SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported):
August 31, 1995
CONSECO, INC.
State of Incorporation:
Indiana
Commission File IRS Employer Id.
No. 1-9250 No. 35-1468632
Address of Principal Executive Offices:
11825 North Pennsylvania Street
Carmel, Indiana 46032
Telephone No.
(317) 817-6100
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
INDEX
Page
----
<S> <C>
Item 2. Acquisition or Disposition of Assets.........................................................
Item 7. Financial Statements and Exhibit
(a) CCP Insurance, Inc. and Subsidiaries Unaudited
Consolidated Financial Statements as of June 30, 1995, and for
the six months ended June 30, 1995 and 1994
Consolidated Balance Sheet...........................................................
Consolidated Statement of Operations.................................................
Consolidated Statement of Shareholders' Equity.......................................
Consolidated Statement of Cash Flows.................................................
Notes to Consolidated Financial Statements...........................................
CCP Insurance, Inc. and Subsidiaries Audited
Consolidated Financial Statements as of December 31,
1994 and 1993, and for each of the three years ended
December 31, 1994
Report of Independent Accountants....................................................
Consolidated Balance Sheet...........................................................
Consolidated Statement of Operations.................................................
Consolidated Statement of Shareholders' Equity.......................................
Consolidated Statement of Cash Flows.................................................
Notes to Consolidated Financial Statements...........................................
(b) Pro forma financial statements required to be filed for this
acquisition under Article 11 of Regulation S-X will be filed with
an amendment to Item 7(a)(4) of Form 8-K.
(c) Exhibit
2.1 Agreement and Plan of Merger dated May 19, 1995...................................
The Credit Agreement obtained by Conseco as described in Item 2
has been omitted as an exhibit to the Form 8-K, pursuant to Item
601(b)(4)(iii) of Regulation S-K, because the total amount of the
Credit Agreement is less than 10 percent of the total assets of
the Registrant and its subsidiaries on a consolidated basis. The
Registrant hereby undertakes to furnish copies of such documents
to the Commission upon request.
</TABLE>
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On August 31, 1995, Conseco, Inc. ("Conseco" or the "Company") acquired
all of the common stock of CCP Insurance, Inc. ("CCP") not owned by Conseco, in
a transaction pursuant to which CCP was merged with Conseco, with Conseco being
the surviving corporation (the "Merger"). The Merger was consummated pursuant to
an Agreement and Plan of Merger dated May 19, 1995 (the "Merger Agreement"). In
the Merger, each of the 11.8 million outstanding shares of CCP common stock not
owned by Conseco were converted into the right to receive $23.25 in cash. The
Merger and the Merger Agreement were approved by holders of a majority of CCP's
outstanding shares (other than shares held by the Company) at a special
stockholders meeting held on August 25, 1995.
The Merger and related transactions (including the repayment of the
existing $251.0 million revolving credit facility of Conseco) were funded with
available cash and net proceeds from a $600.0 million credit facility by and
among the Company and several financial institutions (the "Credit Agreement").
The sources and uses of the financing to complete the Merger and related
transactions are summarized below (dollars in millions):
<TABLE>
<CAPTION>
<S> <C>
Sources of funds:
Credit agreement.................................................. $530.0
Cash on hand...................................................... 9.7
------
Total sources.................................................. $539.7
Uses of funds:
Purchase of all common equity interest in CCP,
not owned by Conseco........................................... $273.9
Settlement of outstanding stock options of CCP.................... 5.4
Repayment of revolving credit facility of Conseco................. 251.0
Debt issuance and other transaction costs......................... 9.4
------
Total uses..................................................... $539.7
======
</TABLE>
The Credit Agreement has two tranches. One tranche permits maximum
principal borrowings of $350.0 million ("Tranche A") and the other tranche
permits maximum principal borrowings of $250.0 million ("Tranche B"). On the
Merger date, the Company borrowed $280.0 million under Tranche A and $250.0
million under Tranche B.
Tranche A and Tranche B borrowings bear interest based on either an
offshore rate or a base rate. Offshore rates are equal to the reserve adjusted
Interbank Offered Rate plus an applicable margin based on: (i) Conseco's
aggregate outstanding bank debt; and (ii) the rating of Conseco's senior notes
by Moodys and Standard & Poor's. Such margin varies from .75 percent to 1.75
percent. Base rates are equal to the bank's reference rate plus the offshore
rate margin less 1.25 percent (provided such margin is not less than zero).
Borrowings under Tranche A and Tranche B bear interest at 7.5 percent through
September 29, 1995.
The principal amounts are payable according to the following schedule
(dollars in millions):
<TABLE>
<CAPTION>
Tranche A Tranche B
--------- ---------
<S> <C> <C>
1998 $ 10.0 $ -
1999 65.0 250.0 <F1>
2000 65.0 -
2001 140.0 -
------ ------
Total par value $280.0 $250.0
====== ======
<FN>
<F1>The repayment date can be extended for an additional year on each
extension date to the year 2001 subject to defined conditions.
</FN>
</TABLE>
Mandatory prepayments are required as follows: (i) from 50 percent of
excess cash flow (the excess of amounts that may be payable to the parent
company from subsidiaries over dividends, expenses and other cash payments of
the parent company); (ii) upon the sale or disposition of any significant assets
other than in the ordinary course of business; and (iii) upon the sale or
issuance of debt or equity securities of Conseco or any of its subsidiaries. The
Credit Agreement is secured by, among other things, pledges of: (i) the capital
stock of Conseco's wholly owned subsidiaries; and (ii) the capital stock of
Bankers Life Holding Corporation owned by Conseco.
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
ITEM 7(a). Financial Statements and Exhibit
(a) CCPInsurance, Inc. and Subsidiaries Unaudited Consolidated
Financial Statements as of June 30, 1995, and for the six months
ended June 30, 1995 and 1994.
<PAGE>
CCP INSURANCE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
ASSETS
June 30, December 31,
1995 1994
---- ----
(unaudited) (audited)
<S> <C> <C>
Investments:
Actively managed fixed maturities at fair value (amortized cost:
1995 - $3,973.3; 1994 - $3,796.1)........................................... $4,002.0 $3,497.3
Mortgage loans................................................................. 243.1 251.4
Credit-tenant loans............................................................ 153.3 116.2
Policy loans................................................................... 136.5 136.4
Investment in Bankers Life Holding Corporation................................. 25.9 25.9
Investment in American Life Group, Inc. ....................................... 43.4 20.1
Other invested assets.......................................................... 65.0 30.6
Short-term investments......................................................... 153.9 123.0
Assets held in separate accounts............................................... 108.9 91.4
-------- --------
Total investments.................................................... 4,932.0 4,292.3
Accrued investment income........................................................ 76.9 70.1
Reinsurance receivables.......................................................... 38.5 42.6
Income taxes..................................................................... - 13.6
Cost of policies purchased....................................................... 189.6 345.2
Cost of policies produced........................................................ 118.1 111.9
Goodwill (net of accumulated amortization: 1995 - $9.4; 1994 - $8.4)............. 68.9 69.9
Other assets..................................................................... 12.8 14.7
--------- ---------
Total assets......................................................... $5,436.8 $4,960.3
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Insurance liabilities.......................................................... $4,351.7 $4,243.1
Income tax liabilities......................................................... 59.8 -
Investment borrowings.......................................................... 185.7 -
Other liabilities.............................................................. 36.6 48.1
Liabilities related to separate accounts....................................... 108.9 91.4
Notes payable ................................................................. 196.9 196.8
-------- --------
Total liabilities.................................................... 4,939.6 4,579.4
-------- --------
Shareholders' equity:
Common stock and additional paid-in capital (no par value, 200,000,000
shares authorized, shares issued and outstanding: 1995 - 23,334,623;
1994 - 25,543,516).......................................................... 153.3 197.8
Unrealized appreciation (depreciation) of securities (net of applicable
deferred income taxes: 1995 - $6.2; 1994 -($57.9)).......................... 29.1 (96.4)
Retained earnings.............................................................. 314.8 279.5
-------- --------
Total shareholders' equity........................................... 497.2 380.9
-------- --------
Total liabilities and shareholders' equity........................... $5,436.8 $4,960.3
======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
CCP INSURANCE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions, except per share data)
(unaudited)
Three months ended Six months ended
June 30, June 30,
---------------------- ------------------
1995 1994 1995 1994
------ ------ ---- ----
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income............................................. $ 27.8 $ 28.1 $ 54.4 $ 58.2
Investment activity:
Net investment income............................................ 102.5 92.8 194.8 188.0
Net trading income .............................................. 3.5 - 3.6 -
Net realized gains .............................................. 14.4 9.4 14.8 10.9
------ ------ ------ ------
Total revenues........................................... 148.2 130.3 267.6 257.1
------ ------ ------ ------
Benefits and expenses:
Insurance policy benefits........................................... 19.5 16.2 38.7 35.1
Change in future policy benefits.................................... .4 .1 (2.5) (1.9)
Interest expense on annuities and financial products................ 55.5 51.6 106.3 105.4
Interest expense on notes payable................................... 5.2 2.3 10.5 5.1
Interest expense on investment borrowings .......................... 4.5 2.3 5.7 3.9
Amortization related to operations.................................. 9.5 6.3 18.7 13.1
Amortization related to realized gains.............................. 8.1 5.5 8.2 6.4
Other operating costs and expenses.................................. 12.3 9.9 25.2 22.2
------ ------ ------ -------
Total benefits and expenses.............................. 115.0 94.2 210.8 189.3
------ ------ ------ -------
Income before income taxes and extraordinary charge...... 33.2 36.1 56.8 67.8
Income tax expense..................................................... 11.6 13.6 20.5 24.9
------ ------ ------ -------
Income before extraordinary charge....................... 21.6 22.5 36.3 42.9
Extraordinary charge on extinguishment of debt, net of tax............. - - - 1.3
------ ------ ------ -------
Net income............................................... $ 21.6 $ 22.5 $ 36.3 $ 41.6
====== ====== ====== =======
Earnings per common share:
Weighted average shares ............................................ 23,335,000 27,988,000 23,405,000 28,386,000
========== ========== ========== ==========
Earnings before extraordinary charge................................ $.93 $.81 $1.55 $1.52
Extraordinary charge................................................ - - - .05
------- -------- -------- -------
Net income............................................... $.93 $.81 $1.55 $1.47
==== ==== ===== =====
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
CCP INSURANCE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in millions)
(unaudited)
Six months ended
June 30,
----------------------
1995 1994
------ -----
<S> <C> <C>
Common stock and additional paid-in capital:
Balance, beginning of period................................................ $197.8 $269.6
Cost of shares acquired................................................... (44.5) (34.9)
------ -------
Balance, end of period...................................................... $153.3 $234.7
====== ======
Unrealized appreciation (depreciation) of securities:
Balance, beginning of period................................................ $(96.4) $ 70.7
Change in unrealized appreciation (depreciation).......................... 125.5 (105.4)
------ ------
Balance, end of period...................................................... $ 29.1 $(34.7)
====== ======
Retained earnings:
Balance, beginning of period................................................ $279.5 $223.6
Net income ............................................................... 36.3 41.6
Dividends on common stock................................................. (1.0) (1.1)
------ ------
Balance, end of period...................................................... $314.8 $264.1
====== ======
Total shareholders' equity, end of period............................ $497.2 $464.1
====== ======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
CCP INSURANCE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
(unaudited)
Six months ended
June 30,
----------------------
1995 1994
------ -----
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................................. $ 36.3 $ 41.6
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization.......................................................... 26.9 19.5
Income taxes.......................................................... 9.3 (1.8)
Interest credited to insurance liabilities............................ 106.3 105.4
Fees charged to insurance liabilities................................. (20.2) (22.3)
Insurance liabilities................................................. (16.4) (9.6)
Accrual and amortization of investment income......................... (7.3) (6.7)
Deferral of cost of policies produced................................. (36.6) (11.0)
Trading account securities............................................ - 18.0
Other................................................................. (8.0) 12.0
------- --------
Net cash provided by operating activities......................... 90.3 145.1
------- --------
Cash flows from investing activities:
Sales ...................................................................... 567.8 1,030.2
Maturities.................................................................. 94.2 170.4
Purchases................................................................... (867.9) (1,149.2)
Other ...................................................................... (32.0) -
------- --------
Net cash provided (used) by investing activities ................. (237.9) 51.4
------- --------
Cash flows from financing activities:
Deposits to insurance liabilities........................................... 363.5 156.7
Investment borrowings....................................................... 185.7 (14.6)
Withdrawals from insurance liabilities...................................... (325.2) (285.6)
Payments on notes payable................................................... - (46.7)
Purchases of Company's common stock......................................... (44.5) (34.9)
Dividends paid on common stock.............................................. (1.0) (1.1)
------- --------
Net cash provided (used) by financing activities.................. 178.5 (226.2)
------- --------
Net increase (decrease) in short-term investments................. 30.9 (29.7)
Short-term investments, beginning of period..................................... 123.0 209.9
------- -------
Short-term investments, end of period........................................... $ 153.9 $ 180.2
======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
CCP INSURANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following notes should be read in conjunction with the notes to
consolidated financial statements contained in the 1994 Form 10-K of CCP
Insurance, Inc. (the "Company").
SIGNIFICANT ACCOUNTING POLICIES
The unaudited consolidated financial statements as of June 30, 1995, and
for the three and six months ended June 30, 1995 and 1994, reflect all
adjustments, consisting only of normal recurring items, which are necessary to
present fairly the Company's financial position and results of operations on a
basis consistent with that of the prior audited consolidated financial
statements. Certain amounts from the prior period were reclassified to conform
to the 1995 presentation.
ADJUSTMENT TO ACTIVELY MANAGED FIXED MATURITIES
The Company classifies fixed maturity investments into two categories:
"actively managed" (which are carried at estimated fair value) and "held to
maturity" (which are carried at amortized cost). No fixed maturities were
classified in the "held to maturity" category in 1995 or 1994. The adjustment to
carry actively managed fixed maturity investments at fair value (as described in
Note 1 to the consolidated financial statements included in the Company's 1994
Form 10-K) resulted in the following cumulative effects on balance sheet
accounts as of June 30, 1995:
<TABLE>
<CAPTION>
Adjustment to Carry
Balance Actively Managed
before Fixed Maturities Reported
Adjustment at Fair Value Amount
---------- ------------- ------
(Dollars in millions)
<S> <C> <C> <C>
Actively managed fixed maturities............................ $3,973.3 $ 28.7 $4,002.0
Investment in American Life Group, Inc....................... 26.2 17.2 43.4
Cost of policies purchased................................... 202.3 (12.7) 189.6
Cost of policies produced.................................... 123.3 (5.2) 118.1
Income tax liabilities ...................................... 54.1 5.7 59.8
Unrealized appreciation of securities........................ 6.8 22.3 29.1
</TABLE>
REINSURANCE
The cost of reinsurance ceded for policies containing mortality and
morbidity risks, which is deducted from insurance policy income, totaled $19.2
million and $23.4 million in the first six months of 1995 and 1994,
respectively. Reinsurance premiums assumed on policies containing mortality
risks totaled $1.5 million and $1.8 million in the first six months of 1995 and
1994, respectively. Reinsurance recoveries netted against insurance policy
benefits totaled $13.3 million and $17.8 million in the first six months of 1995
and 1994, respectively.
Certain annuity policies that were sold by Western National Life
Insurance Company ("WNL"), a former affiliate of the Company, and subsequently
ceded to the Company through a reinsurance agreement, with an accumulated
account balance of approximately $73 million at June 30, 1995, are subject to a
provision whereby they may be recaptured by WNL. WNL informed the Company in
February 1995 that it wished to exercise its option to recapture these policies.
This recapture will transpire upon the establishment of a mutually agreed upon
value for the business.
CHANGES IN SHAREHOLDERS' EQUITY
The Company repurchased approximately 3.5 million shares of its common
stock for $71.8 million during 1994 under its common stock repurchase program.
In January 1995, the Company announced that this program had been expanded to
6.0 million shares. During the first three months of 1995, approximately 2.2
million additional shares were repurchased by the Company for $44.5 million. No
shares were repurchased during the second quarter of 1995 and the Company
currently has no plans to repurchase additional shares.
<PAGE>
CCP INSURANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
RELATED PARTY TRANSACTIONS
The Company's day-to-day operations are administered by subsidiaries of
Conseco, Inc. ("Conseco") pursuant to management and service agreements. Total
fees incurred by the Company under such agreements were $19.5 million and $18.5
million for the first six months of 1995 and 1994, respectively.
The Company collected premiums of $1.4 million and $1.7 million in the
first six months of 1995 and 1994, respectively, from guaranteed investment
contracts issued as investment options for qualified retirement plans maintained
by Conseco. Such premiums were recorded as deposits to insurance liability
accounts.
On June 28, 1995, Conseco borrowed $32 million from the Company in
exchange for a promissory note which bears interest at 6.4 percent and is due on
December 28, 1995. The note is classified as an other invested asset.
The Company is a limited partner in Conseco Capital Partners II, L.P.
("Partnership II"), a partnership formed by Conseco in 1994 to invest in
privately negotiated acquisitions of specialized annuity, life and accident and
health insurance companies and related businesses. Partnership II received
capital commitments of $624 million, which included a $25 million capital
commitment by the Company. The Company funded $1.9 million of its commitment in
connection with Partnership II's acquisition of American Life Group, Inc.
"American Life" (formerly The Statesman Group, Inc. prior to its name change in
August 1995) in September 1994; therefore, it has a remaining commitment of
$23.1 million.
PROPOSED MERGER
On May 21, 1995, the Company and Conseco announced a definitive merger
agreement under which Conseco would acquire the outstanding shares of the
Company that Conseco does not already own for $23.25 per share in cash. In the
transaction, the Company would be merged into Conseco, with Conseco being the
surviving corporation. The terms of the agreement were approved unanimously by a
special committee of the Company's independent directors. The special committee
received an opinion from the investment banking firm serving as its financial
advisor to the effect that the consideration to be received by the non-Conseco
stockholders of the Company is fair to such holders from a financial point of
view. The transaction requires the approval of holders of a majority of the
Company's outstanding shares (excluding shares held by Conseco) present in
person or represented by proxy at a special stockholders' meeting scheduled for
August 25, 1995. A definitive proxy statement for the special meeting dated
August 1, 1995 was first mailed to stockholders on or about August 2, 1995. On
August 1, 1995, Conseco owned 11,555,581 of the Company's common shares, or
approximately 49.5 percent of the common stock outstanding on that date.
