As filed with the Securities and Exchange Commission on September 19, 1996
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
CONSECO, INC.
(Exact name of Registrant as specified in its charter)
Indiana 6719 35-1468632
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
11825 N. Pennsylvania St., Carmel, Indiana 46032, (317) 817-6100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Lawrence W. Inlow
Conseco, Inc.
11825 N. Pennsylvania St.
Carmel, Indiana 46032
(317) 817-6163
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
------------------------
Copies to:
James C. Helfrich Joanne L. Bober
Capitol American Financial Jones, Day, Reavis & Pogue
Corporation 599 Lexington Avenue
1001 Lakeside Avenue New York, New York 10022
Cleveland, Ohio 44114 (212) 326-3939
(216) 696-6400
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after the Registration Statement becomes
effective and all other conditions to the merger (the "Merger") of a
wholly-owned subsidiary of Conseco, Inc. ("Conseco") with and into Capitol
American Financial Corporation ("CAF") pursuant to an Agreement and Plan of
Merger described in the enclosed Proxy Statement/Prospectus have been satisfied
or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
--------------------
<TABLE>
CALCULATION OF REGISTRATION FEE
===============================================================================================================================
Title of Each Class Amount Proposed Maximum Proposed Maximum
of Securities to to be Offering Price Per Aggregate Offering Amount of
be Registered Registered Unit Price Registration Fee
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par (1) Not Applicable $97,842,146 $33,738.67 (2)
value...................
===============================================================================================================================
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
<PAGE>
<FN>
(1) Conseco is hereby registering the number of shares of Conseco common stock,
no par value ("Conseco Common Stock"), issuable to holders of common stock
of CAF, without par value ("CAF Common Stock"), and upon the exercise or
conversion of securities exercisable for or convertible into shares of CAF
Common Stock in the Merger.
(2) Pursuant to Rule 457(f), the registration fee was computed on the basis of
the market value of the CAF Common Stock to be exchanged in the Merger,
computed in accordance with Rule 457(c) on the basis of the average of the
high and low prices per share of such stock on the New York Stock Exchange
Composite Transactions Tape on September 16, 1996, less the amount of cash
to be paid by Conseco to holders of CAF Common Stock.
---------------------
</FN>
</TABLE>
Conseco hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until Conseco shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
<PAGE>
CAPITOL AMERICAN FINANCIAL CORPORATION
1001 Lakeside Avenue
Cleveland, Ohio 44114
Dear Fellow Shareholder:
You are cordially invited to attend a Special Meeting of shareholders
of Capitol American Financial Corporation, Inc. ("CAF"), to be held on
__________, _________________, 1996 at ______________, Cleveland, Ohio, at 10:00
a.m., local time (the "CAF Special Meeting").
At the CAF Special Meeting, shareholders of record of CAF at the close
of business on _____, 1996 will be asked to consider and vote upon a proposal to
approve and adopt an Agreement and Plan of Merger, dated as of August 25, 1996
(the "Merger Agreement"), by and among CAF, Conseco, Inc., an Indiana
corporation ("Conseco"), and CAF Acquisition Company, an Ohio corporation and a
wholly-owned subsidiary of Conseco ("Merger Sub"), and the transactions
contemplated thereby. Pursuant to the terms of the Merger Agreement, among other
things, (1) Merger Sub will be merged with and into CAF, with CAF being the
surviving corporation (the "Merger"), and (2) each outstanding share of the
common stock, without par value ("CAF Common Stock"), of CAF (other than shares
of CAF Common Stock held by CAF as treasury stock or Dissenting Shares (as
defined in the Merger Agreement)) will be canceled and converted into the right
to receive the Merger Consideration (as defined in the Merger Agreement).
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE MERGER ARE
FAIR TO, AND IN THE BEST INTERESTS OF, CAF AND THE SHAREHOLDERS OF CAF, HAS
APPROVED AND AUTHORIZED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY, AND RECOMMENDS THAT THE SHAREHOLDERS OF CAF VOTE FOR THE AUTHORIZATION
AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
The Board of Directors has received a written opinion of Donaldson,
Lufkin & Jenrette Securities Corporation, which has acted as financial advisor
to CAF in connection with the Merger, as to the fairness to CAF's shareholders,
from a financial point of view, of the Merger Consideration to be received by
CAF's shareholders pursuant to the terms of the Merger Agreement.
Whether or not you plan to attend the CAF Special Meeting, please
complete, sign and date the accompanying proxy and return it in the enclosed
postage prepaid envelope as soon as possible so that your shares will be
represented at the CAF Special Meeting. If you attend the CAF Special Meeting,
you may vote in person even if you have previously returned your proxy. If you
have any questions regarding the proposed transaction, please call Linda M.
Margolin, Director of Investor Relations at (216) 696-6400.
As a shareholder of CAF, you have dissenters' rights, described in the
accompanying Proxy Statement/Prospectus. To exercise such rights, a shareholder
must not have voted his or her CAF Common Stock in favor of the Merger and must
deliver to CAF, not later than ten days after the CAF
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
<PAGE>
Special Meeting, a written demand for cash equal to the "fair value" of such
shareholder's shares of CAF Common Stock. See "The Merger -- Rights of
Dissenting Shareholders" and Annex C in the Proxy Statement/Prospectus.
Sincerely,
David H. Gunning
Chairman and
Chief Executive Officer
__________, 1996
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
<PAGE>
CAPITOL AMERICAN FINANCIAL CORPORATION
1001 Lakeside Avenue
Cleveland, Ohio 44114
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of Capitol American Financial Corporation:
Notice is hereby given that a special meeting (the "CAF Special
Meeting") of the shareholders of Capitol American Financial Corporation ("CAF")
will be held on ______________, ______________, 1996 at , Cleveland, Ohio, at
10:00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to authorize and adopt
the Agreement and Plan of Merger, dated as of August 25, 1996 (the
"Merger Agreement"), by and among CAF, Conseco, Inc., an Indiana
corporation ("Conseco"), and CAF Acquisition Company, an Ohio
corporation and wholly-owned subsidiary of Conseco ("Merger Sub"), and
the transactions contemplated thereby, pursuant to which, among other
things, (1) Merger Sub will be merged with and into CAF, with CAF being
the surviving corporation (the "Merger"), and (2) each outstanding
share of the common stock, without par value (the "CAF Common Stock"),
of CAF (other than shares of CAF Common Stock held by CAF as treasury
stock or Dissenting Shares (as defined in the Merger Agreement)) will
be canceled and converted into the right to receive the Merger
Consideration (as defined in the Merger Agreement).
2.To transact such other business as may properly come before
the meeting or any adjournment or postponement thereof.
The Merger is more completely described in the accompanying Proxy
Statement/Prospectus and a copy of the Merger Agreement is attached as Annex A
thereto.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE MERGER ARE
FAIR TO, AND IN THE BEST INTERESTS OF, CAF AND THE SHAREHOLDERS OF CAF, HAS
APPROVED AND AUTHORIZED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY AND RECOMMENDS THAT THE SHAREHOLDERS OF CAF VOTE FOR THE AUTHORIZATION
AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
The Board of Directors of CAF has fixed the close of business on
___________, 1996, as the record date (the "CAF Record Date") for determination
of shareholders entitled to notice of, and to vote at, the CAF Special Meeting
and any adjournments and postponements thereof.
By order of the Board of Directors
Peter D. Miller
Secretary
_______________, 1996
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<PAGE>
YOU ARE CORDIALLY INVITED TO ATTEND THE CAF SPECIAL MEETING IN PERSON,
HOWEVER, WHETHER OR NOT YOU PLAN TO ATTEND, WE URGE YOU TO COMPLETE, SIGN, DATE
AND RETURN THE ACCOMPANYING PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED
POSTAGE PREPAID ENVELOPE IN ORDER TO ASSURE THAT YOUR SHARES OF COMMON STOCK
WILL BE REPRESENTED. IF YOU ATTEND THE CAF SPECIAL MEETING, YOU MAY VOTE IN
PERSON EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY.
IMPORTANT
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES REPRESENTING CAF COMMON
STOCK AT THIS TIME. IF THE MERGER IS CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS
REGARDING THE SURRENDER OF YOUR STOCK CERTIFICATES.
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
<PAGE>
SUBJECT TO COMPLETION
Dated September 19, 1996
CAPITOL AMERICAN FINANCIAL CORPORATION PROXY STATEMENT
------------------
CONSECO, INC. PROSPECTUS
Shares of Common Stock
This Proxy Statement/Prospectus is being furnished to holders of shares
of Common Stock, without par value ("CAF Common Stock"), of Capitol American
Financial Corporation, an Ohio corporation ("CAF"), in connection with the
solicitation of proxies by the CAF Board of Directors for use at a special
meeting of CAF shareholders to be held on __________, 1996 at ______________,
Cleveland, Ohio, commencing at 10:00 a.m., local time, (the "CAF Special
Meeting") which has been called to consider and vote on a proposal to authorize
and adopt an Agreement and Plan of Merger, dated as of August 25, 1996 (the
"Merger Agreement"), among CAF, Conseco, Inc., an Indiana corporation
("Conseco") and CAF Acquisition Company, an Ohio corporation and wholly-owned
subsidiary of Conseco ("Merger Sub"), and the transactions contemplated thereby.
This Proxy Statement/Prospectus also constitutes the Prospectus of
Conseco filed as part of a Registration Statement on Form S-4 (together with all
amendments, supplements, exhibits and schedules thereto, the "Registration
Statement") with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Securities Act"), relating to the
shares of Common Stock, no par value ("Conseco Common Stock"), issuable in
connection with the Merger (as defined herein). All information concerning
Conseco contained in this Proxy Statement/Prospectus has been furnished by
Conseco, and all information concerning CAF contained in this Proxy
Statement/Prospectus has been furnished by CAF.
The Conseco Common Stock is listed on the New York Stock Exchange, Inc.
(the "NYSE") under the symbol "CNC". On _____________, 1996, the closing price
of the Conseco Common Stock as reported on the NYSE was $_________.
The CAF Common Stock is listed on the NYSE under the symbol "CAF". On
_______, 1996, the closing price of the CAF Common Stock as reported on the NYSE
was $___________.
This Proxy Statement/Prospectus and the related form of proxy are first
being mailed to shareholders of CAF on or about ______________, 1996.
THE SHARES OF CONSECO COMMON STOCK ISSUABLE IN THE MERGER HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT/
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
The date of this Proxy Statement/Prospectus is
______________, 1996.
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
AVAILABLE INFORMATION
Conseco and CAF are each subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file periodic reports, proxy statements and other
information with the Commission. The periodic reports, proxy statements and
other information filed by Conseco and CAF with the Commission may be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission at 7 World Trade Center, Suite 1300, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material also can be obtained, at prescribed
rates, from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549. In addition, the Commission maintains a Web site
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants, including Conseco and CAF, that
file electronically with the Commission. The Conseco Common Stock and the CAF
Common Stock are listed on the NYSE and such reports and other information may
also be inspected at the offices of the NYSE, 20 Broad Street, New York, New
York 10005.
Conseco has filed the Registration Statement with the Commission with
respect to the Conseco Common Stock to be issued pursuant to or as contemplated
by the Merger Agreement (as hereinafter defined). This Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. The Registration Statement and any
amendments thereto, including exhibits filed as a part thereof, are available
for inspection and copying as set forth above.
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
ii
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH
DOCUMENTS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE THEREIN, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS
DELIVERED, UPON WRITTEN OR ORAL REQUEST. WRITTEN REQUESTS FOR SUCH DOCUMENTS
RELATING TO CONSECO, AMERICAN TRAVELLERS CORPORATION AND LIFE PARTNERS GROUP,
INC. SHOULD BE DIRECTED TO JAMES W. ROSENSTEELE, VICE PRESIDENT, INVESTOR
RELATIONS, CONSECO, INC., 11825 NORTH PENNSYLVANIA STREET, CARMEL, INDIANA
46032, AND TELEPHONE REQUESTS MAY BE DIRECTED TO MR. ROSENSTEELE AT (317)
817-2893. WRITTEN REQUESTS FOR SUCH DOCUMENTS RELATING TO CAF SHOULD BE DIRECTED
TO LINDA M. MARGOLIN, CAPITOL AMERICAN FINANCIAL CORPORATION, 1001 LAKESIDE
AVENUE, CLEVELAND, OHIO 44114, AND TELEPHONE REQUESTS MAY BE DIRECTED TO MS.
MARGOLIN AT (216) 696- 6400. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BEFORE _______________, 1996.
The following documents previously filed with the Commission pursuant
to the Exchange Act are incorporated herein by this reference:
1. Conseco's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 ("Conseco's Annual Report"); Conseco's Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996; Conseco's
Current Reports on Form 8-K dated January 17, 1996, March 11, 1996, April 10,
1996, August 2, 1996 and August 25, 1996; and the description of Conseco Common
Stock in Conseco's Registration Statements filed pursuant to Section 12 of the
Exchange Act, and any amendment or report filed for the purpose of updating any
such description.
2. CAF's Annual Report on Form 10-K for the fiscal year ended December
31, 1995 ("CAF's Annual Report"); CAF's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1996 and June 30, 1996; CAF's Current Report on Form
8-K dated August 25, 1996; and the description of CAF Common Stock in CAF's
Registration Statement filed pursuant to Section 12 of the Exchange Act, and any
amendment or report filed for the purpose of updating such description.
3. Annual Report on Form 10-K of American Travellers Corporation
("ATC") for the fiscal year ended December 31, 1995 ("ATC's Annual Report");
ATC's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 and
June 30, 1996; and ATC's Current Report on Form 8-K dated August 25, 1996.
4. Annual Report on Form 10-K of Life Partners Group, Inc. ("LPG") for
the fiscal year ended December 31, 1995 ("LPG's Annual Report"); LPG's Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996;
and LPG's Current Reports on Form 8-K dated March 11, 1996 and April 10, 1996.
In addition, the Merger Agreement, a copy of which is attached hereto
as Annex A, is incorporated herein by reference.
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iii
<PAGE>
All documents filed by Conseco, CAF, ATC or LPG pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and
prior to the date of the CAF Special Meeting shall be deemed to be incorporated
by reference herein and to be a part hereof from the date any such document is
filed.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that also is incorporated by reference herein)
modifies or supersedes such statement. Any statement so modified or superseded
shall be deemed, except as so modified or superseded, to constitute a part
hereof. All information appearing in this Proxy Statement/Prospectus is
qualified in its entirety by the information and financial statements (including
notes thereto) appearing in the documents incorporated herein by reference,
except to the extent set forth in the immediately preceding statement.
State insurance holding company laws and regulations applicable to
Conseco and CAF generally provide that no person may acquire control of Conseco
or CAF, and thus indirect control of their respective insurance subsidiaries,
unless such person has provided certain required information to, and such
acquisition is approved (or not disapproved) by, the appropriate insurance
regulatory authorities. Generally, any person acquiring beneficial ownership of
10% or more of the Conseco Common Stock or CAF Common Stock, as the case may be,
would be presumed to have acquired such control, unless the appropriate
insurance regulatory authorities upon advance application determine otherwise.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN. ANY INFORMATION OR REPRESENTATIONS WITH
RESPECT TO SUCH MATTERS NOT CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY CONSECO OR CAF. THIS PROXY STATEMENT/PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY
SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF CONSECO
OR CAF SINCE THE DATE HEREOF OR THAT THE INFORMATION IN THIS PROXY
STATEMENT/PROSPECTUS OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THEREOF.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA, NOR HAS THE
COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY OR ADEQUACY OF THIS DOCUMENT.
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<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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<S> <C>
AVAILABLE INFORMATION........................................................................................... ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................................................ iii
TABLE OF CONTENTS................................................................................................ v
SUMMARY ....................................................................................................... 1
GENERAL ............................................................................................... 1
THE COMPANIES........................................................................................... 1
CAF SHAREHOLDER MEETING................................................................................. 2
THE MERGER; THE MERGER AGREEMENT........................................................................ 4
SELECTED HISTORICAL FINANCIAL INFORMATION OF CONSECO .................................................. 11
SELECTED HISTORICAL FINANCIAL INFORMATION OF LPG........................................................14
SELECTED HISTORICAL FINANCIAL INFORMATION OF CAF........................................................16
SELECTED HISTORICAL FINANCIAL INFORMATION OF ATC....................................................... 18
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION....................................................................................20
COMPARATIVE UNAUDITED PER SHARE DATA OF CONSECO AND CAF................................................ 24
MARKET PRICE INFORMATION............................................................................... 25
INFORMATION CONCERNING CONSECO AND THE MERGER SUB............................................................... 27
BACKGROUND............................................................................................. 27
LIFE INSURANCE OPERATIONS.............................................................................. 27
FEE-BASED OPERATIONS................................................................................... 28
OTHER PENDING ACQUISITIONS BY CONSECO.................................................................. 29
GENERAL INFORMATION CONCERNING CONSECO AND THE MERGER SUB.............................................. 29
INFORMATION CONCERNING CAF...................................................................................... 30
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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<S> <C>
CAF SHAREHOLDER MEETING..........................................................................................31
GENERAL .............................................................................................. 31
MATTERS TO BE CONSIDERED AT THE CAF SPECIAL MEETING.................................................... 31
VOTING AT THE CAF SPECIAL MEETING; RECORD DATE; QUORUM................................................. 31
PROXIES; REVOCATION OF PROXIES......................................................................... 33
THE MERGER...................................................................................................... 34
BACKGROUND OF THE MERGER............................................................................... 34
CONSECO'S REASONS FOR THE MERGER....................................................................... 35
CAF'S REASONS FOR THE MERGER; RECOMMENDATION OF THE CAF
BOARD OF DIRECTORS............................................................................ 36
OPINION OF CAF'S FINANCIAL ADVISOR.................................................................... 38
CERTAIN CONSEQUENCES OF THE MERGER..................................................................... 47
CONDUCT OF THE BUSINESS OF CONSECO AND CAF AFTER THE MERGER............................................ 47
INTERESTS OF CERTAIN PERSONS IN THE MERGER............................................................. 47
INDEMNIFICATION OF DIRECTORS AND OFFICERS; INSURANCE................................................... 49
ACCOUNTING TREATMENT................................................................................... 49
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................................................ 49
REGULATORY APPROVALS................................................................................... 51
NYSE LISTING OF CONSECO COMMON STOCK ...................................................................51
RIGHTS OF DISSENTING SHAREHOLDERS...................................................................... 51
THE MERGER AGREEMENT............................................................................................ 53
THE MERGER............................................................................................. 54
EFFECTIVE TIME......................................................................................... 54
CONVERSION OF SHARES; EXCHANGE OF STOCK CERTIFICATES; NO
FRACTIONAL AMOUNTS............................................................................ 54
TREATMENT OF CAF STOCK OPTIONS......................................................................... 55
</TABLE>
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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<S> <C>
CAF EMPLOYEE MATTERS................................................................................... 56
DISSENTING SHARES...................................................................................... 56
REPRESENTATIONS AND WARRANTIES......................................................................... 56
CERTAIN COVENANTS...................................................................................... 56
CONDITIONS TO THE MERGER............................................................................... 58
TERMINATION............................................................................................ 59
RIGHT OF CAF BOARD OF DIRECTORS TO WITHDRAW ITS
RECOMMENDATION................................................................................ 60
ACQUISITION PROPOSAL FEES.............................................................................. 60
EXPENSES ...............................................................................................60
MODIFICATION OR AMENDMENT ............................................................................. 60
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS .......................................................... 61
COMPARISON OF SHAREHOLDERS' RIGHTS.............................................................................. 82
AMENDMENT OF BY-LAWS....................................................................................82
VOTING WITH RESPECT TO CERTAIN BUSINESS COMBINATIONS....................................................82
CERTAIN PROVISIONS RELATING TO ACQUISITIONS.............................................................82
RIGHT TO BRING BUSINESS BEFORE AN ANNUAL OR SPECIAL MEETING OF
SHAREHOLDERS.................................................................................. 84
SHAREHOLDER ACTION BY WRITTEN CONSENT.................................................................. 84
REMOVAL OF DIRECTORS................................................................................... 85
DIRECTOR LIABILITY..................................................................................... 85
INDEMNIFICATION ....................................................................................... 85
DIVIDENDS AND REPURCHASES ............................................................................. 87
DISSENTERS' RIGHTS..................................................................................... 87
DIRECTOR AND OFFICER DISCRETION ........................................................................88
MANAGEMENT OF THE SURVIVING CORPORATION UPON CONSUMMATION OF THE
MERGER .................................................................................................88
</TABLE>
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<CAPTION>
TABLE OF CONTENTS
Page
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<S> <C>
LEGAL MATTERS................................................................................................... 88
EXPERTS ....................................................................................................... 88
INDEPENDENT ACCOUNTANTS......................................................................................... 89
OTHER MATTERS................................................................................................... 89
Annex A - Agreement and Plan of Merger......................................................................... A-1
Annex B - Opinion of Donaldson, Lufkin & Jenrette Securities Corporation....................................... B-1
Annex C - Section 1701.85 of the Ohio Revised Code............................................................. C-1
</TABLE>
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<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement/Prospectus. This summary is not intended to be
complete and is qualified in its entirety by reference to the more
detailed information and financial statements, including the notes
thereto, contained elsewhere, or incorporated by reference, in this Proxy
Statement/Prospectus and the Annexes hereto. All share and per share
information in this Proxy Statement/Prospectus concerning Conseco has been
adjusted to reflect a two-for-one stock split of the Conseco Common Stock
effected April 1, 1996, unless otherwise stated. Except as otherwise
indicated, all financial information in this Proxy Statement/Prospectus is
presented in accordance with generally accepted accounting principles
("GAAP"). Shareholders are urged to read this Proxy Statement/Prospectus,
the Annexes hereto and the documents incorporated herein by reference in
their entirety. Unless otherwise defined herein, capitalized terms used in
this summary have the respective meanings ascribed to them elsewhere in
this Proxy Statement/Prospectus.
General
This Proxy Statement/Prospectus relates to the proposed merger of
Merger Sub with and into CAF (the "Merger") pursuant to the Merger Agreement.
See "The Merger."
The Companies
Conseco, Inc.........Conseco is a financial services holding company engaged
primarily in the development, marketing and
administration of annuity, individual health
insurance and individual life insurance products.
Conseco's earnings result primarily from operating
life insurance companies and providing investment
management, administrative and other fee-based
services to affiliated businesses as well as
non-affiliates. Conseco's operating strategy is to
consolidate and streamline management and
administrative functions, to realize superior
investment returns through active asset
management, and to focus resources on the
development and expansion of profitable products
and strong distribution channels.
On August 2, 1996, Conseco completed its acquisition
of Life Partners Group, Inc. ("LPG"). Conseco and
LPG collected an aggregate of approximately $3.6
billion of total premiums and annuity deposits in
1995 from a diverse portfolio of products. After
giving pro forma effect to the acquisition of LPG,
Conseco's total assets and shareholders' equity at
June 30, 1996 were approximately $23 billion and
$1.9 billion, respectively. See "Information
Concerning Conseco and the Merger Sub."
On August 25, 1996, Conseco entered into an Agreement
and Plan of Merger (the "ATC Merger Agreement")
with American Travellers Corporation ("ATC")
pursuant to which ATC will be merged into Conseco
(the "ATC Merger"), with each share of ATC Common
Stock converted into the right to receive a
fraction of a share of Conseco Common Stock having
a value between $32.00 and $35.03 per share.
Conseco has also
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
1
<PAGE>
announced that it intends to acquire (1) the stock
of American Life Holdings, Inc. ("ALH") not
already owned by Conseco for approximately $165
million in cash, and (2) the shares of Bankers
Life Holding Corporation ("BLH") (of which Conseco
currently owns approximately 90.5 percent) which
Conseco does not own in a merger in which each
share of BLH Common Stock would be converted into
the right to receive a fraction of a share of
Conseco Common Stock having a value of $25.00 per
share. Consummation of Conseco's Merger with CAF
is not conditioned upon consummation by Conseco of
any of the other pending acquisitions. See
"Information Concerning Conseco and the Merger Sub
-- Other Pending Acquisitions by Conseco" and
"Unaudited Pro Forma Consolidated Financial
Statements of Conseco."
CAF Acquisition Company...The Merger Sub, a wholly-owned subsidiary of Conseco,
was formed for the purpose of effecting the
Merger. To date, the Merger Sub has not engaged in
any activities other than those incident to its
organization and the consummation of the Merger.
See "Information Concerning Conseco and the Merger
Sub."
