, accountants, counsel, financial advisors and other representatives
and affiliates to hold, any nonpublic information obtained from the Company in
confidence to the extent required by, and in accordance with, the provisions
of the letter dated May 25, 1994, between Parent and the Company. Except as
required by law, the Company will hold, and will cause its directors, officers,
partners, employees, accountants, counsel, financial advisors and other
representatives and affiliates to hold, any nonpublic information obtained from
Parent in confidence to the extent required by, and in accordance with, the
provisions of the letter dated June 23, 1994, between Parent and the Company.
SECTION 5.6. Best Efforts. Upon the terms and subject to the
conditions and other agreements set forth in this Agreement, each of the
parties agrees to use its 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.
SECTION 5.7. Benefit Plans and Employment Agreements. (a) Parent
currently intends to cause the Surviving Corporation and each of its
subsidiaries to maintain employee benefit plans which provide aggregate
benefits to Continuing Employees (as defined below) that are comparable to
those currently provided by Parent to its employees.
(b) Notwithstanding the provisions of Section 5.7(a):
(i) Each benefit plan made available to Continuing Employees after
the Effective Time shall be offered to Continuing Employees (and, if
applicable, their dependents) without any waiting period and the Surviving
Corporation and, if applicable, Parent shall cause any restrictions and
limitations for pre-existing conditions or insurability to be waived
(other than any pre-existing conditions of lack of insurability that
constituted a restriction or limitation with respect the benefits
available to a Continuing Employee immediately prior to the Effective
Time).
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(ii) Each Continuing Employee shall be given full credit for his or
her pre-Effective Time service with the Company or any of its subsidiaries
(and, to the extent such service is recognized under any Benefit Plan of
the Company or any of its subsidiaries as of the Effective Time, service
with any predecessor employer) for all purposes (other than for benefit
accrual under any defined benefit Pension Plan) under any benefit plan
offered to Continuing Employees on or after the Effective Time.
(iii) As of the Effective Time, Continuing Employees participating
in the defined contribution Benefit Plans (including any non-contributory
supplemental benefit plans) of the Company and each of its subsidiaries
shall be fully vested as to all amounts contributed or accrued through the
Effective Time or, if later, as a result of the following sentence. In
addition, Parent shall cause the Surviving Corporation and each of its
subsidiaries or affiliates, as appropriate, to contribute to each of such
Benefit Plans (or in the case of an unfunded Benefit Plan, shall credit)
for the benefit of individuals who are Eligible Employees (as defined
below) on December 31, 1994, (x) all matching and salary based
contributions for 1994 currently provided for in such Benefit Plan not
made prior to the Effective Time and (y) all discretionary contributions
for 1994 provided for in such Benefit Plans, subject in the case of this
clause (y) to achievement of the performance goals set forth in Section
5.7(b)(iii) of the Disclosure Schedule.
(iv) Parent shall cause the Surviving Corporation and each of its
subsidiaries or affiliates, as appropriate, not later than February 28,
1995, to pay each bonus eligible individual who is an Eligible Employee
on date of payment an incentive cash bonus for 1994 not less than a Target
Bonus (or, in the case of an Eligible Employee whose employment is
terminated prior to December 31, 1994, a pro rata Target Bonus) subject
to the achievement of the performance goals set forth in Section
5.7(b)(iii) of the Disclosure Schedule. Target Bonus means (x) an
individual's current target bonus under the incentive compensation program
in which such individual participates, or (y) if no such specific target
currently exists, two-thirds of the incentive cash bonus received by such
individual for 1993 (or if such individual was not employed until after
January 1, 1993, the bonus received by similarly situated individuals for
1993).
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(v) Parent shall cause the Surviving Corporation and each of its
subsidiaries and affiliates to maintain severance benefits after the
Effective Time for each Continuing Employee that are no less favorable to
such Continuing Employee than those provided under the severance plans
included in Section 5.7(b)(v) of the Disclosure Schedule, until the first
anniversary of the Effective Time (or until the second anniversary of the
Effective Time in the case of the Kemper Corporation Change of Control
Severance Program).
(vi) Parent shall cause the Surviving Corporation and each of its
subsidiaries and affiliates to continue, after the Effective Time, to make
medical expense benefits available to each individual retired as of the
Effective Time and then participating in the various retiree medical
expense benefits programs and plans currently sponsored by the Company and
its subsidiaries, that are no less favorable to such individuals than the
medical expense benefits provided under such programs or plans as of the
date hereof.
(c) As used in Sections 5.7(a) and 5.7(b):
(i) "Continuing Employees" means all employees of Company or a
subsidiary of the Company as of the Effective Time.
(ii) "Eligible Employees" at any date means all Continuing Employees
other than employees who have resigned voluntarily prior to such date or
whose employment has been terminated for "Cause" prior to such date.
(iii) "Cause" means (x) willful breach of, willful neglect of or
willful refusal to perform the duties associated with a Continuing
Employee's employment or (y) commission of a felony, or a misdemeanor
involving dishonesty, fraud, theft, larceny or embezzlement.
(d) The Surviving Corporation agrees to honor and shall not
challenge the validity and enforceability of the termination protection
agreements between the Company and the individuals listed in Section 5.7(d) of
the Disclosure Schedule.
(e) The Surviving Corporation agrees to honor all, and shall not
challenge the validity and enforceability of any, obligations of the Company
and its subsidiaries to non-management directors, including, without
limitation, the obligations under the Kemper Corporation Director Deferred
Compensation Program and the Kemper Corporation Director Retirement Plan.
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SECTION 5.8. Indemnification and Insurance. Parent and Sub agree
that all rights to indemnification and exculpation from liability for acts or
omissions occurring prior to the Effective Time now existing in favor of the
current or former directors, officers or employees of the Company and its
subsidiaries as provided in their respective certificates of incorporation or
by-laws shall survive the Merger and shall continue in full force and effect
in accordance with their terms for a period of not less than six years from the
Effective Time. Parent will cause to be maintained for a period of not less
than six years from the Effective Time the Company's current directors' and
officers' insurance and indemnification policy to the extent that it provides
coverage for events occurring prior to the Effective Time (the "D&O Insurance")
for all persons who are directors, officers or employees of the Company or any
subsidiary on the date of this Agreement, so long as the annual premium
therefor would not be in excess of 200% of the last annual premium paid prior
to the date of this Agreement (200% of such premium, the "Maximum Premium");
provided, however, that Parent may, in lieu of maintaining such existing D&O
Insurance as provided above, cause comparable coverage to be provided under any
policy maintained for the benefit of the directors and officers of Parent or
any of its subsidiaries, so long as (i) the issuer thereof has at least an
equal claims-paying rating and (ii) the material terms thereof are no less
advantageous than the existing D&O Insurance to the extent commercially
available. If the existing D&O Insurance expires, is terminated or cancelled
during such six-year period, Parent will use all reasonable efforts to cause
to be obtained as much D&O Insurance as can be obtained for the remainder of
such period for an annualized premium not in excess of the Maximum Premium, on
terms and conditions no less advantageous than the existing D&O Insurance to
the extent commercially available. The Company represents to Parent that the
Maximum Premium is $1,840,000.