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
ITEM 7(a). Financial Statements and Exhibit, continued
(a), continued
CCP Insurance, Inc. and Subsidiaries Audited Consolidated
Financial Statements as of December 31, 1994 and 1993, and
for each of the three years ended December 31, 1994.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders
CCP Insurance, Inc.
We have audited the accompanying consolidated balance sheet of CCP
Insurance, Inc. and Subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of CCP
Insurance, Inc. and Subsidiaries as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years ended December 31, 1994, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Indianapolis, Indiana
March 6, 1995
<PAGE>
CCP INSURANCE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
December 31, 1994 and 1993
(Dollars in millions)
ASSETS
1994 1993
---- ----
<S> <C> <C>
Investments:
Actively managed fixed maturities at fair value
(amortized cost: 1994 - $3,796.1; 1993 - $3,780.2).............. $3,497.3 $3,963.0
Mortgage loans..................................................... 251.4 305.1
Credit-tenant loans................................................ 116.2 87.1
Policy loans....................................................... 136.4 137.3
Investment in Bankers Life Holding Corporation..................... 25.9 29.3
Investment in The Statesman Group, Inc............................. 20.1 -
Other invested assets.............................................. 30.6 35.3
Trading account securities......................................... - 25.8
Short-term investments............................................. 123.0 209.9
Assets held in separate accounts................................... 91.4 79.7
-------- ---------
Total investments............................................. 4,292.3 4,872.5
Accrued investment income.............................................. 70.1 71.6
Reinsurance receivables................................................ 42.6 44.4
Income taxes........................................................... 13.6 -
Cost of policies purchased............................................. 345.2 175.5
Cost of policies produced.............................................. 111.9 42.3
Goodwill (net of accumulated amortization:
1994 - $8.4; 1993 - $6.4).......................................... 69.9 71.9
Other assets........................................................... 14.7 19.9
-------- ---------
Total assets.................................................. $4,960.3 $5,298.1
======== ========
</TABLE>
(continued on next page)
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
CCP INSURANCE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET (continued)
December 31, 1994 and 1993
(Dollars in millions)
LIABILITIES AND SHAREHOLDERS' EQUITY
1994 1993
---- ----
<S> <C> <C>
Liabilities:
Insurance liabilities.............................................. $4,243.1 $4,233.3
Income tax liabilities............................................. - 86.0
Investment borrowings.............................................. - 134.1
Other liabilities.................................................. 48.1 27.6
Liabilities related to separate accounts........................... 91.4 79.7
Notes payable...................................................... 196.8 173.5
-------- --------
Total liabilities............................................. 4,579.4 4,734.2
-------- --------
Shareholders' equity:
Common stock and additional paid-in capital (no par
value, 200,000,000 shares authorized, shares issued
and outstanding: 1994 - 25,543,516; 1993 - 29,049,968)........... 197.8 269.6
Unrealized appreciation (depreciation) of securities
(net of applicable deferred income taxes:
1994 - $(57.9); 1993 - $36.4).................................... (96.4) 70.7
Retained earnings ................................................. 279.5 223.6
-------- --------
Total shareholders' equity.................................... 380.9 563.9
-------- --------
Total liabilities and shareholders' equity.................... $4,960.3 $5,298.1
======== ========
</TABLE>
The accompanying notes are an integral part
part of the consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CCP INSURANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
for the years ended December 31, 1994, 1993 and 1992
(Dollars in millions, except per share data)
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Revenues:
Insurance policy income.................................... $114.5 $127.8 $139.5
Investment activity:
Net investment income.................................... 367.8 412.9 380.4
Net trading income (losses).............................. (.9) 24.3 15.6
Net realized gains ...................................... 2.9 55.8 63.5
Equity in earnings of Bankers Life Holding Corporation..... - 1.2 .7
Gain on sale of stock by Bankers Life
Holding Corporation ................................... - 10.5 -
------- ------- ------
Total revenues ................................... 484.3 632.5 599.7
------- ------- -------
Benefits and expenses:
Insurance policy benefits.................................. 75.7 77.6 75.2
Change in future policy benefits........................... .1 (.6) 1.9
Interest expense on annuities and financial products....... 208.6 243.5 251.1
Interest expense on long-term debt......................... 10.7 16.1 26.1
Interest expense on investment borrowings.................. 5.2 4.4 2.3
Amortization related to operations......................... 25.3 29.4 23.2
Amortization related to realized gains..................... 3.7 36.4 45.9
Other operating costs and expenses......................... 54.6 52.2 55.1
------ ------ ------
Total benefits and expenses.......................... 383.9 459.0 480.8
------ ------ ------
Income before income taxes
and extraordinary charge.......................... 100.4 173.5 118.9
Income tax expense.............................................. 37.4 65.9 42.0
------ ------ ------
Income before extraordinary charge .................. 63.0 107.6 76.9
Extraordinary charge on extinguishment of
debt, net of tax........................................... 4.9 - 8.8
------ ------- ------
Net income 58.1 107.6 68.1
Less preferred stock dividends.................................. - - 3.8
------- ------- ------
Earnings applicable to common stock.................. $58.1 $107.6 $ 64.3
===== ====== ======
Earnings per common share and common equivalent share:
Weighted average shares ................................... 27,656,000 26,779,000 20,784,000
Earnings before extraordinary charge....................... $2.28 $4.02 $3.52
Extraordinary charge....................................... .18 - .43
------ ---------- --------
Net income .......................................... $2.10 $4.02 $3.09
===== ===== =====
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CCP INSURANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1994,
1993 and 1992
(Dollars in millions)
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Preferred stock:
Balance, beginning of period.............................. $ - $ - $ 49.2
Dividends paid-in-kind of 15% Series C preferred stock - - 2.2
Redemption of preferred stock .......................... - - (51.4)
-------- ------- --------
Balance, end of period.................................... $ - $ - $ -
======= ======== ========
Common stock and additional paid-in capital:
Balance, beginning of period.............................. $269.6 $188.7 $ 56.7
Cost of shares acquired................................. (71.8) - -
Issuance of common stock and warrants................... - 80.9 132.0
------ ------- -------
Balance, end of period.................................... $197.8 $269.6 $188.7
====== ====== ======
Unrealized appreciation (depreciation) of securities:.........
Balance, beginning of period.............................. $ 70.7 $ 27.0 $ 9.2
Change in unrealized appreciation (depreciation)........ (167.1) 43.7 17.8
------- ------ -------
Balance, end of period.................................... $ (96.4) $ 70.7 $ 27.0
======= ======= =======
Retained earnings:
Balance, beginning of period.............................. $223.6 $118.1 $ 54.8
Net income.............................................. 58.1 107.6 68.1
Dividends on common stock............................... (2.2) (2.1) (1.0)
Dividends on preferred stock............................ - - (3.8)
------- ------- -------
Balance, end of period.................................... $279.5 $223.6 $118.1
====== ====== ======
Total shareholders' equity, end of period.......... $380.9 $563.9 $333.8
====== ====== ======
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CCP INSURANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
for the years ended December 31, 1994, 1993
and 1992
(Dollars in millions)
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income....................................................... $ 58.1 $ 107.6 $ 68.1
Adjustments to reconcile net income to net.......................
cash provided by operating activities:
Amortization................................................... 29.0 65.8 69.1
Income taxes................................................... (5.4) 3.8 3.3
Interest credited to insurance liabilities..................... 208.6 243.5 251.1
Fees charged to insurance liabilities.......................... (43.1) (45.3) (57.5)
Insurance liabilities.......................................... (2.3) (29.6) 36.8
Accrual and amortization of investment income.................. (.7) (10.9) (26.1)
Deferral of cost of policies produced ........................ (37.3) (25.0) (32.8)
Equity in earnings of Bankers Life Holding Corporation......... - (1.2) (.7)
Gain on sale of stock by Bankers Life Holding Corporation...... - (10.5) -
Trading account securities..................................... 25.8 94.6 147.7
Other ....................................................... 35.7 (4.9) (4.6)
------- -------- --------
Net cash provided by operating activities................. 268.4 387.9 454.4
------- -------- --------
Cash flows from investing activities:
Sales ........................................................... 1,236.1 2,068.5 1,327.8
Maturities....................................................... 259.8 558.8 413.0
Purchases........................................................ (1,505.5) (3,015.4) (2,370.2)
-------- -------- ---------
Net cash used by investing activities .................... (9.6) (388.1) (629.4)
-------- -------- --------
Cash flows from financing activities:
Deposits to insurance liabilities................................ 450.7 368.5 539.4
Investment borrowings............................................ (134.1) 134.1 -
Issuance of debt securities, net................................. 196.8 - 192.6
Issuance of common stock, net.................................... - 80.9 111.2
Withdrawals from insurance liabilities........................... (605.0) (459.2) (404.3)
Payments on long-term debt....................................... (180.1) (62.3) (307.0)
Purchases of Company's common stock.............................. (71.8) - -
Redemption of preferred stock.................................... - - (34.1)
Dividends paid on common stock................................... (2.2) (2.1) (.5)
Dividends paid on preferred stock................................ - - (2.2)
-------- -------- --------
Net cash provided (used) by financing activities............ (345.7) 59.9 95.1
-------- -------- --------
Net increase (decrease) in short-term investments......... (86.9) 59.7 (79.9)
Short-term investments, beginning of period.......................... 209.9 150.2 230.1
------- -------- --------
Short-term investments, end of period................................ $ 123.0 $ 209.9 $ 150.2
======= ======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
CCP INSURANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
Organization and Basis of Presentation
CCP Insurance, Inc. (the "Company") was formed in April 1992 by Conseco
Capital Partners, L.P. (the "Partnership") as an Indiana corporation to be the
holding company for the insurance companies previously acquired by the
Partnership: Great American Reserve Insurance Company ("Great American
Reserve"), Jefferson National Life Insurance Company ("Jefferson National") and
Beneficial Standard Life Insurance Company ("Beneficial Standard"). The
Partnership was organized in 1990 as a Delaware limited partnership by Conseco,
Inc. ("Conseco") to extend its activities of acquiring and operating life
insurance companies and related businesses. Conseco, through its subsidiaries,
was a 50 percent owner and sole general partner of the Partnership. Great
American Reserve, Jefferson National and Beneficial Standard were purchased by
majority-owned subsidiaries of the Partnership as of June 30, 1990, October 31,
1990 and March 31, 1991, respectively. Jefferson National was merged into Great
American Reserve on December 31, 1994.
In July 1992, the Company: (i) completed an initial public offering of
its common stock receiving net proceeds of $111.2 million; (ii) executed a
senior loan agreement for $200 million; and (iii) completed certain
recapitalization and related transactions. Including overallotment shares
purchased by the underwriters, the Company issued 8,010,700 shares in the
offering, representing a 31 percent ownership interest in the Company's
outstanding common stock. The remaining common shares were held by Conseco (36
percent) and others who exchanged their equity and debt investments in the
Partnership and its former subsidiaries for shares of the Company's common
stock.
The exchange of the equity and debt of the Partnership and its former
subsidiaries for the Company's common stock was accounted for in the
consolidated financial statements of the Company similarly to a pooling of
interests. The assets, liabilities and shareholders' equity of the Company and
its subsidiaries were combined at their prior carrying values; the results of
operations have been reported as if the exchange had occurred at the beginning
of the periods presented.
In September 1993, CCP completed a public offering of 9,545,000 shares of
its common stock. The offering included 3,039,268 shares sold by the Company and
6,505,732 shares sold by certain selling shareholders. Net proceeds of $80.9
million from the shares sold by the Company were added to the Company's general
funds. In a separate transaction also completed in September 1993, Conseco
purchased 2.0 million additional shares of the Company's common stock from the
same selling shareholders.
In December 1994, CCP completed a public offering of $200 million of its
10.5 percent senior notes due in 2004. Net proceeds of $196.8 million from the
sale of the notes were used to retire the Company's senior loan and for other
general corporate purposes, including the repurchase of shares of its common
stock under a program initiated in February 1994. During 1994, the Company
repurchased 3,507,400 shares of its common stock. On December 31, 1994, Conseco
owned 11,555,581 shares of CCP, or approximately 45.2 percent, of the common
stock outstanding.
The consolidated financial statements include CCP Insurance, Inc. and its
wholly owned subsidiaries. All acquisitions were accounted for as purchases and
are reflected in operations as of their effective dates. The costs to acquire
Great American Reserve, Jefferson National and Beneficial Standard were
allocated to the assets and liabilities purchased based on their fair values on
the date of acquisition. Intercompany transactions among the Company's
subsidiaries have been eliminated. Certain amounts from prior periods were
reclassified to conform to the 1994 presentation.
Investments
Fixed maturity investments are securities that mature more than one year
after they are issued and include bonds, notes receivable and preferred stocks
with mandatory redemption features. Effective December 31, 1993, the Company
adopted Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115"), and
accordingly, classifies its fixed maturity and equity securities into the
following three categories:
- Actively managed fixed maturity securities are securities that may be
sold prior to maturity due to changes that might occur in market
interest rates, changes in a security's prepayment risk, the
management of income tax position, general liquidity needs, an
increase in loan demand, the need to increase regulatory capital,
changes in foreign currency risk, or similar
<PAGE>
factors. Actively managed securities are carried at fair value and the
unrealized gain or loss is recorded to shareholders' equity, net of
tax and the related adjustments described below.
- Trading account securities are fixed maturity and equity securities
that are bought and held principally for the purpose of selling them
in the near term. Trading account securities are carried at estimated
fair value and the unrealized gain or loss is included as a component
of net trading income. No trading account securities were held at
December 31, 1994.
- All other fixed maturity securities are those securities which the
Company has the ability and positive intent to hold to maturity, and
are carried at amortized cost. The Company may dispose of such
securities under certain unforeseen circumstances, such as issuer
credit deterioration or regulatory requirements. No fixed maturities
were held in this category during 1994 or 1993.
The above categories for classifying fixed maturity and equity securities
are consistent with the Company's policy prior to adoption of SFAS 115, with one
exception, that net unrealized gains and losses on trading account securities,
which had previously been recorded as an adjustment net of tax to shareholders'
equity, are now recognized as trading income under the provisions of SFAS 115.
At December 31, 1993, the net unrealized loss on trading account securities
recorded in trading income as a result of adopting SFAS 115 was immaterial.
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 and the cost of policies
produced. When actively managed fixed maturity securities are stated at fair
value, an adjustment is made to the cost of policies purchased and the cost of
policies produced equal to the change in cumulative amortization that would have
been recorded if such securities had been sold at their fair value and the
proceeds reinvested at current yields. Furthermore, if future yields expected to
be earned on such securities decline, it may be necessary to increase certain
insurance liabilities. Adjustments to such liabilities are required when their
balances, in addition to future net cash flows including investment income, are
insufficient to cover future benefits and expenses. No such adjustments to
insurance liabilities were required in 1994 or 1993.
Unrealized gains and losses and the related adjustments described in the
preceding paragraph have no effect on earnings, but are recorded, net of tax, to
shareholders' equity. The following table summarizes the effect of these
adjustments as of December 31, 1994.
<TABLE>
<CAPTION>
Adjustment to Carry
Actively Managed
Balance Fixed Maturities Reported
before Adjustment at Fair Value Amount
----------------- ------------- ------
(Dollars in millions)
<S> <C> <C> <C>
Actively managed fixed maturities......................... $3,796.1 $(298.8) $3,497.3
Cost of policies purchased................................ 219.2 126.0 345.2
Cost of policies produced................................. 95.6 16.3 111.9
Income tax asset (liability).............................. (43.7) 57.3 13.6
Unrealized appreciation (depreciation) of securities...... 2.8 (99.2) (96.4)
</TABLE>
Effective December 31, 1993, when the Company recognizes changes in
conditions that cause a fixed maturity investment to be transferred to a
different category (e.g., actively managed, held to maturity or trading), the
security is transferred to the new category at its fair value at the date of the
transfer. At the date of transfer, the security's unrealized gain or loss, which
was immaterial for 1994, is accounted for as follows:
- For transfers to the trading category, the unrealized gain or loss is
recognized in earnings;
- For transfers from the trading category, the unrealized gain or loss
already recognized in earnings is not reversed;
- For transfers to actively managed from held to maturity, the unrealized
gain or loss is recognized in shareholders' equity; and
<PAGE>
- For transfers to held maturity from actively managed, the unrealized gain
or loss at the date of transfer continues to be reported in shareholders'
equity, but is amortized over the remaining life of the security as a yield
adjustment.
Prior to adopting SFAS 115, the fixed maturity investments were
transferred to the new category at the lower of cost or fair value at the date
of transfer. Unrealized losses were recognized upon such transfers; unrealized
gains were deferred until the final disposition of the securities. Transfers
between categories in 1993 and 1992 and the resulting impact on earnings were
immaterial.
Credit-tenant loans are commercial mortgage loans which require: (i) the
lease of the principal tenant to be assigned to the Company and to produce
adequate cash flow to fund substantially all the requirements of the loan, and
(ii) the principal tenant or the guarantor of such tenant's obligations to have
an investment-grade credit rating at the time of origination of the loan. These
loans are also secured by the value of the related property. The underwriting
guidelines consider such factors as: (i) the terms of the lease on the property;
(ii) the borrower's financial soundness and management ability, including
business experience and property management capabilities, and (iii) such
economic, demographic or other factors that may affect the income generated by
the property or its value. The underwriting guidelines also require a
loan-to-value ratio of 75 percent or less.
Mortgage and credit-tenant loans are stated at amortized cost. Policy
loans are stated at their current unpaid principal balances. Other invested
assets are accounted for using the equity method (principally investments in
unconsolidated operating limited partnerships) or in accordance with SFAS 115
(principally investments in unconsolidated limited partnerships which invest
solely in debt or equity securities). Short-term investments include commercial
paper, invested cash and other investments purchased with maturities less than
three months and are carried at amortized cost, which approximates estimated
fair value. The Company considers all short-term investments to be cash
equivalents.