Capitol American Financial
Corporation...............CAF,through its insurance subsidiaries, underwrites,
markets and distributes individual and group
supplemental health and accident insurance. For
the year ended December 31, 1995, CAF's earned
premiums were $282.1 million, of which
approximately 66 percent was from cancer
insurance. See "Information Concerning CAF."
CAF Shareholder Meeting
Time, Date and Place......The CAF Special Meeting will be held at 10:00 a.m.,
local time, on __________, 1996, at ________ ,
Cleveland, Ohio, and at any adjournment or
postponement thereof.
Purpose of the Meeting...The purpose of the CAF Special Meeting is to consider
and vote upon (1) a proposal to authorize and
adopt the Merger Agreement and the transactions
contemplated thereby and (2) such other business
as may properly come before the CAF Special
Meeting or any adjournments or postponements
thereof. See "CAF Shareholder Meeting -- Matters
to be Considered at the CAF Special Meeting."
Record Date, Shares
Entitled to Vote, Quorum..Holders of record of shares of CAF Common Stock at the
close of business on _______, 1996 (the "CAF
Record Date"), are
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
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<PAGE>
entitled to notice of and to vote at the CAF
Special Meeting. As of the CAF Record Date, there
were _______ shares of CAF Common Stock
outstanding and entitled to vote which were held
by approximately _______ holders of record. Each
holder of record of shares of CAF Common Stock on
the CAF Record Date is entitled to cast, either in
person or by properly executed proxy, one vote per
share on the Merger Agreement and the other
matters, if any, properly submitted for the vote
of the CAF shareholders at the CAF Special
Meeting. See "CAF Shareholder Meeting -- Voting at
the CAF Special Meeting; Record Date; Quorum."
The presence, in person or by properly executed proxy,
of the holders of stock representing a majority of
the voting power of all outstanding shares of the
CAF Common Stock at the CAF Special Meeting is
necessary to constitute a quorum at the CAF
Special Meeting. See "CAF Shareholder Meeting -
voting at the CAF Special Meeting; Record Date;
Quorum."
Vote Required............ The authorization and adoption by CAF of the Merger
Agreement will require the affirmative vote of the
holders of a majority of the outstanding shares of
CAF Common Stock entitled to vote thereon. See
"CAF Shareholder Meeting -- Voting at the CAF
Special Meeting; Record Date; Quorum."
Proxies, Revocation of
Proxies...................The enclosed proxy card permits each CAF shareholder
to specify that shares be voted "FOR" or "AGAINST"
(or "ABSTAIN") the authorization and adoption of
the Merger Agreement and the Merger. If properly
executed and returned, such proxy will be voted in
accordance with the choice specified. Where a
signed proxy card is returned, but no choice
specified, the shares will be voted for
authorization and adoption of the Merger Agreement
and the Merger.
A proxy relating to the CAF Special Meeting may be
revoked by the shareholder giving the proxy at any
time before it is exercised; however, mere
attendance at the Special Meeting will not itself
have the effect of revoking the proxy. A CAF
shareholder may revoke a proxy by notification in
writing sent (or given in person at the CAF
Special Meeting) to the Secretary of CAF or by
sending or giving to the Secretary of CAF a later
dated proxy. See "CAF Shareholder Meeting --
Proxies; Revocation of Proxies."
Certain Voting
Information...............As of _____, 1996, CAF's directors and officers as a
group beneficially owned _____ shares (or
approximately _____ percent) of the outstanding
CAF Common Stock entitled to vote at the CAF
Special Meeting. All directors and officers of CAF
have indicated that they will vote for the
authorization and adoption
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
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<PAGE>
of the Merger Agreement and the Merger. As of the
CAF Record Date, Barry J. Hershey and Connie
Hershey were entitled to vote _________ shares of
CAF Common Stock, or approximately ____ percent of
the number of shares of CAF Common Stock
outstanding and entitled to vote on such date.
Each of Barry J. Hershey and Connie Hershey have
agreed to vote all shares of CAF Common Stock
owned by them in favor of the adoption of the
Merger Agreement. See "CAF Shareholder Meeting --
Voting at the CAF Speial Meeting; Record Date;
Quorum."
The Merger; The Merger Agreement
Reasons for the Merger;
Recommendation of the
CAF Board of Directors...Conseco.The Board of Directors of Conseco approved the
Merger Agreement and the Merger based on a number
of factors including its belief that: (1) the
addition of CAF's cancer insurance and
supplemental health insurance business would
enable Conseco to offer a complete portfolio of
insurance products to its customers; (2) the
addition of CAF's distribution channels further
diversifies Conseco's current distribution system
and provides Conseco additional opportunities to
cross-sell its current products; (3) the Merger
offers Conseco and CAF the opportunity to improve
their profitability through the achievements of
economies of scale, the elimination of
redundancies and the enhancement of market
position; and (4) the Merger and the other pending
acquisitions would further strengthen Conseco's
position in the senior market. See "The Merger -
Conseco's Reasons for the Merger."
CAF. The CAF Board of Directors approved the Merger
Agreement and the Merger based on a number of
factors, including: (1) information concerning the
financial condition, results of operations and
prospects of CAF and Conseco, both by itself and
in combination with ATC and upon consummation of
the acquisitions of the stock of ALH and BLH not
already owned by Conseco; (2) information
concerning the potential effects of a combination
of CAF and Conseco, from both a financial and
operational perspective; (3) the historical and
recent market prices of CAF Common Stock; (4) the
historical and recent market prices of Conseco
Common Stock; (5) comparisons of the proposed
transaction to recent comparable transactions; (6)
the opportunity for CAF shareholders to receive
both a substantial premium over the then-current
market price of CAF Common Stock and the ability
of the CAF shareholders to continue as
shareholders in the combined company through
Conseco Common Stock to be paid to them in the
Merger; (7) the alternatives available to CAF
including the likelihood that either remaining
independent or pursuing a transaction involving
any other strategic partner would not result in
greater value to CAF
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
4
<PAGE>
or its shareholders; and (8) the opinion of
Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") that the consideration to be
received by the CAF shareholders pursuant to the
terms of the Merger Agreement is fair to such
holders from a financial point of view.
The Board of Directors of CAF recommends that
shareholders of CAF authorize and adopt the Merger
and the Merger Agreement. In evaluating the
recommendation of the CAF Board of Directors,
shareholders of CAF should carefully consider the
matters described under "The Merger -- CAF's
Reasons for the Merger; Recommendation of the CAF
Board of Directors" and "-- Interests of Certain
Persons in the Merger."
Opinion of CAF's
Financial Advisor.........DLJ has delivered its written opinion to the Board of
Directors of CAF that, as of August 25, 1996, and
based upon and subject to the assumptions,
limitations and qualifications set forth in such
opinion, the Merger Consideration to be received
by the shareholders of CAF pursuant to the terms
of the Merger Agreement was fair, from a financial
point of view, to the shareholders of CAF.
The full text of the written opinion of DLJ, which
sets forth assumptions made, procedures followed,
other matters considered and limits of the review
undertaken by DLJ in connection with the opinion,
is attached hereto as Annex B and is incorporated
herein by reference. Holders of CAF Common Stock
should read such opinion in its entirety. See "The
Merger -- Opinion of CAF's Financial Advisor."
Effect of Merger..........Upon consummation of the Merger:(1) Merger Sub will be
merged with and into CAF, with CAF being the
surviving corporation (the "Surviving
Corporation"); and (2) each outstanding share of
CAF Common Stock will be canceled, and each holder
of a certificate representing shares of CAF Common
Stock will cease to have any rights with respect
thereto, except the right to receive, upon the
surrender of such certificate, the Merger
Consideration (as defined below). Fractional
shares of Conseco Common Stock will not be
issuable in connection with the Merger. CAF
shareholders otherwise entitled to fractional
shares of Conseco Common Stock will receive the
value of such fractional shares in cash,
determined as described herein under "The Merger
Agreement -- Conversion of Shares; Exchange of
Stock Certificates; No Fractional Amounts."
A copy of the Merger Agreement is attached as Annex
A to this Proxy Statement/Prospectus and is
incorporated by reference herein. See "The Merger
Agreement."
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5
<PAGE>
Merger Consideration......Upon the consummation of the Merger, each share of CAF
Common Stock issued and outstanding immediately
prior to the Effective Time (as defined below)
(other than shares of CAF Common Stock held as
treasury shares by CAF or Dissenting Shares (as
defined below)) will be canceled and converted
into the right to receive (1) $30.00 in cash plus
the Time Factor (as defined below), if any
(collectively, the "Cash Consideration"), and (2)
the fraction (rounded to the nearest
ten-thousandth of a share) of a share of Conseco
Common Stock determined by dividing $6.50 by the
Trading Value. The "Trading Value" shall be equal
to the average of the closing prices of the
Conseco Common Stock on the NYSE Composite
Transactions Reporting System for the 20
consecutive trading days immediately preceding the
second trading day prior to the Effective Time.
The "Time Factor", if any, shall be equal to $0.25
if the Effective Time shall not have occurred by
December 10, 1996, which amount shall be increased
by an additional $0.25 on the tenth day of each
calendar month thereafter until the occurrence of
the Effective Time. The Cash Consideration, the
Conseco Common Stock to be issued to holders of
shares of CAF Common Stock in accordance with the
Merger Agreement and any cash to be paid in lieu
of fractional shares of Conseco Common Stock are
referred to collectively as the "Merger
Consideration." Conseco will apply to have the
additional shares of Conseco Common Stock issued
pursuant to the Merger Agreement listed on the
NYSE. See "The Merger Agreement -- Conversion of
Shares; Exchange of Stock Certificates; No
Fractional Amounts."
No fractional shares of Conseco Common Stock will be
issued in the Merger. Each CAF shareholder who
otherwise would have been entitled to a fraction
of a share of Conseco Common Stock will receive in
lieu thereof cash in accordance with the terms of
the Merger Agreement. See "The Merger Agreement --
Conversion of Shares; Exchange of Stock
Certificates; No Fractional Amounts."
As soon as reasonably practicable after consummation
of the Merger, a letter of transmittal from First
Union National Bank of North Carolina (the "Paying
Agent") (including instructions setting forth the
procedures for exchanging such holder's
certificates representing CAF Common Stock
("Certificates") for the Merger Consideration
payable to such holder pursuant to the Merger
Agreement) will be sent to each holder of record,
as of the Effective Time, of shares of CAF Common
Stock. Upon surrender of such Certificates to the
Paying Agent together with a duly completed and
executed letter of transmittal, such holder will
promptly receive the Merger Consideration for each
share of CAF Common Stock previously represented
by the Certificates so surrendered. See "The
Merger Agreement --
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
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<PAGE>
Conversion of Shares; Exchange of Stock
Certificates; No Fractional Amounts."
Effective Time of the
Merger....................The Merger will become effective on the date a
Certificate of Merger is filed with the Secretary
of State of Ohio or at such time thereafter as is
provided in the Certificate of Merger (the
"Effective Time"). See "The Merger Agreement --
Effective Time."
Treatment of Options......Immediately prior to the Effective Time, each
outstanding unexpired option to purchase shares of
CAF Common Stock ("CAF Stock Option") and each
restricted stock right ("Restricted Share") which
have been granted pursuant to CAF's 1992 Equity
Participation Plan, as amended, (the "1992 Equity
Participation Plan") shall be fully vested.
Subject to the following sentence, each CAF Stock
Option will automatically be converted at or as of
the Effective Time into an option to purchase
Conseco Common Stock. With respect to (1) an
employee of CAF who is either (A) given notice
that he or she will not be asked to remain in his
or her position beyond the period ending six
months after the Effective Time or (B) terminated
prior to the end of the six month period after the
Effective Time or (2) a non-employee director of
CAF, each CAF Stock Option held by such person
immediately prior to the Effective Time shall be
converted automatically at or as of the Effective
Time into the right to receive an amount in cash
equal to the product of (A) the Merger
Consideration for one share of CAF Common Stock
minus the current exercise price of the CAF Stock
Option multiplied by (B) the total number of
shares of CAF Common Stock subject thereto. See
"The Merger Agreement -- Treatment of CAF Stock
Options."
Certain Consequences of
the Merger..............Upon consummation of the Merger, the CAF shareholders
will become shareholders of Conseco, and each
share of CAF Common Stock issued and outstanding
immediately prior to the consummation of the
Merger (other than shares held as treasury shares
of CAF or Dissenting Shares) shall be converted
into the right to receive the Merger
Consideration. In addition, holders of CAF Stock
Options will be entitled to receive, upon the
exercise of their respective CAF Stock Options, a
number of shares of Conseco Common Stock
determined as described under "The Merger
Agreement -- Conversion of Shares; Exchange of
Stock Certificates; No Fractional Amounts" and "
-- Treatment of CAF Stock Options."
After consummation of the Merger and without giving
effect to the proposed acquisitions of ATC and
BLH, the current Conseco
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<PAGE>
shareholders will own approximately 96% of the
shares of Conseco Common Stock then outstanding,
and the current CAF shareholders will own
approximately 4% of such shares. See "The Merger -
Certain Consequences of the Merger."
Conditions to the Merger;
Regulatory Approvals;
Termination of the Merger
Agreement.................The obligations of Conseco and CAF to consummate the
Merger are subject to the satisfaction of certain
conditions, including requisite CAF shareholder
approval, and the receipt of certain governmental
consents and approvals including, without
limitation, the approvals or exemptive orders of
the Insurance Commissioners under the state
insurance codes of the states of Arizona and Ohio,
which are the jurisdictions in which insurance
companies owned by CAF are domiciled, and the
expiration (or earlier termination) of the
relevant waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"). Such waiting
period was terminated on ________, 1996. See "The
Merger -- Regulatory Approvals" and "The Merger
Agreement -- Conditions to the Merger."
The Merger Agreement is subject to termination by
Conseco or CAF (provided that such party is not in
breach of the Merger Agreement) if the Merger is
not consummated by March 31, 1997, and prior to
such time upon the occurrence of certain events.
See "The Merger Agreement -- Termination."
Right of CAF Board
of Directors to Withdraw
its Recommendation;Fees...Under the Merger Agreement, the Board of Directors of
CAF shall not (1) withdraw or modify, in a manner
materially adverse to Conseco or CAF Acquisition,
the approval or recommendation by the Board of
Directors of the Merger Agreement or the Merger,
(2) approve or recommend an Acquisition Proposal
(as defined in the Merger Agreement) or (3) enter
into any agreement with respect to any Acquisition
Proposal, unless CAF receives an Acquisition
Proposal and the Board of Directors of CAF
determines in good faith, following consultation
with outside counsel, that in order to comply with
its fiduciary duties to shareholders under
applicable law it is necessary for the Board of
Directors to withdraw or modify, in a manner
materially adverse to Conseco or CAF Acquisition,
its approval or recommendation of the Merger
Agreement or the Merger, approve or recommend such
Acquisition Proposal, enter into an agreement with
respect to such Acquisition Proposal or terminate
the Merger Agreement. In the event the Board of
Directors of CAF takes any of the foregoing
actions, CAF shall, concurrently with the taking
of any such action, pay to Conseco upon demand $15
million, payable in same-day funds.
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<PAGE>
Conduct of the Business
of Conseco and CAF
After the Merger.....Pursuant to the Merger Agreement, (1) the members of the
Board of Directors of the Merger Sub immediately
prior to the consummation of the Merger shall
become the directors of the Surviving Corporation
following the consummation of the Merger, and (2)
the officers of the Merger Sub immediately prior
to the consummation of the Merger shall become the
officers of the Surviving Corporation following
the consummation of the Merger. Conseco's Board of
Directors and management will not be affected by
the Merger. See "Management of the Surviving
Corporation Upon Consummation of the Merger."
Conseco plans to consolidate certain operations of CAF
with Conseco's operations after consummation of
the Merger. See "The Merger -- Conduct of the
Business of Conseco and CAF After the Merger."
Interests of Certain
Persons in the
Merger...............Certain directors and officers of CAF have interests in
the Merger different from the interests of other
CAF shareholders. See "The Merger -- Interests of
Certain Persons in the Merger."
Indemnification of Directors
and Officers;
Insurance............Conseco has agreed to honor the terms of existing
indemnification agreements between CAF and certain
of its officers and directors. In addition,
Conseco has agreed to maintain officers' and
directors' liability insurance covering the
Indemnified Parties who are currently covered by
CAF's existing officers' and directors' liability
insurance policies. See "The Merger -- Interests
of Certain Persons in the Merger" and --
"Indemnification of Officers and Directors;
Insurance."
Dissenters' Rights......Under Ohio law, shareholders who vote against or abstain
from voting in favor of the Merger and deliver to
CAF a written demand for payment of the fair cash
value of the shares as to which they seek relief
within 10 days after the CAF Special Meeting have
the right to obtain cash payment for the appraised
value of their shares of CAF Common Stock. In
order to exercise such rights, a shareholder must
comply with all the procedural requirements of
Section 1701.85 of the Ohio Revised Code, the full
text of which is attached to this Proxy
Statement/Prospectus as Annex C. Shares of CAF
Common Stock held by shareholders who shall have
effectively dissented from the Merger and
perfected their dissenters' rights in accordance
with Section 1701.85 (the "Dissenting Shares")
shall not be converted into or exchangeable for
the right to receive the Merger Consideration, but
shall be entitled to payment from the Surviving
Corporation of the appraised value of such shares
in accordance with Section 1701.85. See "The
Merger -- Rights of Dissenting Shareholders."
9
<PAGE>
Certain Federal Income Tax
Consequences..............The receipt of the Merger Consideration (including any
cash amounts received by dissenting CAF
shareholders pursuant to the exercise of
dissenters' rights) will be a taxable transaction
for federal income tax purposes (and also may be a
taxable transaction under applicable state, local
and other income tax laws). In general, for
federal income tax purposes, a CAF shareholder
will recognize gain or loss equal to the
difference between his or her adjusted tax basis
in the shares of CAF Common Stock exchanged in the
Merger, and the amount of cash and the fair market
value of the Conseco Common Stock received
therefor. Such gain or loss will be capital gain
or loss, and will be long-term gain or loss if, on
the date of the Merger, the shares of CAF Common
Stock were held for more than one year. CAF and
Conseco each have indicated its intention to treat
any amount paid pursuant to the Time Factor as
additional purchase price that would increase the
capital gain (or decrease the capital loss)
recognized by a CAF shareholder on the disposition
of his or her CAF Common Stock in the Merger. See
"The Merger -- Certain Federal Income Tax
Consequences."
Accounting Treatment......The Merger will be accounted for as a "purchase" under
GAAP. See "The Merger -- Accounting Treatment."
Comparison of Shareholders'
Rights..................Upon consummation of the Merger, the CAF shareholders
will become shareholders of Conseco. See
"Comparison of Shareholders' Rights" for a summary
of the material differences between the rights of
holders of Conseco Common Stock and CAF Common
Stock. These differences arise from the
distinctions between the laws of the jurisdictions
in which Conseco and CAF are incorporated (Indiana
and Ohio, respectively) and the distinctions
between the respective charters and bylaws of
Conseco and CAF.
Shareholders
Agreement..............Conseco, Barry J.Hershey and Connie Hershey have entered
into a Shareholders Agreement (the "Shareholders
Agreement") pursuant to which each of Barry J.
Hershey and Connie Hershey have agreed, among
other things, to vote all shares of CAF Common
Stock owned by them in favor of the adoption of
the Merger Agreement. As of the CAF Record Date,
Barry J. Hershey and Connie Hershey were entitled
to vote _________ shares of CAF Common Stock, or
approximately ____ percent of the number of shares
of CAF Common Stock outstanding and entitled to
vote on such date.
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<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF CONSECO (a)
The selected historical financial information set forth below was derived
from the consolidated financial statements of Conseco. Conseco's consolidated
balance sheets at December 31, 1994 and 1995, and the consolidated statements of
operations, shareholders' equity and cash flows for the years ended December 31,
1993, 1994 and 1995 and notes thereto were audited by Coopers & Lybrand L.L.P.,
independent accountants, and are included in Conseco's Annual Report which is
incorporated by reference herein. The consolidated financial information should
be read in conjunction with Conseco's Annual Report. The consolidated financial
information set forth for the six months ended June 30, 1995 and 1996, is
unaudited; however, in the opinion of Conseco's management, the accompanying
financial information contains all adjustments, consisting only of normal
recurring items, necessary to present fairly the financial information for such
periods. The results of operations for the six months ended June 30, 1996, may
not be indicative of the results of operations to be expected for a full year.
<TABLE>
<CAPTION>
Six months
ended
Years ended December 31, June 30,
----------------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(Amounts in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Insurance policy income................................ $280.8 $378.7 $1,293.8 $1,285.6 $1,465.0 $ 730.2 $ 741.4
Investment activity:
Net investment income............................. 921.4 888.6 896.2 385.7 1,142.6 556.9 561.9
Net trading income (losses) ...................... 50.7 35.9 93.1 (4.9) 2.5 6.0 (7.3)
Net realized gains (losses) ...................... 123.3 124.3 149.5 (25.6) 186.4 74.5 10.2
Total revenues......................................... 1,391.8 1,523.9 2,636.0 1,862.0 2,855.3 1,389.4 1,364.3
Interest expense on notes payable...................... 69.9 46.2 58.0 59.3 119.4 52.4 54.2
Total benefits and expenses............................ 1,168.6 1,193.9 2,025.8 1,537.6 2,436.8 1,187.1 1,142.8
Income before income taxes, minority interest and
extraordinary charge.............................. 223.2 330.0 610.2 324.4 418.5 202.3 221.5
Extraordinary charge on extinguishment of debt,
net of tax....................................... 5.0 5.3 11.9 4.0 2.1 - 17.4
Net income............................................. 116.0 169.5 297.0 150.4 220.4 124.3 96.4
Preferred dividends.................................... 6.8 5.5 20.6 18.6 18.4 9.2 17.2
Net income applicable to common stock.................. 109.2 164.0 276.4 131.8 202.0 115.1 79.2
PER SHARE DATA (b)
Net income, primary.................................... $2.05 $2.71 $4.73 $2.50 $4.69 $2.67 $1.71
Net income, fully diluted.............................. 2.01 2.70 4.39 2.44 4.22 2.39 1.59
Dividends declared per common share.................... .035 .043 .150 .250 .093 .073 .040
Book value per common share outstanding at period end.. 7.73 10.93 16.89 10.45 20.44 16.33 17.68
Shares outstanding at period end....................... 49.4 49.8 50.6 44.4 40.5 40.4 41.9
Average fully diluted shares outstanding............... 50.8 59.2 67.0 61.7 52.2 52.1 60.6
BALANCE SHEET DATA - PERIOD END
Total assets........................................... $11,832.4 $11,772.7 $13,749.3 $10,811.9 $17,297.5 $17,078.6 $17,426.3
Notes payable for which Conseco is directly liable..... 177.6 163.2 413.0 191.8 871.4 613.5 670.0
Notes payable of BLH, not direct obligations of Conseco - 392.0 290.3 280.0 301.5 272.2 297.9
Notes payable of Partnership entities, not
direct obligations of Conseco..................... 319.3 - - 331.1 283.2 308.0 281.6
Total liabilities...................................... 11,321.3 11,154.4 12,382.9 9,743.2 15,782.5 15,528.3 15,857.1
Minority interest...................................... 79.5 24.0 223.8 321.7 403.3 606.9 292.3
Shareholders' equity .................................. 431.6 594.3 1,142.6 747.0 1,111.7 943.4 1,276.9
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Six months
ended
Years ended December 31, June 30,
----------------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(Amounts in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA (c)
Premiums collected (d)................................. $1,648.7 $1,464.9 $2,140.1 $1,879.1 $3,106.4 $1,725.6 $1,501.6
Operating earnings (e)................................. 61.5 114.8 162.0 151.7 131.3 52.2 102.2
Operating earnings per fully diluted common share (b) (e) 1.05 1.80 2.39 2.46 2.52 1.00 1.69
Shareholders' equity excluding unrealized appreciation
(depreciation) of fixed maturity securities (f)... 431.6 560.3 1,055.2 884.7 999.1 910.1 1,332.9
Book value per common share outstanding, excluding
unrealized appreciation (depreciation) of fixed
maturity securities (b) (f)....................... 7.73 10.24 15.16 13.55 17.66 15.50 19.02
Ratio of debt (including debt of CCP guaranteed by
Conseco until its retirement in 1993) for which
Conseco is directly liable to total capital of
Conseco only (g):
As reported....................................... .29X .22X .27X .20X .44X .34X .34X
Excluding unrealized appreciation (depreciation) (f) .29X .23X .28X .18X .47X .34X .33X
Adjusted statutory capital (at period end) (h)......... $617.1 $603.1 $1,135.5 $509.0 $1,021.0 $901.2 $1,009.3
Adjusted statutory earnings (i)........................ 90.0 153.4 273.8 248.6 321.7 138.9 166.4
Ratio of adjusted statutory earnings to cash interest (j) 2.62X 5.75X 4.94X 5.06X 3.79X 3.97X 4.11X
<FN>
(a) Comparison of consolidated financial information in the above table is
significantly affected by the Conseco Capital Partners, L.P.