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SECTION 5.9. Public Announcements. Parent and Sub, on the one
hand, and the Company, on the other hand, will consult with each other before
issuing, and provide each other the opportunity to review and comment upon, any
press release or other public statements with respect to the transactions
contemplated by this Agreement, including the Merger, and shall not issue any
such press release or make any such public statement prior to such
consultation, except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange.
SECTION 5.10. Acquisition Proposals. From and after July 6, 1994,
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
investment banker, attorney or other advisor or representative of, the Company
or any of its subsidiaries to, directly or indirectly, (i) solicit, initiate
or encourage the submission of any Acquisition Proposal (as hereinafter
defined) or (ii) participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to, or take any other action
to facilitate any inquiries or the making of any proposal that constitutes, or
may reasonably be expected to lead to, any Acquisition Proposal. Prior to July
6, 1994, the Company, any of its subsidiaries or any officer, director or
employee of, or any investment banker, attorney or other advisor or
representative of, the Company or any of its subsidiaries may do any of the
foregoing. On or after July 6, 1994, the Company, its subsidiaries and all
officers, directors, employees of, and all investment bankers, attorneys and
other advisors and representatives of, the Company and its subsidiaries shall
cease doing any of the foregoing; provided, however, that on or after July 6,
1994, notwithstanding the provisions of the first sentence of this Section
5.10, the Company, any of its subsidiaries or any officer, director or employee
of, or any investment banker, attorney or other advisor or representative of,
the Company or any of its subsidiaries may, following the receipt of an
Acquisition Proposal by the Company that the Board of Directors of the Company
determines in good faith, following consultation with outside counsel, would
permit the Board of Directors to take any of the actions referred to in the
first sentence of Section 5.11, participate in negotiations regarding such
Acquisition Proposal. Notwithstanding anything in this Agreement to the
contrary, from and after July 6, 1994, the Company shall promptly advise Parent
orally and in writing of the receipt by it (or any of the other entities or
persons referred to above) after the date hereof of any Acquisition Proposal,
or any inquiry which could lead to any Acquisition Proposal, the material terms
and conditions of such Acquisition Proposal or inquiry, and the identity of the
person making any such Acquisition Proposal or inquiry. The Company will keep
Parent fully informed of the status and details of any such Acquisition
Proposal or inquiry. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the first sentence of this Section
5.10 by any officer, director or employee of the Company or any of its
subsidiaries or any investment banker, 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 5.10 by the
Company. For purposes of this Agreement, "Acquisition Proposal" means any
proposal with respect to a merger, consolidation, share exchange or similar
transaction involving the Company or any Significant Subsidiary of the Company,
or any purchase of all or any significant portion of the assets of the Company
or any Significant Subsidiary of the Company, or any equity interest in the
Company or any Significant Subsidiary of the Company, other than the
transactions contemplated hereby or by the Citibank Commitment Letter.
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SECTION 5.11. Fiduciary Duties. The Board of Directors of the
Company shall not (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 of this Agreement or the Merger, (ii) approve or recommend, or
propose to approve or recommend, any Acquisition Proposal or (iii) enter into
any agreement with respect to any Acquisition Proposal, unless the Company
receives an Acquisition Proposal and the Board of Directors of the Company
determines in good faith, following consultation with outside counsel, that in
order to comply with its fiduciary duties to stockholders under applicable law
it is necessary for the Board of Directors to withdraw or modify its approval
or recommendation of this Agreement or the Merger, approve or recommend such
Acquisition Proposal, enter into an agreement with respect to such Acquisition
Proposal or terminate this Agreement. In the event the Board of Directors of
the Company takes any of the foregoing actions, the Company shall, concurrently
with the taking of any such action, pay to Parent the Section 5.15(a) Fee or
the Section 5.15(b) Fee, as applicable, plus all Expenses pursuant to Section
5.15. Nothing contained in this Section 5.11 shall prohibit the Company from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to
the Company's stockholders which, in the good faith reasonable judgment of the
Board of Directors of the Company based on the advice of outside counsel, is
required under applicable law; provided that the Company does not withdraw or
modify, or propose to withdraw or modify, its position with respect to the
Merger or approve or recommend, or propose to approve or recommend, an
Acquisition Proposal. Notwithstanding anything contained in this Agreement to
the contrary, any action by the Board of Directors permitted by this Section
5.11 shall not constitute a breach of this Agreement by the Company.
SECTION 5.12. Consents, Approvals and Filings. (a) The Company
and Parent will make and cause their respective subsidiaries to make all
necessary filings, as soon as practicable, including, without limitation, those
required under the HSR Act, the Securities Act, the Exchange Act, the 1940 Act,
the Advisers Act and applicable state insurance laws in order to facilitate
prompt consummation of the Merger and the other transactions contemplated by
this Agreement. In addition, the Company and Parent will each use their best
efforts, and will cooperate fully with each other (i) to comply as promptly as
practicable with all governmental requirements applicable to the Merger and the
other transactions contemplated by this Agreement and (ii) to obtain as
promptly as practicable all necessary permits, orders or other consents of
Governmental Entities and consents of all third parties necessary for the
consummation of the Merger and the other transactions contemplated by this
Agreement. Each of the Company and Parent shall use reasonable efforts to
provide such information and communications to Governmental Entities as such
Governmental Entities may reasonably request.
(b) Each of the parties shall provide to the other party copies of
all applications in advance of filing or submission of such applications to
Governmental Entities in connection with this Agreement.
SECTION 5.13. Company Satisfaction of the Conditions of Section 15
of the 1940 Act. (a) The Company shall, and shall cause each of KFS and the
applicable subsidiaries of KFS (collectively, with KFS, the "Asset Management
Subsidiaries") to, use their best efforts to cause the boards of
trustees/directors of the Company Funds to approve, and to solicit their
respective shareholders as promptly as practicable with regard to the approval
of, new investment advisory agreements with the Asset Management Subsidiaries
acting as investment advisers for such funds, to be effective on or as promptly
as practicable after the Effective Time, pursuant to the provisions of Section
15 of the 1940 Act, and consistent with all requirements of the 1940 Act
applicable thereto, provided that such agreements are identical in all respects
to the existing agreements other than the term of the agreement. For purposes
of this Agreement, "Company Funds" shall mean the registered investment
companies for which the Company or any subsidiary acts as investment adviser
or sub-adviser. Each Company Fund is identified in Section 5.13 of the
Disclosure Schedule.
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(b) The Company shall, and shall cause each of the Asset Management
Subsidiaries to, use their best efforts to ensure the satisfaction of the
conditions set forth in Section 15(f) of the 1940 Act with respect to each of
the Company Funds.
SECTION 5.14. Advisory Contract Consents. As promptly as
practicable, the Company shall cause the non-investment company advisory
clients of the Asset Management Subsidiaries to be informed of the transactions
contemplated by this Agreement and shall give such clients an opportunity to
terminate their advisory contracts with such Asset Management Subsidiaries or
any of their affiliates. Parent agrees that the Company may satisfy this
obligation insofar as it relates to non-investment company advisory clients by
providing them with the notice contemplated by the first sentence of this
Section 5.14 and obtaining such clients' consent in the form of actual or
implied consent by way of informing such clients of the Asset Management
Subsidiaries' intention to continue the advisory services, pursuant to the
Asset Management Subsidiaries' existing contracts with such clients, subject
to such clients' right to terminate such contracts within 60 days of receipt
of such notice, and that each such client's consent will be implied if it
continues to accept the services without rejection during such specified 60 day
period.