Fees received and costs incurred in connection with the origination of
investments, principally mortgages and credit-tenant loans, are deferred. Fees,
costs, discounts and premiums are amortized as yield adjustments over the
contractual life of the investments. Anticipated prepayments on mortgage-backed
securities are taken into consideration in determining estimated future yields
on such securities.
As part of its investment strategy, the Company enters into reverse
repurchase agreements and dollar roll transactions to increase its return on
investments and increase liquidity. These transactions are accounted for as
collateral borrowings, where the amount borrowed is equal to the sales price of
the underlying securities.
The specific identification method is used to account for the disposition
of investments. The differences between sale proceeds and carrying values are
reported as gains and losses on investments, or as adjustments to investment
income if the proceeds are prepayments by issuers prior to maturity.
The Company regularly evaluates mortgage loans, credit-tenant loans and
other securities based on current economic conditions, past credit loss
experience and other circumstances of the investee. Impaired loans are revalued
at the present value of expected cash flows discounted at the loan's effective
interest rate when it is probable that the Company will be unable to collect all
amounts due according to the contractual terms of the agreement. A decline in a
security's net realizable value that is other than temporary is treated as a
realized loss and the cost basis of the security is reduced to its estimated
fair value. The Company accrues interest thereafter on the net carrying amount
of impaired loans.
Separate Accounts
Separate accounts represent funds for which investment income and gains
or losses accrue directly to certain policyholders. The assets of these accounts
are legally segregated and are not subject to the claims which may arise out of
any other business of the Company. Separate account assets are reported at
market value since the underlying investment risks are assumed by the contract
owners. The related liabilities are recorded at amounts equal to the underlying
assets and the fair value of those liabilities is equal to their carrying
amount.
<PAGE>
Cost of Policies Purchased
The cost of policies purchased represents the portion of the cost to
acquire a subsidiary that is attributable to the right to receive future cash
flows from insurance contracts existing at the date of acquisition of the
subsidiary. The value of the cost of policies purchased is the actuarially
determined present value of the projected future cash flows from the acquired
policies.
The method used by the Company to value the cost of policies purchased is
consistent with the valuation methods used most commonly to value blocks of
insurance business, which is also consistent with the basic methodology
generally used to value assets. The method used by the Company is summarized as
follows:
- Identify the expected future cash flows from the blocks of business.
- Identify the risks inherent in realizing those cash flows (i.e.,
the probability that the cash flows will be realized).
- Identify the rate of return that the Company believes it must earn in
order to accept the risks inherent in realizing the cash flows, based
on consideration of the factors summarized below.
- Determine the value of the policies purchased by discounting the
expected future cash flows by the Company's required discount rate.
Expected future cash flows used in determining such value are based on
actuarially determined projections of future premium collections, mortality,
surrenders, benefit payments, operating expenses, changes in insurance
liabilities, investment yields on the assets held to back the policy liabilities
and other factors. These projections take into account all factors known or
expected at the valuation date based on the collective judgment of the
management of the Company. Actual experience on purchased business may vary from
projections due to differences in renewal premiums collected, investment spread,
investment gains or losses, mortality and morbidity costs and other factors.
The discount rate used to determine the value of the cost of policies
purchased is the rate of return required in order for the Company to invest in
the business being acquired. In determining the rate of return to be used by the
Company, the following factors are considered:
- The magnitude of the risks associated with each of the actuarial
assumptions used in determining expected future cash flows as
described in the preceding paragraphs.
- The cost of capital to fund the acquisition.
- The perceived likelihood of changes in projected future cash flows
that might occur if there are changes in insurance regulations and tax
laws.
- The compatibility with other activities that may favorably affect
future cash flows.
- The complexity of the acquired company.
- Recent purchase prices (i.e., discount rates used in determining
valuations) on similar blocks of business.
After the cost of policies purchased is determined using the methods
described above, the amount is amortized based on the incidence of the expected
cash flows. For each of the Company's subsidiaries, the asset is amortized with
interest at the same rate used to determine the discounted value of the asset.
To the extent that past or future experience on purchased business varies
from projections due to differences in renewal premiums collected, investment
spread, investment gains or losses, mortality and morbidity costs and other
factors, amortization of
<PAGE>
the cost of policies purchased is adjusted. For example, sales of fixed maturity
investments that result in a gain (or loss), but also reduce (or increase) the
future investment spread because the sale proceeds are reinvested at a lower (or
higher) earnings rate, may cause amortization to increase (or decrease)
reflecting the change in the incidence of cash flows. Amortization is also
adjusted for the current and future years to reflect: (i) the revised estimate
of future cash flows, and (ii) the revised interest rate (but not greater than
the rate initially used and not lower than the rate of interest earned on
invested assets) at which the discounted present value of such expected future
profits equals the unamortized asset balance.
Recoverability of the cost of policies purchased is evaluated annually by
comparing the current estimate of expected future cash flows (discounted at the
rate of interest earned on invested assets) to the unamortized asset balance by
line of insurance business. If such current estimate indicates that the existing
insurance liabilities, together with the present value of future net cash flows
from the blocks of business purchased, will not be sufficient to recover the
cost of policies purchased, the difference is charged to expense.
Cost of Policies Produced
Costs of producing new business (primarily commissions and certain costs
of policy issuance and underwriting, net of fees charged to the policy), which
vary with and are primarily related to the production of new business, are
deferred to the extent recoverable from future profits. Such costs are amortized
with interest as follows:
- For universal life-type contracts and investment-type contracts, in
relation to the present value of expected gross profits from these
contracts, discounted using the interest rate credited to the policy.
- For immediate annuities with mortality risks, in relation to the
present value of benefits to be paid.
- For traditional life and accident and health products, in relation to
future anticipated premium revenue using the same assumptions that are
used in calculating the insurance liabilities.
Recoverability of the unamortized balance of the cost of policies
produced is evaluated at least annually. For universal life-type contracts and
investment-type contracts, the accumulated amortization is adjusted (whether an
increase or a decrease) whenever there is a material change in the incidence of
the estimated gross profits expected over the life of a block of business in
order to maintain a constant relationship between cumulative amortization and
the present value (discounted at the rate of interest that accrues to the
policies) of expected gross profits. For most other contracts, the unamortized
asset balance is reduced by a charge to income only when the present value of
future cash flows, net of policy liabilities, is not sufficient to cover such
asset balance.
Goodwill
The excess of the cost to acquire purchased companies over the net assets
acquired is recorded as goodwill and is amortized on the straight-line basis
over a 40-year period. The Company continually monitors the value of its
goodwill based upon estimates of future earnings. If it determines that goodwill
has been impaired, the carrying value is reduced and charged to expense (no such
changes have been made).
Insurance Liabilities
Recognition of Insurance Policy Income and Related Benefits and Expenses
Reserves for universal life-type and investment-type contracts are based on the
contract account balance, if future benefit payments in excess of the account
balance are not guaranteed, or on the present value of future benefit payments
when such payments are guaranteed. Additions to insurance liabilities for
universal life-type contracts are made if future cash flows including investment
income are insufficient to cover future benefits and expenses.
Premium deposits and benefit payments are recorded as increases or
decreases in a liability account rather than as revenue and expense for
investment contracts without mortality risk (such as deferred annuities and
immediate annuities with benefits paid only for a period certain) and for
contracts that permit the Company or the insured to make changes in the contract
terms (such as single- premium whole life and universal life). Amounts charged
against the liability account for the cost of insurance, policy administration
and surrender penalties are recorded as revenues. Interest credited to the
liability account and benefit payments made in excess of the contract liability
account balance are charged to expense.
Reserves for traditional and limited-payment contracts are generally
calculated using the net level premium method and
<PAGE>
assumptions as to investment yields, mortality, withdrawals and dividends. The
assumptions are based on projections of past experience and include provisions
for possible adverse deviation. These assumptions are made at the time the
contract is issued or, in the case of contracts acquired by purchase, at the
purchase date.
Premiums are recognized as income when due for traditional insurance
contracts or, for short duration contracts, over the period to which the
premiums relate. Benefits and expenses are recognized as a level percentage of
earned premiums. Such recognition is accomplished through the provision for
future policy benefits and the amortization of cost of policies produced.
For contracts with mortality risk, but with premiums paid for only a
limited period (such as single-premium immediate annuities with benefits paid
for the life of the annuitant), the accounting treatment is similar to
traditional contracts. However, the excess of the gross premium over the net
premium is deferred and recognized in relation to the present value of expected
future benefit payments (when accounting for annuity contracts) or in relation
to insurance in force (when accounting for life insurance contracts).
Liabilities for incurred claims are determined using historical
experience and published tables for disabled lives and represent an estimate of
the present value of the remaining ultimate net cost of all reported and
unreported claims. Management believes these estimates are adequate. Such
estimates are periodically reviewed and any adjustments are reflected in current
operations.
The liability for future policy benefits for accident and health policies
consists of active life reserves and the estimated present value of the
remaining ultimate net cost of incurred claims. The active life reserves include
unearned premiums and additional reserves. The additional reserves are computed
on the net level premium method using assumptions for future investment yield,
mortality and morbidity experience. The assumptions are based on projections of
past experience and reflect provisions for possible adverse deviation.
The amount of dividends to be paid on participating policies (which are
not significant) is determined annually by the Company. The portion of the
earnings allocated to participating policyholders is recorded as an insurance
liability.
Reinsurance
In the normal course of business, the Company seeks to limit its exposure
to loss on any single insured and to recover a portion of the benefits paid by
ceding insurance to other insurance enterprises or reinsurers under excess
coverage and coinsurance contracts. The Company has set its retention limits for
acceptance of risk on life insurance policies at various levels up to $.5
million.
Assets and liabilities related to insurance contracts are reported before
the effects of reinsurance. Reinsurance receivables and prepaid reinsurance
premiums (including amounts related to insurance liabilities) are reported as
assets. Estimated reinsurance receivables are recognized in a manner consistent
with the liabilities related to the underlying reinsured contracts. Such amounts
have been presented in accordance with Statement of Financial Accounting
Standards No. 113, "Accounting and Reporting for Reinsurance of Short-Duration
and Long-Duration Contracts."
Income Taxes
Income tax expense includes deferred taxes arising from temporary
differences between the tax and financial reporting basis of assets and
liabilities. Additionally, this liability method of accounting for income taxes
requires the effect of a tax rate change on accumulated deferred income taxes to
be reflected in income in the period in which the change is enacted.
Earnings Per Share
Primary net income per share is computed by dividing earnings, less
preferred dividend requirements, by the weighted average number of common and
common equivalent shares outstanding for the year. Equivalent shares were
computed for 1992 based on the number of shares of the Company's common stock
exchanged for the common stock and warrants of the former life subsidiaries of
the Partnership, which now comprise the operating subsidiaries of the Company.
Dilution related to stock options is not considered because it is immaterial.
There is no difference between primary and fully-diluted earnings per share.
<PAGE>
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
determining estimated fair values of financial instruments:
Investment securities: The estimated fair values for fixed maturity
securities (including redeemable preferred stocks) are based on quoted
market prices, where available. For fixed maturity securities not
actively traded, the estimated fair values are determined using values
obtained from independent pricing services or, in the case of private
placements, by discounting expected future cash flows using a current
market rate applicable to the yield, credit quality and maturity of the
investments. The estimated fair values for trading account securities are
based on quoted market prices.
Short-term investments: The estimated fair values for short-term
investments are based on quoted market prices. The carrying amount
reported in the consolidated balance sheet for these instruments
approximates their estimated fair value.
Mortgage loans, credit-tenant loans and policy loans: The estimated fair
values of these loans are determined by discounting future expected cash
flows using interest rates currently being offered for similar loans to
borrowers with similar credit ratings. Loans with similar characteristics
are aggregated for purposes of the calculations.
Other invested assets: The estimated fair values of other invested assets
are determined using quoted market prices for similar instruments or, for
an insignificant portion for which quoted market prices are not
available, are assumed to be equal to the carrying amount.
Insurance liabilities for investment contracts: The estimated fair values
of the Company's liabilities under investment-type insurance contracts
are determined using discounted cash flow calculations based on interest
rates currently being offered for similar contracts with maturities
consistent with those remaining for the contracts being valued.
Investment borrowings: Due to the short-term nature of these borrowings
(terms generally less than 30 days), estimated fair values are assumed to
approximate the carrying (face) amount reported in the consolidated
balance sheet.
Notes payable: The estimated fair values of the Company's notes payable
are determined using discounted cash flow analyses based on the Company's
current incremental borrowing rates for similar types of borrowing
arrangements.
<PAGE>
The estimated fair values of the Company's financial instruments were as
follows:
<TABLE>
<CAPTION>
1994 1993
----------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(Dollars in millions)
<S> <C> <C> <C> <C>
Financial assets issued for purposes other than trading:
Actively managed fixed maturities.................. $3,497.3 $3,497.3 $3,963.0 $3,963.0
Mortgage loans..................................... 251.4 258.2 305.1 338.9
Credit-tenant loans................................ 116.2 101.1 87.1 87.1
Policy loans....................................... 136.4 136.4 137.3 137.3
Other invested assets.............................. 30.6 30.6 35.3 35.3
Short-term investments............................. 123.0 123.0 209.9 209.9
Trading account securities............................... - - 25.8 25.8
Financial liabilities issued for purposes other than trading:
Insurance liabilities for investment contracts <F1>. 3,344.1 3,344.1 3,339.0 3,339.0
Investment borrowings.............................. - - 134.1 134.1
Notes payable-senior unsecured notes............... 196.8 199.3 - -
Notes payable-senior secured note.................. - - 162.2 166.7
Notes payable-unsecured note related to
Jefferson National acquisition.................. - - 11.3 13.4
<FN>
<F1>The estimated fair value of the liabilities for investment contracts
was approximately equal to its carrying value at December 31, 1994
and 1993, because interest rates credited on the vast majority of
account balances approximate current rates paid on similar
investments and are not generally guaranteed beyond one year. Fair
values for the Company's insurance liabilities other than those for
investment contracts are not required to be disclosed. However, the
estimated fair values of liabilities for all insurance contracts are
taken into consideration in the Company's overall management of
interest rate risk, which minimizes exposure to changing interest
rates through the matching of investment maturities with amounts due
under insurance contracts.
</FN>
</TABLE>
<PAGE>
2. INVESTMENTS:
At December 31, 1994, the amortized cost and estimated fair (carrying)
value of actively managed fixed maturities were as follows:
<TABLE>
<CAPTION>
Estimated
Gross Gross Fair
Amortized Unrealized Unrealized (Carrying)
Cost Gains Losses Value
---- ----- ------ ----
(Dollars in millions)
<S> <C> <C> <C> <C>
United States Treasury securities
and obligations of
United States government
corporations and agencies.................. $ 63.2 $ .2 $ 4.6 $ 58.8
Obligations of states and .....................
political subdivisions..................... 41.8 - 3.3 38.5
Debt securities issued
by foreign governments..................... .4 - - .4
Public utility securities...................... 874.2 7.0 86.7 794.5
Other corporate securities..................... 1,504.1 8.9 115.8 1,397.2
Mortgage-backed securities..................... 1,312.4 5.8 110.3 1,207.9
--------- -------- ------- ---------
Total............................. $3,796.1 $21.9 $320.7 $3,497.3
======== ===== ====== ========
</TABLE>
At December 31, 1993, the amortized cost and estimated fair (carrying)
value of actively managed fixed maturities were as follows:
<TABLE>
<CAPTION>
Estimated
Gross Gross Fair
Amortized Unrealized Unrealized (Carrying)
Cost Gains Losses Value
---- ----- ------ -----
(Dollars in millions)
<S> <C> <C> <C> <C>
United States Treasury securities
and obligations of
United States government
corporations and agencies.................. $ 47.8 $ 6.3 $ - $ 54.1
Obligations of states and
political subdivisions..................... 34.7 1.3 1.1 34.9
Debt securities issued
by foreign governments..................... .4 .1 - .5
Public utility securities...................... 840.4 43.1 10.4 873.1
Other corporate securities..................... 1,633.0 113.3 14.4 1,731.9
Mortgage-backed securities..................... 1,223.9 48.8 4.2 1,268.5
-------- ------ ----- --------
Total............................. $3,780.2 $212.9 $30.1 $3,963.0
======== ====== ===== ========
</TABLE>
<PAGE>
The following table sets forth the amortized cost and estimated fair
value of actively managed fixed maturities as of December 31, 1994, based upon
the source of the estimated fair value:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
(Dollars in millions)
<S> <C> <C>
Nationally recognized pricing services................................................ $3,667.7 $3,372.3
Broker-dealer market makers........................................................... 118.3 116.2
Internally developed methods (calculated based on a
weighted average current market yield of 11.2 percent)............................ 10.1 8.8
-------- --------
Total.................................................................. $3,796.1 $3,497.3
======== ========
</TABLE>
The following table sets forth the quality of actively managed fixed
maturity investments as of December 31, 1994, classified in accordance with the
highest rating by a nationally recognized statistical rating organization or, as
to $44.7 million fair value of investments not rated by such firms, based on
ratings assigned by the National Association of Insurance Commissioners, (the
"NAIC") as follows: NAIC Class 1 is included in the "A" rating; Class 2, "BBB-";
Class 3, "BB-"; and Classes 4-6, "B+ and below."
<TABLE>
<CAPTION>
Percent of
Actively Managed Percent of
Investment Rating Fixed Maturities Total Investments
----------------- ---------------- -----------------
<S> <C> <C>
AAA .................................................... 39% 31%
AA .................................................... 6 5
A .................................................... 22 18
BBB+ .................................................... 9 7
BBB .................................................... 8 7
BBB- .................................................... 9 8
--- ---
Investment-grade..................................... 93 76
--- ---
BB+ .................................................... 2 2
BB .................................................... 1 1
BB- .................................................... 2 1
B+ and below................................................ 2 1
--- ---
Below investment-grade.................................. 7 5
--- ---
Total ............................................... 100% 81%
=== ==
</TABLE>
<PAGE>
Below investment-grade actively managed fixed maturity investments,
summarized by the amount their amortized cost exceeds fair value, were as
follows at December 31, 1994:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
(Dollars in millions)
<S> <C> <C>
Amortized cost exceeds market value by 30% or more....................... $ 10.7 $ 6.9
Amortized cost exceeds market value by 15%,
but not more than 30%................................................ 60.6 46.7
Amortized cost exceeds market value by 5%,
but not more than 15%................................................ 79.0 70.7
All others............................................................... 104.4 109.6
------ ------
Total below investment-grade actively
managed fixed maturity investments............................. $254.7 $233.9
====== ======
</TABLE>
The amortized cost and estimated fair value of actively managed fixed
maturities at December 31, 1994, by contractual maturity, are shown below.