("Partnership I") and Conseco Capital Partners II, L.P. ("Partnership
II") acquisitions, the sale of Western National Corporation ("WNC") and
the transactions affecting Conseco's ownership interest in BLH and CCP
Insurance, Inc. ("CCP"). For periods beginning with their acquisitions
and ending June 30, 1992, Partnership I and its subsidiaries were
consolidated with the financial statements of Conseco. Following the
completion of the initial public offering by CCP in July 1992, the
Company did not have unilateral control to direct all of CCP's
activities and, therefore, did not consolidate the financial statements
of CCP with the financial statements of Conseco. As a result of the
purchase by Conseco of all the shares of common stock of CCP it did not
already own on August 31, 1995 (the "CCP Merger"), the financial
statements of CCP's subsidiaries are consolidated with the financial
statements of Conseco, effective January 1, 1995. Conseco has included
BLH in its financial statements since November 1, 1992. Through December
31, 1993, the financial statements of WNC were consolidated with the
financial statements of Conseco. Following the completion of the initial
public offering of WNC (and subsequent disposition of Conseco's
remaining equity interest in WNC), the financial statements of WNC were
no longer consolidated with the financial statements of Conseco. As of
September 29, 1994, Conseco began to include in its financial statements
the newly acquired Partnership II subsidiary, ALH. Refer to the notes to
the consolidated financial statements included in Conseco's Annual
Report, incorporated by reference herein, for a description of business
combinations.
(b) All share and per share amounts have been restated to reflect the
two-for-one stock split paid April 1, 1996.
(c) Amounts under this heading are included to assist the reader in
analyzing Conseco's financial position and results of operations. Such
amounts are not intended to, and do not, represent insurance policy
income, net income, net income per share, shareholders' equity or book
value per share prepared in accordance with GAAP.
(d) Includes premiums received from annuities and universal life policies,
which are not reported as revenues under GAAP.
(e) Represents income before extraordinary charge, excluding net trading
income (losses) (net of income taxes), net realized gains (losses) (less
that portion of change in future policy benefits, amortization of cost
of policies purchased and cost of policies produced and income taxes
relating to such gains (losses)) and restructuring activities (net of
income taxes).
(f) Excludes the effect of reporting fixed maturities at fair value and
recording the unrealized gain or loss on such securities as a component
of shareholders' equity, net of tax and other adjustments, which Conseco
began to do in 1992. Such adjustments are in accordance with Statement
of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"), as described in
the notes to the consolidated financial statements included in Conseco's
Annual Report which is incorporated herein by reference.
(g) Represents the ratio of notes payable for which Conseco is directly
liable to the sum of shareholders' equity and notes payable for which
Conseco is directly liable.
(h) Includes: (1) statutory capital and surplus; (2) mandatory securities
valuation reserve ("MSVR") at periods ended prior to December 31, 1992;
(3) asset valuation reserve ("AVR") and interest maintenance reserve
("IMR") at periods ended on or after December 31, 1992; and (4) the
portion of surplus debentures carried by the life companies as a
liability to Conseco. Such statutory data reflect the combined data
derived from the annual statements of Conseco's and BLH's wholly owned
life insurance companies as filed with insurance regulatory agencies and
prepared in accordance with statutory accounting practices.
(i) Represents gains from operations before interest expense (except
interest on annuities and financial products) and income taxes of
Conseco's and BLH's wholly owned life insurance companies as reported
for statutory accounting purposes plus income before interest expense
and income taxes of all non-life companies.
12
<PAGE>
(j) Represents the ratio of adjusted statutory earnings to cash interest.
Cash interest includes interest, except interest on annuities and
financial products, of Conseco and BLH and their wholly owned
subsidiaries that is required to be paid in cash.
</FN>
</TABLE>
13
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF LPG (a)
The selected historical financial information set forth below was derived
from the audited consolidated financial statements of LPG. LPG's consolidated
balance sheets at December 31, 1994 and 1995, and the consolidated statements of
operations, shareholders' equity and cash flows for the years ended December 31,
1993, 1994 and 1995 and notes thereto were audited by Coopers & Lybrand L.L.P.,
independent accountants, and are included in LPG's Annual Report which is
incorporated by reference herein. The consolidated financial information should
be read in conjunction with LPG's Annual Report. The consolidated financial
information set forth for the six months ended June 30, 1995 and 1996, is
unaudited; however, in the opinion of LPG's management, the accompanying
financial information contains all adjustments, consisting only of normal
recurring items, necessary to present fairly the financial information for such
periods. The results of operations for the six months ended June 30, 1996, may
not be indicative of the results of operations to be expected for a full year.
<TABLE>
<CAPTION>
Six months
ended
Years ended December 31, June 30,
----------------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ------ ---- ----
(Amounts in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Insurance policy income................................ $187.1 $187.3 $210.8 $217.9 $280.1 $129.4 $155.7
Investment activity:
Net investment income............................... 207.5 218.6 221.1 225.4 277.1 134.9 146.2
Net realized gains (losses) ........................ 18.6 23.1 18.4 (19.7) 15.8 2.4 2.3
Total revenues......................................... 420.6 436.5 455.7 428.2 576.1 268.6 306.9
Interest expense....................................... 43.4 35.3 26.0 20.7 27.9 12.0 11.8
Total benefits and expenses............................ 376.5 374.8 373.8 369.9 592.8 251.0 279.4
Income (loss) before income taxes, minority interest
and extraordinary charge............................ 44.1 61.7 81.9 58.5 (16.7) 17.6 27.5
Extraordinary charge, net of tax....................... - 5.6 4.8 2.6 - - -
Net income (loss)...................................... 22.8 32.1 47.2 34.6 (13.4) 11.3 15.9
Dividends in kind on preferred stock................... 13.4 15.4 4.0 - - - -
Net income (loss) applicable to common stock........... 9.4 16.7 43.2 34.6 (13.4) 11.3 15.9
PER SHARE DATA
Income (loss) before extraordinary charge, primary
and fully diluted................................... $(0.61) $ 1.08 $ 2.05 $ 1.43 $(0.49) $.42 $.56
Net income (loss), primary and fully diluted........... (0.61) 0.62 1.85 1.33 (0.49) .42 .56
Dividends declared per common share.................... - - 0.0375 .08 .11 .05 .06
Book value per common share outstanding at
period end.......................................... 13.92 15.98 12.25 11.50 14.35 14.20 12.47
Shares outstanding at period end....................... 8.0 14.4 25.4 25.5 27.9 27.8 28.2
Average fully diluted shares outstanding............... 9.0 12.1 23.4 26.1 27.1 26.8 28.4
BALANCE SHEET DATA - PERIOD END
Total assets........................................... $2,976.9 $3,292.7 $3,589.4 $3,748.8 $4,980.9 $5,035.7 $4,974.7
Notes payable.......................................... 335.5 314.3 210.1 210.5 246.1 239.3 238.9
Total liabilities...................................... 2,841.2 3,062.8 3,278.2 3,455.2 4,580.4 4,640.5 4,623.1
Minority interest...................................... 24.1 - - - - - -
Shareholders' equity .................................. 111.6 229.9 311.2 293.6 400.5 395.2 351.6
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Six months
ended
Years ended December 31, June 30,
---------------------------------------------- -------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(Amounts in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA (b)
Premiums collected (c)................................. $508.2 $465.5 $470.2 $411.8 $497.3 $248.2 $280.1
Operating earnings (loss) (d).......................... 15.5 31.9 44.1 50.0 (28.9) 9.4 20.5
Operating earnings (loss) per primary and fully diluted
common share (d).................................... 1.72 2.63 1.88 1.91 (1.06) .35 .72
Shareholders' equity excluding unrealized appreciation
(depreciation) of fixed maturity securities (e)..... 111.6 229.9 291.7 325.0 344.3 376.8 361.8
Book value per common share outstanding, excluding
unrealized appreciation (depreciation) of fixed
maturity securities (e)............................. 13.92 15.98 11.48 12.73 12.34 13.54 12.83
Ratio of debt to total capital (f):
As reported......................................... .75X .58X .40X .42X .38X .38X .40X
Excluding unrealized appreciation (depreciation) (e) .75X .58X .42X .39X .42X .39X .40X
Adjusted statutory capital (at period end) (g)......... $149.4 $191.3 $169.8 $174.3 $209.8 $174.7 $219.3
Adjusted statutory earnings (h)........................ 75.7 76.4 83.4 75.8 78.1 28.9 46.4
Ratio of adjusted statutory earnings to cash interest (i) 1.83X 2.25X 3.46X 3.78X 3.46X 2.58X 4.06X
<FN>
(a) Comparison of consolidated financial information in the above table is
significantly affected by the acquisition of Lamar Financial Group,
Inc. ("Lamar") on April 28, 1995. Such acquisition was accounted for
using the purchase method, and the results of operations at Lamar are
included in the consolidated financial data from the date of
acquisition. Refer to the notes to the consolidated financial
statements included in LPG's Annual Report incorporated by reference
herein for a description of the acquisition.
(b) Amounts under this heading are included to assist the reader in
analyzing LPG's financial position and results of operations. Such
amounts are not intended to, and do not, represent insurance policy
income, net income, net income per share, shareholders' equity or book
value per share prepared in accordance with GAAP.
(c) Includes premiums received from annuities and universal life policies,
which are not reported as revenues under GAAP.
(d) Represents income before extraordinary charge, excluding net realized
gains (losses) (less that portion of amortization of cost of policies
purchased and the cost of policies produced and income taxes relating
to such gains (losses)).
(e) Excludes the effects of reporting available-for-sale fixed maturities
at fair value and recording the unrealized gain or loss on such
securities as a component of shareholders' equity, net of tax and other
adjustments, which LPG began to do with respect to a portion of its
portfolio effective December 31, 1993. Such adjustments are in
accordance with SFAS 115, as described in the notes to the consolidated
financial statements included in LPG's Annual Report which is
incorporated herein by reference.
(f) Represents the ratio of notes payable to the sum of shareholders'
equity and notes payable.
(g) Includes: (1) statutory capital and surplus; (2) MSVR at periods ended
prior to December 31, 1992; and (3) AVR and IMR at periods ended on or
after December 31, 1992. Such statutory data reflect the combined data
derived from the annual statements of LPG's consolidated insurance
subsidiaries as filed with insurance regulatory agencies and prepared
in accordance with statutory accounting practices.
(h) Represents gains from operations before interest expense (except
interest on annuities and financial products) and income taxes of LPG's
consolidated insurance subsidiaries as reported for statutory
accounting purposes plus income before interest expense and income
taxes of all non-life companies.
(i) Represents the ratio of adjusted statutory earnings to cash interest.
Cash interest includes interest, except interest on annuities and
financial products, of LPG and its consolidated subsidiaries that is
required to be paid in cash.
</FN>
</TABLE>
15
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF CAF
The selected historical financial information set forth below was derived
from the consolidated financial statements of CAF. The consolidated balance
sheets of CAF at December 31, 1994 and 1995, and the consolidated statements of
operations, shareholders' equity and cash flows for the years ended December 31,
1993, 1994 and 1995 and notes thereto were audited by KPMG Peat Marwick LLP,
independent accountants, and are included in CAF's Annual Report which is
incorporated by reference herein. The consolidated financial information should
be read in conjunction with CAF's Annual Report. The consolidated financial
information set forth for the six months ended June 30, 1995 and 1996, is
unaudited; however, in the opinion of CAF's management, the accompanying
financial information contains all adjustments, consisting only of normal
recurring items, necessary to present fairly the financial information for such
periods. The results of operations for the six months ended June 30, 1996, may
not be indicative of the results of operations to be expected for a full year.
<TABLE>
<CAPTION>
Six months
ended
Years ended December 31, June 30,
------------------------------------------------ -----------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(Amounts in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Insurance policy income.......................... $188.4 $219.5 $244.8 $263.3 $282.1 $139.0 $146.6
Investment activity:
Net investment income......................... 17.5 22.8 33.5 41.0 48.6 23.3 27.2
Net realized gains............................ - - .6 - - - .1
Total revenues................................... 206.4 242.8 279.4 304.4 330.8 162.4 174.0
Interest expense................................. 1.2 1.6 1.5 2.3 2.4 1.3 1.0
Total benefits and expenses...................... 162.2 189.8 210.8 235.7 259.2 126.3 132.4
Income before income taxes and cumulative effect
of change in accounting for income taxes...... 44.2 53.0 68.6 68.7 71.6 36.1 41.6
Income from cumulative effect of change in
accounting for income taxes................... 3.7 - - - - - -
Net income....................................... 32.6 35.0 43.5 44.8 46.0 23.0 27.1
PER SHARE DATA
Income before cumulative effect of change in
accounting for income taxes, primary
and fully diluted............................. $1.77 $2.19 $2.36 $2.50 $2.64 $1.31 $1.55
Net income, primary and fully diluted............ 2.00 2.19 2.36 2.50 2.64 1.31 1.55
Dividends declared per common share.............. .050 .255 .280 .320 .360 .180 .200
Book value per common share outstanding
at period end................................. 5.68 9.61 11.58 13.34 16.71 14.48 16.83
Shares outstanding at period end................. 16.0 18.5 18.2 17.5 17.5 17.5 17.5
Average fully diluted shares outstanding......... 16.3 16.0 18.5 17.9 17.5 17.5 17.5
BALANCE SHEET DATA - PERIOD END
Total assets..................................... $397.7 $556.8 $668.5 $793.1 $948.3 $850.6 $980.4
Notes payable.................................... 21.0 20.0 22.0 24.0 24.0 28.0 29.5
Total liabilities................................ 307.0 379.1 457.2 559.5 656.6 597.8 686.1
Shareholders' equity............................. 90.7 177.7 211.3 233.6 291.7 252.8 294.3
OTHER FINANCIAL DATA (a)
Operating earnings (b)........................... $28.9 $35.0 $43.1 $44.8 $46.0 $23.0 $27.0
Operating earnings per primary and fully diluted
common share (b).............................. 1.77 2.19 2.33 2.50 2.64 1.31 1.54
Shareholders' equity excluding unrealized
appreciation of fixed maturity securities (c). 90.7 177.7 211.3 233.6 272.9 252.8 297.1
Book value per common share outstanding,
excluding unrealized appreciation of fixed
maturity securities (c)....................... 5.68 9.61 11.58 13.34 15.63 14.48 16.99
Ratio of debt to total capital (d):
As reported................................... .19X .10X .09X .09X .08X .10X .09X
Excluding unrealized appreciation (c)......... .19X .10X .09X .09X .08X .10X .09X
Adjusted statutory capital (at period end) (e)... $48.3 $108.7 $108.0 $93.9 $88.5 $96.4 $99.5
Adjusted statutory earnings (f).................. 20.1 25.6 33.5 29.4 30.9 15.3 21.7
Ratio of adjusted statutory earnings to
cash interest (g)............................. 17.8X 16.9X 23.2X 13.0X 13.2X 12.5X 21.1X
16
<PAGE>
<FN>
(a) Amounts under this heading are included to assist the reader in analyzing
CAF's financial position and results of operations. Such amounts are not
intended to, and do not, represent net income, net income per share,
shareholders' equity or book value per share prepared in accordance with
GAAP.
(b) Represents net income before cumulative effect of change in accounting for
income taxes and net realized gains, net of income taxes.
(c) Excludes the effects of reporting available-for-sale fixed maturities at
fair value and recording the unrealized gain or loss on such securities as
a component of shareholders' equity, net of tax and other adjustments,
which CAF began to do with respect to a portion of its portfolio effective
December 31, 1995. Such adjustments are in accordance with SFAS 115, as
described in the notes to the consolidated financial statements included in
CAF's Annual Report which is incorporated herein by reference.
(d) Represents the ratio of notes payable to the sum of shareholders' equity
and notes payable.
(e) Includes: (1) statutory capital and surplus; (2) MSVR at periods ended
prior to December 31, 1992; and (3) AVR and IMR at periods ended on or
after December 31, 1992. Such statutory data reflect the combined data
derived from the annual statements of CAF's consolidated insurance
subsidiaries as filed with insurance regulatory agencies and prepared in
accordance with statutory accounting practices.
(f) Represents gains from operations before interest expense and income taxes
of CAF's consolidated insurance subsidiaries as reported for statutory
accounting purposes plus income before interest expense and income taxes of
all non-life companies.
(g) Represents the ratio of adjusted statutory earnings to cash interest. Cash
interest includes interest of CAF and its consolidated subsidiaries that is
required to be paid in cash.
</FN>
</TABLE>
17
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF ATC
The selected historical financial information set forth below was derived
from the consolidated financial statements of ATC. The consolidated balance
sheets of ATC at December 31, 1994 and 1995, and the consolidated statements of
income, shareholders' equity and cash flows for the years ended December 31,
1993, 1994 and 1995 and notes thereto were audited by Arthur Andersen LLP,
independent public accountants, and are included in ATC's Annual Report which is
incorporated by reference herein. The consolidated financial information should
be read in conjunction with ATC's Annual Report. The consolidated financial
information set forth for the six months ended June 30, 1995 and 1996, is
unaudited; however, in the opinion of ATC's management, the accompanying
financial information contains all adjustments, consisting only of normal
recurring items, necessary to present fairly the financial information for such
periods. The results of operations for the six months ended June 30, 1996, may
not be indicative of the results of operations to be expected for a full year.
<TABLE>
<CAPTION>
Six months
ended
Years ended December 31, June 30,
------------------------------------------------ -----------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(Amounts in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Insurance policy income.......................... $117.0 $138.3 $166.4 $201.9 $274.0 $122.7 $186.9
Investment activity:
Net investment income......................... 8.1 8.7 9.4 11.0 23.2 8.1 21.3
Net realized gains............................ (.1) .4 .2 - .1 - 1.3
Total revenues................................... 125.0 147.4 176.0 212.9 297.3 130.8 209.5
Interest expense................................. .2 .2 - 1.0 3.3 .9 4.0
Total benefits and expenses...................... 108.3 131.2 152.7 185.9 262.6 115.2 184.6
Income before income taxes....................... 16.7 16.2 23.3 27.0 34.7 15.6 24.9
Net income....................................... 11.0 10.7 14.6 18.4 23.7 10.7 16.8
PER SHARE DATA (a)
Net income, primary.............................. $.71 $.68 $.92 $1.14 $1.45 $.66 $1.01
Net income, fully diluted........................ .71 .68 .92 1.14 1.36 .66 .81
Book value per common share outstanding
at period end................................. 5.95 6.66 7.51 8.65 10.77 9.32 10.50
Shares outstanding at period end................. 15.2 15.2 15.5 15.8 15.9 15.9 16.3
Average fully diluted shares outstanding......... 15.5 15.6 15.8 16.1 18.4 16.2 23.6
BALANCE SHEET DATA - PERIOD END
Total assets..................................... $219.7 $240.9 $299.0 $400.8 $836.1 $435.5 $867.4
Notes payable (including convertible
subordinated debentures) ..................... 8.4 - 12.0 20.0 103.5 20.0 103.5
Total liabilities................................ 129.3 139.7 182.8 264.5 665.3 287.8 696.4
Shareholders' equity............................. 90.4 101.2 116.2 136.3 170.8 147.7 171.0
OTHER FINANCIAL DATA (b)
Operating earnings (c)........................... $11.1 $10.4 $14.5 $18.4 $23.6 $10.7 $15.9
Operating earnings per fully diluted common
share (a), (c)................................ .71 .67 .91 1.14 1.35 .66 .77
Shareholders' equity excluding unrealized
appreciation (depreciation) of fixed maturity
securities (d)................................ 90.4 101.2 116.2 136.3 160.6 147.7 181.9
Book value per common share outstanding
excluding unrealized appreciation of fixed
maturity securities (a), (d).................. 5.95 6.66 7.51 8.65 10.13 9.32 11.17
Ratio of debt to total capital (e):
As reported................................... .08X - .09X .13X .38X .12X .38X
Excluding unrealized appreciation (d)......... .08X - .09X .13X .39X .12X .36X
Adjusted statutory capital (at period end) (f)... $29.9 $30.5 $47.0 $58.0 $74.3 $59.0 $87.7
Adjusted statutory earnings (loss) (g)........... (3.3) (1.1) 4.3 11.3 (29.6) 8.2 7.4
Ratio of adjusted statutory earnings to
cash interest (h)............................. (i) (i) (i) 11.3X (i) 9.1X 2.1X
18
<PAGE>
<FN>
(a) All share and per share amounts have been restated to reflect a
three-for-two stock split paid on April 10, 1996.
(b) Amounts under this heading are included to assist the reader in analyzing
ATC's financial position and result of operations. Such amounts are not
intended to, and do not, represent net income, net income per share,
shareholders' equity or book value per share prepared in accordance with
GAAP.
(c) Represents net income excluding net realized gains (losses), net of income
taxes.
(d) Excludes the effects of reporting fixed maturities at fair value and
recording the unrealized gain or loss on such securities as a component of
shareholders' equity, net of tax and other adjustments, which ATC began to
do effective December 31, 1995. Such adjustments are in accordance with
SFAS 115, as described in the notes to the consolidated financial
statements included in ATC's Annual Report which is incorporated herein by
reference.
(e) Represents the ratio of notes payable (including convertible subordinated
debentures) to the sum of shareholders' equity and notes payable (including
convertible subordinated debentures).
(f) Includes: (1) statutory capital and surplus; (2) MSVR at periods ended
prior to December 31, 1992; and (3) AVR and IMR at periods ended on or
after December 31, 1992. Such statutory data reflect the combined data
derived from the annual statements of ATC's consolidated insurance
subsidiaries as filed with insurance regulatory agencies and prepared in
accordance with statutory accounting practices.
(g) Represents gains from operations before interest expense and income taxes
of ATC's consolidated insurance subsidiaries as reported for statutory
accounting purpose plus income before interest expense and income taxes of
all non-life companies.
(h) Represents the ratio of adjusted statutory earnings to cash interest. Cash
interest includes interest of ATC and its consolidated subsidiaries that is
required to be paid in cash.
(i) Not meaningful or not applicable.
</FN>
</TABLE>
19
S:\ACCTING\SECRPT\S-4ATC.896\ATCSFD3.696
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The summary unaudited pro forma consolidated financial information set
forth below was derived from the unaudited pro forma consolidated financial
statements of Conseco included elsewhere in this Proxy Statement/Prospectus. See
"Unaudited Pro Forma Consolidated Financial Statements of Conseco". The summary
unaudited pro forma consolidated financial information is based upon the
historical and pro forma consolidated financial statements and related notes
thereto of Conseco, LPG, CAF and ATC incorporated by reference in this Proxy
Statement/Prospectus. This information should be read in conjunction with such
materials and the unaudited pro forma consolidated financial statements
appearing elsewhere in this Proxy Statement/Prospectus.
The summary unaudited pro forma consolidated statement of operations
information for the year ended December 31, 1995, and the six months ended June
30, 1996, in the columns headed "Pro forma Conseco before the Merger" reflects
the following transactions, all of which have already occurred, as if such
transactions had occurred on January 1, 1995: (1) the acquisition and merger of
LPG (the "LPG Merger"); (2) the acquisition of all of the outstanding common
stock of CCP not previously owned by Conseco and related transactions (including
the repayment of the existing $250.0 million revolving credit agreement); (3)
the increase of Conseco's ownership in BLH to 90.5 percent, as a result of
purchases of common shares of BLH by Conseco and BLH during 1995 and the first
three months of 1996; (4) the issuance of 4.37 million shares of Conseco PRIDES
in January 1996; (5) the BLH tender offer for and repurchase of its 13 percent
senior subordinated notes due 2002 and related financing transactions completed
in March 1996 (the "BLH Tender Offer"); and (6) the debt restructuring of ALH in
the fourth quarter of 1995. The summary unaudited pro forma consolidated
statement of operations information for the year ended December 31, 1995, and
the six months ended June 30, 1996, in the columns headed "Pro forma for the
Merger", reflects further adjustments to the consolidated operating results for
Conseco as if the Merger had occurred on January 1, 1995. The summary unaudited
pro forma consolidated statement of operations information for the year ended
December 31, 1995, and the six months ended June 30, 1996, in the columns headed
"Pro forma for the Merger and other planned transactions" reflects further
adjustments to the consolidated operating results for Conseco as if the
following additional planned transactions had occurred on January 1, 1995: (1)
the call of Conseco's Series D Convertible Preferred Stock (the "Series D
Call"); (2) the acquisition of all of the outstanding common stock of ALH, not
previously owned by Conseco, and related transactions (the "ALH Transaction");
(3) the acquisition of all of the outstanding common stock of BLH not previously
owned by Conseco and related transactions (the "BLH Transaction"); (4) the ATC
Merger; and (5) the planned issuance of $350.0 million of 9.25 percent tax
deductible preferred securities ("Preferred Securities") and the use of the
proceeds to reduce outstanding debt (the "Preferred Securities Offering").