SECTION 5.15. Certain Fees and Expenses. (a) The Company shall
pay to Parent upon demand $25 million (the "Section 5.15(a) Fee"), payable in
same-day funds, plus all Expenses (as defined below), if an Acquisition
Proposal is commenced, publicly proposed, publicly disclosed or communicated
to the Company (or the willingness of any person to make an Acquisition
Proposal is publicly disclosed or communicated to the Company) and the Board
of Directors of the Company prior to July 6, 1994, in accordance with Section
5.11, withdraws or modifies its approval or recommendation of this Agreement
or the Merger, approves or recommends such Acquisition Proposal, enters into
an agreement with respect to such Acquisition Proposal, terminates this
Agreement, approves any transaction pursuant to Section 11(a)(ii)(B) or 13(d)
of the Rights Agreement or amends or waives any provision of the Rights
Agreement or redeems the Rights issued thereunder.
(b) The Company shall pay to Parent upon demand $100 million (the
"Section 5.15(b) Fee"), payable in same-day funds, plus all Expenses, if a bona
fide Acquisition Proposal is commenced, publicly proposed, publicly disclosed
or communicated to the Company (or the willingness of any person to make such
an Acquisition Proposal is publicly disclosed or communicated to the Company)
and (i) the Board of Directors of the Company on or after July 6, 1994, in
accordance with Section 5.11, withdraws or modifies its approval or
recommendation of this Agreement or the Merger, approves or recommends such
Acquisition Proposal, enters into an agreement with respect to such Acquisition
Proposal, terminates this Agreement, approves any transaction pursuant to
Section 11(a)(ii)(B) or 13(d) of the Rights Agreement or amends or waives any
provision of the Rights Agreement or redeems the Rights issued thereunder or
(ii) the requisite approval of the Company's stockholders for the Merger is not
obtained at the Stockholders Meeting and the Section 5.15(a) Fee did not and
has not become due and payable.
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(c) For purposes of this Section, "Expenses" shall mean all
documented out-of-pocket fees and expenses incurred or paid by or on behalf of
Parent in connection with the Merger or the consummation of any of the
transactions contemplated by this Agreement, including all bank fees, financing
fees, printing costs and fees and expenses of counsel, investment banking
firms, accountants, experts and consultants to Parent; provided, however, that
prior to July 6, 1994, Expenses shall not exceed $15.0 million.
SECTION 5.16. Compliance with Section 15(f) of the 1940 Act by
Parent. Parent shall use its best efforts to assure the satisfaction of the
conditions of Section 15(f) of the 1940 Act with respect to each of the Company
Funds.
SECTION 5.17. Affiliates and Certain Stockholders. Prior to the
Closing Date, the Company shall deliver to Parent a letter identifying all
persons who are, at the time the Merger is submitted for approval to the
stockholders of the Company, "affiliates" of the Company for purposes of Rule
145 under the Securities Act. The Company shall use its best efforts to cause
each such person to deliver to Parent on or prior to the Closing Date a written
agreement substantially in the form attached as Exhibit A hereto. Parent shall
not be required to maintain the effectiveness of the Form S-4 or any other
registration statement under the Securities Act for the purposes of resale of
Parent Common Stock by such affiliates and the certificates representing Parent
Common Stock received by such affiliates in the Merger shall bear a customary
legend regarding applicable Securities Act restrictions and the provisions of
this Section 5.17.
SECTION 5.18. NYSE Listing. Parent shall use its best efforts to
cause the shares of Parent Common Stock to be issued in the Merger to be
approved for listing on the NYSE, subject to official notice of issuance, prior
to the Closing Date.
SECTION 5.19. Stockholder Litigation. The Company shall give
Parent the opportunity to participate in the defense or settlement of any
stockholder litigation against the Company and its directors relating to the
transactions contemplated by this Agreement; provided, however, that no such
settlement shall be agreed to without Parent's consent, which consent shall not
be unreasonably withheld.
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SECTION 5.20. Financing. Parent will use its best efforts to obtain
the financing referred to in the Citibank Commitment Letter, the Morgan Stanley
Highly Confident Letter and the CCP II Letter. The Company will, and will
cause its subsidiaries to, cooperate with Parent and take all reasonable
actions necessary in order to assist Parent in obtaining such financing.
SECTION 5.21. Board Action Relating to Stock Option Plans. As
soon as practicable following the date of this Agreement, the Board of
Directors of the Company (or, if appropriate, any committee administering a
Company Stock Option Plan) shall adopt such resolutions or take such actions
as may be required to adjust the terms of all outstanding Company Stock Options
in accordance with Section 2.2 and shall make such other changes to the Company
Stock Option Plans as it deems appropriate to give effect to the Merger
(subject to the approval of Parent, which shall not be unreasonably withheld).
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to effect the Merger is
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the affirmative vote of the stockholders of
the Company entitled to cast at least a majority of the votes which all
stockholders of the Company are entitled to cast thereon and the Parent
Stockholder Approval shall have been obtained.
(b) Governmental and Regulatory Consents. All filings required to
be made prior to the Effective Time with, and all consents, approvals,
permits and authorizations required to be obtained prior to the Effective
Time from, Governmental Entities, including, without limitation, those set
forth in Section 3.1(c)(i) of the Disclosure Schedule, in connection with
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by the Company, Parent and Sub will have
been made or obtained (as the case may be); provided, however, that such
consents, approvals, permits and authorizations may be subject to (i)
conditions customarily imposed by insurance regulatory authorities or (ii)
other conditions that would not reasonably be expected to have a material
adverse effect on the business, financial condition or results of
operations of Parent and its subsidiaries taken as a whole (after giving
effect to the consummation of the Merger).
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<PAGE> 43
(c) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or
shall have otherwise expired.
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect; provided, however, that
the parties invoking this condition shall use reasonable efforts to have
any such order or injunction vacated.
(e) Company Fund Approvals. In accordance with Section 15 of the
1940 Act, the respective boards of trustees/directors of the Company
Funds, including in each case a majority of trustees/directors who are not
parties to the investment advisory contracts of such Company Funds or
"interested persons" (as such term is defined in the 1940 Act) of any such
party (the "Non-Interested Directors"), and holders of a majority of the
outstanding voting securities (as such term is defined in the 1940 Act)
of Company Funds which, as of May 31, 1994, represented at least 90% of
all of the net assets of all of the Company Funds as of such date, shall
have approved new investment advisory contracts with the Asset Management
Subsidiaries acting as investment advisers of such funds upon terms
identical with those of each such Company Fund (other than changes in the
term of the contract); and the board of trustees/directors, including a
majority of the Non-Interested Directors, of each of the Company Funds
which has approved a new investment advisory contract shall have approved
new underwriting, distribution or dealer contracts, if any, with the
applicable subsidiaries of the Company that are parties to such agreements
pursuant to Section 15 of the 1940 Act and any other requirements
applicable thereto contained in the 1940 Act.