Actual maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties and because most mortgage-backed securities provide for periodic
payments throughout their lives.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- ----
(Dollars in millions)
<S> <C> <C>
Due in one year or less................................................ $ 29.5 $ 29.8
Due after one year through five years.................................. 190.5 187.4
Due after five years through ten years................................. 608.1 575.2
Due after ten years.................................................... 1,655.6 1,497.0
-------- --------
Subtotal.................................................. 2,483.7 2,289.4
Mortgage-backed securities............................................. 1,312.4 1,207.9
-------- ---------
Total ...................................................... $3,796.1 $3,497.3
======== ========
</TABLE>
<PAGE>
Net investment income consisted of the following:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Fixed maturities....................................... $305.3 $337.6 $300.8
Mortgage loans......................................... 31.8 39.9 53.0
Credit-tenant loans.................................... 7.2 5.2 1.4
Policy loans........................................... 8.6 8.9 8.8
Other invested assets.................................. 5.7 4.3 1.2
Short-term investments................................. 9.1 7.9 11.6
Separate accounts...................................... 2.3 11.8 6.9
------ ------ ------
Gross investment income ..................... 370.0 415.6 383.7
Investment expenses.................................... 2.2 2.7 3.3
------ ------ ------
Net investment income........................ $367.8 $412.9 $380.4
====== ====== ======
</TABLE>
The carrying value of investments not accruing investment income totaled
$18.7 million, $17.8 million and $16.4 million at December 31, 1994, 1993 and
1992, respectively.
Trading income (losses), net of related expenses, were included in revenue
as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Gross gains............................................... $ 3.7 $33.2 $28.3
Gross losses.............................................. (2.5) (5.0) (9.4)
----- ----- -----
Net trading income before expenses.............. 1.2 28.2 18.9
Trading expenses.......................................... 2.1 3.9 3.3
----- ----- -----
Net trading income (losses)..................... $ (.9) $24.3 $15.6
===== ===== =====
</TABLE>
<PAGE>
Realized gains, net of related expenses, were included in revenue as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Actively managed fixed maturities:
Gross gains................................................. $ 31.0 $ 80.7 $73.2
Gross losses................................................ (17.5) (5.8) (5.8)
Decline in net realizable value ............................ (1.4) (17.2) (1.6)
------- ------- -------
Net realized gains from actively managed
fixed maturities before expenses................... 12.1 57.7 65.8
Mortgage loans.................................................. (.6) 2.0 1.0
Other invested assets........................................... (2.2) - -
Other........................................................... (.7) - .3
------- ------- -------
Net realized gains before expenses..................... 8.6 59.7 67.1
Realized gain expenses.......................................... 5.7 3.9 3.6
------- -------- -------
Net realized gains ................................... $ 2.9 $ 55.8 $63.5
======= ====== =====
</TABLE>
The proceeds from sales of actively managed fixed maturity investments were
$1.2 billion, $2.1 billion and $1.3 billion for 1994, 1993 and 1992,
respectively.
Changes in unrealized appreciation (depreciation) of securities were as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Investments carried at amortized cost:
Fixed maturities held to maturity........................... $ - $ - $(145.1)
======== ======== =======
Investments carried at estimated fair value:
Actively managed fixed maturities........................... $(481.6) $ 92.3 $ 90.5
Trading account securities.................................. - (1.6) (12.4)
Investment in Bankers Life Holding Corporation.............. (3.4) 11.9 -
Investment in The Statesman Group, Inc...................... (3.1) - -
Other invested assets....................................... (2.4) - -
-------- --------- --------
(490.5) 102.6 78.1
Adjustment for effect on other balance sheet accounts:
Cost of policies purchased.................................. 188.8 (19.1) (43.7)
Cost of policies produced................................... 40.3 (16.5) (7.5)
Income taxes................................................ 94.3 (23.3) (9.1)
-------- -------- --------
Change in unrealized appreciation (depreciation)
of securities......................................... $(167.1) $ 43.7 $ 17.8
======= ====== ========
</TABLE>
The amortized cost and fair (carrying) value of actively managed fixed
maturity investments in default as to the payment of principal or interest were
$12.2 million (net of recorded writedowns of $4.7 million) and $18.4 million,
respectively, at December 31, 1994. During 1994, 1993 and 1992, the Company
recorded writedowns of fixed maturity investments totaling $1.0 million, $.3
million and $1.6 million, respectively, as a result of changes in conditions
which caused it to conclude that it would not be able to collect all amounts due
according to the terms of the securities. Additionally, the Company wrote down
exchange-rate-linked
<PAGE>
securities by $.4 million and $16.9 million in 1994 and 1993, respectively, due
to foreign currency fluctuations which caused it to conclude that the full
amount of its investment would not be realized. Most of these
exchange-rate-linked securities subsequently matured in 1993 and 1994; the
carrying value of such securities remaining at December 31, 1994, was
approximately $.7 million.
Investments in mortgage-backed securities at December 31, 1994, included
collateralized mortgage obligations ("CMOs") of $796.2 million and
mortgage-backed pass-through securities of $411.7 million. At December 31, 1994,
the par value, amortized cost and estimated fair value of investments in
mortgage-backed securities summarized by interest rates on the underlying
collateral were comprised of the following:
<TABLE>
<CAPTION>
Par Amortized Estimated
Value Cost Fair Value
----- ---- ----------
(Dollars in millions)
<S> <C> <C> <C>
Pass-through securities:
Below 7%.................................................. $ 250.8 $ 250.4 $ 222.1
7% - 8%................................................... 130.8 132.0 120.0
8% - 9%................................................... 35.0 35.3 34.0
Above 9%.................................................. 34.7 35.0 35.6
Planned amortized class CMO instruments:
Below 7%.................................................. 139.2 128.9 110.8
7% - 8%................................................... 333.2 313.4 281.6
8% - 9%................................................... 177.1 172.4 159.3
Above 9%.................................................. 107.5 105.8 107.6
Other CMO instruments:
Below 7%.................................................. 9.7 14.0 12.7
7% - 8%................................................... 14.0 16.6 16.5
8% - 9%................................................... 30.9 29.2 29.4
Above 9%.................................................. 80.0 79.4 78.3
-------- -------- --------
Total mortgage-backed securities .................... $1,342.9 $1,312.4 $1,207.9
======== ======== ========
</TABLE>
The following table sets forth the amortized cost and estimated fair
value of mortgage-backed securities as of December 31, 1994, based upon the
source of the estimated fair value:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
(Dollars in millions)
<S> <C> <C>
Nationally recognized pricing services.............................................. $1,223.8 $1,120.3
Broker-dealer market makers......................................................... 88.4 87.4
Internally developed methods (calculated based on a
current market yield of 9.2 percent)............................................ .2 .2
-------- --------
Total................................................................ $1,312.4 $1,207.9
======== ========
</TABLE>
At December 31, 1994, less than 3 percent of the book value of mortgage
loans held by the Company had defaulted as to principal or interest for more
than 60 days, were in foreclosure, had been converted to foreclosed real estate
or had been restructured while the Company owned them. The Company maintained a
loan loss reserve of $1.2 million on that date. Approximately 59 percent, 9
percent and 6 percent of the mortgage loans were on properties located in
California, Texas and Indiana, respectively. No other state comprised greater
than 5 percent of the mortgage loan balance.
As part of its investment strategy, the Company enters into reverse
repurchase agreements and dollar roll transactions to increase its return on
investments and increase liquidity. These transactions generally terminate after
30 days and are accounted for
<PAGE>
as short-term collateralized borrowings. These borrowings, which were as high as
$298.6 million during 1994, averaged approximately $151 million in 1994 compared
to $155 million in 1993 and were collateralized by securities with fair values
approximately equal to the loan value. The weighted average interest rate on
short-term collateralized borrowings was 3.4 percent in 1994 and 2.8 percent in
1993.
Life insurance companies are required to maintain certain amounts of
assets on deposit with state regulatory authorities. Such assets had an
aggregate carrying value of $21.1 million at December 31, 1994.
Investments in a single entity in excess of 10 percent of shareholders'
equity at December 31, 1994, other than investments in affiliates and
investments issued or guaranteed by the U.S. government, all of which were
actively managed fixed maturity investments, were as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Investment Cost Value
---------- ---- -----
(Dollars in millions)
<S> <C> <C>
Hydro-Quebec....................................... $41.8 $39.1
Pacific Gas & Electric............................. 44.9 38.3
</TABLE>
3. INVESTMENTS IN UNCONSOLIDATED AFFILIATES:
In March 1993, Bankers Life Holding Corporation ("BLH"), then a
subsidiary of the Partnership, completed an initial public offering of
19,550,000 shares of its common stock at $22 per share. In conjunction with this
offering, the Company's investment in the Partnership was exchanged for
1,513,131 shares of BLH common stock. During the first quarter of 1993, the
Company recognized equity in earnings of BLH of $1.2 million and a gain on the
sale of stock by BLH of $10.5 million. Effective with the date of the exchange,
the Company carries its investment in BLH at fair value. At December 31, 1994,
the Company's investment in BLH had an estimated fair value of $25.9 million and
an unrealized gain of $7.6 million, net of taxes of $.9 million. Shares of BLH
held by the Company are not freely tradable, and the sale of such shares may
require a registration statement with the Securities and Exchange Commission. On
March 1, 1995, BLH received a proposal from Conseco under which Conseco would
acquire the outstanding shares of BLH that Conseco does not currently own. Under
the proposal, BLH would merge into Conseco, with Conseco being the surviving
corporation. Each holder of BLH common shares, other than Conseco, would receive
$22 per share in cash. The proposed transaction requires the approval of holders
of a majority of BLH's outstanding shares (other than shares held by Conseco)
voting at a special shareholders' meeting.
In January 1994, Conseco announced the formation of Conseco Capital
Partners, II, L.P. ("Partnership II"), a partnership formed to invest in
privately negotiated acquisitions of specialized annuity, life and accident and
health insurance companies and related businesses. Partnership II received
capital commitments of $624 million, which included a $25 million capital
commitment by the Company as a limited partner of Partnership II. On September
29, 1994, the Company participated in funding the acquisition of The Statesman
Group, Inc. ("Statesman") by Partnership II. The Company indirectly acquired 3.2
percent of the outstanding common shares of Statesman through its $1.9 million
contribution to Partnership II. In a separate transaction, the Company purchased
$24.0 million of payment-in-kind ("PIK") preferred stock issued by Statesman,
although $3.0 million of this investment was later sold at cost to an
unaffiliated company. As partial consideration for the PIK preferred stock
purchases, the Company received 7.3 percent of Statesman's common shares
outstanding. Dividends on the Statesman PIK preferred stock are payable annually
through 2006 at 13 percent in additional shares of Statesman PIK preferred
stock. Thereafter, dividends will be payable quarterly in cash at a 15 percent
annual rate. During the fourth quarter of 1994, the Company recognized $.3
million of investment income for its equity in the earnings of Statesman. At
December 31, 1994, the carrying value of the Company's investment in Statesman
was $20.1 million, which included an unrealized loss of $2.8 million, net of
taxes of $.3 million.
<PAGE>
4. INSURANCE LIABILITIES:
Insurance liabilities consisted of the following:
<TABLE>
<CAPTION>
Interest
Withdrawal Mortality Rate December 31,
Assumption Assumption Assumption 1994 1993
---------- ---------- ---------- ---- ---
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Future policy benefits:
Investment contracts............. N/A N/A <F3> $3,344.1 $3,339.0
Limited-payment contracts........ None <F1> 7% 158.4 154.4
Traditional life insurance Company
contracts..................... experience <F2> 8% 181.7 187.7
Universal life-type contracts.... N/A N/A N/A 472.0 478.3
Claims payable and other
policyholders' funds ............ N/A N/A N/A 86.9 73.9
-------- --------
Total insurance liabilities.................................................... $4,243.1 $4,233.3
======== ========
<FN>
<F1> Principally the 1971 Individual Annuitant Table and the 1965 - 70 and the
1975 - 80 Basic, Select and Ultimate Tables.
<F2> Principally modifications of the 1965 - 70 and 1975 - 80 Basic, Select
and Ultimate Tables.
<F3> At December 31, 1994 and 1993, approximately 89 percent and 85 percent,
respectively, of this liability represented account balances where future
benefits were not guaranteed. The weighted average interest rate on the
remainder of liabilities, representing the present value of guaranteed
future benefits, was approximately 6 percent at December 31, 1994.
</FN>
</TABLE>
Participating policies represented approximately 3.6 percent, 3.8 percent
and 3.3 percent of total life insurance in force at December 31, 1994, 1993 and
1992 respectively, and approximately 6.8 percent, 6.0 percent and 6.5 percent of
premium income for 1994, 1993 and 1992, respectively. Dividends on participating
policies amounted to $1.8 million, $2.0 million and $1.8 million in 1994, 1993
and 1992, respectively.
5. REINSURANCE:
Cost of reinsurance ceded where the reinsured policy contains mortality
risks totaled $45.0 million, $52.4 million and $51.8 million in 1994, 1993 and
1992, respectively, and has been deducted from insurance policy income. The
Company is contingently liable for claims reinsured if the assuming company is
unable to pay. Reinsurance recoveries netted against insurance policy benefits
totaled $31.6 million, $36.9 million and $35.3 million in 1994, 1993 and 1992,
respectively.
The Company has ceded policy liabilities under assumption reinsurance
agreements where all obligations under the insurance contracts have been ceded
to another company. Accordingly, insurance liabilities related to such policies
were not reported in the balance sheet. The Company believes the assuming
companies are able to honor all contractual commitments under the assumption
reinsurance agreements based on periodic reviews of financial statements,
insurance industry reports and reports filed with state insurance departments.
<PAGE>
6. INCOME TAXES:
Income tax assets (liabilities) were comprised of the following:
<TABLE>
<CAPTION>
December 31,
1994 1993
---- ----
(Dollars in millions)
<S> <C> <C>
Deferred income tax assets (liabilities):
Investments...................................................... $ 50.8 $ 3.8
Cost of policies purchased and ..................................
cost of policies produced..................................... (150.0) (88.6)
Insurance liabilities............................................ 72.8 68.3
Unrealized depreciation (appreciation) .......................... 57.9 (36.4)
Other............................................................ (22.8) (25.2)
------- -------
Deferred income tax assets (liabilities)................ 8.7 (78.1)
Current income tax assets (liabilities).............................. 4.9 (7.9)
------- ------
Income tax assets (liabilities)......................... $ 13.6 $(86.0)
======= ======
</TABLE>
Income tax expense was as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Current tax provision................................................ $29.7 $59.5 $ 40.5
Deferred tax provision............................................... 7.7 6.4 1.5
----- ----- ------
Income tax expense........................................ $37.4 $65.9 $ 42.0
===== ===== ======
</TABLE>
Income tax expense differed from that computed at the applicable federal
statutory rate (35 percent in 1994 and 1993 and 34 percent in 1992) for the
following reasons:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Federal tax on income before taxes at statutory rates................ $35.1 $60.7 $40.4
Additional tax on unrealized gains and income of prior
periods related to increase in corporate income tax rate......... - 2.4 -
State taxes ......................................................... 1.6 1.5 .5
Nondeductible items ................................................. .8 .7 .7
Taxes related to prior years......................................... - .7 -
Nontaxable investment income and dividends received deduction........ (.4) (.3) (.2)
Other................................................................ .3 .2 .6
----- ----- -----
Income tax expense........................................ $37.4 $65.9 $42.0
===== ===== =====
</TABLE>
The Omnibus Budget Reconciliation Act of 1993 (the "Act") was enacted on
August 10, 1993. The most significant provision of the Act affecting the Company
was the increase in the corporate income tax rate to 35 percent from 34 percent
effective for taxable income reported in 1993. In addition to increasing taxes
on current year income, the impact of the Act on the Company in 1993 was
additional expense of $1.3 million for a one-time adjustment to accumulated
deferred taxes related to prior years' income and $1.1 million for a one-time
adjustment to unrealized appreciation of securities. The impact of the other
provisions of the Act was not material to the Company.
The Internal Revenue Service ("IRS") completed an examination of
Beneficial Standard for the tax years 1986 - 1989, which are years prior to
Beneficial Standard's acquisition by the Company, and issued a notice of
deficiency. Beneficial Standard has filed
<PAGE>
a petition with the Tax Court disputing the claimed deficiency. The seller of
Beneficial Standard is obligated to indemnify the Company for any additional
income taxes attributable to these years. The Company believes that, upon
completion of the appeal process, this examination will not have a material
impact on the Company's financial position or results of operations.
Great American Reserve, Jefferson National and Beneficial Standard are
currently being examined by the IRS for the years 1991 and 1992. The Company
believes that the outcome of these examinations will not have a material impact
on the Company's financial position or results of operations.
7. NOTES PAYABLE:
Notes payable consisted of the following:
<TABLE>
<CAPTION>
Amount
Outstanding
Net of
Unamortized
Par Value Discount and Estimated
Outstanding at Issuance Costs Fair Value
Initially December 31, at December 31, at December 31,
Issued 1994 1993 1994 1993 1994 1993
------ ---- ---- ---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Senior unsecured notes issued in
December 1994............................... $200.0 $200.0 $ - $196.8 $ - $199.3 $ -
Senior secured note issued in July 1992........ 200.0 - 166.7 - 162.2 - 166.7
Unsecured note related to Jefferson
National acquisition issued in
November 1989............................. 10.0 - 13.4 - 11.3 - 13.4
------ ------ ------ ------ ------- ------
Total..................................... $200.0 $180.1 $196.8 $173.5 $199.3 $180.1
====== ====== ====== ====== ====== ======
</TABLE>
In December 1994, the Company completed a public offering of $200 million
of its 10.5 percent senior notes due in 2004. Proceeds from the offering of
approximately $196.8 million (after original issue discount and other associated
costs) were used to prepay in full the senior secured note, to repurchase common
shares of the Company, and for general corporate purposes. The retirement of the
senior secured note, which had a par value of $133.3 million at the time of
retirement, resulted in an extraordinary charge of $3.6 million, net of a $2.0
million tax benefit. The 10.5 percent senior notes bear interest payable
semi-annually on June 15 and December 15. The notes are unsecured and rank pari
passu with all other unsecured and unsubordinated indebetedness of the Company.