The summary unaudited pro forma consolidated balance sheet information
at June 30, 1996, in the column headed "Pro forma Conseco before the Merger"
reflects the application of certain pro forma adjustments for the LPG Merger,
which has already occurred. The summary unaudited pro forma consolidated balance
sheet information at June 30, 1996, in the columns headed "Pro forma for the
Merger" reflects further adjustments to the financial position of Conseco as if
the Merger had occurred on June 30, 1996. The summary unaudited pro forma
consolidated balance sheet information at June 30, 1996, in the columns headed
"Pro forma for the Merger and other planned transactions" reflects further
adjustments to the financial position of Conseco as if the following additional
planned transactions had occurred on June 30, 1996: (1) the Series D Call; (2)
the ALH Transaction; (3) the BLH Transaction; (4) the ATC Merger; and (5) the
Preferred Securities Offering.
20
<PAGE>
The summary unaudited pro forma financial information for the year
ended December 31, 1995, and as of and for the six months ended June 30, 1996,
is provided for informational purposes only and is not necessarily indicative of
the results of operations or financial condition that would have been achieved
had the transactions set forth above actually occurred as of the dates indicated
or of future results of operations or financial condition of Conseco. Conseco
anticipates cost savings and additional benefits as a result of completing the
transactions set forth above. Such benefits and any other changes that might
have resulted from management of the combined companies have not been included
as adjustments to the pro forma consolidated financial statements. The Merger
and the ATC Merger will be accounted for under the purchase method of
accounting. The ALH Transaction and the BLH Transaction will be accounted for
using the step acquisition method of accounting.
<TABLE>
<CAPTION>
Year ended December 31, 1995 Six months ended June 30, 1996
-------------------------------------- ---------------------------------------
Pro forma for Pro forma for
Pro forma the Merger Pro forma the Merger
Conseco Pro forma and other Conseco Pro forma and other
before the for the planned before the for the planned
Merger Merger transactions Merger Merger transactions
------ ------ ------------ ------ ------ ------------
(Amounts in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Insurance policy income........................ $1,752.8 $2,034.9 $2,308.5 $ 897.2 $1,043.8 $1,230.7
Investment activity:
Net investment income...................... 1,457.8 1,503.0 1,531.2 719.0 744.6 767.1
Net trading income (losses) ............... 2.5 2.5 2.5 (7.3) (7.3) (7.3)
Net realized gains ....................... 203.9 203.8 222.0 14.4 14.4 19.0
Total revenues................................. 3,478.7 3,806.0 4,125.9 1,684.0 1,856.2 2,070.2
Interest expense on notes payable.............. 132.9 170.0 157.9 62.2 80.8 77.3
Total benefits and expenses.................... 2,981.8 3,289.0 3,559.8 1,417.6 1,572.9 1,759.7
Income before income taxes, minority interest
and extraordinary charge................... 496.9 517.0 566.1 266.4 283.3 310.5
Income before extraordinary charge............. 231.0 241.5 335.2 140.5 150.5 185.9
PER SHARE DATA
Income before extraordinary charge, primary.... $3.18 $3.47 $3.31 $1.93 $2.12 $1.82
Income before extraordinary charge, fully
diluted.................................... 3.04 3.07 3.14 1.81 1.87 1.74
Book value per common share outstanding
at period end.............................. 22.82 23.71 28.09
Shares outstanding at period end............... 56.8 59.5 84.9 58.2 60.9 86.1
Average fully diluted shares outstanding....... 76.0 78.7 100.4 77.8 80.5 102.2
BALANCE SHEET DATA - PERIOD END
Total assets................................... $22,993.7 $24,388.7 $25,927.2
Notes payable for which Conseco is directly
liable..................................... 888.7 1,478.2 2,146.5
Notes payable of BLH, not direct obligations
of Conseco................................. 297.9 297.9 -
Notes payable of Partnership entities, not
direct obligations of Conseco.............. 277.1 277.1 -
Total liabilities.............................. 20,843.0 22,122.3 22,798.7
Minority interest.............................. 285.8 285.8 93.2
Shareholders' equity .......................... 1,864.9 1,980.6 3,035.3
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31, 1995 Six months ended June 30, 1996
--------------------------------------- ---------------------------------------
Pro forma for Pro forma for
Pro forma the Merger Pro forma the Merger
Conseco Pro forma and other Conseco Pro forma and other
before the for the planned before the for the planned
Merger Merger transactions Merger Merger transactions
------ ------ ------------ ------ ------ ------------
(Amounts in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA (a)
Premiums collected (b)......................... $3,671.8 $3,953.9 $4,227.9 $1,781.7 $1,928.3 $2,115.2
Operating earnings (c)......................... 203.4 214.0 281.8 127.4 137.4 169.9
Operating earnings per fully diluted
common share (c)........................... 2.68 2.72 2.61 1.64 1.71 1.58
Shareholders' equity excluding unrealized
appreciation (depreciation) of fixed
maturity securities (d).................... 1,921.3 2,037.0 3,091.7
Book value per common share outstanding,
excluding unrealized appreciation
(depreciation) of fixed maturity
securities (d)............................. 23.79 24.64 28.74
Ratio of debt for which Conseco is directly
liable to total capital of Conseco only (e):
As reported............................. 0.32X .43X .41X
Excluding unrealized appreciation
(depreciation) (d).................... 0.32X .42X .40X
Excluding unrealized appreciation
(depreciation) and assuming conversion
of ATC's Convertible Subordinated
Debentures into Conseco Common
Stock (d)............................. .36X
Adjusted statutory capital (at period end) (f). $1,230.8 $1,319.3 $1,671.4 $1,228.6 $1,328.1 $1,702.8
Adjusted statutory earnings (g)................ 401.9 430.7 442.0 212.8 233.9 260.1
Ratio of adjusted statutory earnings to cash
interest (h)............................... 3.94X 3.02X 2.70X 4.39X 3.46X 3.25X
<FN>
(a) Amounts under this heading are included to assist the reader in
analyzing Conseco's pro forma financial position and pro forma results
of operations. Such amounts are not intended to, and do not, represent
pro forma insurance policy income, pro forma net income, pro forma net
income per share, pro forma shareholders' equity or pro forma book value
per share prepared in accordance with GAAP.
(b) Includes premiums received from annuities and universal life policies,
which are not reported as revenues under GAAP.
(c) Represents pro forma income before extraordinary charge, excluding net
trading income (net of income taxes), net realized gains (less that
portion of change in future policy benefits, amortization of cost of
policies purchased and cost of policies produced and income taxes
relating to such gains) and restructuring activities (net of income
taxes).
(d) Excludes the effect of reporting fixed maturities at fair value and
recording the unrealized gain or loss on such securities as a component
of shareholders' equity, net of tax and other adjustments, which Conseco
began to do in 1992. Such adjustments are in accordance with SFAS 115,
as described in the notes to the consolidated financial statements
included in Conseco's Annual Report which is incorporated herein by
reference.
(e) Represents the ratio of pro forma notes payable for which Conseco is
directly liable to the sum of pro forma shareholders' equity, pro forma
notes payable for which Conseco is directly liable and (in the case of
the column headed "Pro forma for the Merger and other planned
transactions") minority interest.
(f) Includes: (1) statutory capital and surplus; (2) AVR and IMR; and (3) the
portion of surplus debentures carried by the life companies as a
liability to Conseco. Such statutory data reflect the combined data
derived from the annual statements of Conseco's pro forma life insurance
subsidiaries, as filed with insurance regulatory agencies and prepared in
accordance with statutory accounting practices.
22
<PAGE>
(g) Represents gains from operations before interest expense (except interest
on annuities and financial products) and income taxes of Conseco's pro
forma life insurance subsidiaries as reported for statutory accounting
purposes plus income before interest expense and income taxes of
Conseco's pro forma non-life subsidiaries.
(h) Represents the pro forma ratio of adjusted statutory earnings to cash
interest. Cash interest includes interest, except interest on annuities
and financial products, of Conseco and its pro forma subsidiaries that is
required to be paid in cash.
</FN>
</TABLE>
23
<PAGE>
COMPARATIVE UNAUDITED PER SHARE DATA OF CONSECO AND CAF
The following table sets forth selected historical per share data of
Conseco, LPG, CAF and ATC and corresponding pro forma and pro forma equivalent
per share amounts for the year ended December 31, 1995, and as of and for the
six months ended June 30, 1996, giving effect to the LPG Merger, the Merger, the
ATC Merger, the Series D Call, the ALH Transaction, the BLH Transaction and the
Preferred Securities Offering. Pro forma equivalent amounts are presented
assuming that: (1) each share of CAF Common Stock is exchanged for $30 in cash
and .1517 shares of Conseco Common Stock in the Merger; (2) each share of BLH
Common Stock, not previously owned by Conseco, is exchanged for .615 shares of
Conseco Common Stock in the BLH Transaction; and (3) each outstanding share of
ATC Common Stock is exchanged for .7574 shares of Conseco Common Stock in the
ATC Merger. The information presented is derived from the consolidated financial
statements and related notes thereto included in Conseco's Annual Report, LPG's
Annual Report, CAF's Annual Report, ATC's Annual Report (all of which are
incorporated by reference herein) and the unaudited pro forma consolidated
financial statements of Conseco included elsewhere in this Proxy
Statement/Prospectus. The information should be read in conjunction with such
materials. See "Unaudited Pro Forma Consolidated Financial Statements of
Conseco". The pro forma financial information is provided for informational
purposes only and is not necessarily indicative of the actual results that would
have been achieved had the above transactions been consummated at the beginning
of the periods presented, or of future results.
<TABLE>
<CAPTION>
Year ended Six months
December 31, ended June 30,
1995 1996
---- ----
<S> <C> <C>
Net income (loss) before extraordinary charge per fully diluted common share:
Historical:
Conseco.................................................................................. $ 4.26 $ 1.88
LPG.................................................................................... (.49) .56
CAF...................................................................................... 2.64 1.55
ATC...................................................................................... 1.36 .81
Pro forma:
Conseco before the Merger................................................................ 3.04 1.81
Adjusted for the Merger.................................................................. 3.07 1.87
Further adjusted for the ATC Merger and other planned transactions....................... 3.14 1.74
Equivalent for one share of CAF Common Stock (a)......................................... .48 .26
Dividends per common share:
Historical:
Conseco.................................................................................. $ .093 $ .040
LPG...................................................................................... .110 .060
CAF...................................................................................... .360 .200
ATC...................................................................................... - -
Pro forma:
Conseco before the Merger................................................................ .093 .040
Adjusted for the Merger.................................................................. .093 .040
Further adjusted for the ATC Merger and other planned transactions....................... .093 .040
Equivalent for one share of CAF Common Stock (a)......................................... .014 .006
Book value per common share:
Historical:
Conseco.................................................................................. $17.68
LPG...................................................................................... 12.47
CAF...................................................................................... 16.83
ATC...................................................................................... 10.50
Pro forma:
Conseco before the Merger................................................................ 22.82
Adjusted for the Merger.................................................................. 23.71
Further adjusted for the ATC Merger and other planned transactions....................... 28.09
Equivalent for one share of CAF Common Stock (a)......................................... 4.26
<FN>
(a) Amounts presented as equivalent for one share of CAF Common Stock relate
only to the fractional share of Conseco Common Stock received in the Merger
and give no effect to the $30.00 in cash plus the Time Factor, if any,
received in the Merger.
</FN>
</TABLE>
24
S:\ACCTING\SECRPT\S-4CAP.896\PERSHAR3.CAP
<PAGE>
MARKET PRICE INFORMATION
Market prices for the shares of Conseco Common Stock and CAF Common
Stock are reported on the NYSE. The table below sets forth for the periods
indicated the high and low sale prices and the cash dividends paid per share of
Conseco Common Stock and CAF Common Stock. For current price information with
respect to the Conseco Common Stock and CAF Common Stock, shareholders are urged
to consult publicly available sources.
<TABLE>
<CAPTION>
Conseco Common Stock CAF Common Stock
---------------------- ------------------
High Low Dividends High Low Dividends
----- -------- ---------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
1994
First Quarter........................... $32 1/8 $26 9/16 $ 0.0625 $23 5/8 $21 1/2 $0.08
Second Quarter.......................... 29 1/16 23 3/16 0.0625 24 3/4 21 7/8 0.08
Third Quarter........................... 26 3/16 21 5/8 0.0625 23 3/4 20 7/8 0.08
Fourth Quarter.......................... 23 1/8 17 15/16 0.0625 23 21 3/8 0.08
1995
First Quarter........................... 24 5/16 16 1/4 0.0625 23 3/4 20 1/4 0.09
Second Quarter.......................... 23 5/16 19 9/16 0.0625 24 1/4 19 7/8 0.09
Third Quarter........................... 26 5/8 22 3/4 0.01 23 3/8 21 3/4 0.09
Fourth Quarter.......................... 31 9/16 25 7/16 0.01 22 5/8 19 5/8 0.09
1996
First Quarter........................... 36 5/16 29 7/8 0.01 26 3/4 21 1/4 0.10
Second Quarter.......................... 39 7/8 36 1/2 0.02 26 1/8 23 5/8 0.10
Third Quarter (through September 17,
1996)................................... 47 1/8 35 1/4 0.02 35 3/8 23 3/4 0.10
</TABLE>
The information set forth in the table below presents: (1) the closing
price for shares of Conseco Common Stock and CAF Common Stock on the NYSE on
August 23, 1996, the last day on which trading occurred prior to the public
announcement of the Merger Agreement and on ________________, 1996, the last
full trading day for which information was available prior to the mailing of the
Proxy Statement/Prospectus and (2) the "Equivalent Per Share Price" (as
hereinafter defined) of CAF Common Stock on August 23, 1996 and _____________,
1996. The "Equivalent Per Share Price" of CAF Common Stock represents the sum of
(A) $30.00 plus (B) the closing price per share of Conseco Common Stock reported
on the NYSE, multiplied by $6.50 and divided by the Trading Value ($40.86 and
$_______ assuming consummation of the Merger had occurred on August 23, 1996 and
_________, 1996, respectively). The Equivalent Per Share Price is not the same
as the Merger Consideration. The amount and value of the Merger Consideration to
be received by holders of the CAF Common Stock can be determined only at the
date the Merger is consummated. See "The Merger Agreement -- Conversion of
Shares; Exchange of Stock Certificates; No Fractional Amounts."
<TABLE>
<CAPTION>
CAF
Conseco CAF Common Stock
Common Common Equivalent Per
Per Share Price Stock Stock Share Price
--------------- ----- ----- -----------
<S> <C> <C> <C>
August 23, 1996................................. $42.00 $25.00 $36.68
___________, 1996...............................
</TABLE>
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
25
<PAGE>
Listing on the NYSE of the shares of Conseco Common Stock issuable in
connection with the Merger is a condition to consummation of the Merger.
Conseco and CAF shareholders are urged to obtain a current market
quotation for the Conseco Common Stock and the CAF Common Stock. No assurance
can be given as to the future prices of, or markets for, Conseco Common Stock or
CAF Common Stock.
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
26
<PAGE>
INFORMATION CONCERNING CONSECO AND THE MERGER SUB
Background
Conseco is a financial services holding company engaged primarily in
the development, marketing and administration of annuity, individual health
insurance and individual life insurance products. Conseco's earnings result
primarily from operating life insurance companies and providing investment
management, administrative and other fee-based services to affiliated businesses
as well as non-affiliates. Conseco's operating strategy is to consolidate and
streamline management and administrative functions, to realize superior
investment returns through active asset management and to focus resources on the
development and expansion of profitable products and strong distribution
channels.
On August 2, 1996, the Company completed the LPG Merger and LPG became
a wholly-owned subsidiary of Conseco. A total of 16.3 million shares of the
Conseco Common Stock were issued in connection with the LPG Merger, and Conseco
assumed notes payable of LPG of $249.5 million. The subsidiaries of LPG sell a
diverse portfolio of universal life insurance and, to a lesser extent, annuity
products to individuals.
Conseco currently holds major ownership interests in the following life
insurance businesses: (1) BLH, an NYSE-listed company in which Conseco currently
holds a 90.5 percent ownership interest (and which is the parent company of
Bankers Life and Casualty Company ("Bankers Life")); (2) ALH, formerly The
Statesman Group, Inc., in which Conseco holds a 37 percent ownership interest;
(3) Great American Reserve Insurance Company ("Great American Reserve") and
Beneficial Standard Life Insurance Company ("Beneficial Standard"), in which
Conseco has had an ownership interest since their acquisition by Conseco Capital
Partners, L.P. and which became wholly-owned subsidiaries in August 1995; (4)
the subsidiaries of LPG, which are now wholly-owned subsidiaries of Conseco,
including Philadelphia Life Insurance Company ("Philadelphia Life"),
Massachusetts General Life Insurance Company ("Massachusetts General Life") and
Lamar Life Insurance Company ("Lamar Life"); and (5) Bankers National Life
Insurance Company ("Bankers National"), National Fidelity Life Insurance Company
("National Fidelity") and Lincoln American Life Insurance Company ("Lincoln
American"), all of which are wholly owned by Conseco and which have profitable
blocks of in-force business, although new product sales are currently not being
pursued. BLH and its subsidiaries are collectively referred to hereinafter as
BLH.
Life Insurance Operations
Conseco's insurance operations are conducted through three segments:
(1) senior market operations, consisting of the activities of BLH; (2) annuity
operations, consisting of the activities of Great American Reserve and
Beneficial Standard; and (3) life insurance operations, consisting of the
activities of Philadelphia Life, Massachusetts General Life and Lamar Life, as
well as National Fidelity, Bankers National and Lincoln American.
Senior Market Operations. BLH, with total assets of approximately $4.9
billion at June 30, 1996, markets health and life insurance and annuity products
primarily to senior citizens through approximately 200 branch offices and
approximately 3,200 career agents. Most of BLH's agents sell only BLH policies.
Approximately 56 percent of the $1,513.8 million of total premiums and annuity
deposits collected by BLH in 1995 (and approximately 59 percent of the $757.9
million of total premiums and annuity deposits collected in the first six months
of 1996) was from the sale of individual health insurance products, principally
Medicare supplement and long-term care policies. BLH believes that its success
in the individual health insurance market is attributable in large part to its
career agency force, which
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
27
<PAGE>
permits one-on-one contacts with potential policyholders and builds loyalty to
BLH among existing policyholders. Its efficient and highly automated claims
processing system is designed to complement its personalized marketing strategy
by stressing prompt payment of claims and rapid response to policyholder
inquiries.
Annuity Operations. The annuity companies, with total assets of
approximately $5.5 billion at June 30, 1996, market, issue and administer
annuity, life and employee benefit-related insurance products through two
cost-effective distribution channels: (1) approximately 3,000 educator market
specialists, who sell tax-qualified annuities and certain employee
benefit-related insurance products primarily to school teachers and
administrators; and (2) approximately 9,000 professional independent producers,
who sell various annuity and life insurance products aimed primarily at the
retirement market. Approximately 87 percent of the $709.8 million of total
premiums and annuity deposits collected by the annuity companies in 1995 (and
approximately 88 percent of the $347.5 million of total premiums and annuity
deposits collected in the first six months of 1996) was from the sale of annuity
products. This segment will include ALH after its acquisition by Conseco. ALH,
with total assets of approximately $6.1 billion at June 30, 1996, is engaged
primarily in the development, marketing, underwriting, issuance and
administration of annuity and life insurance products. ALH markets those
products through a general agency and insurance brokerage system comprised of
approximately 25,000 independent licensed agents. Approximately 91 percent of
the $825.6 million of total premiums and annuity deposits collected by ALH in
1995 (and approximately 91 percent of the $358.7 million of total premiums and
annuity deposits collected in the first six months of 1996) was from the sale of
deferred annuities.
Life Insurance Operations. Life insurance operations include the
activities of Philadelphia Life, Massachusetts General Life and Lamar Life,
beginning with their acquisition in the third quarter of 1996. These companies
distribute universal life insurance products using two primary marketing
systems, the client company system and the regional director system, comprising
a total of approximately 25,000 professional independent producers.
Approximately 74 percent of the $497.3 million of total insurance premiums and
annuity deposits collected by LPG in 1995 (and approximately 72 percent of the
$280.1 million of total insurance premiums and annuity deposits collected in the
first six months of 1996) was from the sale of life insurance products,
primarily universal life insurance. Segment activities also include Conseco's
other wholly owned life insurance subsidiaries--Bankers National Life, National
Fidelity Life and Lincoln American Life--which have profitable in-force blocks
of annuity and life products, but do not currently market their products to new
customers.
Fee-Based Operations
Conseco's subsidiaries provide various services to affiliated and
unaffiliated clients. Conseco Capital Management, Inc. managed approximately $28
billion of invested assets at June 30, 1996 including $17.2 billion of assets of
affiliated companies. Marketing Distribution Systems Consulting Group, Inc.
provides marketing services to financial institutions related to the
distribution of insurance and investment products. Conseco Risk Management, Inc.
distributes property and casualty insurance products as an independent agency.
Conseco Mortgage Capital, Inc. originates and services mortgages. Total fees
from affiliates and nonaffiliates were $69.2 million and $54.3 million for 1995
and the first six months of 1996, respectively. To the extent that these
services are provided to entities that are included in the financial statements
on a consolidated basis, the intercompany fees are eliminated in consolidation.
Earnings in this segment increase when Conseco adds new clients (either
affiliated or unaffiliated) and when Conseco increases the fee-producing
activities conducted for clients. Effective January 1, 1996, Conseco's
subsidiaries entered into new service agreements with Conseco's service
subsidiaries. Such new agreements had the effect of increasing revenues from
fee-based operations by $21.9 million in the first six months of 1996, but had
no effect on consolidated net income.
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
28
<PAGE>
In addition to Conseco's fee-based operations, Conseco Private Capital
Group, Inc. makes direct strategic investments in growing companies, providing
these firms with the capital or financing they need to continue their growth,
make acquisitions or realize the potential of their businesses.
Other Pending Acquisitions by Conseco
ATC. On August 25, 1996, Conseco and ATC entered into the ATC Merger
Agreement pursuant to which ATC will be merged into Conseco. Under the ATC
Merger Agreement, each of the approximately 18.0 million issued and outstanding
shares of ATC Common Stock would be converted into the right to receive a
fraction of a share of Conseco Common Stock having a value between $32.00 and
$35.03, calculated as follows: (1) if the Conseco Share Price (as defined below)
is greater than or equal to $42.25 per share and less than or equal to $46.25
per share, .7574 of a share of Conseco Common Stock, (2) if the Conseco Share
Price is less than $42.25 per share, the fraction (rounded to the nearest
ten-thousandth) of a share of Conseco Common Stock determined by dividing $32.00
by the Conseco Share Price or (3) if the Conseco Share Price is greater than
$46.25 per share, the fraction (rounded to the nearest ten-thousandth) of a
share of Conseco Common Stock determined by dividing $35.03 by the Conseco Share
Price. The "Conseco Share Price" shall be equal to the average of the closing
prices of the Conseco Common Stock on the NYSE Composite Transactions Reporting
System for the ten trading days immediately preceding the second trading day
prior to the date of the ATC Merger. For a description of the business of ATC,
see the description set forth in ATC's Annual Report, which is incorporated
herein by reference.
ALH. On August 26, 1996, Conseco announced that it intends to acquire
each of the 7.1 million outstanding shares of ALH Common Stock not already owned
by Conseco for $23.00 in cash per share, or an aggregate of approximately $165
million in cash. Completion of the transaction is subject to approval by the ALH
shareholders.
BLH. Conseco also announced on August 26, 1996 that it intends to merge
with BLH in a transaction in which each of the 4.7 million shares of BLH Common
Stock not already owned by Conseco would be converted into the right to receive
$25.00 in Conseco Common Stock.