(f) Advisory Client Approvals. The Company shall have obtained, in
accordance with Section 5.14, the consent of non-investment company
advisory clients of the Asset Management Subsidiaries who are not
affiliated with the Company and who, as of May 31, 1994, represent at
least 80% of all of the net assets under management as of such date for
all such advisory clients not affiliated with the Company.
(g) Compliance with Section 15(f) of the 1940 Act. At the time of
the Closing: (i) at least 75% of the members of the board of
trustees/directors of each Company Fund which has approved a new
investment advisory contract shall not be "interested persons" (as such
term is defined in the 1940 Act) of Parent (or such other entity which
will act as adviser to such Company Funds following the Effective Time),
of the Company or of any affiliate of the Company that was the investment
adviser of any such Company Fund immediately preceding the Effective Time;
and (ii) the requirements of Section 15(f)(1)(B) of the 1940 Act shall
have been complied with in that no "unfair burden" shall have been imposed
on any of the Company Funds as a result of this Agreement, the
transactions contemplated hereunder, new investment advisory contracts or
otherwise.
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<PAGE> 44
(h) Investors Fiduciary Trust Company. The Company will have
divested its ownership interest in Investors Fiduciary Trust Company or
Parent shall have obtained all regulatory approvals required in connection
with acquiring the Company's interest in Investors Fiduciary Trust
Company.
(i) NYSE Listing. The shares of Parent Common Stock issuable to the
Company's stockholders pursuant to this Agreement shall have been approved
for listing on the NYSE, subject to official notice of issuance.
(j) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
SECTION 6.2. Conditions to Obligations of Parent and Sub. The
obligations of Parent and Sub to effect the Merger are further subject to the
following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in Section 3.1 that are qualified as
to materiality shall be true and correct and the representations and
warranties of the Company set forth in Section 3.1 that are not so
qualified shall be true and correct in all material respects, in each case
as of the date of this Agreement and as of the Closing Date as though made
on and as of the Closing Date, except to the extent such representations
and warranties speak as of an earlier date, and Parent shall have received
a certificate signed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to the effect set
forth in this paragraph.
(b) Performance of Obligations of the Company. The Company shall
have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and
Parent shall have received a certificate signed on behalf of the Company
by the chief executive officer and the chief financial officer of the
Company to such effect.
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<PAGE> 45
(c) Affiliates. Parent shall have received from each affiliate
named in the letter referred to in Section 5.17 an executed copy of an
agreement substantially in the form of Exhibit A hereto.
(d) Financing. Parent shall have obtained all financing necessary
to pay the aggregate Cash Consideration payable in connection with the
Merger.
SECTION 6.3. Conditions to Obligation of the Company. The
obligation of the Company to effect the Merger is further subject to the
following conditions:
(a) Representations and Warranties. The representations and
warranties of Parent and Sub set forth in Section 3.2 that are qualified
as to materiality shall be true and correct and the representations and
warranties of Parent and Sub set forth in Section 3.2 that are not so
qualified shall be true and correct in all material respects, in each case
as of the date of this Agreement and as of the Closing Date as though made
on and as of the Closing Date, except to the extent such representations
and warranties speak as of an earlier date, and the Company shall have
received a certificate signed on behalf of Parent by the chief executive
officer and the chief financial officer of Parent to the effect set
forth in this paragraph.
(b) Performance of Obligations of Parent and Sub. Parent and Sub
shall have performed in all material respects all obligations required to
be performed by them under this Agreement at or prior to the Closing Date,
and the Company shall have received a certificate signed on behalf of
Parent by the chief executive officer and the chief financial officer of
Parent to such effect.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. Termination. This Agreement may be terminated and
abandoned at any time prior to the Effective Time, whether before or after
approval of matters presented in connection with the Merger by the stockholders
of the Company:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company:
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<PAGE> 46
(i) if, upon a vote at a duly held Stockholders Meeting or
Parent Stockholders Meeting or any adjournment thereof, any required
approval of the stockholders of the Company or Parent, as the case
may be, shall not have been obtained;
(ii) if the Merger shall not have been consummated on or before
March 31, 1995, unless the failure to consummate the Merger is the
result of a willful and material breach of this Agreement by the
party seeking to terminate this Agreement;
(iii) if any Governmental Entity shall have issued an order,
decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and
nonappealable; or
(iv) if the Board of Directors of the Company shall have
exercised its rights set forth in Section 5.11 of this Agreement; or
(c) by the Company, if definitive documentation with respect to the
bank financing contemplated by the Citibank Commitment Letter (or with
respect to any alternative bank financing that provides, in the aggregate,
the same amount of financing) shall not have been executed by August 31,
1994.
SECTION 7.2. Effect of Termination. In the event of termination of
this Agreement by either the Company or Parent as provided in Section 7.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent, Sub or the Company, other than the last
two sentences of Section 5.5 and Sections 3.1(p), 3.2(o), 5.15, 7.2 and 8.2.
Nothing contained in this Section shall relieve any party from any liability
resulting from any wilful and material breach of the representations,
warranties, covenants or agreements set forth in this Agreement.
SECTION 7.3. Amendment. Subject to the applicable provisions of
the DGCL, at any time prior to the Effective Time, the parties hereto may
modify or amend this Agreement, by written agreement executed and delivered by
duly authorized officers of the respective parties; provided, however, that
after approval of the Merger by the stockholders of the Company, no amendment
shall be made which reduces the consideration payable in the Merger or
adversely affects the rights of the Company's stockholders hereunder without
the approval of such stockholders. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties.
SECTION 7.4. Extension; Waiver. At any time prior to the Effective
Time, the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties of the other parties contained in this
Agreement or in any document delivered pursuant to this Agreement or (c)
subject to Section 7.3, waive compliance with any of the agreements or
conditions of the other parties contained in this Agreement. Any agreement on
the part of a party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party. The failure
of any party to this Agreement to assert any of its rights under this Agreement
or otherwise shall not constitute a waiver of such rights.
<PAGE>
<PAGE> 47
SECTION 7.5. Procedure for Termination, Amendment, Extension or
Waiver. A termination of this Agreement pursuant to Section 7.1, an amendment
of this Agreement pursuant to Section 7.3 or an extension or waiver pursuant
to Section 7.4 shall, in order to be effective, require in the case of Parent,
Sub or the Company, action by its Board of Directors or the duly authorized
designee of its Board of Directors.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1. Nonsurvival of Representations and Warranties. None
of the representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time. This
Section 8.1 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Effective Time, including, without
limitation, Section 5.16.
SECTION 8.2. Fees and Expenses. Except as provided otherwise in
Section 5.15, whether or not the Merger shall be consummated, each party hereto
shall pay its own expenses incident to preparing for, entering into and
carrying out this Agreement and the consummation of the transactions
contemplated hereby, except that expenses incurred in connection with printing
and mailing the Joint Proxy Statement and the S-4, and the costs of preparing
and distributing proxy materials to and of holding the meetings of the Company
Funds' shareholders will be shared equally by Parent and the Company.
SECTION 8.3. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly
or indirectly, through one or more intermediaries, controls, is controlled
by, or is under common control with, such first person;
(b) "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity;
and
<PAGE>
<PAGE> 48
(c) a "subsidiary" of any person means another person 50% of the
equity securities of which are owned directly or indirectly by such first
person; provided, however, that joint ventures or partnerships engaged
in the business of real estate development, management or ownership shall
not be deemed to be subsidiaries unless such first person owns directly
or indirectly 80% of the equity securities of such joint venture or
partnership.