The notes are not redeemable prior to maturity.
In 1990, the Company issued a note with a par value of $10.0 million
which was due in 2000 in connection with the acquisition of Jefferson National.
Interest at the rate of 10 percent was payable in additional notes (scheduled to
mature in 2000) through November 1995 and at the rate of 12 percent thereafter,
payable in cash. In February 1994, the Company retired the note for $13.6
million, resulting in an extraordinary charge of $1.3 million, net of a $.7
million tax benefit. Also in connection with the Jefferson National acquisition,
the Company issued a note with a par value of $15.0 million which matures in
2000. However, under the terms of the note agreement, the principal balance of
the note plus accrued interest may be reduced for certain potential losses for
which the seller has agreed to indemnify the Company. The Company believes that
potential adjustments which approximate the note balance have been identified;
accordingly, the outstanding balance of the note has been classified as other
liabilities for financial reporting purposes.
In October 1993, the Company retired at par a $29.0 million unsecured
note which was due in 1998. This note, which was issued to the seller of Great
American Reserve and had an interest rate of 14 percent, was carried net of $.4
million of unamortized discount at the time of retirement. The write-off of the
unamortized discount was included with interest expense on long-term debt.
In July 1992, in connection with the initial public offering of its
common stock, the Company issued a senior secured note for $200.0 million and
completed certain recapitalization and related transactions. As a result, the
Company repaid the remaining balances on a $75.0 million senior secured note, a
$23.0 million subordinated note, a $119.0 million senior secured note, $6.7
<PAGE>
million of subordinated notes ($3.0 million of which was exchanged for common
stock of the Company) and a $79.5 million senior secured note. Related interest
rate swap and cap agreements were also terminated. Furthermore, notes payable of
$9.5 million and $6.3 million, issued to Conseco in connection with the
acquisitions of Beneficial Standard and Jefferson National, respectively, were
also repaid. As a result of the early extinguishment of debt, the Company
recognized an extraordinary charge of $8.8 million, net of a $4.5 million tax
benefit. As discussed above, the senior secured note that was issued in 1992 was
retired in December 1994. The retired note contained an interest rate which
varied with prime or LIBOR and was 7.4 percent at the time of retirement. A
scheduled principal payment of $33.3 million was made on April 1, 1994, and the
remaining principal repayments would have been due in annual installments of
$33.3 million on April 1 in the years 1995 through 1998.
8. OTHER DISCLOSURES:
Litigation
From time to time, the Company and its subsidiaries are involved in
lawsuits which are related to their operations. In most cases, such lawsuits
involve claims under insurance policies or other contracts of the Company. Even
though the Company may be contesting the validity or extent of its liability in
response to such lawsuits, the Company has established reserves in its
consolidated financial statements which approximate its estimated potential
liability. Accordingly, none of the lawsuits currently pending, either
individually or in the aggregate, is expected to have a material effect on the
Company's consolidated financial position or results of operations.
Guaranty Fund Assessments
From time to time, mandatory assessments are levied on the Company's
insurance subsidiaries by life and health guaranty associations of most states
in which these subsidiaries are licensed to cover losses to policyholders of
insolvent or rehabilitated insurance companies. These associations levy
assessments (up to prescribed limits) on all member insurers in a particular
state in order to pay claims on the basis of the proportionate share of premiums
written by member insurers in the lines of business in which the insolvent or
rehabilitated insurer engaged. These assessments may be deferred or forgiven in
certain states if they would threaten an insurer's financial strength and, in
some states, these assessments can be partially recovered through a reduction in
future premium taxes. The accompanying financial statements include accruals
($5.5 million at December 31, 1994) which approximate the Company's estimated
potential liability for guaranty assessments. Amounts for guaranty assessments
charged to expense in 1994, 1993 and 1992 were $8.8 million, $2.4 million and
$2.7 million, respectively. The 1994 amount includes a $5.5 million charge for
future guaranty assessments on known insolvencies in the life insurance
industry.
Related Party Transactions
The Company operates without direct employees through management and
service agreements with subsidiaries of Conseco. Total fees incurred by the
Company under such agreements were $37.3 million, $36.8 million and $34.4
million for 1994, 1993 and 1992, respectively.
<PAGE>
At the time the Company acquired Great American Reserve, the acquiree
held a note receivable from Conseco with an original principal balance of $10.0
million that was recorded at its fair value. This note was retired by Conseco
for cash of $7.0 million in March 1993. At the time of retirement, the principal
balance and book value of the note were $7.0 million and $6.3 million,
respectively.
During 1994 and 1993, the Company collected premiums of $5.0 million and
$7.2 million, respectively, from guaranteed investment contracts issued as
investment options for qualified retirement plans maintained by Conseco and BLH.
9. SHAREHOLDERS' EQUITY:
Authorized preferred stock is 20,000,000 shares. All of the shares of
preferred stock previously issued as part of the financing of various
acquisitions were redeemed on July 21, 1992, in connection with the Company's
initial public offering and recapitalization. Of the preferred stock redeemed, a
portion was exchanged for shares of common stock of the Company and the
remainder was retired for cash of $33.8 million.
Changes in the number of shares of common stock outstanding for the years
ended December 31, 1994, 1993 and 1992, were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year...................................... 29,049,968 26,010,700 15,244,920
Shares issued in public offerings........................... - 3,039,268 8,010,700
Shares issued in exchange for debt and preferred stock...... - - 1,350,000
Shares issued for exercised warrants <F1>................... - - 1,405,080
Shares issued under stock option and
employee benefits plans.................................. 948 - -
Common shares repurchased................................... (3,507,400) - -
---------- ---------- ----------
Balance, end of year............................................ 25,543,516 29,049,968 26,010,700
========== ========== ==========
<FN>
<F1>In connection with the acquisitions of Great American Reserve and
Jefferson National, the Company issued warrants to purchase shares
of the Company's common stock at a nominal cost to the lenders who
provided acquisition financing. Such warrants were exercised in
1992.
</FN>
</TABLE>
Dividends declared on common stock for 1994, 1993 and 1992 were $.08,
$.08 and $.04 per common share, respectively. A liability was accrued for
dividends declared but unpaid at December 31, 1994, totaling $.5 million. Such
dividends were paid in January 1995.
During 1994, the Company repurchased approximately 3.5 million shares of
its common stock for $71.8 million.
The Company is authorized under its employee stock option plan to grant
options to purchase up to 1,750,000 shares of the Company's common stock at a
price not less than its market value on the date the option is granted. The
options are exercisable for up to 10 years from the date of grant and become
exercisable over a period of time which began in 1994. In addition to the shares
of common stock reserved for issuance under the employee stock option plan,
9,064 shares of common stock are reserved for issuance under the stock bonus and
deferred compensation program for directors.
<PAGE>
Stock options activity was as follows:
<TABLE>
<CAPTION>
Number of Shares
Option Price 1994 1993 1992
------------ ---- ---- ----
<S> <C> <C> <C> <C>
Outstanding at January 1,.................................$15.00 to $24.00 715,600 790,000 -
Granted during the year
1992 ................................................$15.00 to $18.75 - - 790,000
1993 ................................................$19.875 to $22.50 - 25,600 -
1994 ................................................$17.00 to $24.00 72,200 - -
Exercised during the year.................................$22.50 (840) - -
Canceled during the year..................................$15.00 to $22.50 (8,760) (100,000) -
------- -------- -------
Outstanding at December 31, ..............................$15.00 to $24.00 778,200 715,600 790,000
======= ======== =======
Portion thereof that is exercisable
at December 31,.......................................$22.50 3,200 - -
======== ======== =======
Available for future grant at December 31,................ 970,960 1,034,400 960,000
======= ========= =======
</TABLE>
10. OTHER OPERATING STATEMENT DATA:
Insurance policy income consisted of the following:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Direct premiums collected............................................ $563.9 $497.7 $664.5
Reinsurance assumed.................................................. 3.2 5.7 8.7
Reinsurance ceded.................................................... (45.0) (52.4) (51.8)
------ ------ ------
Premiums collected, net of reinsurance........................... 522.1 451.0 621.4
Less premiums on universal life and products
without mortality risk which are recorded
as additions to insurance liabilities......................... 450.7 368.5 539.4
------ ------ ------
Premiums on products with mortality risk,
recorded as insurance policy income.......................... 71.4 82.5 82.0
Fees and surrender charges........................................... 43.1 45.3 57.5
------ ------ ------
Insurance policy income.................................. $114.5 $127.8 $139.5
====== ====== ======
</TABLE>
The three states with the largest shares of the Company's premiums
collected in 1994 were Texas (19 percent), Florida (17 percent) and California
(10 percent). Minnesota, Indiana, Michigan, Ohio, Wisconsin, North Carolina and
Illinois each represented between 2.1 percent and 6.0 percent of collected
premiums. No other states's share of premiums collected exceeded 2.0 percent.
<PAGE>
Other operating costs and expenses were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Policy maintenance expense............................................. $23.0 $24.3 $28.1
Commission expense..................................................... 18.8 20.5 21.3
State premium taxes and guaranty fund assessments...................... 10.8 4.2 5.0
Holding company expenses............................................... 2.0 3.2 0.7
----- ----- -----
Other operating costs and expenses......................... $54.6 $52.2 $55.1
===== ===== =====
</TABLE>
The changes in the cost of policies purchased were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Balance, beginning of year............................................. $175.5 $247.9 $343.2
Amounts acquired................................................... - - 11.1
Amortization related to operations:
Cash flow realized.............................................. (55.1) (71.1) (78.9)
Interest added.................................................. 39.4 47.4 58.8
Amortization related to gains on sales of investments.............. (3.4) (29.6) (42.6)
Amounts related to fair value adjustment
of actively managed fixed maturities ........................... 188.8 (19.1) (43.7)
------ ------ ------
Balance, end of year................................................... $345.2 $175.5 $247.9
====== ====== ======
</TABLE>
The cost of policies purchased includes 1992 additions of $6.4 million
acquired upon the purchase of a block of annuity business and $4.7 million
related to adjustments to the fair value of the net assets acquired with
Beneficial Standard. Based on current conditions and assumptions as to future
events on all policies in force, approximately 9.7 percent, 9.5 percent, 9.0
percent, 8.6 percent and 7.9 percent of the cost of policies purchased
(determined before the adjustment related to unrealized gains (losses) on
actively managed fixed maturities) as of December 31, 1994, are expected to be
amortized in each of the next five years, respectively. The average discount
rate for the cost of policies purchased was 18 percent at December 31, 1994.
Anticipated returns from the investment of policyholder balances are
considered in determining the amortization of cost of policies purchased and
cost of policies produced. Sales of fixed maturity investments change the
incidence of profits on such policies because resulting gains (losses) are
recognized currently and the expected future yields on the investment of
policyholder balances are reduced (increased) when the sale proceeds are
invested at current rates. Accordingly, amortization of the cost of policies
purchased was increased by $3.4 million, $29.6 million and $42.6 million in
1994, 1993 and 1992, respectively, and amortization of the cost of policies
produced was increased by $.3 million, $6.8 million and $3.3 million in 1994,
1993 and 1992, respectively.
<PAGE>
The changes in the cost of policies produced were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Balance, beginning of year........................................... $ 42.3 $ 44.4 $23.5
Additions........................................................ 37.3 25.0 32.8
Amortization related to operations............................... (7.7) (3.8) (1.1)
Amortization related to gains on sales of investments............ (.3) (6.8) (3.3)
Amounts related to fair value adjustment
of actively managed fixed maturities ......................... 40.3 (16.5) (7.5)
------ ------ -----
Balance, end of year................................................. $111.9 $ 42.3 $44.4
====== ====== =====
</TABLE>
11. CONSOLIDATED STATEMENT OF CASH FLOWS:
Cash flows from operations include interest paid on debt of $8.6 million,
$14.9 million and $24.3 million in 1994, 1993 and 1992, respectively.
Income taxes of $33.7 million, $62.2 million and $34.7 million were paid
in 1994, 1993 and 1992, respectively.
The following non-cash items are not reflected in the consolidated
statement of cash flows: (i) issuance of paid-in-kind interest on unsecured
notes of $.2 million, $1.2 million and $1.2 million in 1994, 1993 and 1992,
respectively; (ii) exchange of debt and preferred stock for shares of common
stock amounting to $20.8 million in 1992, and (iii) issuance of paid-in-kind
dividends on preferred stock of $2.2 million in 1992.
Short-term investments having original maturities of three months or less
are considered to be cash equivalents. All cash is invested in short-term
investments.
12. STATUTORY INFORMATION:
Statutory accounting practices prescribed or permitted for the Company's
insurance subsidiaries by regulatory authorities differ from generally accepted
accounting principles. The Company's insurance subsidiaries reported the
following amounts to regulatory agencies, after appropriate eliminations of
intercompany accounts among such subsidiaries:
<TABLE>
<CAPTION>
December 31,
1994 1993
---- ----
(Dollars in millions)
<S> <C> <C>
Statutory capital and surplus......................................................... $181.9 $172.2
Asset valuation reserve ("AVR")....................................................... 45.6 39.3
Interest maintenance reserve ("IMR").................................................. 107.8 107.4
Portion of surplus debentures carried as a liability.................................. 76.7 73.2
------ ------
Total...................................................................... $412.0 $392.1
====== ======
</TABLE>
Combined statutory net income of the Company's life insurance subsidiaries
was $53.7 million, $59.7 million and $46.4 million in 1994, 1993 and 1992,
respectively, after appropriate eliminations of intercompany accounts among such
subsidiaries.
As a result of the acquisitions and subsequent recapitalization
transactions of the insurance subsidiaries, a surplus debenture was issued by an
insurance subsidiary to its direct parent company. As required by the state
regulatory authorities, the debenture is classified as a part of statutory
capital and surplus of the subsidiary to the extent that such capital and
surplus equals the level of capital and surplus required by the regulators. The
balance of the debenture in excess of such amount is carried as a liability on
the statutory balance sheet. This amount, however, would be reclassified to
statutory capital and surplus to the extent subsequently needed to meet the
level of capital and surplus required by the regulators. The surplus debenture
is eliminated in the Company's consolidated financial statements.
<PAGE>
Statutory accounting practices require that AVR and IMR be reported as
liabilities. The IMR captures all realized investment gains and losses, net of
tax, resulting from changes in interest rates and provides for subsequent
amortization of such amounts into statutory net income on a basis reflecting the
remaining lives of the assets sold. The AVR captures all realized, net of tax,
and unrealized investment gains and losses related to changes in
creditworthiness and is also adjusted each year based on a formula related to
the quality of the Company's investment portfolio.
The following table compares the consolidated pre-tax income determined on
a statutory accounting basis with such income reported herein in accordance with
generally accepted accounting principles:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Life insurance subsidiaries:
Pre-tax income as reported on a statutory accounting basis before
deduction of expenses paid to affiliates and transfers
to and from and amortization of the IMR ...................... $ 99.2 $197.9 $160.3
Adjustments for generally accepted accounting principles:
Investments valuation......................................... 9.6 14.1 15.4
Amortization related to operations............................ (25.3) (29.4) (23.2)
Amortization related to realized gains........................ (3.7) (36.4) (45.9)
Deferral of cost of policies produced......................... 37.3 25.0 32.8
Insurance liabilities valuation............................... (3.1) 4.3 (4.1)
Other liabilities............................................. (3.6) 2.0 7.1
Other......................................................... (.1) 1.9 1.5
------ ------ ------
Pre-tax income, generally accepted
accounting principles............................... 110.3 179.4 143.9
Non-life companies:
Interest expense................................................. (10.7) (16.1) (26.1)
Gain on sale of stock by Bankers Life Holding Corporation........ - 10.5 -
All other income and expense, net................................ .8 (.3) 1.1
------ ------ ------
Consolidated pre-tax income, generally
accepted accounting principles....................... $100.4 $173.5 $118.9
====== ====== ======
</TABLE>
State insurance laws generally restrict the ability of insurance
companies to pay dividends or make other distributions. Net assets of the
Company's insurance subsidiaries, determined in accordance with generally
accepted accounting principles, aggregated approximately $296.6 million at
December 31, 1994, of which approximately $61.3 million is available for
distribution in 1995 without the permission of state regulatory authorities.
Some states have adopted risk-based capital ("RBC") requirements,
effective December 31, 1993, to evaluate the adequacy of an insurer's statutory
capital and surplus in relation to its investment and insurance risks. The RBC
formula is designed as an early warning tool to help state regulators identify
possible weakly capitalized companies for the purpose of initiating regulatory
action. At December 31, 1994, the ratios of total adjusted capital to RBC, as
defined by the requirements, for both of the Company's primary subsidiaries were
greater than twice the level at which any regulatory attention is triggered.
<PAGE>
13. LINES OF BUSINESS:
The Company operates principally in the single business segment of
providing individual life insurance and annuity coverage within the United
States. Within that segment, the significant lines of business are individual
life insurance, annuities and other insurance products (principally individual
and group accident and health insurance and group life insurance). Assets and
related investment income are allocated to the lines of business and to
corporate based on the source of the funds.