Consummation of the Merger is not conditioned upon consummation by
Conseco of the other pending acquisitions. See "Unaudited Pro Forma Consolidated
Financial Statements of Conseco."
General Information Concerning Conseco and the Merger Sub
Conseco's and the Merger Sub's executive offices are located at 11825
North Pennsylvania Street, Carmel, Indiana 46032 and the telephone number for
Conseco and the Merger Sub is (317) 817-6100.
The Merger Sub, a wholly-owned subsidiary of Conseco, was formed for
the purpose of effecting the Merger. To date, the Merger Sub has not engaged in
any activities other than those incident to its organization and the
consummation of the Merger.
For a more detailed description of the business of Conseco, including
information concerning ALH and BLH, see the description set forth in Conseco's
Annual Report, which is incorporated herein by reference. For additional
information concerning LPG, see the description set forth in LPG's Annual
Report, which is incorporated herein by reference.
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
29
<PAGE>
INFORMATION CONCERNING CAF
CAF, through its insurance subsidiaries, underwrites, markets and
distributes individual and group supplemental health and accident insurance. CAF
was organized as an Ohio corporation in 1970. CAF's primary insurance subsidiary
is Capitol American Life Insurance Company ("CALI"), an Arizona corporation
organized in 1970. CALI is the sole shareholder of CAF's other two principal
operating subsidiaries, Frontier National Life Insurance Company, an Ohio
corporation organized in 1986, and Capitol National Life Insurance Company, an
Ohio corporation organized in 1984. CAF's primary product is cancer insurance
and its other products are accident insurance, intensive care insurance, heart
care insurance and hospital indemnity insurance. CAF operates in 47 states, the
District of Columbia, Puerto Rico and the U.S. Virgin Islands.
For a more detailed description of the business of CAF, see the
description set forth in CAF's Annual Report, which is incorporated herein by
reference.
CAF's executive offices are located at 1001 Lakeside Avenue, Cleveland,
Ohio 44114 and its telephone number is (216) 696-6400.
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
30
<PAGE>
CAF SHAREHOLDER MEETING
General
This Proxy Statement/Prospectus is being furnished to holders of CAF
Common Stock in connection with the solicitation of proxies by the CAF Board of
Directors for use at the CAF Special Meeting to be held on ___________, 1996 at
_____________________, Cleveland, Ohio, commencing at 10:00 a.m., local time,
and at any adjournment or postponement thereof.
This Proxy Statement/Prospectus also constitutes the Prospectus of
Conseco filed with the Commission as part of the Registration Statement under
the Securities Act relating to the shares of Conseco Common Stock issuable in
connection with the Merger. This Proxy Statement/Prospectus and the accompanying
form of proxy are first being mailed to shareholders of CAF on or about
_____________, 1996.
Matters to be Considered at the CAF Special Meeting
At the CAF Special Meeting, holders of shares of CAF Common Stock will
consider and vote upon (1) a proposal to authorize and adopt the Merger
Agreement and the transactions contemplated thereby and (2) such other business
as may properly come before the CAF Special Meeting or any adjournments or
postponements thereof.
THE CAF BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND RECOMMENDS THAT CAF SHAREHOLDERS VOTE FOR AUTHORIZATION AND
ADOPTION OF THE MERGER AGREEMENT. SEE "THE MERGER -- BACKGROUND OF THE MERGER"
AND "- CAF'S REASONS FOR THE MERGER; RECOMMENDATION OF THE CAF BOARD OF
DIRECTORS."
Holders of shares of CAF Common Stock who shall have effectively
dissented from the Merger will be entitled to receive the appraised value of
their shares under the Ohio Revised Code as a result of the Merger. See "The
Merger -- Rights of Dissenting Shareholders."
Voting at the CAF Special Meeting; Record Date; Quorum
The CAF Board of Directors has fixed ___________, 1996 as the CAF
Record Date. Accordingly, only holders of record of shares of CAF Common Stock
on the CAF Record Date will be entitled to notice of and to vote at the CAF
Special Meeting. As of the CAF Record Date, there were __________ shares of CAF
Common Stock outstanding and entitled to vote which were held by approximately
___________ holders of record. Each holder of record of shares of CAF Common
Stock on the CAF Record Date is entitled to cast, either in person or by
properly executed proxy, one vote per share on the Merger Agreement and the
other matters, if any, properly submitted for the vote of the CAF shareholders
at the CAF Special Meeting. The presence, in person or by properly executed
proxy, of the holders of stock representing a majority of the voting power of
all outstanding shares of the CAF Common Stock at the CAF Special Meeting is
necessary to constitute a quorum at the CAF Special Meeting.
The authorization and adoption by CAF of the Merger Agreement will
require the affirmative vote of the holders of at least a majority of the
outstanding shares of CAF Common Stock entitled to vote thereon. Shares subject
to abstentions will be treated as shares that are present at the CAF Special
Meeting for purposes of determining the presence of a quorum but as unvoted for
purposes of determining the number of shares voting on a particular proposal. If
a broker or other nominee holder
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indicates on the proxy card that it does not have discretionary authority to
vote the shares for which it is the holder of record on a particular proposal,
those shares will be treated as shares that are present at the CAF Special
Meeting for purposes of determining the presence of a quorum but will not be
considered as voted for purposes of determining the number of CAF shareholders
that have voted for or against the proposal. Accordingly, abstentions and
broker non-votes will have the same practical effect as a vote against the
approval and adoption of the Merger Agreement or on any other matter submitted
to the CAF shareholders which requires a percentage of the total number of
outstanding shares for approval.
As of the CAF Record Date, the directors and executive officers (as a
group, _____ persons) and their affiliates were entitled to vote shares (or
approximately _____ percent) of CAF Common Stock. As of such date, Barry J.
Hershey and Connie Hershey were entitled to vote _________ shares of CAF Common
Stock, or approximately ____ percent of the number of shares of CAF Common Stock
outstanding and entitled to vote as of such date. Barry J. Hershey and Connie
Hershey are obligated, pursuant to the Shareholders Agreement, to vote their
shares in favor of adoption of the Merger Agreement at the CAF Special Meeting.
For information with respect to the beneficial ownership of shares of CAF Common
Stock by each of CAF's directors and all directors and officers of CAF as a
group, and each person known to CAF to be the beneficial owner of more than five
percent of the outstanding shares of CAF Common Stock, see Item 12 of CAF's
Annual Report (which incorporates portions of CAF's proxy statement dated March
29, 1996), which is incorporated by reference. Subsequent to the date of CAF's
proxy statement dated March 29, 1996, the beneficial ownership of the following
persons who own more than five percent of the outstanding CAF Common Stock has
changed and is now as set forth below:
Number of Percent
Shares of class (1)
Debra S. Guren (2) 1,826,490 10.4
Loren W. Hershey (3) 2,515,795 14.4
- --------
(1) Based on 17,489,190 shares of CAF Common Stock outstanding as of September
16, 1996.
(2) Includes 711,680 shares of CAF Common Stock with respect to which Mrs. Gure
exercises shared voting power and 10,300 shares of CAF Common Stock held by
Peter Guren, Mrs. Guren's husband.
(3) Includes 626,220 shares of CAF Common Stock with respect to which Mr. Loren
W. Hershey exercises shared voting power; 100,000 shares of CAF Common Stock
held by Birgit Hershey, Mr. Loren W. Hershey's wife; 88,675 shares of CAF Common
Stock held by Alexander L. Hershey, Mr. Loren W. Hershey's adult son; 88,675
shares of CAF Common Stock held by Samuel B. Hershey, Mr. Loren W. Hershey's
adult son; and 90,000 shares of CAF Common Stock held in a trust, of which
Alexander L. Hershey is a trustee.
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Proxies; Revocation of Proxies
Shares of CAF Common Stock represented by properly executed proxies
received at or prior to the CAF Special Meeting that have not been revoked will
be voted at the CAF Special Meeting in accordance with the instructions
contained therein. Shares of CAF Common Stock represented by properly executed
proxies for which no instruction is given will be voted FOR authorization and
adoption of the Merger Agreement. CAF shareholders are requested to complete,
sign, date and return promptly the enclosed proxy card in the postage-prepaid
envelope provided for this purpose to ensure that their shares are voted. A
shareholder may revoke a proxy at any time prior to the vote on the Merger
Agreement by submitting a later-dated proxy with respect to the same shares,
delivering written notice of revocation to the Secretary of CAF at any time
prior to such vote or attending the CAF Special Meeting and voting in person.
Mere attendance at the CAF Special Meeting will not itself revoke a proxy.
If the CAF Special Meeting is postponed or adjourned for any reason, at
any subsequent reconvening of the CAF Special Meeting all proxies will be voted
in the same manner as such proxies would have been voted at the original
convening of the CAF Special Meeting (except for any proxies that have
theretofore effectively been revoked or withdrawn), notwithstanding that they
may have been effectively voted on the same or any other matter at a previous
meeting.
At the date of this Proxy Statement/Prospectus, the CAF Board of
Directors does not know of any business to be presented at the CAF Special
Meeting other than as set forth in the notice accompanying this Proxy
Statement/Prospectus. If any other matters are properly presented at the CAF
Special Meeting for consideration, including among other things, consideration
of a motion to adjourn the meeting to another time and/or place (including,
without limitation, for the purpose of soliciting additional proxies), the
persons named in the enclosed form of proxy and acting thereunder will have
discretion to vote on such matters in accordance with their best judgment.
Proxy Solicitation. CAF will bear the cost of soliciting proxies from
its shareholders. Additionally, Conseco and CAF will each bear one-half the cost
of preparing and mailing this Proxy Statement/Prospectus and the preparation and
filing of the Registration Statement. In addition to solicitation by mail,
directors, officers and employees of CAF may solicit proxies by telephone,
special letter, telegram or otherwise. Such directors, officers and employees of
CAF will not be additionally compensated for such solicitation, but may be
reimbursed for out-of-pocket expenses incurred in connection therewith.
Brokerage firms, fiduciaries and other custodians who forward soliciting
material to the beneficial owners of shares of CAF Common Stock held of record
by them will be reimbursed for their reasonable expenses incurred in forwarding
such material.
CAF SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
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THE MERGER
Background of the Merger
The terms and conditions of the Merger were determined through
arm's-length negotiations between the managements and Boards of Directors of CAF
and Conseco. In determining the form of the transaction and the form and amount
of the consideration, numerous factors were considered by the Boards of
Directors of CAF and Conseco. See "-- Conseco's Reasons for the Merger" and "--
CAF's Reasons for the Merger; Recommendation of the CAF Board of Directors." The
following is a brief discussion of those negotiations and certain related
events.
In November 1995, Barry Hershey, a significant shareholder of CAF,
contacted DLJ (which had previously co-managed the initial public offering of
CAF Common Stock in 1992) to discuss the possibility of a sale of CAF. Mr.
Hershey asked DLJ representatives to review publicly available information
regarding CAF and to review strategic alternatives to maximize shareholder
value, including a possible sale of CAF. Mr. Hershey and his counsel met with
DLJ representatives in April 1996 and authorized DLJ to have exploratory
conversations with the senior management of certain companies to ascertain their
possible interest in acquiring CAF. Commencing in April 1996, DLJ had meetings
or discussions with senior management of seven companies to discuss whether
there was any interest in acquiring CAF. After such discussion, Conseco
indicated an interest at a price higher than the price indicated by any of the
other companies.
On June 3, 1996, Mr. Hershey met with his counsel, DLJ representatives
and Mr. Gunning to advise the Company of Mr. Hershey's interest in exploring the
possibility of a sale of the Company or other strategic alternatives and to
review DLJ's conversations with potential acquirors. Between June and August,
1996, Conseco discussed several proposals with DLJ regarding the purchase of
CAF, initially proposing $32.50 per share. DLJ discussed these proposals with
Mr. Hershey and advised Conseco that they were unacceptable.
On June 28, Mr. Hershey and his counsel met with Stephen C. Hilbert,
Chairman of the Board, President and Chief Executive Officer of Conseco, and
Rollin M. Dick, Executive Vice President and Chief Financial Officer of Conseco,
to discuss possible terms of a transaction in which Conseco would acquire CAF.
At that meeting Conseco offered to acquire the Company for $35.00 per share in
cash which was rejected by Mr. Hershey who proposed a $38.00 per share price
which was rejected by Conseco. Discussion continued in July and August on price
and terms. Mr. Hershey ultimately advised Conseco of his willingness to vote for
a sale of the Company as proposed by Conseco for $36.50 per share, consisting of
$30.00 of cash and $6.50 of Conseco stock in a transaction which would provide
the same consideration to all shareholders.
At the regular quarterly meeting of the Conseco Board of Directors held
on August 8, 1996, Mr. Hilbert and other members of Conseco's management
reviewed with the Board the discussions regarding a possible merger with CAF.
Information concerning CAF had been provided to the Directors prior to the
meeting. After the Board considered and discussed the proposed acquisition of
CAF and the proposed acquisitions of ATC, ALH and BLH, it was agreed that
management of Conseco would continue to pursue a possible acquisition of CAF,
with the understanding that final approval of any transaction would be
considered at a special meeting of the Conseco Board of Directors.
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On August 11, 1996, the CAF Board of Directors held a telephonic
meeting to discuss the possibility of a transaction with Conseco. DLJ
representatives and Mr. Hershey and his counsel attended this meeting and
presented information on the proposed transaction with Conseco. After discussion
without either Mr. Hershey, his counsel or DLJ present, the Board of Directors
authorized management to enter into discussions with Conseco.
During the weeks of August 11 and 18, management of CAF and Conseco met
to conduct due diligence reviews and to negotiate the terms and conditions of
the Merger Agreement.
The Conseco Board of Directors met on August 23 to consider the
proposed merger. At the meeting, Conseco management reported on the due
diligence review undertaken by Conseco and its advisors and on the results of
the discussions to date with representatives of CAF and its legal and financial
advisors. The Conseco Board discussed the potential benefits to Conseco of an
acquisition of CAF. Management outlined for the Conseco Board the proposed terms
and conditions of the Merger Agreement. After reviewing and discussing the
merger proposal, the Conseco Board of Directors authorized management to execute
and deliver the Merger Agreement in the form presented at the meeting, with such
further changes as Conseco's management approved. See "-- Conseco's Reasons for
the Merger."
On August 25, 1996, at a special meeting of the CAF Board of Directors,
management, legal counsel and DLJ reviewed in detail the transaction with the
Board of Directors after which review the Board of Directors approved the
Merger. Mr. Hershey and his counsel attended a portion of the meeting prior to
the vote by the Board. The Merger Agreement and Shareholders Agreement were
executed that day. See "-- CAF's Reasons for the Merger; Recommendation of the
CAF Board of Directors."
Conseco's Reasons for the Merger
The Board of Directors of Conseco approved the Merger Agreement by a
unanimous vote at its August 23 meeting. In reaching its decision, the Conseco
Board considered information provided at the Board meeting, including, among
other things, (1) information concerning the financial performance and
condition, business operations and prospects of CAF, including an analysis of
possible cost savings and synergies, and a qualitative overview of the
individual business segments, (2) the potential long-term and short-term effect
of the transaction on Conseco's earnings per share, (3) the structure of the
proposed transaction, (4) the terms of the Merger Agreement and (5) the
presentation and recommendation made by the management of Conseco.
A principal strategic objective of Conseco since it commenced
operations in 1982 has been to acquire life and health insurance companies and
to increase their value by implementing management strategies to reduce costs
and improve administrative efficiency, centralize asset management, improve
marketing and distribution, eliminate unprofitable products and focus resources
on the development and expansion of profitable products. In furtherance of this
strategy, Conseco has completed 13 acquisitions of insurance companies and
related businesses since it commenced operations. Conseco believes that the
value and profitability of its existing insurance subsidiaries can be enhanced
as a result of the cross-selling opportunities presented by a company which
complements Conseco's existing product lines and distribution channels.
Conseco's operating strategy is to target selected markets which
provide significant growth potential and to focus its sales efforts on
profitable products which will provide predictable and diversified earnings
regardless of interest rate changes or other changes in the economic
environment. Conseco also seeks to be a major competitor in each of its targeted
markets and to develop strong, complementary
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distribution channels. Strategic acquisitions will be made by Conseco which are
consistent with this strategy and which enable Conseco to maintain its targeted
ratio of debt to total capital.
The Conseco Board of Directors believes that the insurance businesses
of Conseco and CAF complement each other. CAF's cancer insurance and other
supplemental health products will provide Conseco an opportunity to expand its
product portfolio. Completion of the Merger and Conseco's other pending
acquisitions would enable Conseco to be a major competitor in the senior market,
with more than 90,000 agents selling long term care insurance, Medicare
supplement insurance, cancer insurance, other supplemental health insurance,
universal life insurance and retirement annuity products. The addition of CAF's
distribution system would also provide Conseco additional opportunities to
cross-sell its current products. The Conseco Board of Directors also believes
that the Merger offers Conseco and CAF the opportunity to improve their
profitability and capitalization through the achievement of economies of scale,
the elimination of redundancies and the enhancement of market position. By
consolidating certain operations and eliminating expenses, Conseco expects to
achieve, over time, significant savings of operating costs. See "-- Conduct of
the Business of Conseco and CAF After the Merger."
CAF's Reasons for the Merger; Recommendation of the CAF Board of Directors
At the meeting CAF's Directors held on August 25, 1996, the Directors
of CAF unanimously determined that the Merger and the other transactions
contemplated by the Merger Agreement are fair to, and in the best interests of,
CAF and its shareholders.
In reaching their determination, the CAF Directors met on August 11,
1996 and August 25, 1996 and received presentations from CAF management and Mr.
Barry Hershey, its principal shareholder, as well as CAF's financial and legal
advisors. As part of those presentations, the CAF Directors considered the
proposed terms of the transaction, including the terms of the Merger Agreement
and the Shareholders Agreement, as well as the efforts made by DLJ and Mr.
Hershey to solicit other alternative transactions. In addition, in reaching
their determination, the Directors considered a number of factors, including (1)
information concerning the financial condition, results of operations and
prospects of CAF and Conseco, both together and in combination with ATC and upon
consummation of the acquisitions of the stock of ALH and BLH not already owned
by Conseco; (2) information concerning the potential effects of a combination of
CAF and Conseco, from both a financial and operational perspective; (3) the
historical and recent market prices of CAF Common Stock; (4) the historical and
recent market prices of Conseco Common Stock; (5) comparisons of the proposed
transaction to recent comparable transactions; (6) the opportunity of CAF
shareholders to receive both a substantial premium over the then-current market
price of CAF Common Stock and the ability of the CAF shareholders to continue as
shareholders in the combined company through the Conseco Common Stock to be paid
to them in the Merger; (7) the alternatives available to CAF, including the
likelihood that either remaining independent or pursuing a transaction involving
any other strategic partner would not result in greater value to CAF or its
shareholders; and (8) the opinion of DLJ, dated August 25, 1996, that the
consideration to be received by the CAF shareholders pursuant to the terms of
the Merger Agreement is fair to such holders from a financial point of view. In
view of the variety of factors considered in connection with their evaluation of
the Merger, the CAF Directors did not quantify or otherwise assign relative
weights to the specific factors considered in their determination, but instead
considered them as a totality in reaching their recommendation.
After careful consideration of the terms of the proposed transaction
and these factors, the CAF Directors believe that combining CAF's products and
sales networks into Conseco will enable Conseco to achieve combined cost savings
and increase combined sales to levels that would not be available to
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CAF on a stand-alone basis. As a result, the CAF Directors believe that the
Conseco proposal represents the maximum value that could reasonably by expected
to be achieved for CAF's shareholders in the near term.
THE DIRECTORS OF CAF HAVE UNANIMOUSLY APPROVED THE TERMS OF THE MERGER
AGREEMENT AND RECOMMEND THAT THE SHAREHOLDERS OF CAF VOTE FOR THE PROPOSAL TO
AUTHORIZE AND ADOPT THE MERGER AGREEMENT SET FORTH AS ITEM 1 ON THE PROXY CARD.
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Opinion of CAF's Financial Advisor
In its role as financial advisor to CAF, DLJ was asked by CAF to render its
opinion to the CAF Board as to the fairness, from a financial point of view, to
the shareholders of CAF of the Merger Consideration to be received by the
shareholders of CAF pursuant to the terms of the Merger Agreement. On August 25,
1996, DLJ delivered its written opinion (the "DLJ Opinion") to the effect that
as of the date of such opinion, and based upon and subject to the assumptions,
limitations and qualifications set forth in such opinion, the Merger
Consideration was fair, from a financial point of view, to the shareholders of
CAF.
A copy of the DLJ Opinion is attached hereto as Annex B. CAF shareholders
are urged to read the opinion in its entirety for assumptions made, procedures
followed, other matters considered and limits of the review by DLJ. The DLJ
Opinion was prepared for the CAF Board and is directed only to the fairness,
from a financial point of view, to the holders of CAF Common Stock and does not
constitute a recommendation to any shareholder as to how to vote at the CAF
Special Meeting.
The DLJ Opinion does not constitute an opinion as to the price at which the
Conseco Common Stock will actually trade at any time. The Merger Consideration
was determined in arm's-length negotiations between CAF and Conseco, in which
negotiations DLJ advised CAF. No restrictions or limitations were imposed by the
CAF Board upon DLJ with respect to the investigations made or the procedures
followed by DLJ in rendering its opinion.
In arriving at its opinion, DLJ reviewed the draft of August 24, 1996 of
the Merger Agreement and the exhibits thereto and the draft of August 20, 1996
of the Shareholders Agreement. DLJ also reviewed financial and other information
that was publicly available or furnished to it by CAF and Conseco, including
information provided during discussions with their respective managements.
Included in the information provided during discussions with the respective
managements were certain financial projections of CAF for the years ending
December 31, 1996 through December 31, 1998, and certain financial statements of
Conseco which are pro forma for the Merger and for certain other transactions
contemplated by Conseco for the year ended December 31, 1995 and the six months
ended June 30, 1996, and certain financial projections of Conseco which are pro
forma for the Merger and for certain other transactions contemplated by Conseco
for the years ending December 31, 1996 through December 31, 2005 prepared by the
management of Conseco. In addition, DLJ compared certain financial and
securities data of CAF and Conseco with certain financial and securities data of
various other companies whose securities are traded in public markets, reviewed
the historical stock prices and trading volumes of CAF Common Stock and Conseco
Common Stock, reviewed prices and premiums paid in other business combinations
and conducted such other financial studies, analyses and investigations as DLJ
deemed appropriate for purposes of rendering its opinion.
In rendering its opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
it from public sources, that was provided to it by CAF and Conseco or their
representatives, or that was otherwise reviewed by it. DLJ assumed that the
financial projections of CAF supplied to it were reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of CAF as to the future operating
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and financial performance of CAF. DLJ assumed that the pro forma financial
statements and pro forma financial projections of Conseco supplied to it were
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of the management of Conseco as to the historical pro forma
results of Conseco and future operating and financial performance of CAF and
Conseco. DLJ did not assume any responsibility for an independent evaluation of
CAF's and Conseco's assets or liabilities or for making any independent
verification of any of the information reviewed by it. DLJ relied as to all
legal matters on advice of counsel to CAF.
DLJ's opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to it as of,
the date of the DLJ Opinion. It should be understood that, although subsequent
developments may affect the DLJ Opinion, DLJ does not have any obligation to
update, revise or reaffirm its opinion.
The DLJ Opinion was based on receipt by the shareholders of CAF of Conseco
Common Stock with a value of $6.50 as part of the Merger Consideration as
contemplated by the Merger Agreement.
The following is a summary of the presentation made by DLJ to the CAF Board
at its August 25, 1996 meeting.
Transaction Analysis. DLJ reviewed publicly available information for
selected transactions involving the acquisition of accident and health insurance
companies since January 1, 1993 (the "Selected Transactions"). In reviewing
these transactions, several factors were considered, including: (i) the lack of
publicly available information for subsidiary and private company transactions
which represent a significant portion of the merger and acquisition activity;
and (ii) the lack of directly comparable transactions. The Selected Transactions
were not intended to represent the complete list of accident and health
insurance company transactions which have occurred. Rather, such transactions
included only selected recent transactions involving accident and health
insurance companies. Such transactions were used in this analysis because the
companies involved were deemed by DLJ to operate in similar businesses or have
similar financial characteristics to CAF and Conseco.