SECTION 8.4. Notices. All notices, requests, claims, demands and
other communications under this Agreement shall be in writing and shall be
deemed given if delivered personally or sent by overnight courier (providing
proof of delivery) 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: Lawrence W. Inlow, Esq.
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attention: Allen Finkelson, Esq.
(b) if to the Company, to
Kemper Corporation
One Kemper Drive
Long Grove, Illinois 60049
Attention: David B. Mathis
Chairman of the Board and
Chief Executive Officer
<PAGE>
<PAGE> 49
with copies to:
Kemper Corporation
One Kemper Drive
Long Grove, Illinois 60049
Attention: Kathleen A. Gallichio
Senior Vice President,
General Counsel and
Corporate Secretary
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Charles I. Cogut, Esq.
SECTION 8.5. Interpretation. When a reference is made in this
Agreement to a Section or Schedule, such reference shall be to a Section of,
or a Schedule to, 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 8.6. Counterparts. This Agreement may be executed in one
or more 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 8.7. Entire Agreement; Third-Party Beneficiaries. This
Agreement and the other agreements referred to herein constitute the entire
agreement, and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter of this
Agreement. This Agreement is not intended to confer upon any person other than
the parties hereto and the third party beneficiaries referred to in the
following sentence any rights or remedies. The parties hereto expressly intend
the provisions of Sections 5.7(b) and (c), 5.8 and 5.16 to confer a benefit
upon and be enforceable by, as third party beneficiaries of this Agreement, the
third persons referred to in, or intended to be benefitted by, such provisions.
SECTION 8.8. 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.
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<PAGE> 50
SECTION 8.9. Assignment. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties
without the prior written consent of the other parties, and any such assignment
that is not consented to shall be null and void. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
SECTION 8.10. Enforcement. The parties 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 of this Agreement in any court of the
United States located in the State of Delaware, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (a) consents to submit itself to the personal
jurisdiction of any Federal court located in the State of Delaware in the event
any dispute arises out of this Agreement or any of the transactions
contemplated by this Agreement, (b) agrees that it will not attempt to deny or
defeat such personal jurisdiction or venue by motion or other request for leave
from any such court and (c) agrees that it will not bring any action relating
to this Agreement or any of the transactions contemplated by this Agreement in
any court other than a Federal court sitting in the State of Delaware.
SECTION 8.11. Severability. Whenever possible, each provision or
portion of any provision of this Agreement will be interpreted in such manner
as to be effective and valid under applicable law but if any provision or
portion of any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision
had never been contained herein.
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.
STEPHEN C. HILBERT
---------------------------
Name: Stephen C. Hilbert
Title: Chairman of the Board, President
and Director
Attest:
---------------------------
Name:
Title:
[CORPORATE SEAL]
<PAGE>
<PAGE> 51
KC ACQUISITION, INC.
STEPHEN C. HILBERT
---------------------------
Name: Stephen C. Hilbert
Title: President and Chief
Executive Officer
Attest:
---------------------------
Name:
Title:
[CORPORATE SEAL]
KEMPER CORPORATION
DAVID B. MATHIS
---------------------------
Name: David B. Mathis
Title: Chairman of the Board and Chief
Executive Officer
Attest:
KATHLEEN A. GALLICHIO
---------------------------
Name: Kathleen A. Gallichio
Title: Corporate Secretary
[CORPORATE SEAL]
<PAGE>
<PAGE> 52
DISCLOSURE SCHEDULES
INDEX
Section Caption in Agreement
- ------- --------------------
2.2 Company Stock Options to be Assumed
3.1 (b) Capital Structure
3.1 (c) Authority; Noncontravention
3.1 (c) (i) State Insurance Filings
3.1 (c) (ii) Other Consents
3.1 (f) Absence of Certain Changes or Events
3.1 (g) Absence of Changes in Benefits Plans
3.1 (i) Tax Extension Waiver Requests
3.1 (j) Excess Parachute Payments; Section 162 (m)
of the Code
4.1 (a) (iv) Pending Acquisitions
4.1 (a) (v) Disposition of Properties
4.1 (a) (vi) Borrowings
4.1 (a) (viii) Settlement of Claims
5.7 (b) (iii) Performance Goals
5.7 (b) (v) Severance Plans
5.7 (d) Termination Protection Agreements
5.13 Company Funds
<PAGE>
<PAGE> 1
ANNEX 4
DELAWARE GENERAL CORPORATION LAW
Section 262. Appraisal Rights
(a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of
a demand pursuant to subsection (d) of this section with
respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this
section and who has neither voted in favor of the merger or
consolidation nor consented thereto in writing pursuant to
Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock
under the circumstances described in subsections (b) and (c)
of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock
corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include
what is ordinarily meant by those words and also membership
or membership interest of a member of a nonstock
corporation.
(b) Appraisal rights shall be available for the
shares of any class or series of stock of a constituent
corporation in a merger or consolidation to be effected
pursuant to Sections 251, 252, 254, 257, 258, 263 or 264 of this
title:
(1) Provided, however, that no appraisal rights
under this section shall be available for the shares of
any class or series of stock which, at the record date
fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders to
act upon the agreement of merger or consolidation, were
either (i) listed on a national securities exchangeable
or (ii) held of record by more than 2,000 stockholders;
and further provided that no appraisal rights shall be
available for any shares of stock of the constituent
corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders
of the surviving corporation as provided in
subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this
subsection, appraisal rights under this section shall
be available for the shares of any class or series of
stock of a constituent corporation if the holders
thereof are required by the terms of an agreement of
merger or consolidation pursuant to Sections 251, 252, 254,
257, 258, 263 and 264 of this title to accept for such
stock anything except:
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<PAGE> 2
a. Shares of stock of the corporation
surviving or resulting from such merger or
consolidation;
b. Shares of stock of any other corporation
which at the effective date of the merger or
consolidation will be either listed on a national
securities exchange or held of record by more than
2,000 stockholders;
c. Cash in lieu of fractional shares of the
corporations described in the foregoing
subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock and
cash in lieu of fractional shares described in the
foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary
Delaware corporation party to a merger effected under
Section 253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the
subsidiary Delaware corporation.
(c) Any corporation may provide in its
certificate of incorporation that appraisal rights under
this section shall be available for the shares of any class
or series of its stock as a result of an amendment to its
certificate of incorporation, any merger or consolidation in
which the corporation is a constituent corporation or the
sale of all or substantially all of the assets of the
corporation. If the certificate of incorporation contains
such a provision, the procedures of this section, including
those set forth in subsections (d) and (e) of this section,
shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as
follows:
(1) If a proposed merger or consolidation for
which appraisal rights are provided under this section
is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its
stockholders who was such on the record date for such
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<PAGE> 3
meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c)
hereof, that appraisal rights are available for any or
all of the shares of the constituent corporations, and
shall include in such notice a copy of this section.