Information as to the Company's lines of business is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Premiums collected, net of reinsurance:
Life.......................................................... $ 55.9 $ 62.0 $ 70.7
Annuities..................................................... 427.6 343.1 503.3
Accident and health and other................................. 38.6 45.9 47.4
-------- --------- --------
Total...................................................... $ 522.1 $ 451.0 $ 621.4
======== ========= ========
Revenues:
Life ......................................................... $ 114.5 $ 138.0 $ 140.6
Annuities..................................................... 317.2 401.9 383.7
Accident and health and other................................. 41.0 51.4 54.1
Corporate..................................................... 11.6 41.2 21.3
-------- --------- --------
Total...................................................... $ 484.3 $ 632.5 $ 599.7
======== ========= ========
Income before income taxes and extraordinary charge:
Life.......................................................... $ 15.9 $ 27.6 $ 25.5
Annuities..................................................... 82.4 113.9 80.7
Accident and health and other................................. 8.7 10.1 9.6
Corporate..................................................... 4.1 38.0 29.2
Interest expense.............................................. (10.7) (16.1) (26.1)
-------- -------- --------
Total ..................................................... $ 100.4 $ 173.5 $ 118.9
======== ======== ========
Assets:
Life.......................................................... $ 869.1 $ 987.9 $ 986.3
Annuities..................................................... 3,846.0 4,037.9 3,666.4
Accident and health and other................................. 75.3 83.9 75.4
Corporate..................................................... 169.9 188.4 128.4
-------- -------- --------
Total...................................................... $4,960.3 $5,298.1 $4,856.5
======== ======== ========
</TABLE>
<PAGE>
14. QUARTERLY FINANCIAL DATA (UNAUDITED):
Earnings per common share for each quarter are computed independently of
earnings per share for the year. Due to the transactions affecting the weighted
average number of shares outstanding in each quarter and due to the uneven
distribution of earnings during the year, the sum of the quarterly earnings per
share may not equal the earnings per share for the year.
<TABLE>
<CAPTION>
1994
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- -------- -------- --------
(Dollars in millions, except per share amounts)
<S> <C> <C> <C> <C>
Insurance policy income............................ $ 30.1 $ 28.1 $ 30.0 $ 26.3
Revenues........................................... 126.8 130.3 116.5 110.7
Income before income taxes and
extraordinary charge........................... 31.7 36.1 19.4 13.2
Net income......................................... 19.1 22.5 12.6 3.9
Earnings per common share before
extraordinary charge........................... $ .71 $ .81 $.46 $.29
Extraordinary charge............................... .05 - - .14
----- ----- ----- ----
Earnings per common share.......................... $ .66 $ .81 $ .46 $.15
===== ===== ===== ====
</TABLE>
<TABLE>
<CAPTION>
1993
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- -------- -------- --------
(Dollars in millions, except per share amounts)
<S> <C> <C> <C> <C>
Insurance policy income........................... $ 32.3 $ 30.9 $ 34.3 $ 30.3
Revenues.......................................... 157.3 155.6 156.9 162.7
Income before income taxes ....................... 44.3 40.3 41.9 47.0
Net income........................................ 28.3 26.9 23.3 29.1
Earnings per common share ........................ $ 1.09 $1.03 $ .89 $1.00
</TABLE>
Quarterly results of operations are based on numerous estimates,
principally related to policy reserves, amortization of cost of policies
purchased, amortization of cost of policies produced and income taxes. Such
estimates are revised each quarter and are ultimately adjusted at the end of the
year. When such revisions are determined, they are reported as part of the
operations of the current quarter.
15. SUBSEQUENT EVENTS (UNAUDITED):
On January 3, 1995, the Company announced that its common share
repurchase program had been expanded to 6 million shares. In January and
February of 1995, the Company repurchased approximately 2.2 million of its
common shares for $44.7 million in open market transactions.
Certain annuity policies that were sold by Western National Life
Insurance Company ("WNL"), a former affiliate of the Company, and subsequently
ceded to the Company through a reinsurance agreement, with an accumulated
account balance of approximately $73 million at December 31, 1994, are subject
to a provision whereby they may be recaptured by WNL. WNL informed the Company
in February 1995 that it wished to exercise its option to recapture these
policies. This recapture will transpire upon the establishment of a mutually
agreed upon value of the business.
On March 1, 1995, the Company received a proposal from Conseco under
which Conseco would acquire the outstanding shares of CCP that it does not
currently own for $22.50 per share in cash . Under the proposal, CCP would merge
into Conseco, with Conseco being the surviving corporation. The proposed merger
transaction, which will be evaluated by a special committee of the Company's
independent board members, requires the approval of holders of a majority of the
Company's outstanding shares (other than shares held by Conseco) voting at a
special shareholders' meeting. The special committee has retained independent
counsel and an investment banking firm to advise it on the proposal. On March 9,
1995, Conseco held 11,555,581 shares of CCP, or approximately 49.5 percent of
the common stock outstanding on that date.
CONSECO, INC. AND SUBSIDIARIES
ITEM 7(b). Financial Statements and Exhibit, continued
(b) Pro forma financial statements required to be filed for this
acquisition under Article 11 of Regulation S-X will be filed
with an amendment to Item 7(a)(4) of Form 8-K.
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
ITEM 7(c). EXHIBIT.
(c) Exhibit
2.1 Agreement and Plan of Merger dated as of May 19, 1995.
The Credit Agreement obtained by Conseco as described
in Item 2 has been omitted as an exhibit to the Form
8-K, pursuant to Item 601(b)(4)(iii) of Regulation
S-K, because the total amount of the Credit Agreement
is less than 10 percent of the total assets of the
Registrant and its subsidiaries on a consolidated
basis. The Registrant hereby undertakes to furnish
copies of such documents to the Commission upon
request.
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: September 14, 1995 CONSECO, INC.
By: /s/ ROLLIN M. DICK
-------------------------
Rollin M. Dick
Executive Vice President
and Chief Financial Officer
<PAGE>
AGREEMENT AND PLAN OF MERGER
DATED AS OF May 19, 1995
By and Between
CONSECO, INC.
and
CCP INSURANCE, INC.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS
1.1 Definitions................................................................
ARTICLE II THE MERGER
2.1 The Merger.................................................................
2.2 Effective Time.............................................................
2.3 Articles of Incorporation..................................................
2.4 By-Laws....................................................................
2.5 Directors..................................................................
2.6 Officers...................................................................
2.7 Conversion of Shares and Options...........................................
2.8 Treatment of Conseco Stock.................................................
2.9 Payment for Shares.........................................................
2.10 Closing....................................................................
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1 Organization of the Company and
its Subsidiaries...........................................................
3.2 Authority of the Company...................................................
3.3 Opinion of Financial Adviser...............................................
3.4 Proxy Statement............................................................
3.5 Knowledge of Conseco.......................................................
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF CONSECO
4.1 Organization of Conseco....................................................
4.2 Authority of Conseco.......................................................
4.3 Conflicts or Violations....................................................
4.4 Compliance with Certain Contracts..........................................
4.5 Financing..................................................................
4.6 No Regulatory Disqualifiers................................................
4.7 Proxy Statement............................................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE V COVENANTS OF THE COMPANY
5.1 Regulatory and Other Approvals.............................................
5.2 Shareholders' Approval.....................................................
5.3 Investigation by Conseco...................................................
5.4 Best Efforts...............................................................
ARTICLE VI COVENANTS OF CONSECO
6.1 Best Efforts...............................................................
6.2 Proxy Statement............................................................
6.3 Notice.....................................................................
6.4 Indemnification............................................................
6.5 Cooperation of Conseco.....................................................
6.6 Conseco Vote...............................................................
ARTICLE VII CONDITIONS
7.1 Conditions to Each Party's Obligations.....................................
7.2 Additional Conditions to the
Obligations of Conseco.....................................................
7.3 Additional Conditions to the
Obligations of the Company.................................................
ARTICLE VIII SURVIVAL OF PROVISIONS
8.1 Survival...................................................................
ARTICLE IX TERMINATION
9.1 Termination................................................................
9.2 Effect of Termination......................................................
ARTICLE X NOTICES
10.1 Notices....................................................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE XI MISCELLANEOUS
11.1 Entire Agreement...........................................................
11.2 Expenses...................................................................
11.3 Public Announcements.......................................................
11.4 Waiver.....................................................................
11.5 Amendment..................................................................
11.6 Counterparts...............................................................
11.7 No Third Party Beneficiary.................................................
11.8 Governing Law..............................................................
11.9 Binding Effect.............................................................
11.10 Assignment Limited.........................................................
11.11 Headings, Gender, etc......................................................
11.12 Invalid Provisions.........................................................
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of May 19, 1995 by and between CONSECO, INC., an Indiana corporation
("Conseco"), and CCP INSURANCE, INC., an Indiana corporation (the "Company").
PREAMBLE
WHEREAS, the Board of Directors of Conseco has determined that it is in
the best interests of the shareholders of Conseco for the Company to be merged
with and into Conseco, upon the terms and subject to the conditions set forth
herein;
WHEREAS, the Board of Directors of the Company, based upon the
unanimous recommendation of a special committee of independent directors of the
Company (the "Special Committee"), has determined that it is in the best
interests of the Company's shareholders for the Company to be merged into
Conseco, upon the terms and subject to the conditions set forth herein; and
WHEREAS, Conseco and the Company desire to make certain
representations, warranties, covenants and agreements in connection with such
merger and also to prescribe various conditions to such merger;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The capitalized terms used in this Agreement and not
defined herein shall have the meanings specified in Exhibit A. Unless the
context otherwise requires, such capitalized terms shall include the singular
and plural and the conjunctive and disjunctive forms of the terms defined.
ARTICLE II
THE MERGER
2.1 The Merger. Subject to the terms and conditions of this Agreement,
at the Effective Time (as such term is defined in Section 2.2), the Company
shall be merged with and into Conseco (the "Merger") in accordance with the
Indiana Business Corporation Law ("IBCL") and the separate corporate existence
of the Company shall cease and Conseco shall continue as the surviving
corporation under the laws of the State of Indiana under the name "Conseco,
Inc." (the "Surviving Corporation") with all the rights, privileges, immunities,
powers and franchises, and subject to all the duties and liabilities, of a
corporation organized under the IBCL. The Merger shall have the effects set
forth in the IBCL.
2.2 Effective Time. The Merger shall be effected as promptly as
practicable after satisfaction or, if permissible, waiver of the conditions set
forth in Article VII hereof and in no event later than 10 Business Days
thereafter, by the filing of duly executed Articles of Merger in proper form
required by the IBCL with the Secretary of State of the State of Indiana (the
"Articles of Merger"). When used in this Agreement, the term "Effective Time"
shall mean, unless otherwise agreed upon and specified by the parties in the
Articles of Merger, the date and time at which the Articles of Merger are filed
with the Secretary of State of the State of Indiana.
2.3 Articles of Incorporation. The Articles of Incorporation of
Conseco, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation until thereafter amended
as provided by Law.
2.4 By-Laws. The Code of By-laws of Conseco, as in effect immediately
prior to the Effective Time, shall be the By-laws of the Surviving Corporation
until thereafter amended as provided by Law.
2.5 Directors. The directors of Conseco at the Effective Time shall be
the directors of the Surviving Corporation and will hold office until their
respective successors are duly elected or appointed and qualify in the manner
provided in the Articles of Incorporation and By-laws of the Surviving
Corporation, or as otherwise provided by Law.
2.6 Officers. The officers of Conseco at the Effective Time shall be
the officers of the Surviving Corporation and will hold office until their
respective successors are duly elected or appointed and qualify in the manner
provided in the Articles of Incorporation and By-laws of the Surviving
Corporation, or as otherwise provided by Law.
2.7 Conversion of Shares and Options. (a) Each of the Shares issued and
outstanding immediately prior to the Effective Time (other than Shares held by
Conseco or any direct or indirect wholly owned subsidiary of Conseco and Shares
held as treasury shares by the Company) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into a right
to receive $23.25 in cash (the "Cash Consideration") payable to the holder
thereof, without interest thereon, upon surrender of the certificate
representing such Share or Shares (the "Certificate") at any time after the
Effective Time.
(b) Each Share issued and outstanding immediately prior to the
Effective Time which is then held by any direct or indirect wholly owned
Subsidiary of Conseco shall, by virtue of the Merger and without any action on
the part of the holder thereof, be converted into a right to receive .5519 of a
share of common stock, no par value, of Conseco ("Conseco Common Stock") or
other capital stock of Conseco having substantially equivalent value, payable
upon surrender of the Certificate at any time after the Effective Time.
(c) Each Share issued and outstanding immediately prior to the
Effective Time which is then held by Conseco or as a treasury share by the
Company shall, by virtue of the Merger and without any action on the part of the
Company or the holder, be cancelled and retired and cease to exist, without
payment of any consideration therefor.
(d) Each Option outstanding immediately prior to the Effective Time,
whether or not such Option is then vested or exercisable, shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
cancelled and converted into the right to receive in cash an amount equal to (x)
the number of Shares covered by the Option multiplied by (y) the amount, if any,
by which the Cash Consideration exceeds the exercise price of such Option.
(e) Prior to the Effective Time, the Company shall use its best efforts
to obtain any consents from holders of Options that are necessary to give effect
to the conversions contemplated by Section 2.7(d). Notwithstanding any other
provision of this Section 2.7, payment may be withheld in respect of any Option
until any necessary consents are obtained.
2.8 Treatment of Conseco Stock. No outstanding shares of Conseco stock
shall be cancelled or converted by virtue of the Merger.
2.9 Payment for Shares. (a) Pursuant to an agreement (the "Disbursing
Agent Agreement") which shall provide for the matters set forth in this Section
2.9 and otherwise be on terms reasonably satisfactory to Conseco and the Company
and which shall be entered into on or before the Effective Time between Conseco
and a disbursing agent reasonably satisfactory to the Company and Conseco (the
"Disbursing Agent"), Conseco shall deposit with the Disbursing Agent at the
Effective Time in trust for the benefit of the shareholders of the Company, the
Cash Consideration (in immediately available funds) to which holders of Shares
shall be entitled pursuant to Section 2.7. The Disbursing Agent shall invest
portions of the cash deposited with it in such manner as the Surviving
Corporation directs; provided that all of such investments be in obligations of
or guaranteed by the United States of America or in money market funds which are
invested solely in obligations of or guaranteed by the United States of America
or in commercial paper rated A-1 by Standard & Poor's Corporation or P-1 by
Moody's Investors Service, Inc. (collectively, "Permitted Investments");
provided, further, that the maturities of Permitted Investments shall be such as
to permit the Disbursing Agent to make prompt payment of the Cash Consideration
to shareholders of the Company. Any interest or income produced by Permitted
Investments shall be payable to the Surviving Corporation. The Surviving
Corporation shall replace any monies lost through any investment made at its
direction pursuant to this Section 2.9. If outstanding Certificates are not
surrendered or the Cash Consideration therefor set forth in Section 2.9 hereof
is not claimed prior to the one hundred twentieth (120th) day after the Closing
Date, the unclaimed amounts shall be returned to the Surviving Corporation and
persons entitled thereto may look only to the Surviving Corporation for payment
thereof.
(b) As soon as practicable after the Effective Time, the Disbursing
Agent shall send a notice and form of letter of transmittal (which shall specify
that delivery shall be effected and risk of loss and title to the Certificates
shall pass only upon proper delivery of the Certificate to the Disbursing Agent)
to each record holder of a Certificate (other than Certificates representing
Shares held as treasury shares by the Company or held by any direct or indirect
wholly owned Subsidiary of the Company or by Conseco or any direct or indirect
wholly owned Subsidiary of Conseco) advising such holder of the effectiveness of
the Merger and the procedure for surrendering to the Disbursing Agent such
Certificate or Certificates for exchange into the Cash Consideration. Each
holder of a Certificate theretofore evidencing Shares converted into a right to
receive the Cash Consideration, upon surrender thereof to the Disbursing Agent
together with and in accordance with a duly executed letter of transmittal,
shall be entitled to receive in exchange therefor the Cash Consideration payable
(in the form of a check or, if so requested by such holder, wire transfer) in
respect of each Share theretofore evidenced by the Certificate or Certificates
so surrendered. Upon such surrender, the Disbursing Agent will, as promptly as
practicable, pay the Cash Consideration. Until surrendered, each such
Certificate (other than Certificates representing Shares held as treasury shares
by the Company or held by any direct or indirect wholly owned Subsidiary of the
Company or by Conseco or any direct or indirect wholly owned Subsidiary of
Conseco, which shall have only the rights specified in Section 2.7), shall be
deemed for all purposes to evidence only the right to receive the Cash
Consideration. In no event shall the holder of any such Share be entitled to
receive interest on the Cash Consideration.
(c) If the Cash Consideration (or any portion thereof) is to be
delivered to a person other than the person in whose name the Certificates
surrendered in exchange therefor are registered, it shall be a condition to the
payment of the Cash Consideration that the Certificates so surrendered shall be
properly endorsed and otherwise in proper form for transfer, that such transfer
otherwise be proper and that the person requesting such transfer pay to the
Company any transfer or other taxes payable by reason of the foregoing or
establish to the satisfaction of the Company that such taxes have been paid or
are not required to be paid.
(d) Conseco shall issue shares of Conseco Common Stock or other capital
stock of Conseco pursuant to Section 2.7(b) to any direct or indirect wholly
owned Subsidiary of Conseco which held Shares immediately prior to the Effective
Time, as soon as practicable following surrender of Certificates by such
holders.
(e) Payments made pursuant to Section 2.7 for Options shall be made by
the Company at or prior to the Effective Time. The Company shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of Options such amounts as the Company is required to
deduct and withhold with respect to the making of such payment under the
Internal Revenue Code of 1986, as amended, or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of the Options in respect of which such deduction and withholding
was made by the Company.
(f) From and after the Effective Time, the stock transfer books of the
Company in place prior to the Effective Time shall be closed, and thereafter
there shall be no transfers on such books of the Shares which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall be cancelled
and exchanged for the Cash Consideration.
2.10 Closing. The Closing shall (unless the parties hereto otherwise
agree) take place on the Closing Date at the offices of Conseco in Carmel,
Indiana at 9:00 a.m.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Conseco as follows:
3.1 Organization of the Company and its Subsidiaries. Each of the
Company and its Subsidiaries is a corporation duly organized, validly existing,
and in good standing under the laws of its respective jurisdiction of
organization and the Company has the requisite corporate power and authority to
enter into this Agreement and to perform its obligations under this Agreement
(other than, with respect to the Merger, the approval and adoption of this
Agreement and the Merger by the shareholders in accordance with the IBCL and
Section 7.1 hereof and the filing and recordation of the appropriate documents
under the IBCL).