DLJ reviewed the consideration paid in such transactions in terms of the
price paid for the common stock plus the amount of debt and preferred stock
assumed repaid or redeemed in such transactions (the "Transaction Value") as a
multiple of statutory operating earnings for the latest twelve months ("LTM") or
last fiscal year ("LFY") ended prior to the announcement of such transactions
and as a multiple of statutory capital and surplus as of the end of the last
fiscal quarter ("LFQ") or LFY ended prior to the announcement of such
transactions. In analyzing acquisitions of accident and health insurance
companies, the purchase price paid may be described in terms of multiples of the
Transaction Value to statutory operating earnings and to statutory capital and
surplus. Variances in multiples for different transactions may reflect such
considerations as the consistency, quality and growth of earnings and the
company's capitalization, asset quality and return on surplus. Since statutory
operating earnings and statutory capital and surplus do not reflect the cost of
a company's debt or preferred stock financing, which are usually at the holding
company level rather than the insurance company level, analyses of multiples of
statutory operating earnings and statutory capital and surplus are usually based
on Transaction Value which includes the cost of
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assuming, repaying or redeeming such debt or preferred stock financing.
Comparing the multiples of Transaction Value to be paid for CAF by Conseco to
the statutory operating earnings and statutory capital and surplus of CAF with
the multiples paid in other transactions indicates whether the valuation being
placed on CAF is within the range of values paid for other accident and health
insurance companies.
The low, average and high multiples of Transaction Value to statutory
operating earnings for the LTM or LFY ended prior to the announcement of the
Selected Transactions were 5.1x, 17.3x and 36.2x, respectively. Based upon the
Merger Consideration, the implied multiple of Transaction Value to CAF's
statutory operating earnings for the LTM ended June 30, 1996 was 46.9x. This
multiple is greater than the high multiple of the Selected Transactions. The
low, average and high multiples of Transaction Value to statutory capital and
surplus as of the end of the LFQ or LFY ended prior to the announcement of the
Selected Transactions were 1.3x, 2.1x and 5.3x, respectively. Based on the
Merger Consideration, the implied multiple of Transaction Value to CAF's
statutory capital and surplus as of June 30, 1996 was 6.9x. This multiple is
greater than the high multiple of the Selected Transactions.
Additionally, DLJ reviewed the consideration paid in the Selected
Transactions in terms of the price paid for the common stock in the Selected
Transactions as a multiple of GAAP operating earnings for the LTM ended prior to
the announcement of such transactions and as a multiple of shareholders' equity
as of the end of the LFQ ended prior to the announcement of such transactions.
In analyzing acquisitions of accident and health insurance companies, the
purchase price paid may be described in terms of multiples of the price paid for
common stock to GAAP operating earnings and to shareholders' equity. Variances
in multiples for different transactions may reflect such considerations as the
consistency, quality and growth of earnings and the company's capitalization,
asset quality and return on capital. Since GAAP operating earnings and
shareholders' equity already reflect the cost of a company's debt or preferred
stock financing, analyses of multiples of GAAP operating earnings or
shareholders' equity are usually based on the price paid for the company's
common stock, which excludes the cost of assuming, repaying or redeeming such
debt or preferred stock financing. Comparing the multiples of the price offered
to be paid for the CAF Common Stock by Conseco to the GAAP operating earnings
and shareholders' equity of CAF with multiples paid by acquirers in other
transactions indicates whether the valuation being placed on CAF is within the
range of values paid for other accident and health insurance companies.
The low, average and high multiples of price paid for common stock to LTM
GAAP operating earnings for the Selected Transactions were 10.8x, 13.4x and
16.9x, respectively. Based on an offer price of $36.50 per share, the implied
multiple of price paid for common stock to CAF's GAAP operating earnings for the
LTM ended June 30, 1996 was 12.0x. This multiple is greater than the low
multiple of the Selected Transactions. The low, average and high multiples of
price paid for common stock to shareholders' equity as of the end of the LFQ
ended prior to the announcement of the Selected Transactions were 1.8x, 2.2x and
2.8x, respectively. Based on an offer price of $36.50 per share, the implied
multiple of price paid for common stock to CAF's shareholders' equity as of June
30, 1996 was 2.2x. This multiple is equal to the average multiple of the
Selected Transactions.
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DLJ also determined the percentage premium of the offer prices (represented
by the purchase price per share in cash transactions and the price of the
constituent securities times the exchange ratio in the case of stock-for-stock
mergers) over the public market trading prices one day, one week and one month
prior to the announcement date of selected life insurance and accident and
health insurance company transactions since January 1, 1993 where the acquired
company's stock was publicly traded (the "Selected Public Transactions"). The
average premiums of offer prices to public market trading prices one day, one
week and one month prior to the announcement date for the Selected Public
Transactions were 18.8%, 20.0% and 25.7%, respectively. An offer price of $36.50
per share represents premiums to the trading prices of CAF Common Stock one day,
one week and one month prior to August 20, 1996 of 46.0%, 45.3% and 49.0%,
respectively. These premiums are greater than the average premiums of the
Selected Public Transactions.
Public Company Analysis. To provide comparative market information, DLJ
compared selected historical and projected operating and financial ratios for
CAF to the corresponding data and ratios of selected accident and health
insurance companies whose securities are publicly traded. Such companies
included American Heritage Life Insurance Company, Delphi Financial Group, Inc.,
Penn Treaty American Corp. and Pioneer Financial Services, Inc. (the "Selected
Small Capitalization Companies") and AFLAC, Inc., PennCorp Financial Group,
Inc., Provident Companies and UNUM Corp. (the "Selected Large Capitalization
Companies"). As of August 20, 1996, the average aggregate equity market
capitalizations of the Selected Small Capitalization Companies and the Selected
Large Capitalization Companies were $372 million and $3.9 billion, respectively.
As of August 20, 1996, CAF's aggregate equity market capitalization was $438
million.
Such analysis included, among other things, the ratios of stock price to
GAAP operating earnings per share ("EPS") for the LTM ended June 30, 1996,
estimated GAAP operating EPS for 1996 and 1997 (as estimated by research
analysts and compiled by Institutional Brokers Estimating Service for the
Selected Small Capitalization Companies and the Selected Large Capitalization
Companies and management's projections for CAF) and shareholders' equity per
share as of June 30, 1996, as well as the ratios of the aggregate equity market
capitalization plus the amount of debt and preferred stock outstanding
("Enterprise Value") to statutory operating earnings for the LTM or LFY and
statutory capital and surplus as of the end of the LFQ or LFY. Closing prices as
of August 20, 1996 were used in this analysis. The ratios described in this
paragraph have been designed to reflect the value attributable in the public
equity markets to various valuation measures of accident and health insurance
companies. Measures utilized in the public marketplace to value the stock of
publicly traded companies in the accident and health insurance industry are
based on, among other things, a company's historical and projected GAAP
operating earnings, historical statutory operating earnings, shareholders'
equity and statutory capital and surplus. The multiples of stock price to GAAP
operating EPS and Enterprise Value to statutory operating earnings reflect the
value attributed to a company by public equity market investors based on the
company's historical and projected earnings. The multiples of stock price to
shareholders' equity per share and Enterprise Value to statutory capital and
surplus reflect the values attributed to a company by public equity market
investors based on the company's net worth. Variances in multiples for different
companies may reflect such considerations as the consistency, quality and growth
of earnings and the company's capitalization, asset quality and return on
capital. Since GAAP operating earnings and shareholders' equity already reflect
the cost of a company's debt or preferred stock financing, analyses of multiples
of GAAP
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operating earnings or shareholders' equity are usually based on the price paid
for the company's common stock, which excludes debt or preferred stock
financing. Since statutory operating earnings and statutory capital and surplus
do not reflect the cost of a company's debt or preferred stock financing, which
are usually at the holding company level rather than the insurance company
level, analyses of multiples of statutory operating earnings and statutory
capital and surplus are usually based on Enterprise Value, which includes debt
or preferred stock financing. Comparing the multiples of price offered to be
paid by Conseco to the GAAP operating EPS, shareholders' equity, statutory
operating earnings and statutory capital and surplus of CAF with the multiples
at which the Selected Small Capitalization Companies and the Selected Large
Capitalization Companies trade indicates whether the valuation being placed on
CAF is within the range of values at which the Selected Small Capitalization
Companies and the Selected Large Capitalization Companies trade.
The low, average and high multiples of public stock price to GAAP operating
EPS for the LTM ended June 30, 1996 were 7.8x, 10.2x and 13.0x, respectively,
for the Selected Small Capitalization Companies and 10.3x, 13.2x and 14.8x,
respectively, for the Selected Large Capitalization Companies. Based on an offer
price of $36.50 per share, the implied multiple of offer price to CAF's GAAP
operating EPS for the LTM ended June 30, 1996 was 12.0x. This multiple is
greater than the average multiple of the Selected Small Capitalization Companies
and greater than the low multiple of the Selected Large Capitalization
Companies. The low, average and high multiples of public stock price to
estimated 1996 GAAP operating EPS were 7.5x, 9.4x and 11.7x, respectively, for
the Selected Small Capitalization Companies and 10.4x, 13.1x and 15.1x,
respectively, for the Selected Large Capitalization Companies. Based on the same
offer price, the implied multiple of offer price to CAF's estimated 1996 GAAP
operating EPS was 11.7x. This multiple is equal to the average multiple of the
Selected Small Capitalization Companies and greater than the low multiple of the
Selected Large Capitalization Companies. The low, average and high multiples of
public stock price to estimated 1997 GAAP operating EPS were 6.1x, 8.1x and
10.0x, respectively, for the Selected Small Capitalization Companies and 9.0x,
11.2x and 12.9x, respectively, for the Selected Large Capitalization Companies.
Based on the same offer price, the implied multiple of offer price to CAF's
estimated 1997 GAAP operating EPS was 10.8x. This multiple is greater than the
high multiple of the Selected Small Capitalization Companies and greater than
the low multiple of the Selected Large Capitalization Companies. The low,
average and high multiples of public stock price to shareholders' equity as of
June 30, 1996 were 1.1x, 1.3x and 1.4x, respectively, for the Selected Small
Capitalization Companies and 1.2x, 1.9x and 2.8x, respectively, for the Selected
Large Capitalization Companies. Based on the same offer price, the implied
multiple of offer price to CAF's shareholders' equity as of June 30, 1996 was
2.2x. This multiple is greater than the high multiple of the Selected Small
Capitalization Companies and greater than the average multiple of the Selected
Large Capitalization Companies. The low, average and high multiples of
Enterprise Value to statutory operating earnings for the LTM or LFY were 14.1x,
22.2x and 29.1x, respectively, for the Selected Small Capitalization Companies
and 27.1x, 31.6x and 37.1x, respectively, for the Selected Large Capitalization
Companies. Based on the same offer price, the implied multiple of Transaction
Value to CAF's statutory operating earnings for the LTM ended June 30, 1996 was
46.9x. This multiple is greater than the high multiples of both the Selected
Small Capitalization Companies and the Selected Large Capitalization Companies.
The low, average and high multiples of Enterprise Value to statutory capital and
surplus as of the end of the LFQ or the LFY were 2.0x, 3.2x and 4.4x,
respectively, for the Selected Small Capitalization Companies and 3.6x, 4.5x and
5.6x, respectively,
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for the Selected Large Capitalization Companies. Based on the same offer price,
the implied multiple of Transaction Value to CAF's statutory capital and surplus
as of June 30, 1996 was 6.9x. This multiple is greater than the high multiples
of both the Selected Small Capitalization Companies and the Selected Large
Capitalization Companies.
Since a portion of the Merger Consideration will be in the form of Conseco
Common Stock, to provide comparative market information, DLJ compared selected
historical and projected operating and financial ratios of Conseco to the
corresponding data and ratios of Equitable of Iowa Companies, Liberty Financial
Companies, Inc., Presidential Life Corp., SunAmerica Inc. and Western National
Corp. (The "Selected Annuity Companies") and of the Selected Large
Capitalization Companies.
Such analysis included, among other things, the multiples of stock price to
estimated GAAP operating EPS for 1996 and 1997 (as estimated by research
analysts and compiled by Institutional Brokers Estimating Service for the
Selected Annuity Companies and the Selected Large Capitalization Companies and
management's projections for Conseco) and shareholders' equity per share as of
June 30, 1996, as well as the multiples of Enterprise Value to statutory
operating earnings for the LTM or the LFY and statutory capital and surplus as
of the end of the LFQ or the LFY. Closing prices as of August 20, 1996 were used
in this analysis. Comparing the multiples of Conseco's stock price to GAAP
operating EPS, shareholders' equity, statutory operating earnings and statutory
capital and surplus with the multiples at which the Selected Annuity Companies
and the Selected Large Capitalization Companies trade indicates whether
Conseco's stock price is within the range of values at which the Selected
Annuity Companies and the Selected Large Capitalization Companies trade.
Conseco's GAAP operating EPS, shareholders' equity, statutory operating earnings
and statutory capital and surplus used in this analysis were adjusted to give
pro forma effect to the LPG Merger and certain other matters.
The low, average and high multiples of public stock price to estimated 1996
GAAP operating EPS were 9.4x, 11.7x and 16.4x, respectively, for the Selected
Annuity Companies, and 10.4x, 13.1x and 15.1x, respectively, for the Selected
Large Capitalization Companies. The multiple of price to Conseco's estimated
1996 GAAP operating EPS was 12.8x. This multiple is greater than the average
multiple of the Selected Annuity Companies and greater than the low multiple of
the Selected Large Capitalization Companies. The low, average and high multiples
of public stock price to estimated 1997 GAAP operating EPS were 8.4x, 10.5x and
14.3x, respectively, for the Selected Annuity Companies and 9.0x, 11.2x and
12.9x, respectively, for the Selected Large Capitalization Companies. The
multiple of price to Conseco's estimated 1997 GAAP operating EPS was 9.5x. This
multiple is greater than the low multiples of both the Selected Annuity
Companies and the Selected Large Capitalization Companies. The low, average and
high multiples of public stock price to shareholders' equity as of June 30, 1996
were 0.9x, 1.7x and 3.4x, respectively, for the Selected Annuity Companies and
1.2x, 1.9x and 2.8x, respectively, for the Selected Large Capitalization
Companies. The multiple of price to Conseco's shareholders' equity as of June
30, 1996 was 1.7x. This multiple is equal to the average multiple of the
Selected Annuity Companies and greater than the low multiple of the Selected
Large Capitalization Companies. The low, average and high multiples of
Enterprise Value to statutory operating earnings for the LTM or the LFY were
9.7x, 23.8x and 42.9x, respectively, for the Selected Annuity Companies and
27.1x, 31.6x and 37.1x, respectively, for the Selected Large Capitalization
Companies. The multiple of Enterprise Value to Conseco's 1995
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statutory operating earnings was 21.3x. This multiple is greater than the low
multiple of the Selected Annuity Companies and less than the low multiple of the
Selected Large Capitalization Companies. The low, average and high multiples of
Enterprise Value to statutory capital and surplus as of the end of the LFQ or
the LFY were 1.2x, 1.8x and 2.2x, respectively, for the Selected Annuity
Companies and 3.6x, 4.5x and 5.6x, respectively, for the Selected Large
Capitalization Companies. The multiple of Enterprise Value to Conseco's
statutory capital and surplus as of December 31, 1995 was 3.5x. This multiple is
greater than the high multiple of the Selected Annuity Companies and less than
the low multiple of the Selected Large Capitalization Companies.
No company or transaction used in the Transaction Analysis or the Public
Company Analysis described above was directly comparable to CAF, Conseco or the
proposed Merger. Accordingly, an analysis of the results of the foregoing was
not simply mathematical nor necessarily precise; rather, it involved complex
considerations and judgments concerning differences in financial and operating
characteristics of companies and other factors that could affect the transaction
values and trading prices. For example, many qualitative factors are involved in
valuing a company or analyzing a transaction in the life insurance, accident and
health insurance and annuity industries, including assessments of the quality of
management, the attractiveness of the company's target market, the economics of
the products being sold and the company's market position relative to its
competitors. Other factors that could affect the transaction values or trading
prices include differences in distribution, products, geographic or demographic
customer concentration, size, accounting practices, asset portfolio quality,
interest rate sensitivity and other factors. These factors may affect the
transaction values or trading prices in each case by affecting in varying
degrees investors' expectations of such factors as the company's risk and future
operating profitability.
Stock Trading History. To provide contextual data and comparative market
data, DLJ examined the history of the trading prices and their relative
relationships for both CAF Common Stock and Conseco Common Stock for various
periods ending prior to the announcement of the Merger. DLJ also reviewed the
daily closing prices of CAF Common Stock and Conseco Common Stock and compared
the CAF and Conseco closing stock prices with the S&P 500 Index and indices of
selected comparable companies. DLJ reviewed the trading history since the
December 18, 1992 initial public offering of CAF Common Stock and the three year
trading history of Conseco Common Stock to determine whether trading levels
immediately prior to announcement of the Merger were reflective of longer term
trading levels or were affected by recent unusual or event specific trading
activity. In addition, DLJ reviewed the trading history of CAF Common Stock and
Conseco Common Stock relative to indices of selected comparable companies in
order to assess the relative stock price performance of CAF, Conseco and such
indices.
Pro Forma Merger Analysis. DLJ analyzed certain pro forma financial effects
resulting from the Merger. In conducting its analysis, DLJ relied upon certain
assumptions described above and financial projections provided by the management
of CAF and pro forma financial statements and pro forma financial projections
provided by the management of Conseco. DLJ analyzed the pro forma effect of the
Merger and of completing the ALH Transaction and the BLH Transaction on the EPS,
stockholders' equity per share and leverage ratios of the combined companies.
Conseco's management has indicated that it believes that the Merger will offer
consolidation opportunities which will result in revenue enhancements and
expense savings relative to the stand-alone projected
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<PAGE>
revenues and expenses of CAF, Conseco, ALH and BLH. DLJ has incorporated
estimates of such revenue enhancements and expense savings, determined in
conjunction with the managements of CAF and Conseco, in its analysis although
DLJ does not express an opinion as to the likelihood of such revenue
enhancements and expense savings being realized. The results of the pro forma
merger analysis are not necessarily indicative of future operating results or
financial position. Based on this analysis and assuming the Merger, the ALH
Transaction and the BLH Transaction are completed and that the cash portion of
the consideration paid in such transactions is financed with debt, Conseco's
shareholders would realize EPS accretion of 1.7%, 1.9% and 2.0%, respectively,
in 1996, 1997 and 1998, versus assuming only the ALH Transaction and the BLH
Transaction are completed and that the cash portion of the consideration paid in
such transactions is financed with debt. Assuming the Merger, the ALH
Transaction and the BLH Transaction are completed and that the cash portion of
the consideration paid in such transactions is financed with debt, Conseco's
ratios of debt to total capitalization and debt and preferred stock to total
capitalization as of June 30, 1996 would be 47.9% and 50.3%, respectively. Based
on this analysis and assuming the Merger, the ALH Transaction and the BLH
Transaction are completed and that the cash portion of the consideration paid in
such transactions is financed in part with $300 million of tax-deductible
preferred stock and $280 million of Conseco Common Stock and Conseco's Series D
Convertible Preferred Stock is converted into Conseco Common Stock, Conseco's
shareholders would realize EPS dilution of 1.8%, 2.3% and 3.1%, respectively, in
1996, 1997 and 1998, versus assuming only the ALH Transaction and the BLH
Transaction are completed and that the cash portion of the consideration paid in
such transactions is financed with debt. Assuming the Merger, the ALH
Transaction and the BLH Transaction are completed, the cash portion of the
consideration paid in such transactions is financed in part with $300 million of
tax-deductible preferred stock and $280 million of Conseco Common Stock and
Conseco's Series D Convertible Preferred Stock is converted into Conseco Common
Stock, Conseco's ratios of debt to total capitalization and debt and preferred
stock to total capitalization as of June 30, 1996 would be 35.1% and 39.4%,
respectively. There can be no assurance as to whether the assumptions regarding
financing sources set forth in this paragraph will occur, and such assumptions
are used only for purposes of illustration.
The summary set forth above does not purport to be a complete description
of the analyses performed by DLJ in rendering the DLJ Opinion. The preparation
of a fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of these methods
to the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Each of the analyses conducted by DLJ was
carried out in order to provide a different perspective on the Merger and add to
the total mix of information available. DLJ did not form a conclusion as to
whether any individual analysis, considered in isolation, supported or failed to
support an opinion as to fairness, from a financial point of view. Rather, in
reaching its conclusion, DLJ considered the results of the analyses in light of
each other and did not place particular reliance or weight on any individual
analysis and ultimately reached its opinion based on the results of all analyses
taken as a whole. Accordingly, notwithstanding the separate factors summarized
above, DLJ believes that its analyses must be considered as a whole and that
selected portions of its analyses and the factors considered by it, without
considering all analyses and factors, may create an incomplete view of the
evaluation process underlying the DLJ Opinion. In performing its analyses, DLJ
made numerous assumptions with respect to industry performance, business and
economic conditions and other matters. The analyses performed by DLJ are not
45
<PAGE>
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
The CAF Board selected DLJ as its financial advisor because it is a
nationally recognized investment banking firm that has substantial experience in
transactions similar to the Merger and is familiar with CAF, its business and
the life insurance, accident and health insurance and annuity industries.
Pursuant to the terms of an engagement letter dated August 12, 1996 between CAF
and DLJ, CAF paid DLJ a $100,000 retainer fee and an additional $750,000 upon
rendering of the DLJ Opinion. Pursuant to the terms of the engagement letter,
CAF will pay DLJ, on the Closing Date, cash compensation equal to five-eighths
of one percent (0.625%) of the Transaction Value, less the $850,000 paid to
date. Based on an assumed Transaction Value of approximately $675 million, CAF
will pay DLJ, on the Closing Date, cash consideration of approximately $4.2
million, less the $850,000 paid to date. CAF also agreed to reimburse DLJ for
out-of-pocket expenses (including the reasonable fees and out-of-pocket expenses
of counsel) incurred by DLJ in connection with its engagement up to a maximum of
$35,000 without CAF's written consent and to indemnify DLJ and certain related
persons against certain liabilities in connection with its engagement, including
liabilities under the federal securities laws. The terms of the fee arrangement
with DLJ, which DLJ and CAF believe are customary in transactions of this
nature, were negotiated at arms' length between CAF and DLJ and the CAF Board
was aware of such arrangement, including the fact that a significant portion of
the aggregate fee payable to DLJ is contingent upon consummation of the Merger.
In the ordinary course of business, DLJ may actively trade the securities
of both CAF and Conseco for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities. DLJ, as part of its investment banking services, is regularly
engaged in the valuation of businesses and securities in connection with
mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. DLJ has performed investment banking and other services for CAF
and Conseco in the past and has received usual and customary compensation for
such services. In addition, DLJ acted as financial advisor to ATC in connection
with the ATC Merger.
S:\ACCTING\SECRPT\S-4CAP.896\CAF1.DOC
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Certain Consequences of the Merger
As a result of the Merger, the shareholders of CAF will become
shareholders of Conseco, and thereby will continue to have an interest in CAF
through Conseco. See "Comparison of Shareholders' Rights." Upon the consummation
of the Merger, each outstanding share of CAF Common Stock (other than shares of
CAF Common Stock held by CAF as treasury stock or Dissenting Shares) will be
canceled and converted into the right to receive the Merger Consideration.
Conseco will apply to have the additional shares of Conseco Common Stock issued
pursuant to the Merger listed on the NYSE.
See "The Merger Agreement -- Treatment of CAF Stock Options" for a
description of the treatment of CAF Stock Options in the Merger. Conseco has
agreed to take all corporate action necessary to reserve for issuance a
sufficient number of shares of Conseco Common Stock for delivery upon exercise
of CAF Stock Options assumed in accordance with the Merger Agreement.
Conduct of the Business of Conseco and CAF After the Merger
Pursuant to the Merger Agreement, (1) the members of the Board of
Directors of the Merger Sub immediately prior to the consummation of the Merger
shall become the directors of the Surviving Corporation following the
consummation of the Merger and (2) the officers of the Merger Sub immediately
prior to the consummation of the Merger shall become the officers of the
Surviving Corporation following the consummation of the Merger. Conseco's Board
of Directors and management will not be affected by the Merger. See "Management
of the Surviving Corporation Upon Consummation of the Merger."
Within two years following the Merger, Conseco expects to achieve
annual operating cost savings in the range of $10-$15 million through the
consolidation of Conseco and CAF operations and the elimination of redundant
expenses. Such savings would be realized, over time, primarily through
reductions in staff, the combination, elimination or relocation of certain
office facilities and the consolidation of certain data processing and
investment operations. There can be no assurance that such cost savings will be
realized or that they will be realized on the schedule indicated.