Each stockholder electing to demand the appraisal of
his shares shall deliver to the corporation, before the
taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal
of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by
a separate written demand as herein provided. Within
10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation
shall notify each stockholder of each constituent
corporation who has complied with this subsection and
has not voted in favor of or consented to the merger or
consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved
pursuant to Section 228 or 253 of this title, the surviving
or resulting corporation, either before the effective
date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders
entitled to appraisal rights of the effective date of
the merger or consolidation and that appraisal rights
are available for any or all of the shares of the
constituent corporation, and shall include in such
notice a copy of this section. The notice shall be
sent by certified or registered mail, return receipt
requested, addressed to the stockholder at his address
as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within
20 days after the date of mailing of the notice, demand
in writing from the surviving or resulting corporation
the appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of
his shares.
(e) Within 120 days after the effective date of
the merger or consolidation, the surviving or resulting
corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court or
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<PAGE> 4
Chancery demanding a determination of the value of the stock
of all such stockholders. Notwithstanding the foregoing, at
any time within 60 days after the effective date of the
merger or consolidation, any stockholder shall have the
right to withdraw his demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within
120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written
request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a
statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with
respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such
written statement shall be mailed to the stockholder within
10 days after his written request for such a statement is
received by the surviving or resulting corporation or within
10 days after expiration of the period for delivery of
demands for appraisal under subsection (d) hereof, whichever
is later.
(f) Upon the filing of any such petition by a
stockholder, service of a copy thereof shall be made upon
the surviving or resulting corporation, which shall within
20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly
verified list containing the names and addresses of all
stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have
not been reached by the surviving or resulting corporation.
If the petition shall be filed by the surviving or resulting
corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered
by the Court, shall give notice of the time and place fixed
for the hearing of such petition by registered or certified
mail to the surviving or resulting corporation and to the
stockholders shown on the list at the addresses therein
stated. Such notice shall also be given by one or more
publications at least one week before the day of the
hearing, in a newspaper of general circulation published in
the City of Wilmington, Delaware or such publication as the
Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs
thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court
shall determine the stockholders who have complied with this
section and who have become entitled to appraisal rights.
The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the
Register in Chancery for notation thereon of the pendency of
the appraisal proceedings; and if any stockholder fails to
comply with such direction, the Court may dismiss the
proceedings as to such stockholder.
<PAGE>
<PAGE> 5
(h) After determining the stockholders entitled
to an appraisal, the Court shall appraise the shares,
determining their fair value exclusive of any element of
value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of
interest, if any, to be paid upon the amount determined to
be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may
consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would
have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting
corporation or by any stockholder entitled to participate in
the appraisal proceeding, the Court may, in its discretion,
permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final
determination of the stockholder entitled to an appraisal.
Any stockholder whose name appears on the list filed by the
surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such
is required, may participate fully in all proceedings until
it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the
fair value of the shares, together with interest, if any, by
the surviving or resulting corporation to the stockholders
entitled thereto. Interest may be simple or compound, as
the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock
forthwith, and the case of holders of shares represented by
certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree
may be enforced as other degrees in the Court of Chancery
may be enforced, whether such surviving or resulting
corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined
by the Court and taxed upon the parties as the Court deems
equitable in the circumstances. Upon application of a
stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation,
reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the
shares entitled to an appraisal.
<PAGE>
<PAGE> 6
(k) From and after the effective date of the
merger or consolidation, no stockholder who has demanded his
appraisal rights as provided in subsection (d) of this
section shall be entitled to vote such stock for any purpose
or to receive payment of dividends or other distributions on
the stock (except dividends or other distributions payable
to stockholders of record at a date which is prior to the
effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed
within the time provided in subsection (e) of this section,
or if such stockholder shall deliver to the surviving or
resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective
date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the
written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding
the foregoing, no appraisal proceeding in the Court of
Chancery shall be dismissed as to any stockholder without
the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting
corporation to which the shares of such objecting
stockholders would have been converted had they assented to
the merger or consolidation shall have the status of
authorized and unissued shares of the surviving or resulting
corporation.
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
See "COMPARISON OF RIGHTS OF COMMON STOCKHOLDERS OF CONSECO AND
KEMPER" in the Joint Proxy Statement/Prospectus for a description
of the general effect of certain provisions of the Indiana
Business Corporation Law and the Registrant's Amended and
Restated Articles of Incorporation and Amended and Restated Code
of By-laws which provide for the indemnification of directors and
officers of the Registrant against certain liabilities incurred
in their capacity as such.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
2. Agreement and Plan of Merger dated June 26, 1994 by and among the
Registrant, Kemper and KC Acquisition, Inc. (included as Annex 1 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)).
3.1 Amended and Restated Articles of Incorporation of the Registrant were
filed with the Commission as Exhibit 3.1 to the Registrant's
Registration Statement on Form S-2, No. 33-8498; Articles of
Amendment thereto, as filed September 9, 1988 with the Indiana
Secretary of State, were filed with the Commission as Exhibit 3.1.1
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1988; and Articles of Amendment thereto, as filed June
13, 1989 with the Indiana Secretary of State, were filed with the
Commission as Exhibit 3.1.2 to the Registrant's Report on Form 10-Q
for the quarter ended June 30, 1989, and Articles of Amendment
thereto, as filed June 29, 1993 with the Indiana Secretary of State,
were filed with the Commission as Exhibit 3.1.3 to the Registrant's
Report on Form 10-Q for the quarter ended June 30, 1993.
3.2 Amended and Restated By-Laws of the Registrant effective February 10,
1986 were filed with the Commission as Exhibit 3.2
to the Registrant's Registration Statement on Form S-1, No. 33-4367,
and an Amendment thereto was filed with the
Commission as Exhibit 3.2.1 to Amendment No. 2 to such Registration
Statement.
3.3 Form of Amendment to Articles of Incorporation of the Registrant to
authorize the change of the name of the Registrant to
Kemper, Inc.*
4.1 Specimen of the Registrant's common stock certificate.*
4.8 Indenture dated as of February 18, 1993, between the Registrant and
Shawmut Bank Connecticut, National Association, as
Trustee, for the Registrant's 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 the year ended December
31, 1992.
4.11 Articles of Amendment to the Registrant's Articles of Incorporation
as filed January 22, 1993 with the Indiana Secretary of
State, establishing the designations, rights and preferences of the
Registrant's Series D Cumulative Convertible Preferred Stock,
were filed with the Commission as Exhibit 4.11 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992.
<PAGE>
<PAGE>
4.12 Credit Agreement dated as of August 31, 1994, among KC Acquisition,
Inc., as Borrower and the Registrant, as Guarantor,
the Banks named therein, as Banks, The Bank of New York, Continental
Bank, Deutsche Bank AG, New York Branch and/or
Cayman Island Branches, The First National Bank of Chicago, First
Union National Bank of North Carolina, International
Nederlanden (U.S.) Capital Corporation, The Long-Term Credit Bank of
Japan, Ltd. Chicago Branch, and NationsBank of
Georgia, N.A., as Managing Agents, and Citicorp USA, Inc., as
Administrative Agent.*
4.13 Credit Agreement dated as of August 31, 1994, among CCP II Holdings
Corp. as Borrower, the Banks named therein, as Banks, The Bank of New
York, Continental Bank, Deutsche Bank AG, New York Branch and/or
Cayman Island Branches, The First National Bank of Chicago, First
Union National Bank of North Carolina, Internationale Nederlanden
(U.S.) Capital Corporation, The Long-Term Credit Bank of Japan, Ltd.