3.2 Authority of the Company. The Board of Directors of the Company and
the Special Committee have duly and validly approved this Agreement and the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Company and the performance by the Company of its obligations under this
Agreement have been duly and validly authorized by all necessary corporate
action on the part of the Company (other than, with respect to the Merger, the
approval and adoption of this Agreement and the Merger by the shareholders in
accordance with the IBCL and Section 7.1 hereof and the filing and recordation
of the appropriate documents under the IBCL). Assuming the due authorization,
execution and delivery by Conseco of this Agreement, this Agreement constitutes
a valid and binding obligation of the Company and is enforceable against the
Company in accordance with its terms, except to the extent that (a) enforcement
may be limited by or subject to any bankruptcy, insolvency, reorganization,
moratorium, or similar Laws now or hereafter in effect relating to or limiting
creditors' rights generally and (b) the remedies of specific performance and
injunctive and other forms of equitable relief are subject to certain equitable
defenses and to the discretion of the court or other similar entity before which
any proceeding therefor may be brought.
3.3 Opinion of Financial Adviser. The Special Committee has received
the opinion (the "Fairness Opinion") of Salomon Brothers Inc ("Salomon
Brothers"), the Special Committee's financial adviser, dated the date of this
Agreement, to the effect that as of such date, the consideration to be received
in the Merger is fair to the holders of Shares (other than Conseco and its
Subsidiaries) from a financial point of view.
3.4 Proxy Statement. The Proxy Statement and the Rule 13e-3 Transaction
Statement to be filed with the SEC pursuant to Section 13(e) of the Exchange Act
("Schedule 13E-3") with respect to information contained or incorporated by
reference therein relating to the Special Committee or the financial or legal
advisers or actuarial consultants to the Special Committee, at the time of
mailing to shareholders and at the time of the Special Meeting (a) will not
contain an 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
and (b) will comply in all material respects with the applicable rules and
regulations prescribed by the SEC. The letter to shareholders, notice of
meeting, proxy statement and form of proxy to be distributed to shareholders in
connection with the Merger or any schedule required to be filed with the SEC and
any other applicable regulatory authority in connection therewith are
collectively referred to herein as the "Proxy Statement." If at any time prior
to the Effective Time, any event with respect to the Company should occur which
is required to be described in an amendment of, or a supplement to, the Proxy
Statement or the Schedule 13E-3, such event shall be so described, and such
amendment or supplement shall be promptly filed with the SEC and, as required by
Law, disseminated to the shareholders of the Company. For purposes of this
Section 3.4, any statement which is made or incorporated by reference in the
Proxy Statement or the Schedule 13E-3 shall be deemed modified or superseded to
the extent any later filed document incorporated by reference in the Proxy
Statement or the Schedule 13E-3 or any statement included in the Proxy Statement
or in the Schedule 13E-3 modifies or supersedes such earlier statement.
3.5 Knowledge of Conseco. The representations set forth in Sections 3.1
through 3.4 of this Agreement shall not be breached by the existence of any
facts, conditions or circumstances that Conseco, in light of its ownership of
Shares, representation on the Company's Board of Directors and provision of
services pursuant to agreements between the Company or one of its Subsidiaries
and Conseco or one of its Subsidiaries, knew or reasonably should have known.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CONSECO
Conseco hereby represents and warrants to the Company as follows:
4.1 Organization of Conseco. Conseco is duly organized and validly
existing under the laws of Indiana and has the requisite power and authority to
enter into this Agreement and to perform its obligations under this Agreement.
4.2 Authority of Conseco. The Board of Directors of Conseco has duly
and validly approved this Agreement and the transactions contemplated hereby.
The execution and delivery of this Agreement by Conseco and the performance by
Conseco of its obligations under this Agreement have been duly and validly
authorized by all necessary corporate action on the part of Conseco. Assuming
the due authorization, execution and delivery by the Company of this Agreement,
this Agreement constitutes a valid and binding obligation of Conseco and is
enforceable against Conseco in accordance with its terms, except to the extent
that (a) enforcement may be limited by or subject to any bankruptcy, insolvency,
reorganization, moratorium, or similar Laws now or hereafter in effect relating
to or limiting creditors' rights generally and (b) the remedies of specific
performance and injunctive and other forms of equitable relief are subject to
certain equitable defenses and to the discretion of the court or other similar
entity before which any proceeding therefor may be brought.
4.3 Conflicts or Violations. The execution and delivery of this
Agreement by Conseco do not, and the performance by Conseco of its obligations
under this Agreement will not:
(a) subject to compliance with the items described in subsections
4.3(e) (i) and (ii) hereof, violate any term or provision of any Law or any
writ, judgment, decree, injunction, or similar order applicable to Conseco
except for such violations as would not, individually or in the aggregate, be
reasonably likely to have a material adverse effect on the ability of Conseco to
perform its obligations under this Agreement;
(b) conflict with or result in a violation or breach of any of the
terms, conditions, or provisions of the Articles of Incorporation or By-laws of
Conseco;
(c) result in the creation or imposition of any Lien upon Conseco or
any of its Assets and Properties under any Contract to which Conseco is bound or
any of its Assets and Properties are bound or affected, that individually or in
the aggregate has or would reasonably be expected to have a material adverse
effect on the validity or enforceability of this Agreement or on the ability of
Conseco to perform its obligations under this Agreement;
(d) conflict with or result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default under, or give to
any Person any right of termination, cancellation, acceleration, or modification
in or with respect to, any Contract to which Conseco is a party or by which any
of its Assets and Properties may be bound and as to which any such conflicts,
violations, breaches, defaults, or rights (as to which requisite consents or
waivers have not been obtained) individually or in the aggregate have or would
reasonably be expected to have a material adverse effect on the validity or
enforceability of this Agreement or on the ability of Conseco to perform its
obligations under this Agreement; or
(e) require Conseco to obtain any consent, approval, or action of, or
make any prior filing with or give any prior notice to, any Person except (i)
pursuant to the applicable requirements of the Exchange Act and the rules and
regulations promulgated thereunder or any applicable state takeover or insurance
laws, (ii) pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, or (iii) those which the failure to obtain, make, or give
individually or in the aggregate with other such failures has or would
reasonably be expected to have no material adverse effect on the validity or
enforceability of this Agreement or on the ability of Conseco to perform its
obligations under this Agreement.
4.4 Compliance With Certain Contracts. Conseco and its Subsidiaries are
in compliance with their respective obligations under all Contracts between
Conseco or one of its Subsidiaries and the Company or one of its Subsidiaries,
except where the failure to be in compliance would not have a material adverse
effect on the validity or enforceability of this Agreement or on the ability of
Conseco to perform its obligations under this Agreement.
4.5 Financing. At the Effective Time, Conseco will have available all
of the funds required to purchase all of the outstanding Shares (except for
those Shares owned by Conseco or any of its direct or indirect wholly owned
Subsidiaries) pursuant to the terms hereof. A true and correct copy of the
commitment letter dated February 28, 1995 from The Chase Manhattan Bank, N.A.
and First Union National Bank of North Carolina to Conseco (the "Commitment
Letter") has been delivered to the Company. The Commitment Letter is in full
force and effect.
4.6 No Regulatory Disqualifiers. To the Knowledge of Conseco, no event
has occurred or condition exists or, to the extent it is within the control of
Conseco, will occur or exist with respect to Conseco that, in connection with
the Merger would cause Conseco to fail to satisfy on its face any applicable
statute or written regulation of any applicable insurance regulatory authority.
4.7 Proxy Statement. The information supplied or to be supplied by
Conseco or its representatives for inclusion in the Proxy Statement or the
Schedule 13E-3, at the time of mailing to the shareholders of the Company and at
the time of the Special Meeting, (a) will not 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 were made, not misleading and (b) will comply in
all material respects with the applicable rules and regulations prescribed by
the SEC. If at any time prior to the Effective Time, any event with respect to
Conseco should occur which is required to be described in an amendment of, or a
supplement to, the Proxy Statement or the Schedule 13E-3, such event shall be so
described, and such amendment or supplement shall be promptly filed with the SEC
and, as required by Law, disseminated to the shareholders of the Company. For
purposes of this Section 4.7, any statement which is made or incorporated by
reference in the Proxy Statement or the Schedule 13E-3 shall be deemed modified
or superseded to the extent any later filed document incorporated by reference
in the Proxy Statement or the Schedule 13E-3 or any statement included in the
Proxy Statement or in the Schedule 13E-3 modifies or supersedes such earlier
statement.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with Conseco that, at all times before
the Closing, the Company will comply, and will cause its Subsidiaries to comply,
with all covenants and provisions of this Article V, except to the extent
Conseco may otherwise consent in writing.
5.1 Regulatory and Other Approvals. Subject to the terms and conditions
herein provided, the Company will, and will cause its Subsidiaries to (a)
subject to its fiduciary duties under applicable Law as determined by the
Special Committee in good faith after consultation with and based as to legal
matters upon the advice of counsel or as otherwise provided in this Agreement,
use reasonable efforts to obtain shareholder approval of this Agreement and the
Merger, (b) provide such other information and communications to such
governmental and regulatory authorities as Conseco or such authorities may
reasonably request, and (c) cooperate with Conseco in obtaining all approvals,
authorizations, and clearances of governmental or regulatory authorities and
others required of Conseco to consummate the transactions contemplated hereby.
5.2 Shareholders' Approval. (a) The Company shall, acting through its
Board of Directors, in accordance with applicable Law:
(i) (A) duly call and give notice of a special meeting (the
"Special Meeting") of its shareholders, as soon as reasonably
practicable following the execution of this Agreement, for the purpose
of voting upon the approval and adoption of this Agreement and the
Merger and (B) thereafter convene and hold the Special Meeting;
(ii) include in the Proxy Statement sent to shareholders of
the Company the recommendation of its Board of Directors and the
Special Committee that shareholders of the Company vote in favor of the
approval and adoption of this Agreement and the Merger; and
(iii) use its best efforts as promptly as practicable (A) to
obtain and furnish the information required to be included by it in the
Proxy Statement, (B) to file the Proxy Statement with the applicable
regulatory authorities, (C) to respond to any comments made by the
applicable regulatory authorities with respect to the Proxy Statement
and any preliminary version thereof, (D) to cause the Proxy Statement
to be mailed to its shareholders in accordance with Subsection
5.2(a)(i)(A) above and (E) to have the necessary vote on this Agreement
and the Merger by its shareholders.
(b) Notwithstanding the foregoing, the Company shall not be obligated
to use its best efforts or take any action pursuant to this Section 5.2, if its
Board of Directors or the Special Committee have determined in good faith, after
consultation with and based as to legal matters upon the advice of its counsel,
that such actions would be inconsistent with their fiduciary duties to the
Company's shareholders under applicable Law.
5.3 Investigation by Conseco. Subject to any currently existing
contractual and legal restrictions applicable to the Company, the Company will
provide, and will cause its Subsidiaries to provide Conseco, its lenders, and
their respective counsel, accountants, actuaries, and other representatives
(collectively, the "Representatives") with reasonable access, upon reasonable
notice and during normal business hours, to all facilities, officers, employees,
accountants, actuaries, Assets and Properties, and Books and Records of the
Company and its Subsidiaries and will furnish Conseco and such Representatives
during such period with all such information and data (including without
limitation copies of Contracts and other Books and Records) concerning the
business, operations, and affairs of the Company and its Subsidiaries as Conseco
or any Representatives reasonably may request.
5.4 Best Efforts. Subject to the terms and conditions herein provided
and except as otherwise herein provided, the Company agrees to use its best
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement.
ARTICLE VI
COVENANTS OF CONSECO
Conseco covenants and agrees with the Company that, at all times before
the Closing, Conseco will comply with all covenants and provisions of this
Article VI, except to the extent the Company (with the consent of the Special
Committee) may otherwise consent in writing.
6.1 Best Efforts. Subject to the terms and conditions herein provided
and except as otherwise herein provided, Conseco agrees to use its best efforts
to take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
6.2 Proxy Statement. Conseco will use its best efforts to obtain and
furnish promptly the information required to be included by it, or such other
information reasonably requested by the Company or required by the applicable
regulatory authorities for inclusion, in the Proxy Statement or other required
filings.
6.3 Notice. Conseco will notify the Company promptly in writing of any
event, transaction, or circumstance occurring after the date of this Agreement
that causes or will likely cause any covenant or agreement of Conseco under this
Agreement to be breached, or that renders or will likely render untrue any
representation or warranty of Conseco contained in this Agreement.
6.4 Indemnification. (a) In the event of any threatened or actual
claim, suit, proceeding or investigation, whether civil, criminal or
administrative, in which any of the present or former directors, officers or
employees (the "Indemnified Parties") of the Company or any of its Subsidiaries
is, or is threatened to be, made a party by reason of the fact that he or she is
or was a director, officer, employee or agent of the Company or any of its
Subsidiaries, or is or was serving at the request of the Company or any of its
Subsidiaries as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, whether before or after
the Effective Time (including, without limitation, the transactions contemplated
by this Agreement), the parties hereto agree to cooperate and use their best
efforts to defend against and respond thereto. It is understood and agreed that
the Surviving Corporation shall indemnify and hold harmless to the fullest
extent permitted under applicable Law (and shall also advance expenses incurred
to the fullest extent permitted under applicable Law, provided that the person
to whom expenses are advanced provides an undertaking to repay such advances if
it is ultimately determined that such person is not entitled to
indemnification), each such Indemnified Party against any losses, claims,
damages, liabilities, costs, expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement in connection with any such claim, action,
suit, proceeding or investigation, and in the event of any such claim, action,
suit, proceeding or investigation (whether arising before or after the Effective
Time), (i) the Indemnified Parties may retain counsel satisfactory to them, and
the Surviving Corporation shall pay all reasonable fees and expenses of such
counsel for the Indemnified Parties promptly as statements therefor are received
and (ii) the Surviving Corporation will use its best efforts to assist in the
vigorous defense of any such matter; provided that the Surviving Corporation
shall not be liable for any settlement effected without its prior written
consent (which consent shall not be unreasonably withheld); and provided further
that the Surviving Corporation shall have no obligation hereunder to any
Indemnified Party when and if a court of competent jurisdiction shall ultimately
determine, and such determination shall have become final and non-appealable,
that indemnification of such Indemnified Party in the manner contemplated hereby
is prohibited by applicable law. Any Indemnified Party wishing to claim
indemnification under this Section 6.4(a), upon learning of any such claim,
action, suit, proceeding or investigation, shall promptly notify the Surviving
Corporation, although the failure to so notify shall not relieve the Surviving
Corporation from any liability, except to the extent that such failure
materially prejudices the Surviving Corporation.
(b) Conseco agrees that all rights to indemnification (including with
respect to the advancement of expenses) for acts or omissions occurring prior to
the Effective Time now existing in favor of the Indemnified Parties as provided
in the certificates of incorporation or by-laws of the Company or its
Subsidiaries shall survive the Merger and shall continue in full force and
effect in accordance with their terms for a period of three years following the
Effective Time; provided, however, that all rights to indemnification in respect
to any claim asserted or made within such period shall continue until
disposition of such claim.
(c) The provisions of this Section 6.4 are intended to be for the
benefit of, and shall be enforceable by, each such Indemnified Party and each
such Indemnified Party's heirs and representatives.
6.5 Cooperation of Conseco. Conseco shall take all actions necessary to
permit the Company to fulfill its obligations under this Agreement, including
using its best efforts to cause directors, officers or employees of the Company
who are directors, officers or employees of Conseco or any of its Subsidiaries
to approve or take or refrain from taking any actions by the Company required
(or prohibited, as the case may be) by this Agreement (it being understood,
however, that this Section 6.5 does not require Conseco to consent to any matter
requiring Conseco's consent under this Agreement). Conseco will not take any
action interfering with the Company's ability to fulfill its obligations under
this Agreement. Notwithstanding any other provision of this Agreement, any
actions or omissions of the Company that result from a violation by Conseco of
this Section 6.5 shall not be deemed a breach of this Agreement.
6.6 Conseco Vote. At the Special Meeting (or any adjournment thereof),
Conseco will vote the Shares owned by Conseco, and will cause each of its direct
or indirect wholly owned Subsidiaries and its affiliates to vote the Shares
owned by them, in favor of the Merger.
<PAGE>
ARTICLE VII
CONDITIONS
7.1 Conditions to Each Party's Obligations. The respective obligations
of each party to effect the Merger are subject to the satisfaction at or prior
to the Effective Time of the following conditions any of which may be waived in
whole, or to the extent permitted hereby, in part:
(a) This Agreement and the Merger shall have been duly approved and
adopted at the Special Meeting by (i) the holders of a majority of the Shares
outstanding as of the record date and (ii) the holders of a majority of the
Shares outstanding which are present in person or represented by proxy at the
Special Meeting and entitled to vote thereat, excluding Shares owned by Conseco
and its direct or indirect Subsidiaries.
(b) There shall not be in effect any statute, rule, regulation,
executive order, decree, ruling or injunction or other order of a court or
governmental or regulatory agency of competent jurisdiction directing that the
transactions contemplated herein not be consummated; provided, however, that
prior to invoking this condition each party shall use all reasonable efforts to
have any such decree, ruling, injunction or order vacated.
(c) All governmental consents, orders and approvals legally required
for the consummation of the Merger and the transactions contemplated hereby
shall have been obtained and be in effect at the Effective Time, except where
the failure to obtain any such consent, order or approval would not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the validity or enforceability of this Agreement, on the
ability of the Company to perform its obligations under this Agreement, or on
the Business or Condition of the Company and its Subsidiaries, taken as a whole.
7.2 Additional Conditions to the Obligations of Conseco. The obligation
of Conseco to effect the Merger is subject to the satisfaction at or prior to
the Effective Time of the following conditions, any or all of which may be
waived in whole or in part by Conseco to the extent permitted by applicable Law:
(a) The representations and warranties of the Company set forth in this
Agreement shall be true and correct when made and as of the Effective Time with
the same force and effect as though the same had been made on and as of the
Effective Time (except for changes permitted by this Agreement and except to the
extent they relate to a particular date), except for such failures to be true
and correct which, individually or in the aggregate, are not reasonably likely
to have a material adverse effect on the validity or enforceability of this
Agreement, on the ability of the Company to perform its obligations under this
Agreement, or on the Business or Condition of the Company, taken as a whole.
(b) The Company shall have performed in all material respects all of
its material obligations under this Agreement theretofore to be performed.