Interests of Certain Persons in the Merger
Executive Stay Pay and Other Arrangements. In connection with the
Merger Agreement, an amount of money equal to one year's base salary ("Stay
Pay") will be paid to certain employees if such persons remain an employee of
CAF for six months after the Effective Time or is terminated by CAF or Conseco,
without cause, prior to that time. Stay Pay will be paid upon the earlier of
termination or six months after the Effective Date. For purposes of determining
entitlement to Stay Pay, "cause" means the commission of a felony involving
moral turpitude or fraud against CAF. Those employees entitled to Stay Pay who
are also directors and/or executive officers of CAF, and the amount of such pay,
are: Frank Astolfi - $300,000, Kenneth J. Coleman - $160,000, David H. Gunning -
$600,000, James C. Helfrich - $175,000, Robert Kung - $180,000, Richard L.
Osborne - $90,000, Ronald L. Sarosy - $150,000, Mark E. Shaw - $250,000,
Christopher L. Weaver - $250,000.
In addition, in accordance with the terms of the Merger Agreement, all
outstanding CAF Stock Options will become immediately exercisable in full and
the restrictions on the Restricted Shares will lapse. The aggregate number of
shares of CAF Common Stock that are covered by options (including those which
will be so accelerated) and the aggregate number of Restricted Shares which will
be without restrictions held by the directors and/or executive officers of CAF
are as follows:
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Number of Shares of
CAF Common Stock Number of
Name Covered by Options Restricted Shares
---- ------------------- ------------------
R. Hale Andrews, Jr. 3,000 0
Frank Astolfi 5,000 0
Kenneth J. Coleman 33,500 3,000
Robert A. Garda 3,000 0
David H. Gunning 380,000 0
James C. Helfrich 17,000 3,000
William H. Heller 5,000 0
Robert Kung 14,000 3,000
M. Thomas Moore 5,000 0
Rowland T. Moriarty 5,000 0
Richard L. Osborne 5,000 0
John H. Outcalt 5,000 0
William R. Robertson 5,000 0
Ronald L. Sarosy 18,000 3,000
Mark E. Shaw 63,000 3,000
Christopher L. Weaver 63,000 3,000
Under the terms of the Merger Agreement, certain annual bonus awards by
CAF, which are discretionary in amount up to a maximum, will become fixed at 75
percent of the maximum in each case. If an eligible employee's employment is
terminated between the Effective Time and December 31, 1996, the amount payable
shall be prorated based on the number of days such employee was employed during
the year. Assuming employment through December 31, 1996, the amount of
discretionary bonus payable to each employee who is an executive officer of CAF
is: Kenneth J. Coleman - $15,000, David H. Gunning - $56,250, James C. Helfrich
- - $30,000, Robert Kung - $15,000, Ronald L. Sarosy - $15,000, Mark E. Shaw -
$15,000 and Christopher L. Weaver - $15,000.
The terms of Mr. Gunning's employment agreement dated as of February 8,
1993 provide that in the event that while Mr. Gunning is employed by CAF there
shall occur, among other things, a merger of CAF with another entity, CAF shall
pay Mr. Gunning upon the consummation of any such transaction an amount in cash
equal, as of the date of this Proxy Statement/Prospectus, to 0.7% of the
aggregate consideration paid to CAF or its shareholders in connection with such
transaction. For purposes of the employment agreement, the aggregate
consideration payable in the Merger is approximately $675 million.
CAF Affiliate Registration Rights. Conseco is not required to maintain
the effectiveness of the Registration Statement or any other registration
statement under the Securities Act for the purposes of resale of Conseco Common
Stock by CAF affiliates. Notwithstanding the foregoing, if any affiliate is
unable because of the volume limitations of Rule 144 of the Commission to sell
pursuant to Rule 144 the shares of Conseco Common Stock received by such
affiliate as Merger Consideration and still held by such affiliate, such
affiliate shall have the right, for so long as any such balance of the
affiliate's Merger Consideration is not eligible for immediate sale under the
applicable provisions of Rule 144, to require Conseco to elect, in Conseco's
sole discretion, with respect to such balance, either to (1) acquire such shares
directly from such affiliate at the current market price, (2) amend the
Registration Statement and maintain its effectiveness to provide for resale of
such shares or (3) file a Registration Statement on Form
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<PAGE>
S-3 with the Commission to register such shares for resale by such affiliate.
Indemnification of Directors and Officers; Insurance
Pursuant to the Merger Agreement, the articles of incorporation and
code of regulations of the Surviving Corporation and each of its subsidiaries
shall contain the provisions with respect to indemnification set forth in the
articles of incorporation and the code of regulations of CAF or the respective
subsidiary, as the case may be, on the date of the Merger Agreement, and such
provisions shall not be amended, repealed or otherwise modified for a period of
six years after the Effective Time in any manner that would adversely affect the
rights of Indemnified Parties in respect of actions or omissions occurring at or
prior to the Effective Time (including, without limitation, the transactions
contemplated by the Merger Agreement), unless such modification is required by
law. Conseco has agreed to be jointly and severally liable for the
indemnification obligations of CAF to the Indemnified Parties, as set forth
above. Conseco has also agreed to honor the terms of existing indemnification
agreements between CAF and certain of its officers and directors. In addition,
Conseco has agreed to maintain officers' and directors' liability insurance
covering the Indemnified Parties who are currently covered by CAF's existing
officers' and directors' liability insurance policies. The foregoing provisions
are intended to be for the benefit of, and shall be enforceable by, each
Indemnified Party, his heirs and his personal representatives and shall be
binding on all successors and assigns of Conseco, the Surviving Corporation and
CAF.
Accounting Treatment
Conseco intends to account for the Merger under the purchase method of
accounting in accordance with APB Opinion No. 16, "Business Combinations". Under
this method of accounting, the cost of acquiring all outstanding shares of CAF
Common Stock and the assumption of all outstanding CAF Stock Options will be
determined by the value at the Effective Time of the Merger Consideration and
the Conseco Common Stock (or cash) to be issued to holders of CAF Stock Options,
plus the direct costs associated with the Merger. Conseco will allocate such
cost in establishing new accounting and reporting bases for the underlying
acquired assets and liabilities based on their estimated fair values at the
Effective Time.
Certain Federal Income Tax Consequences
The following is a summary description of the material federal income
tax consequences of the Merger to CAF shareholders whose shares of CAF Common
Stock are converted into the right to receive the Merger Consideration in the
Merger (including any cash amounts received by dissenting CAF shareholders
pursuant to the exercise of dissenters' rights). This discussion is based upon
the provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
the applicable Treasury Regulations promulgated and proposed thereunder,
judicial authority and administrative rulings and practice. Legislative,
judicial or administrative rules and interpretations are subject to change,
possibly on a retroactive basis, at any time and therefore could alter or modify
the statements and conclusions set forth below. It is assumed that the shares of
CAF Common Stock are held as capital assets by a United States person (i.e., a
citizen or resident of the United States or a domestic corporation). This
discussion does not address all aspects of federal income taxation that may be
relevant to a particular CAF shareholder in light of such CAF shareholder's
personal investment circumstances, or those CAF shareholders subject to special
treatment under the federal income tax laws (for example, life insurance
companies, tax-exempt organizations, foreign corporations and nonresident alien
individuals), CAF shareholders who hold shares of CAF Common Stock as part of a
conversion transaction, or to CAF shareholders who acquired their shares of CAF
Common Stock through the exercise of employee stock options or other
compensation
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arrangements. In addition, the discussion does not address any aspect of
foreign, state, local or estate and gift taxation that may be applicable to a
CAF shareholder.
Consequences of the Merger to CAF Shareholders. The receipt of the
Merger Consideration (including any cash amounts received by dissenting CAF
shareholders pursuant to the exercise of appraisal rights) will be a taxable
transaction for federal income tax purposes (and also may be a taxable
transaction under applicable state, local and other income tax laws). In
general, for federal income tax purposes, a CAF shareholder will recognize gain
or loss equal to the difference between his or her adjusted tax basis in the
shares of CAF Common Stock exchanged in the Merger, and the amount of cash and
the fair market value of the Conseco Common Stock received therefor. Such gain
or loss will be capital gain or loss, and will be long-term gain or loss if, on
the date of the Merger, the shares of CAF Common Stock were held for more than
one year. The tax basis of the Conseco Common Stock received by a CAF
shareholder will be the fair market value of such shares of Conseco Common Stock
at the Effective Time. If a former CAF shareholder disposes of the Conseco
Common Stock received pursuant to the Merger in a future taxable transaction,
such former CAF shareholder will recognize a capital gain or loss equal to the
difference between (a) the cash and the fair market value of any other property
received on disposition, and (b) the former CAF shareholder's tax basis in the
Conseco Common Stock.
In the event that the Effective Time does not occur by December 10,
1996, for each share of CAF Common Stock, a shareholder will receive an
additional amount of $0.25, which amount will be increased by an additional
$0.25 on the tenth day of each calendar month thereafter until the occurrence of
the Effective Time (such additional amount or amounts are referred to as the
"Time Factor"). In such event, the facts and circumstances that result in the
payment of the Time Factor may affect whether the Time Factor is treated as
additional purchase price that would increase the capital gain (or decrease the
capital loss) recognized by a CAF shareholder on the disposition of his or her
CAF Common Stock in the Merger or as interest that would be taxable as ordinary
income. CAF and Conseco each have indicated its intention to treat any amount
paid pursuant to the Time Factor as additional purchase price that would
increase the capital gain (or decrease the capital loss) recognized by a CAF
shareholder on the disposition of his or her CAF Common Stock in the Merger.
Backup Tax Withholding. Under the federal income tax backup withholding
rules, unless an exemption applies, the Paying Agent will be required to
withhold, and will withhold, 31% of all payments to which a CAF shareholder or
other payee is entitled pursuant to the Merger, unless the CAF shareholder or
other payee provides a tax identification number (social security number, in the
case of an individual, or employer identification number in the case of other
shareholders) and certifies under penalties of perjury that such number is
correct. Each CAF shareholder and, if applicable, each other payee, should
complete and sign the substitute Form W-9 which will be included as part of the
letter of transmittal to be returned to the Paying Agent in order to provide the
information and certification necessary to avoid backup withholding, unless an
applicable exception exists and is proved in a manner satisfactory to the Paying
Agent. The exceptions provide that certain CAF shareholders (including, among
others, all corporations and certain foreign individuals) are not subject to
these backup withholding and reporting requirements. In order for a foreign
individual to qualify as an exempt recipient, however, he or she must submit a
signed statement (i.e., Certificate of Foreign Status on Form W-8) attesting to
his or her exempt status. Any amounts withheld will be allowed as a credit
against the holder's federal income tax liability for such year.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION PURPOSES ONLY. CAF SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS TO DETERMINE THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
THE MERGER TO THEM IN VIEW OF THEIR OWN PARTICULAR CIRCUMSTANCES.
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Regulatory Approvals
Antitrust. Under the HSR Act and the rules promulgated thereunder by
the Federal Trade Commission (the "FTC"), the Merger may not be consummated
until notifications have been given and certain information has been furnished
to the FTC and the Antitrust Division of the Department of Justice (the
"Antitrust Division") and specified waiting period requirements have been
satisfied. Conseco and CAF filed notification and report forms under the HSR Act
with the FTC and the Antitrust Division on September , 1996. The required
waiting period under the HSR Act was terminated on ___________, 1996. At any
time before or after the consummation of the Merger, and notwithstanding that
the HSR Act waiting period has been terminated, the Antitrust Division of the
FTC could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the consummation
of the Merger or seeking divestiture of substantial assets of Conseco and CAF.
At any time before or after the consummation of the Merger, and notwithstanding
that the HSR Act waiting period has been terminated, any state could take such
action under the antitrust laws as it deems necessary or desirable in the public
interest. Such action could include seeking to enjoin the consummation of the
Merger or seeking divestiture of CAF or businesses of Conseco or CAF. Private
parties may also seek to take legal action under the antitrust laws under
certain circumstances.
Conseco and CAF believe that the Merger can be effected in compliance
with federal and state antitrust laws. However, there can be no assurance that a
challenge to the consummation of the Merger on antitrust grounds will not be
made or that, if such a challenge were made, Conseco and CAF would prevail or
would not be required to accept certain conditions, possibly including certain
divestitures, in order to consummate the Merger.
Insurance. The consummation of the Merger will require the approvals or
exemptive orders of the Insurance Commissioners (the "Insurance Commissioners")
under the state insurance codes (the "Insurance Codes") of the states of Arizona
and Ohio, which are the jurisdictions in which insurance companies owned by CAF
are domiciled. The Insurance Codes generally contain provisions applicable to
the acquisition of control of a domestic insurer, including a presumption of
control that arises from the ownership of ten percent or more of the voting
securities of a domestic insurer or a person that controls a domestic insurer.
The filing of an application for acquisition of control of a domestic insurer
gives rise to mandatory or, in some states, discretionary public hearing
requirements and/or statutory periods (ranging from 30 to 90 days, which may be
extended in certain circumstances) within which decisions must be rendered
approving or disapproving the acquisition of control. Appropriate filings with
the Insurance Commissioners of Arizona and Ohio have been made and it is
anticipated, although there can be no assurance, that approvals of such
Insurance Commissioners will be obtained.
NYSE Listing of Conseco Common Stock
Pursuant to the Merger Agreement, Conseco is required to use its best
efforts to obtain listing on the NYSE of the shares of Conseco Common Stock to
be issued in connection with the Merger. Approval of the listing on the NYSE (or
another national securities exchange or quotation on the NASDAQ National Market
System) of the shares of Conseco Common Stock to be issued in the Merger is a
condition to the respective obligations of CAF, Conseco and Merger Sub to
consummate the Merger.
Rights of Dissenting Shareholders
Holders of CAF Common Stock who so desire will be entitled to relief as
dissenting shareholders pursuant to Ohio Revised Code Section 1701.84. However,
any such holder will be entitled to such relief only upon strict compliance with
Ohio Revised Code Section 1701.85 ("Section 1701.85"). The
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following summary does not purport to be a complete statement of the method of
compliance with Section 1701.85 and is qualified in its entirety by reference to
that Section, the full text of which is attached hereto as Annex C. A holder of
CAF Common Stock who is considering the possibility of dissenting is urged to
read Section 1701.85 in full, and is encouraged to consult his or her own
counsel.
A shareholder who wishes to perfect his or her rights as a dissenting
shareholder MUST, if the Merger Agreement is adopted:
(1) have been a record holder of the CAF Common Stock as to
which he or she seeks relief on the CAF Record Date;
(2) not have voted such CAF Common Stock in favor of adoption
of the Merger Agreement; and
(3) DELIVER to CAF, not later than ten days after the CAF
Special Meeting, a written demand for payment of the fair cash value of
the shares as to which he or she seeks relief. This written demand must
state the name of the shareholder, his or her address, the number of
shares as to which he or she seek relief, and the amount claimed as the
"fair cash value" thereof.
A vote against the adoption of the Merger Agreement will not satisfy
the requirements of a written demand for payment as described in clause (c) of
the immediately preceding paragraph. Any written demand for payment must be
DELIVERED to Capitol American Financial Corporation, 1001 Lakeside Avenue,
Cleveland, Ohio 44114, Attention: Secretary. Because the written demand must be
delivered within the ten-day period immediately following the CAF Special
Meeting, a shareholder should use a means of delivery, including hand delivery,
that will assure timely delivery, and should consider use of a means of delivery
that would provide a receipt establishing the timeliness thereof.
If CAF or the Surviving Corporation sends to the dissenting
shareholder, at the address specified in his or her demand, a request for the
certificate(s) representing the shares as to which he or she seeks relief, the
dissenting shareholder must DELIVER such certificate(s) to CAF or the Surviving
Corporation for endorsement as to the fact of his or her demand. Failure to meet
this requirement may, at the option of the CAF Board or the Board of Directors
of the Surviving Corporation, terminate any dissenters' rights unless a court
for good cause shown otherwise directs. Such request by CAF or the Surviving
Corporation is not an admission by CAF or the Surviving Corporation that the
shareholder is entitled to relief under Section 1701.85.
Unless the dissenting shareholder and CAF or the Surviving Corporation
shall agree on the fair cash value per share of CAF Common Stock as to which
relief is sought, either CAF or the Surviving Corporation or the dissenting
shareholder may, within three months after the delivery of the written demand by
the shareholder, file a petition in the Court of Common Pleas of Cuyahoga
County, Ohio. If the court finds that the shareholder is entitled to be paid the
fair cash value of any shares, the court may appoint one or more appraisers to
receive evidence and to recommend a decision on the amount of the fair cash
value.
Fair cash value will be determined as of the day prior to the CAF
Special Meeting, will be the amount a willing seller and willing buyer would
accept or pay with neither being under compulsion to sell or buy, will not
exceed the amount specified in the shareholder's written demand, and will
exclude any appreciation or depreciation in market value resulting from the
Merger. Unless CAF or the Surviving Corporation and the dissenting shareholder
shall otherwise agree in writing, or except in the
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case of any of the eventualities (1)-(4) summarized below, a court shall make a
finding as to the fair cash value of a share of CAF Common Stock and render
judgment against the Surviving Corporation for its payment with interest at such
rate and from such date as the court considers equitable. The costs of these
proceedings shall be assessed or apportioned as the court considers equitable.
The rights, if any, of a dissenting shareholder will terminate if (1)
he or she has not strictly complied with Section 1701.85 unless the CAF Board or
the Board of Directors of the Surviving Corporation waives such failure; (2) CAF
abandons or is enjoined or prevented from carrying out the Merger, or the
holders of CAF Common Stock rescind their adoption of the Merger Agreement; (3)
the dissenting shareholder withdraws his or her written demand, with the consent
of the CAF Board or the Board of Directors of the Surviving Corporation; or (4)
CAF or the Surviving Corporation and the dissenting shareholder shall not have
agreed upon the fair cash value per share of CAF Common Stock and neither shall
have timely filed or joined in a petition in an appropriate court for a
determination of the fair cash value of the shares.
From the time of giving the demand until either the termination of the
rights and obligations arising from it or the purchase of the shares of CAF
Common Stock by the Surviving Corporation, all other rights accruing from such
shares of CAF Common Stock, including voting and dividend or distribution
rights, are suspended. If, during the suspension, any dividend or distribution
is paid in money upon shares of CAF Common Stock or any dividend or distribution
is paid in money upon shares of Conseco Common Stock issued upon cancellation
and conversion of such shares of CAF Common Stock, an amount equal to the
dividend or distribution that, except for the suspension, would have been
payable upon such shares shall be paid to the shareholder of record as a credit
upon the fair cash value of the shares of CAF Common Stock; provided that, if
the right to receive fair cash value is terminated otherwise than by the
purchase of the shares of CAF Common Stock by the Surviving Corporation, all
rights of the shareholder shall be restored and all distributions that, except
for the suspension, would have been made shall be made to the shareholder of
record of the shares of CAF Common Stock at the time of termination.
For information relating to the CAF Shareholder Meeting, see "CAF
Shareholder Meeting."
BECAUSE A PROXY WHICH DOES NOT CONTAIN VOTING INSTRUCTIONS WILL, UNLESS
REVOKED, BE VOTED FOR AUTHORIZATION AND ADOPTION OF THE MERGER AGREEMENT, A CAF
SHAREHOLDER WHO WISHES TO EXERCISE HIS OR HER DISSENTER'S RIGHTS MUST EITHER NOT
SIGN AND RETURN HIS OR HER PROXY OR, IF HE OR SHE SIGNS AND RETURNS HIS OR HER
PROXY, VOTE AGAINST OR ABSTAIN FROM VOTING ON THE AUTHORIZATION AND ADOPTION OF
THE MERGER AGREEMENT.
Holders of Conseco Common Stock will not be entitled to appraisal or
dissenters' rights under the Indiana Business Corporation Law in connection with
the Merger.
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, which is attached as Annex A to this Proxy Statement/Prospectus and
is incorporated herein by reference. This summary is qualified in its entirety
by reference to the Merger Agreement. All shareholders are urged to read the
Merger Agreement in its entirety.
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The Merger
The Merger Agreement provides that, subject to satisfaction or waiver
of the terms and conditions contained in the Merger Agreement, including the
approval of the Merger Agreement and the transactions contemplated thereby by
the shareholders of CAF, the Merger Sub will be merged with and into CAF, with
CAF being the surviving corporation.
Effective Time
The Merger Agreement provides that, subject to the satisfaction or
waiver of certain conditions and the requisite approval of the shareholders of
CAF, the Merger will be consummated by and will become effective on the date of
the filing of a Certificate of Merger with the Secretary of State of Ohio or at
such time thereafter as is provided in the Certificate of Merger. The Merger
Agreement may be terminated by either Conseco or CAF if, among other reasons,
the Merger has not been consummated on or before March 31, 1997. See "--
Conditions to the Merger" and " -- Termination."
Conversion of Shares; Exchange of Stock Certificates; No Fractional Amounts
At the Effective Time, pursuant to the Merger Agreement, each share of
CAF Common Stock issued and outstanding immediately prior to the Effective Time
(other than shares held as treasury shares by CAF or Dissenting Shares (as
defined below)) shall be converted into the right to receive (i) $30.00 in cash
plus the Time Factor (as defined below), if any (collectively, "Cash
Consideration"), and (ii) the fraction (rounded to the nearest ten-thousandth of
a share) of a share of Conseco Common Stock determined by dividing $6.50 by the
Trading Value as defined below. The "Time Factor", if any, shall be equal to
$0.25 if the Effective Time shall not have occurred by December 10, 1996, which
amount shall be increased by an additional $0.25 on the tenth day of each
calendar month thereafter until the occurrence of the Effective Date. The
"Trading Value" shall be equal to the average of the closing prices of the
Conseco Common Stock on the NYSE Composite Transactions Reporting System for the
20 trading days immediately preceding the second trading day prior to the
Effective Time. The Cash Consideration, the Conseco Common Stock to be issued to
holders of shares of CAF Common Stock in accordance with the Merger and any cash
to be paid in lieu of fractional shares of Conseco Common Stock are referred to
collectively as the "Merger Consideration."
In the event of any change in Conseco Common Stock between the date of
the Merger Agreement and the Effective Time of the Merger by reason of any stock
dividend, subdivision, reclassification, recapitalization, combination, exchange
of shares or the like, the number and class of shares of Conseco Common Stock to
be issued and delivered in the Merger in exchange for each outstanding share of
CAF Common Stock as provided in the Merger Agreement shall be proportionately
adjusted.
On , _____ 1996, the last full trading day for which information was
available prior to the mailing of this Proxy Statement/Prospectus, the closing
prices reported for shares of Conseco Common Stock and CAF Common Stock on the
NYSE were $_____ per share and $_____ per share, respectively. There can be no
assurance or prediction, and neither Conseco nor CAF hereby make any assurance
or prediction, as to the future price of the Conseco Common Stock or CAF Common
Stock.
At the Effective Time, each share of common stock of the Merger Sub
issued and outstanding immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of Merger Sub or the holder
hereof, be converted into a share of common stock of CAF.
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No fractional shares of Conseco Common Stock will be issued in
connection with the Merger. Each CAF shareholder who otherwise would have been
entitled to a fraction of a share of Conseco Common Stock (after taking into
account all certificates delivered by such holder) shall receive in lieu thereof
cash (without interest) in an amount equal to such fractional part of a share of
Conseco Common Stock multiplied by the Trading Value.
Promptly after the Effective Time, the Paying Agent will mail to each
record holder of an outstanding certificate or certificates, which prior thereto
represented CAF Common Stock, a form of letter of transmittal and instructions
for use in surrendering such certificates and receiving the consideration to
which such holder shall be entitled. After receipt of such transmittal form,
each holder of certificates formerly representing shares of CAF Common Stock
should surrender such certificates to the Paying Agent together with such letter
of transmittal duly executed and completed in accordance with the instructions
thereto, and each such holder will be entitled to receive in exchange therefor
the Cash Consideration and certificates for shares of Conseco Common Stock
and/or a check for any cash which may be payable in lieu of a fractional share
of Conseco Common Stock.
CAF SHAREHOLDERS SHOULD NOT FORWARD THEIR CERTIFICATES TO THE PAYING
AGENT UNTIL THEY HAVE RECEIVED A TRANSMITTAL LETTER AND INSTRUCTIONS.