Chicago Branch, and NationsBank of Georgia, N.A., as Managing Agents,
and Citicorp USA, Inc., as Administrative Agent.*
5. Opinion of Lawrence W. Inlow as to the legality of the Conseco Common
Stock being issued*
8. Opinion of Cravath, Swaine & Moore as to certain tax matters*
24.1 Consent of Coopers & Lybrand L.L.P. with respect to the financial
statements of the Registrant
24.2 Consent of KPMG Peat Marwick LLP with respect to the financial
statements of Kemper
24.3 Consent of Ernst & Young LLP with respect to the financial statements
of The Statesman Group, Inc.
24.4 Consent of Morgan Stanley & Co. Incorporated*
24.5 Consent of Goldman Sachs & Co.*
24.6 Consent of Lawrence W. Inlow (included in Exhibit 5)
24.7 Consent of Cravath, Swaine & Moore (included in Exhibit 8)
25 Powers of Attorney (on signature page)
28.3 Forms of Proxy Card for Conseco Common Stock
28.4 Forms of Proxy Card for Kemper Common Stock
99.1 Opinion of Morgan Stanley & Co. Incorporated (included as Annex 2
to the Joint Proxy Statement/Prospectus)*
99.2 Opinion of Goldman Sachs & Co. (included as Annex 3 to the Joint
Proxy Statement/Prospectus)*
(b) Financial Statement Schedules
Inapplicable
* To be filed by Amendment<PAGE>
<PAGE>
Item 22. Undertakings
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;
(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 of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
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 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the Registration Statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The Registrant undertakes that every prospectus: (i) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment of the Registration Statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liabilities under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
<PAGE>
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1993 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 of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with 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 whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 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.
The undersigned Registrant hereby undertakes to supply by means of a
post-effect amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and include in the
Registration Statement when it became effective. <PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Carmel,
the State of Indiana, on September 14, 1994.
CONSECO, INC.
By: /s/ STEPHEN C. HILBERT
________________________________________
Name: Stephen C. Hilbert
Title: Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Lawrence W. Inlow, James S. Adams and Karl W.
Kindig, jointly and severally, as his true and lawful attorney-in-fact and
agent, each with full power of substitution and resubstitution for him and in
his name, place and stead, in any and all capacities, to sign any and all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each said attorney-in-fact or agent or substitute lawfully
does or causes to be done by virtue hereof.
<TABLE>
<CAPTION>
Signatures Capacity Date
---------- -------- ----
<S> <C> <C>
/s/ STEPHEN C. HILBERT
------------------------------ Chairman of the Board, Chief September 14, 1994
Stephen C. Hilbert Executive Officer and President
(Principal Executive Officer) and
Director
/s/ ROLLIN M. DICK
------------------------------ Executive Vice President and Chief September 14, 1994
Rollin M. Dick Financial Officer (Principal
Financial and Accounting Officer)
and Director
/s/ MICHAEL G. BROWNING
------------------------------ Director September 14, 1994
Michael G. Browning
/s/ NGAIRE E. CUNEO
------------------------------ Director September 14, 1994
Ngaire E. Cuneo
/s/ LOUIS P. FERRERO
------------------------------ Director September 14, 1994
Louis P. Ferrero
/s/ DONALD F. GONGAWARE
------------------------------ Director September 14, 1994
Donald F. Gongaware
------------------------------ Director September , 1994
M. Phil Hathaway
------------------------------ Director September , 1994
James D. Massey
/s/ DENNIS F. MURRAY, Sr.
------------------------------ Director September 14, 1994
Dennis F. Murray, Sr.
/TABLE
<PAGE>
<PAGE>
EXHIBIT INDEX
FORM S-4 OF CONSECO, INC.
<TABLE>
<CAPTION>
Exhibit
No. Document
--- --------
<S> <C>
2. Agreement and Plan of Merger dated June 26, 1994 by and among the Registrant, Kemper and KC Acquisition,
Inc. (included as Annex 1 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)).
3.1 Amended and Restated Articles of Incorporation of the Registrant were filed with the Commission as Exhibit
3.1 to the Registrant's Registration Statement on Form S-2, No. 33-8498; Articles of Amendment thereto, as
filed September 9, 1988 with the Indiana Secretary of State, were filed with the Commission as Exhibit 3.1.1
to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988; and Articles of
Amendment thereto, as filed June 13, 1989 with the Indiana Secretary of State, were filed with the Commission
as Exhibit 3.1.2 to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1989, and Articles
of Amendment thereto, as filed June 29, 1993 with the Indiana Secretary of State, were filed with the
Commission as Exhibit 3.1.3 to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1993.
3.2 Amended and Restated By-Laws of the Registrant effective February 10, 1986 were filed with the Commission
as Exhibit 3.2 to the Registrant's Registration Statement on Form S-1, No. 33-4367, and an Amendment thereto
was filed with the Commission as Exhibit 3.2.1 to Amendment No. 2 to such Registration Statement.
3.3 Form of Amendment to Articles of Incorporation of the Registrant to authorize the change of the name of the
Registrant to Kemper, Inc.*
4.1 Specimen of the Registrant's common stock certificate.*
4.8 Indenture dated as of February 18, 1993, between the Registrant and Shawmut Bank Connecticut, National
Association, as Trustee, for the Registrant's 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 the year ended December 31,
1992.
4.11 Articles of Amendment to the Registrant's Articles of Incorporation as filed January 22, 1993 with the Indiana
Secretary of State, establishing the designations, rights and preferences of the Registrant's Series D Cumulative
Convertible Preferred Stock, were filed with the Commission as Exhibit 4.11 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992.
4.12 Credit Agreement dated as of August 31, 1994, among KC Acquisition, Inc., as Borrower and the Registrant,
as Guarantor, the Banks named therein, as Banks, The Bank of New York, Continental Bank, Deutsche Bank
AG, New York Branch and/or Cayman Island Branches, The First National Bank of Chicago, First Union
National Bank of North Carolina, Internationale Nederlanden (U.S.) Capital Corporation, The Long-Term Credit
Bank of Japan, Ltd. Chicago Branch, and NationsBank of Georgia, N.A., as Managing Agents, and Citicorp
USA, Inc., as Administrative Agent.*
4.13 Credit Agreement dated as of August 31, 1994, among CCP II Holdings Corp. as Borrower, the Banks named
therein, as Banks, The Bank of New York, Continental Bank, Deutsche Bank AG, New York Branch and/or
Cayman Island Branches, The First National Bank of Chicago, First Union National Bank of
North Carolina, Internationale Nederlanden (U.S.) Capital Corporation, The Long-Term Credit Bank
of Japan, Ltd. Chicago Branch, and NationsBank of Georgia, N.A., as Managing Agents, and