(c) Except (i) as disclosed by the Company in Filed SEC Documents prior
to the date of this Agreement, (ii) as contemplated by this Agreement, (iii) as
results from any acts or omissions of Conseco or its Subsidiaries or affiliates
or their respective directors, officers, employees, representatives or agents
whether in their capacity as directors, officers, employees, representatives or
agents of Conseco, the Company or any of their respective Subsidiaries or
affiliates or otherwise, or (iv) as arises out of facts or circumstances
existing on or before the date of this Agreement which were known or reasonably
should have been known by Conseco, since the date hereof there has not occurred
any material adverse change in the Business or Condition of the Company and its
Subsidiaries, taken as a whole.
7.3 Additional Conditions to the Obligations of the Company. The
obligation of the Company to effect the Merger is subject to the satisfaction at
or prior to the Effective Time of the following conditions, any and all of which
may be waived in whole or in part by the Company (with the concurrence of the
Special Committee) to the extent permitted by applicable law:
(a) The representations and warranties of Conseco set forth in this
Agreement shall be true and correct when made and as of the Effective Time with
the same force and effect as though the same had been made on and as of the
Effective Time (except for changes permitted by this Agreement and except to the
extent they relate to a particular date), except for such failures to be true
and correct which, individually or in the aggregate, are not reasonably likely
to have a material adverse effect on the validity or enforceability of this
Agreement or on the ability of Conseco to perform its obligations under this
Agreement.
(b) Conseco shall have performed in all material respects all of its
material obligations under this Agreement theretofore to be performed.
(c) The Company shall have received at the Effective Time a certificate
dated the Effective Time and executed by the President or an Executive Vice
President of Conseco certifying to the fulfillment of the conditions specified
in Section 7.3(a) and (b) hereof.
(d) Salomon Brothers shall not have withdrawn or modified in any
material respect its Fairness Opinion on or prior to the Closing Date.
ARTICLE VIII
SURVIVAL OF PROVISIONS
8.1 Survival. The representations and warranties respectively required
to be made by the Company and Conseco in this Agreement, or in any certificate,
respectively, delivered by the Company or Conseco pursuant to Section 7.2 or
Section 7.3 hereof, will not survive the Closing.
ARTICLE IX
TERMINATION
9.1 Termination.This Agreement may be terminated, and the transactions
contemplated hereby may be abandoned, upon notice by the terminating party to
the other party:
(a) at any time before the Closing, by mutual written agreement of the
Company (with the consent of the Special Committee) and Conseco;
(b) at any time by the Company (with the consent of the Special
Committee) if any breach of any representation, warranty, covenant or agreement
on the part of Conseco or if any representation or warranty of Conseco shall
have become untrue, in either case such that the conditions set forth in Section
7.3 are incapable of being satisfied by December 31, 1995 (or as otherwise
extended);
(c) at any time by Conseco if any breach of any representation,
warranty, covenant or agreement on the part of the Company or if any
representation or warranty of the Company shall have become untrue in either
case such that the conditions set forth in Section 7.2 are incapable of being
satisfied by December 31, 1995 (or as otherwise extended);
(d) by either the Company or Conseco, upon a vote at a duly held
meeting of the shareholders of the Company or any adjournment thereof, if any
required approval of the shareholders of the Company shall not have been
obtained or any injunction or other action permanently restraining, enjoining or
otherwise prohibiting the Merger by any court of competent jurisdiction,
arbitrator, governmental body or agency shall have become final and
non-appealable;
(e) at any time after December 31, 1995, by the Company (with the
consent of the Special Committee) or Conseco, if the transactions contemplated
by this Agreement have not been consummated on or before such date and such
failure to consummate is not caused by a breach of this Agreement (or any
representation, warranty, covenant or agreement included herein) by the party
electing to terminate pursuant to this clause (e); or
(f) by the Special Committee on behalf of the Company at any time after
the Special Committee withdraws or materially modifies or changes its
recommendation of this Agreement or the Merger and the Special Committee after
consultation with its counsel determines that the failure to take such action
would be inconsistent with its fiduciary duties to the Company's shareholders
under applicable Law.
9.2 Effect of Termination. Except with respect to Article X and Article
XI hereof, if this Agreement is validly terminated pursuant to Section 9.1
hereof, this Agreement will thereupon become null and void, and there will be no
Liability on the part of the Company or Conseco (or any of their respective
officers, directors, employees, agents, consultants or other representatives)
and any such termination shall be without prejudice to any claim which either
party may have against the other for willful breach of this Agreement (or any
representation, warranty, covenant or agreement included herein).
ARTICLE X
NOTICES
10.1 Notices. All notices and other communications under this Agreement
must be in writing and will be deemed to have been duly given if delivered,
telecopied or mailed, by certified mail, return receipt requested, first-class
postage prepaid, to the parties at the following addresses:
If to the Company, to:
CCP Insurance, Inc.
11825 N. Pennsylvania Street
Carmel, Indiana 46032
Attention: Rollin M. Dick
Telephone: (317) 817-6118
Telecopy: (317) 817-6327
with a copy to:
Andrew Delaney, Chairman of the Special
Committee of the Board of Directors
of CCP Insurance, Inc.
c/o Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive
Chicago, Illinois 60606
Attention: William R. Kunkel, Esq.
Telephone: (312) 407-0700
Telecopy: (312) 407-0411
and
Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive
Chicago, Illinois 60606
Attention: William R. Kunkel, Esq.
Telephone: (312) 407-0700
Telecopy: (312) 407-0411
If to Conseco, to:
Conseco, Inc.
11825 N. Pennsylvania Street
Carmel, Indiana 46032
Attention: Lawrence W. Inlow, Esq.
Telephone: (317) 817-6163
Telecopy: (317) 817-6327
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this Article X will, if delivered personally,
be deemed given upon delivery, will, if delivered by telecopy, be deemed
delivered when confirmed and will, if delivered by mail in the manner described
above, be deemed given on the third Business Day after the day it is deposited
in a regular depository of the United States mail. Any party from time to time
may change its address for the purpose of notices to that party by giving a
similar notice specifying a new address, but no such notice will be deemed to
have been given until it is actually received by the party sought to be charged
with the contents thereof.
ARTICLE XI
MISCELLANEOUS
11.1 Entire Agreement. Except for documents executed by the Company and
Conseco pursuant hereto, this Agreement supersedes all prior discussions and
agreements between the parties with respect to the subject matter of this
Agreement, and this Agreement (including the exhibit hereto and other Contracts
and documents delivered in connection herewith) contain the sole and entire
agreement between the parties hereto with respect to the subject matter hereof.
11.2 Expenses. Except as otherwise expressly provided in this
Agreement, each of the Company and Conseco will pay its own costs and expenses
in connection with this Agreement and the transactions contemplated hereby;
provided, however, that the allocable share of each of the Company and Conseco
for all expenses related to printing, filing and mailing the Proxy Statement and
all SEC and other regulatory filing fees incurred in connection with the Proxy
Statement and the Schedule 13E-3 shall be one-half.
11.3 Public Announcements. At all times at or before the Closing, the
Company, Conseco and the Special Committee will each consult with the other
before issuing or making any reports, statements, or releases to the public with
respect to this Agreement or the transactions contemplated hereby and will use
good faith efforts to agree on the text of a joint public report, statement, or
release or will use good faith efforts to obtain the others' approval of the
text of any public report, statement, or release to be made solely on behalf of
any of the others. If the Company, Conseco and the Special Committee are unable
to agree on or approve any such public report, statement, or release and such
report, statement, or release is, in the opinion of legal counsel to the
Company, Conseco or the Special Committee, required by Law or the rules and
regulations of any applicable stock exchange or may be appropriate in order to
discharge its disclosure obligations, then the Company, Conseco or the Special
Committee, as the case may be, may make or issue such report, statement, or
release. Any such report, statement, or release approved or permitted to be made
pursuant to this Section 11.3 may be disclosed or otherwise provided by the
Company, Conseco or the Special Committee to any Person, including without
limitation to any employee or customer of either party hereto and to any
governmental or regulatory authority.
11.4 Waiver. Any term or condition of this Agreement may be waived at
any time by the party that is entitled to the benefit thereof; such waiver must
be in writing and must be executed by the President, chief executive officer,
chief financial officer, general counsel, or chief operating officer of such
party; provided, however, that the waiver of any of the conditions by the
Company shall require the consent of the Special Committee. A waiver on one
occasion will not be deemed to be a waiver of the same or any other breach on a
future occasion. All remedies, either under this Agreement, or by Law or
otherwise afforded, will be cumulative and not alternative.
11.5 Amendment. This Agreement may be modified or amended only by a
writing duly executed by or on behalf of all parties hereto; provided, however,
that any amendment to this Agreement shall require the consent of the Special
Committee.
11.6 Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which will be deemed an original, but all of
which will constitute one and the same instrument.
11.7 No Third Party Beneficiary. Except as otherwise provided herein,
the terms and provisions of this Agreement are intended solely for the benefit
of the parties hereto, and their respective successors or assigns, and it is not
the intention of the parties to confer third-party beneficiary rights upon any
other Person.
11.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the Laws of the State of Indiana without giving effect to
the principles of conflicts of Law thereof.
11.9 Binding Effect. This Agreement is binding upon and will inure to
the benefit of the parties and their respective successors and assignees.
11.10 Assignment Limited. Except as otherwise provided herein, this
Agreement or any right hereunder or part hereof may not be assigned by any party
hereto without the prior written consent of the other party hereto; provided,
however, that any assignment of this Agreement shall require the consent of the
Special Committee.
11.11 Headings, Gender, etc. The headings used in this Agreement have
been inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (a) words of any gender are deemed to include each
other gender; (b) words using the singular or plural number also include the
plural or singular number, respectively; (c) the terms "hereof," "herein,"
"hereby," "hereto," and derivative or similar words refer to this entire
Agreement; (d) the terms "Article" or "Section" refer to the specified Article
or Section of this Agreement; and (e) all references to "dollars" or "$" refer
to currency of the United States of America.
11.12 Invalid Provisions. If any provision of this Agreement is held to
be illegal, invalid, or unenforceable under any present or future Law, and if
the rights or obligations of the Company or Conseco under this Agreement will
not be materially and adversely affected thereby, (a) such provision will be
fully severable; (b) this Agreement will be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part hereof;
and (c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid, or unenforceable
provision or by its severance herefrom.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of the Company and Conseco effective as of the
date first written above.
CONSECO, INC.
By: STEPHEN C. HILBERT
-----------------------------
Stephen C. Hilbert, President
CCP INSURANCE, INC.
By: ROLLIN M. DICK
-----------------------------
Rollin M. Dick,
Executive Vice President
<PAGE>
Exhibit A
DEFINITIONS OF TERMS
"Affiliate" shall mean any Person that directly, or indirectly through
one or more intermediaries, Controls, is Controlled by, or is under common
Control with the Person specified.
"Agreement" shall mean this Agreement and Plan of Merger, together with
the exhibit attached hereto.
"Articles of Merger" shall have the meaning ascribed to it in Section
2.2 of this Agreement.
"Assets and Properties" shall mean all assets or properties of every
kind, nature, character, and description (whether real, personal, or mixed,
whether tangible or intangible, whether absolute, accrued, contingent, fixed, or
otherwise, and wherever situated) as now operated, owned, or leased by a
specified Person, including without limitation cash, cash equivalents,
securities, accounts and notes receivable, real estate, equipment, furniture,
fixtures and insurance or annuities in force.
"Books and Records" shall mean all accounting, financial reporting,
tax, business, marketing, corporate, and other files, documents, instruments,
papers, books, and records of a specified Person, including without limitation
financial statements, budgets, projections, ledgers, journals, deeds, titles,
policies, manuals, minute books, stock certificates and books, stock transfer
ledgers, Contracts, franchises, permits, agency lists, policyholder lists,
supplier lists, reports, computer files, retrieval programs, operating data or
plans, and environmental studies or plans.
"Business Day" shall mean a day other than Saturday, Sunday, or any day
on which the principal commercial banks located in New York are authorized or
obligated to close under the Laws of the State of New York.
"Business or Condition" shall mean the business, financial condition or
results of operations of a specified Person.
"Cash Consideration" shall have the meaning ascribed to it in Section
2.7 of this Agreement.
"Certificate" shall have the meaning ascribed to it in Section 2.7 of
this Agreement.
"Closing" shall mean the closing of the transactions contemplated by
this Agreement.
"Closing Date" shall mean (a) the date upon which the Effective Time
occurs, or (b) such other date as Conseco and Company may mutually agree upon in
writing.
"Commitment Letter" shall have the meaning ascribed to it in Section
4.5 of this Agreement.
"Company" shall have the meaning ascribed to it in the first paragraph
of this Agreement.
"Conseco" shall have the meaning ascribed to it in the first paragraph
of this Agreement.
"Conseco Common Stock" shall have the meaning ascribed to it in Section
2.7 of this Agreement.
"Contract" shall mean any agreement, lease, sublease, license,
sublicense, promissory note, evidence of indebtedness, insurance policy,
annuity, or other contract or commitment.
"Control" (and its derivative terms "Controlled" "Controls", etc.)
shall mean the ability to determine the actions and decisions of another Person,
whether by ownership of voting securities, the ability to elect a majority of
the Board of Directors or other managing board or committee, management
contract, or otherwise.
"Disbursing Agent" shall have the meaning ascribed to it in Section 2.9
of this Agreement.
"Disbursing Agent Agreement" shall have the meaning ascribed to it in
Section 2.9 of this Agreement.
"Effective Time" shall have the meaning ascribed to it in Section 2.2
of this Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fairness Opinion" shall have the meaning ascribed to it in Section 3.3
of this Agreement.
"Filed SEC Documents" shall mean all of the SEC Documents filed by the
Company and publicly available prior to the date of this Agreement.
"GAAP" shall mean generally accepted accounting principles,
consistently applied throughout the specified period and in the immediately
prior comparable period, except as disclosed in the notes to the Company's
financial statements.
"IBCL" shall have the meaning ascribed to it in Section 2.1 of this
Agreement.
"Indemnified Parties" shall have the meaning ascribed to it in Section
6.4 of this Agreement.
"Insurance Subsidiary" means each Subsidiary of the Company which is
organized, qualified, or licensed as a company authorized to conduct the
business of underwriting, issuing or reinsuring insurance policies.
"Knowledge of Conseco" means the actual knowledge of any officer of
Conseco.
"Knowledge of Company" means the actual knowledge of any one or more of
any officer of the Company or any Significant Subsidiary.
"Laws" shall mean all laws, statutes, ordinances and regulations,
having the effect of law of the United States of America, or any state,
commonwealth, city, municipality, court, tribunal, agency, governmental agency
or authority, arbitrator, or instrumentality thereof.
"Liabilities" shall mean all debts, obligations and other liabilities
of a Person (whether absolute, accrued, contingent, fixed or otherwise, or
whether due or to become due) which are recognized as liabilities in accordance
with SAP or GAAP.
"Lien" shall mean any mortgage, pledge, assessment, security interest,
lien, adverse claim, levy, charge, or other encumbrance of any kind, or any
conditional sale Contract, title retention Contract, or other Contract to give
or to refrain from giving any of the foregoing other than Permitted
Encumbrances.
"Merger" shall have the meaning ascribed to it in Section 2.1 of this
Agreement.
"Option" shall mean any option to purchase Shares which has been
granted to officers, employees or directors of the Company or its Subsidiaries
pursuant to the Company's Stock Option Plan which is described in Filed SEC
Documents.
"Permitted Encumbrances" shall mean the following encumbrances: (i)
Liens for taxes or assessments or other governmental charges or levies, either
not yet due and payable or to the extent that nonpayment thereof is permitted by
the terms of this Agreement; (ii) pledges or deposits securing obligations under
worker's compensation, unemployment insurance, social security or public
liability laws or similar legislation; (iii) pledges or deposits securing bids,
tenders, contracts (other than contracts for the payment of money) or leases to
which Company or any of its Affiliates is a party as lessee made in the ordinary
course of business; (iv) deposits securing public or statutory obligations of
Company or any of its Affiliates; (v) workers', mechanics', suppliers',
carriers', warehousemen's or other similar liens arising in the ordinary course
of business, not yet due and payable; (vi) deposits securing or in lieu of
surety, appeal or customs bonds in proceedings to which Company or any of its
Affiliates is a party; (vii) pledges or deposits effected by Company as a
condition to obtaining or maintaining any license of such Person; (viii) any
attachment or judgment lien, unless the judgment it secures shall not, within 60
days after the entry thereof, have been discharged or execution thereof stayed
pending appeal, or shall not have been discharged within 60 days after the
expiration of any such stay; and (ix) zoning restrictions, easements, licenses,
or other restrictions on the use of real property or other minor irregularities
in title (including leasehold title) thereto, so long as the same do not
materially impair the use, value, or marketability of such real property, leases
or leasehold estates.
"Permitted Investments" shall have the meaning ascribed to it in
Section 2.9 of this Agreement.
"Person" shall mean any natural person, corporation, limited liability
company, general partnership, limited partnership, or other entity, enterprise,
authority, or business organization.
"Proxy Statement" shall have the meaning ascribed to it in Section 3.4
of this Agreement.
"Representative" shall have the meaning ascribed to it in Section 5.3
of this Agreement.
"SAP" shall mean the accounting practices prescribed or permitted by
the regulatory authority in the state in which each Insurance Subsidiary is
domiciled, as the case may be, consistently applied throughout the specified
period and in the immediately prior comparable period.
"SEC" shall mean the Securities and Exchange Commission or any
successor agency.
"SEC Documents" shall mean all reports, schedules, forms, statements
and other documents required to be filed with the SEC under the Exchange Act.
"Salomon Brothers" shall have the meaning ascribed to it in Section 3.3
of this Agreement.
"Schedule 13E-3" shall have the meaning ascribed to it in Section 3.4
of this Agreement.
"Shares" shall mean the shares of common stock, no par value, of the
Company.
"Significant Subsidiary" shall mean any of the Subsidiaries which falls
within the meaning of Section 1-02 of the Regulation S-X promulgated by the SEC.
"Special Committee" shall have the meaning ascribed to it in the
preamble of this Agreement.
"Special Meeting" shall have the meaning ascribed to it in Section 5.2
of this Agreement.
"Subsidiary" shall mean each of those Persons, regardless of
jurisdiction of organization, of which another Person, directly or indirectly
through one or more subsidiaries, Controls securities having more than 50% of
the voting power of such Person (without giving effect to any contingent voting
rights).
"Surviving Corporation" shall have the meaning ascribed to it in
Section 2.1 of this Agreement.