Citicorp USA, Inc., as Administrative Agent.*
5 Opinion of Lawrence W. Inlow as to the legality of the Conseco Common Stock being issued*
8 Opinion of Cravath, Swaine & Moore as to certain tax matters*
24.1 Consent of Coopers & Lybrand L.L.P. with respect to the financial statements of the Registrant
24.2 Consent of KPMG Peat Marwick LLP with respect to the financial statements of Kemper
24.3 Consent of Ernst & Young LLP with respect to the financial statements of The Statesman Group, Inc.
24.4 Consent of Morgan Stanley & Co. Incorporated*
24.5 Consent of Goldman Sachs & Company*
24.6 Consent of Lawrence W. Inlow (included in Exhibit 5)
24.7 Consent of Cravath, Swaine & Moore (included in Exhibit 8)
25 Powers of Attorney (on signature page)
28.3 Forms of Proxy Card for Conseco Common Stock
<PAGE>
<PAGE>
28.4 Forms of Proxy Card for Kemper Common Stock
99.1 Opinion of Morgan Stanley & Co. Incorporated (included as Annex 2 to the Joint Proxy
Statements/Prospectus)*
99.2 Opinion of Goldman Sachs & Co. (included as Annex 3 to the Joint Proxy Statements/
Prospectus)*
<FN>
* To be filed by Amendment
</TABLE>
EXHIBIT 24.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in the
Joint Proxy Statement/Prospectus of Conseco, Inc. and Kemper Corporation which
is made a part of the Registration Statement on Form S-4 and the related
prospectus for the registration of shares of common stock of Conseco, Inc. and
to the incorporation by reference therein of our report dated March 24, 1994
with respect to the consolidated financial statements of Conseco, Inc. included
in its Annual Report on Form 10-K for the year ended December 31, 1993, filed
with the Securities and Exchange Commission.
COOPERS & LYBRAND L.L.P
Indianapolis, Indiana
September 14, 1994
EXHIBIT 24.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Kemper Corporation:
We consent to incorporation by reference herein of our report dated March 7,
1994 related to the consolidated financial statements of Kemper Corporation and
subsidiaries and to the reference to our firm under the heading "Experts" in
the Joint Proxy Statement/Prospectus.
KMPG PEAT MARWICK LLP
Chicago, Illinois
September 13, 1994
EXHIBIT 24.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Joint Proxy Statement/Prospectus of Conseco, Inc. and Kemper Corporation which
is made a part of the Registration Statement (Form S-4) and related Prospectus
of Conseco, Inc. for the registration of 9,097,109 shares of its common stock
and to the incorporation by reference therein of our reports dated January 27,
1994, with respect to the consolidated financial statements and schedules of
The Statesman Group, Inc. and Subsidiaries incorporated by reference or
included in its Annual Report (Form 10-K) for the year ended December 31, 1993,
filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Des Moines, Iowa
September 14, 1994
<PAGE> 1
EXHIBIT 28.3
CONSECO, INC.
STOCKHOLDER'S PROXY SOLICITED BY THE BOARD OF DIRECTORS OF CONSECO, INC.
To: Conseco, Inc.
I appoint Stephen C. Hilbert, Rollin M. Dick and Lawrence W. Inlow,
individually and together, as my proxies, with power of substitution, to
vote all of my Conseco, Inc. common stock at the Special Meeting of
stockholders of Conseco, Inc. to be held on , 1994 at : p.m.
and at any adjournment or postponement of the meeting.
I have filled in the appropriate boxes on the other side of this card,
but in the absence of any instructions from me, my proxies will vote
"FOR" Items 1 and 2. My proxies may vote according to their discretion
on any other matter which may properly come before the meeting. I may
revoke this proxy prior to its exercise.
Please sign and date the other side of this card.
(Please fill in the appropriate boxes on the other side)
(continued from the other side) CONSECO, INC.
PLEASE MARK YOUR CHOICE LIKE THIS [X] IN BLUE OR BLACK INK
[ ] ___________________ __________
ACCOUNT NUMBER COMMON
The Board of Directors recommends that you vote "FOR" Items 1 and 2
ITEM No. 1 - Approval of the issuance of shares of Conseco common stock to
stockholders of Kemper Corporation in accordance with the Agreement and
Plan of Merger dated as of June 26, 1994, among Conseco, Inc., KC
Acquisition, Inc. and Kemper Corporation.
/ / FOR / / AGAINST / / ABSTAIN
ITEM No. 2 - Approval and adoption of an amendment to the Amended and
Restated Articles of Incorporation of Conseco, Inc. to change the name
of the corporation to Kemper, Inc. upon the effectiveness of the merger
of KC Acquisition, Inc. with Kemper Corporation.
/ / FOR / / AGAINST / / ABSTAIN
Dated: , 1994
_____________________
Signature
_____________________
Signature
Please sign exactly as name(s) appear(s)
to the left. If acting as an executor,
administer, trustee, guardian, etc., you
should so indicate in signing. If the
stockholder is a corporation, please sign
the full corporate name, by duly authorized
officer. If shares are held jointly, each
stockholder named should sign. Date and
promptly return this card in the envelope
provided.
<PAGE> 1
EXHIBIT 28.4
NOTE: PLEASE MARK, DATE, SIGN AND RETURN PROMPTLY IN THE ENVELOPE
PROVIDED.
KEMPER CORPORATION PROXY The undersigned hereby appoints Peter
ONE KEMPER DRIVE, LONG GROVE, B. Hamilton, George D. Kennedy and
ILLINOIS 60049 David B. Mathis, or any one of them,
true and lawful proxy and attorney in
fact for the undersigned, with power in each
to appoint a substitute, to vote all shares
of Kemper Corporation which the undersigned
is entitled to vote at the 1994 Annual
Meeting of Stockholders to be held in the
stockholders meeting room on the 57th floor
of The First National Bank of Chicago, One
First National Plaza, Chicago, Illinois, on
October , 1994 at [a.m./p.m.], and at any
adjournment(s) or postponement(s) thereof,
as follows:
This proxy is solicited on behalf
of the Board of Directors which
recommends a vote for items 1, 2
and 3.
1. The approval and adoption of the Agreement and Plan of Merger dated
as of June 26, 1994 among Conseco, Inc., KC Acquisition, Inc., a wholly
owned subsidiary of Conseco, and Kemper.
/ / FOR / / AGAINST / / ABSTAIN
2. ELECTION OF DIRECTORS / / FOR all nominees listed below
(except as marked to the contrary below)
/ / WITHHOLD AUTHORITY to vote for all
nominees listed below
John T.Chain, Jr., George D. Kennedy, David B. Mathis and Kenneth A.
Randall
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, WRITE THAT NOMINEE'S NAME BELOW.)
________________________________________________
3. THE RATIFICATION OF THE APPOINTMENT OF THE KPMG PEAT MARWICK, LLP AS
INDEPENDENT AUDITORS FOR THE YEAR 1994.
/ / FOR / / AGAINST / / ABSTAIN
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT(S) OR POSTPONEMENT(S) THEREOF.
(Continued on other side)<PAGE>
<PAGE> 2
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR PROPOSALS 1,2 AND 3.
Dated: , 1994
___________________________
___________________________
Signature of Stockholder(s)
NOTE: PLEASE DATE, SIGN YOUR NAME AS IT APPEARS HEREON AND RETURN
PROMPTLY. WHEN SHARES ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN.
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE SIGN IN FULL
CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