After the Effective Time, each outstanding certificate, which prior
thereto represented CAF Common Stock, until so surrendered and exchanged, will
be deemed, for all purposes, to evidence only the right to receive the Merger
Consideration that the holder of such certificate is entitled to receive
pursuant to the terms of the Merger Agreement.
Treatment of CAF Stock Options
Immediately prior to the Effective Time, each CAF Stock Option and
Restricted Share which has been granted pursuant to the 1992 Equity
Participation Plan shall be fully vested. Each CAF Stock Option shall be deemed
disposed to CAF and then converted automatically into an option (a "New Conseco
Option") to purchase such number of shares of Conseco Common Stock (rounding the
result to the nearest ten-thousandth of a share) equal to the number of shares
of CAF Common Stock subject to such CAF Stock Option immediately prior to the
Effective Time, multiplied by the Conversion Ratio (as defined below), for an
exercise price equal to the Adjusted Exercise Price (as defined below). The
"Conversion Ratio" shall mean the number determined by dividing the Merger
Consideration for one share of CAF Common Stock by the Trading Value (rounding
the result to the nearest ten-thousandth of a share). The "Adjusted Exercise
Price" shall be determined by multiplying (1) the Trading Value by (2) the
quotient obtained by dividing the current exercise price of the CAF Stock Option
by the Merger Consideration for one share of CAF Common Stock.
Notwithstanding the previous paragraph, with respect to (1) an employee
of CAF who is either (A) given notice that he or she will not be asked to remain
in his or her position beyond the period ending six months after the Effective
Time or (B) terminated prior to the end of the six month period after the
Effective Time or (2) a non-employee director of CAF, each CAF Stock Option held
by such person immediately prior to the Effective Time shall be deemed disposed
to CAF and then converted automatically at the Effective Time into the right to
receive an amount in cash equal to the product of (A) the Merger Consideration
for one share of CAF Common Stock minus the current exercise price of the CAF
Stock Option multiplied by (B) the total number of shares of CAF Common Stock
subject thereto.
Conseco has agreed to take all corporate action necessary to reserve
for issuance a sufficient
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number of shares of Conseco Common Stock for delivery upon exercise of CAF Stock
Options assumed in accordance with the Merger Agreement and to register such
shares of Conseco Common Stock with the Commission pursuant to a Registration
Statement on Form S-8.
CAF Employee Matters
Pursuant to the Merger Agreement, CAF will provide severance benefits
for eligible employees who are not subject to the Stay Pay arrangements
described in "The Merger -- Interests of Certain Persons in the Merger."
Severance pay will be applicable to all employees terminated within one year of
the Effective Time in accordance with the following schedule: for those
employees with less than three years of employment by CAF, such employees will
receive four months' salary, for those employees with three years or more, but
less than seven years of employment by CAF, such employees will receive eight
months' salary, for those employees with seven years or more, but less than 15
years of employment by CAF, such employees will receive 12 months' salary, and
for those employees with 15 years or more of employment by CAF, such employees
will receive 18 months' salary.
Dissenting Shares
Shares of CAF Common Stock which are held by the shareholders of CAF
who shall have effectively dissented from the Merger and perfected their
dissenters' rights in accordance with the provisions of Section 1701.85 of the
Ohio Revised Code (the "Dissenting Shares") shall not be converted into or
exchangeable for the right to receive the Merger Consideration, but the holders
thereof shall be entitled to payment from CAF of the appraised value of such
Dissenting Shares in accordance with the provisions of Section 1701.85. See "The
Merger- Rights of Dissenting Shareholders" and "Comparison of Shareholders'
Rights - Dissenters' Rights."
Representations and Warranties
The Merger Agreement contains certain customary representations and
warranties relating to, among other things, (1) each of Conseco's, the Merger
Sub's and CAF's organization and similar corporate matters; (2) each of
Conseco's, the Merger Sub's and CAF's capital structure; (3) the authorization,
execution, delivery, performance and enforceability of the Merger Agreement with
respect to Conseco, the Merger Sub and CAF and related matters; (4) documents
filed by each of Conseco and CAF with the Commission and the accuracy of
information contained therein; (5) the absence of material changes with respect
to the business of Conseco and CAF; and (6) compliance with applicable laws.
Certain Covenants
The Merger Agreement contains certain customary covenants and
agreements, including, without limitation, the following:
Conduct of Business. Pursuant to the Merger Agreement, Conseco has
agreed that during the period from the date of the Merger Agreement to the
Effective Time, Conseco shall, and shall cause its subsidiaries to, carry on
their respective businesses in the usual, regular and ordinary course and will
not, among other things, except as set forth in the disclosure schedules of the
Merger Agreement, (1)(A) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, stock or property) in respect of, any
outstanding capital stock of Conseco (other than its regular quarterly cash
dividend of Conseco Common Stock and regular cash dividends on the Conseco
Series D Preferred Stock and the Conseco PRIDES, in each case with usual record
and payment dates and in accordance with Conseco's Articles of Incorporation and
its present dividend policy) or (B) split, combine or reclassify
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any of its outstanding capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of
Conseco's outstanding capital stock; (2) issue, sell, grant, pledge or otherwise
encumber any shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities, in each case if any
such action could reasonably be expected to (A) delay materially the date of
mailing of this Proxy Statement/Prospectus or, (B) if it were to occur after
such date of mailing, require an amendment of this Proxy Statement/Prospectus;
or (3) acquire any business or any corporation, partnership, joint venture,
association or other business organization or division thereof, in each case if
any such action could reasonably be expected to (A) delay materially the date of
mailing of this Proxy Statement/Prospectus or, (B) if it were to occur after
such date of mailing, require an amendment of this Proxy Statement/Prospectus.
Pursuant to the Merger Agreement, CAF has agreed that, during the
period from the date of the Merger Agreement until the Effective Time, except as
permitted by the Merger Agreement, as set forth on the Disclosure Schedules
thereto or as otherwise consented to in writing by Conseco, CAF will, and will
cause its subsidiaries to, act and carry on their respective businesses in the
ordinary course of business and will not (without the prior consent of Conseco),
among other things (1) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, stock or property) in respect of, any of
CAF's outstanding capital stock (other than its regular quarterly cash dividends
not in excess of $0.10 per share); (2) issue, sell, grant, pledge or otherwise
encumber any shares of its capital stock, other than upon the exercise of CAF
Stock Options outstanding on the date of the Merger Agreement; (3) amend its
Articles of Incorporation or Code of Regulations; (4) acquire any business; (5)
sell, mortgage or otherwise encumber any of its properties or assets that are
material to CAF and its subsidiaries taken as a whole, except in the ordinary
course of business; (6) incur any indebtedness for borrowed money or guarantee
any such indebtedness of another person, other than within certain specified
limitations, or make any loans or advances to any other person other than
routine advances to employees or special individual advances of not more than
$30,000 each to agents; (7) make any tax election or settle or compromise any
income tax liability that would reasonably be expected to be material to CAF and
its subsidiaries taken as a whole; (8) pay, discharge, settle or satisfy any
claims, liabilities or obligations other than the payment, discharge or
satisfaction, in the ordinary course of business consistent with past practice
or in accordance with their terms, of liabilities reflected or reserved against
in, or contemplated by, the most recent consolidated financial statements of CAF
or incurred since the date of such financial statements in the ordinary course
of business consistent with past practice; (9) invest its future cash flow, any
cash from matured and maturing investments, any cash proceeds from the sale of
its assets and properties, and any cash funds currently held by it, in any
investments other than cash equivalent assets or in short-term investments,
except (A) as otherwise required by law, (B) as required to provide cash (in the
ordinary course of business and consistent with past practice) to meet its
actual or anticipated obligations, (C) in publicly traded corporate bonds that
are rated investment grade by at least two nationally recognized statistical
rating organizations or (D) as otherwise provided in investment guidelines
contained in the investment advisory agreement with Conseco Capital Management,
Inc., a wholly-owned subsidiary of Conseco; (10) except as may be required by
law, (A) make any change to the contracts, salaries, wages, or other
compensation of any employee or any agent or consultant of CAF or any subsidiary
other than routine changes or amendments that are required under existing
contracts, (B) adopt, enter into, amend, alter or terminate any existing CAF
benefit plan or any election made pursuant to the provisions of any existing CAF
benefit plan, to accelerate any payments, obligations or vesting schedules under
any existing CAF benefit plan, or (C) approve any general or company-wide pay
increases for employees; (11) except in the ordinary course of business, modify,
amend or terminate any material agreement, permit, concession, franchise,
license or similar instrument to which CAF or any subsidiary is a party or
waive, release or assign any material rights or claims thereunder; and (12) hold
any meeting of the Board of Directors of CAF or any subsidiary or any committee
of any such board,
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or take any action by written consent of any such board or committee, without
providing to Conseco (A) written notice of any such meeting or any proposed
action by written consent at the same time such notice or action is provided to
the directors and (B) an agenda of any specific matters to be considered at such
meeting or a copy of the proposed written consent.
No Solicitation. Pursuant to the Merger Agreement, CAF shall not, nor
shall it permit any of its subsidiaries to, nor shall it authorize or permit any
officer, director or employee of, or any investment banker, attorney or other
advisor or representative of, CAF or any of its subsidiaries to, directly or
indirectly, (1) solicit, initiate or encourage the submission of any bona fide
proposal with respect to a merger, consolidation, share exchange or similar
transaction involving CAF, or any subsidiary of CAF, or any purchase of all or
any significant portion of the assets of CAF or any subsidiary of CAF, or any
equity interest in CAF or any subsidiary of CAF, other than the transactions
contemplated by the Merger Agreement (each an "Acquisition Proposal") or (2)
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to facilitate
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Acquisition Proposal. The foregoing shall not
prohibit the Board of Directors of CAF from furnishing information to, or
entering into discussions or negotiations with, any person or entity that makes
an unsolicited Acquisition Proposal if, and only to the extent that (1) the
Board of Directors of CAF, after consultation with and based upon the advice of
outside counsel, determines in good faith that such action is necessary for the
Board of Directors of CAF to comply with its fiduciary duties to CAF under
applicable law and (2) prior to taking such action, CAF (A) provides reasonable
notice to Conseco to the effect that it is taking such action and (B) receives
from such person or entity an executed confidentiality agreement in reasonably
customary form.
Indemnification of Directors and Officers; Insurance. Pursuant to the
Merger Agreement, Conseco has agreed that the articles of incorporation and code
of regulations of the Surviving Corporation and each of its subsidiaries shall
contain the provisions with respect to indemnification set forth in the articles
of incorporation and code of regulations of CAF or the respective subsidiary, as
the case may be, on the date of the Merger Agreement, and such provisions shall
not be amended, repealed or otherwise modified for a period of six years after
the Effective Time in any manner that would adversely affect the rights of
individuals who at any time prior to the Effective Time were directors or
officers of CAF or any of its subsidiaries (the "Indemnified Parties") in
respect of actions or omissions occurring at or prior to the Effective Time
unless such modification is required by law. Conseco has agreed to be jointly
and severally liable for the indemnification obligations of CAF to the
Indemnified Parties. Conseco has also agreed to honor terms of existing
indemnification agreements between CAF and certain of its officers and
directors. In addition, for a period of two years following the Effective Time
Conseco has agreed to maintain officers' and directors' liability insurance
covering the Indemnified Parties who are currently covered by CAF's existing
officers' and directors' liability insurance policies.
Conditions to the Merger
The respective obligations of Conseco, the Merger Sub and CAF to effect
the Merger are subject to the following conditions, among others: (1) the Merger
Agreement and the Merger shall have been approved and adopted by the
shareholders of CAF; (2) all required consents, approvals, permits and
authorizations to the consummation of the transactions contemplated hereby by
CAF, Conseco and Merger Sub shall be obtained from (A) the insurance regulators
in the States of Ohio and Arizona and (B) any other governmental entity whose
consent, approval, permission or authorization is required by reason of a change
in law after the date of the Merger Agreement, unless the failure to obtain such
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
58
<PAGE>
consent, approval, permission or authorization (i) would not reasonably be
expected to have a material adverse effect on the business, financial condition
or results of operations of CAF and its subsidiaries, taken as a whole, or on
the validity or enforceability of the Merger Agreement or (ii) is the approval
of the Insurance Regulator of any life insurance subsidiary of CAF, which does
not constitute a "significant subsidiary" (within the meaning of Rule 1-02 of
Regulation S-X of the SEC) of CAF (a "Non-Significant Life Subsidiary") to the
transfer of control of such Non-Significant Life Subsidiary, then such non-
approval can be waived at the option of Conseco if certain specified actions are
taken; (3) the waiting period (and any extension thereof) applicable to the
Merger under the HSR Act shall have been terminated or shall have otherwise
expired; (4) no temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger shall be in
effect; (5) the shares of Conseco Common Stock issuable to CAF's shareholders
pursuant to the Merger shall have been approved for listing on the NYSE, subject
to official notice of issuance; and (6) the Registration Statement shall have
become effective under the Securities Act and shall not be the subject of any
stop order or proceedings seeking a stop order.
The obligations of Conseco and the Merger Sub to effect the Merger are
subject to, among other things, the following additional conditions: (1) the
representations and warranties of CAF contained in the Merger Agreement shall
have been true and correct on the date of the Merger Agreement (except to the
extent that they expressly relate only to an earlier time, in which case they
shall have been true and correct as of such earlier time), other than such
breaches of representations and warranties which in the aggregate would not
reasonably be expected to have a material adverse effect on the business,
financial condition or results of operations of CAF and its subsidiaries taken
as a whole; (2) CAF shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement at or
prior to the Effective Time; and (3) the shareholders of CAF party to the
Shareholders Agreement, dated as of the Merger Agreement by and among Conseco
and such shareholders, shall have complied with their respective obligations.
The obligation of CAF to effect the Merger is subject to, among other
things, the following additional conditions: (1) the representations and
warranties of Conseco and Merger Sub contained in the Merger Agreement shall
have been true and correct on the date of the Merger Agreement (except to the
extent that they expressly relate only to an earlier time, in which case they
shall have been true and correct as of such earlier time), other than such
breaches of representations and warranties which in the aggregate would not
reasonably be expected to have a material adverse effect on the business,
financial condition or results of operations of Conseco and its subsidiaries
taken as a whole; and (2) Conseco and Merger Sub shall have performed in all
material respects all obligations required to be performed by them under the
Merger Agreement at or prior to the Effective Time.
Termination
The Merger Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time: (1) by the mutual written consent of Conseco
and CAF; or (2) by Conseco or CAF at any time (A) if, upon a vote at a duly held
meeting of the shareholders of CAF or any adjournment thereof, any required
approval of the shareholders of CAF shall not be obtained; (B) if the Merger
shall not have been consummated on or before March 31, 1997, unless the failure
to consummate the Merger is the result of a willful and material breach of the
Merger Agreement by the party seeking to terminate the Merger Agreement; (C) if
any governmental entity shall have issued an order, decree or ruling or taken
any other action permanently enjoining, restraining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall have become final
and nonappealable; or (D) if the Board of Directors of CAF shall have exercised
its rights set forth in Section 4.9 of the Merger Agreement with regard to an
Acquisition Proposal. See "-- Right of CAF Board of Directors to Withdraw its
Recommendation."
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
59
<PAGE>
If the Merger Agreement is validly terminated as described above, the
Merger Agreement shall become void and have no effect, except for certain
covenants regarding brokers, confidentiality and, as described herein, payment
of expenses, and except that no party thereto will be relieved of any liability
for damages that such party may have to the other party by reason of such
party's breach of the Merger Agreement.
Right of CAF Board of Directors to Withdraw its Recommendation
Under the Merger Agreement, the Board of Directors of CAF shall not (1)
withdraw or modify, in a manner materially adverse to Conseco or Merger Sub, the
approval or recommendation by the Board of Directors of CAF of the Merger
Agreement or the Merger, (2) approve or recommend an Acquisition Proposal or (3)
enter into any agreement with respect to any Acquisition Proposal, unless CAF
receives an Acquisition Proposal and the Board of Directors of CAF determines in
good faith, following consultation with outside counsel, that in order to comply
with its fiduciary duties to shareholders under applicable law it is necessary
for the Board of Directors of CAF to withdraw or modify, in a manner materially
adverse to Conseco or Merger Sub, its approval or recommendation of the Merger
Agreement or the Merger, approve or recommend such Acquisition Proposal, enter
into an agreement with respect to such Acquisition Proposal or terminate the
Merger Agreement. In the event the Board of Directors of CAF takes any of the
foregoing actions, CAF shall, concurrently with the taking of any such action,
pay to Conseco the fee described in "-- Acquisition Proposal Fees."
Acquisition Proposal Fees
CAF has agreed to pay to Conseco upon demand $15 million, payable in
same-day funds, if a bona fide Acquisition Proposal is commenced, publicly
proposed, publicly disclosed or communicated to CAF (or the willingness of any
person to make such an Acquisition Proposal is publicly disclosed or
communicated to CAF) and the Board of Directors of CAF, in accordance with its
fiduciary duties, withdraws or modifies in a manner materially adverse to
Conseco its approval or recommendation of the Merger Agreement or the Merger,
approves or recommends such Acquisition Proposal, enters into an agreement with
respect to such Acquisition Proposal, or terminates the Merger Agreement.
Expenses
Except for the acquisition proposal fees, whether or not the Merger is
consummated, each of CAF, Conseco and Merger Sub will pay its own costs and
expenses incident to preparing for, entering into and carrying out the Merger
Agreement and the consummation of the transactions contemplated thereby except
that the expenses incurred in connection with the printing, mailing and
distribution of this Proxy Statement/Prospectus and the preparation and filing
of the Registration Statement shall be borne equally by Conseco and CAF. CAF has
agreed that the fees and expenses of CAF's legal and investment banking advisors
incurred in connection with the Merger (but excluding reasonable fees and
expenses related to litigation) shall not exceed $5,000,000.
Modification or Amendment
Subject to the applicable provisions of the Ohio Revised Code, at any
time prior to the Effective Time, CAF, Conseco and Merger Sub may modify or
amend the Merger Agreement, by written agreement executed and delivered by duly
authorized officers of the respective parties; provided, however, that after
approval of the Merger by the shareholders of CAF, no amendment may be made
which reduces the consideration payable in the Merger or adversely affects the
rights of the CAF's shareholders under the Merger Agreement without the approval
of such shareholders.
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
60
<PAGE>
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF CONSECO
The unaudited pro forma consolidated statements of operations of Conseco
for the year ended December 31, 1995, and for the six months ended June 30,
1996, present the consolidated operating results for Conseco as if the following
planned transactions had occurred on January 1, 1995: (1) the Merger; (2) the
Series D Call; (3) the ALH Transaction; (4) the BLH Transaction; (5) the ATC
Merger; and (6) the Preferred Securities Offering.
The pro forma consolidated statement of operations data for Conseco for the
year ended December 31, 1995, set forth in the unaudited pro forma consolidated
statement of operations under the column "Pro forma Conseco before the Merger"
reflect the prior application of certain pro forma adjustments for the following
transactions, all of which have already occurred, as if such transactions had
occurred on January 1, 1995: (1) the LPG Merger; (2) the acquisition of all of
the outstanding common stock of CCP not previously owned by Conseco and related
transactions (including the repayment of the existing $250.0 million revolving
credit agreement); (3) the increase of Conseco's ownership in BLH to 90.5
percent, as a result of purchases of common shares of BLH by Conseco and BLH
during 1995 and the first three months of 1996; (4) the issuance of 4.37 million
shares of Conseco PRIDES in January 1996; (5) the BLH Tender Offer; and (6) the
debt restructuring of ALH in the fourth quarter of 1995. Such pro forma
adjustments are set forth in Conseco's Current Report on Form 8-K dated August
2, 1996 and in Exhibit 99.1 included in Conseco's Form 8-K dated April 10, 1996.
The pro forma consolidated statement of operations data for Conseco for the
six months ended June 30, 1996, set forth in the unaudited pro forma
consolidated statement of operations under the column "Pro forma Conseco before
the Merger" reflect the prior application of certain pro forma adjustments for
the following transactions, all of which have already occurred, as if such
transactions had occurred on January 1, 1995: (1) the LPG Merger; (2) the
issuance of 4.37 million shares of Conseco PRIDES in January 1996; and (3) the
BLH Tender Offer. Such pro forma adjustments are set forth in Conseco's Current
Report on Form 8-K dated August 2, 1996 and in Exhibit 99.1 included in
Conseco's Form 10-Q for the quarterly period ended June 30, 1996.
The unaudited pro forma consolidated balance sheet as of June 30, 1996,
gives effect to the following planned transactions as if each had occurred on
June 30, 1996: (1) the Merger; (2) the Series D Call; (3) the ALH Transaction;
(4) the BLH Transaction; (5) the ATC Merger; and (6) the Preferred Securities
Offering.
The unaudited pro forma consolidated balance sheet data as of June 30,
1996, set forth in the unaudited pro forma consolidated balance under the column
"Pro forma Conseco before the Merger" reflect the prior application of certain
pro forma adjustments for the LPG Merger, which has already occurred. Such pro
forma adjustments are set forth in Conseco's Current Report on Form 8-K dated
August 2, 1996.
The pro forma consolidated financial statements are based on the historical
financial statements of Conseco, LPG, CAF and ATC and should be read in
conjunction with their respective financial statements and notes. The pro forma
data are not necessarily indicative of the results of operations or financial
condition of Conseco had these transactions occurred on January 1, 1995, nor the
results of future operations. Conseco anticipates cost savings and additional
benefits as a result of certain of the transactions contemplated in the pro
forma financial statements. Such benefits and any other changes that might have
resulted from management of the combined companies have not been included as
adjustments to the pro forma consolidated financial statements. Certain amounts
from the prior periods have been reclassified to conform to the current
presentation.
The unaudited pro forma consolidated financial statements reflect cost
allocations for the LPG Merger, the Merger, the ALH Transaction, the BLH
Transaction and the ATC Merger using estimated values of the assets and
liabilities of LPG, CAF, ALH, BLH and ATC as of the assumed merger dates based
on appraisals and other studies, which are not yet complete. Accordingly, the
final allocations will be different than the amounts included in the
accompanying pro forma consolidated financial statements. Although the final
allocations will differ, the pro forma consolidated financial statements reflect
management's best estimate based on currently available information as if the
LPG Merger, the Merger, the ALH Transaction, the BLH Transaction and the ATC
Merger had occurred on the assumed merger dates.
61
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
for the six months ended June 30, 1996
(Amounts in millions, except per share amounts)
(unaudited)
Pro forma
adjustments
Pro forma Pro forma relating
Conseco adjustments Pro forma to the Pro forma
before the CAF relating to the for the Series D Conseco
Merger historical Merger Merger Call subtotal(a)
------------ ----------- --------------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income $ 897.2 $146.6 $ - $1,043.8 $ 1,043.8
Investment activity:
Net investment income 719.0 27.3 (1.7)(1) 744.6 744.6
Net trading losses (7.3) (7.3) (7.3)
Net realized gains 14.4 0.1 (0.1)(1) 14.4 14.4
Fee revenue 20.1 20.1 20.1
Restructuring income 30.4 30.4 30.4
Other income 10.2 10.2 10.2
-------- ------- ------- -------- --------
Total revenues 1,684.0 174.0 (1.8) 1,856.2 1,856.2
-------- ------- ------- -------- --------
Benefits and expenses:
Insurance policy benefits and change in future
policy benefits 626.0 80.9 (1.5)(2) 705.4 705.4
Interest expense on annuities and financial
products 378.3 378.3 378.3
Interest expense on notes payable 62.2 1.0 (1.0)(3) 80.8 80.8
18.6 (4)
Interest expense on investment borrowings 10.7 10.7 10.7
Amortization related to operations 168.3 12.3 (12.3)(5) 187.4 187.4
16.2 (5)
2.9 (6)
Amortization related to realized gains 14.2 14.2 14.2
Acquisition and merger expenses 0.0
Other operating costs and expenses 157.9 38.2 196.1 196.1
-------- ------- ------- -------- --------
Total benefits and expenses 1,417.6 132.4 22.9 1,572.9 1,572.9
-------- ------- ------- -------- --------
Income (loss) before income taxes,
minority interest
and extraordinary charge 266.4 41.6 (24.7) 283.3 283.3
Income tax expense (benefit) 102.4 14.5 (7.6)(7) 109.3 109.3
-------- ------- ------- ------- --------
Income (loss) before minority interest
and extraordinary charge 164.0 27.1 (17.1) 174.0 174.0
Minority interest 23.5 23.5 23.5
-------- ------- ------- -------- --------
Income (loss) before extraordinary charge $ 140.5 $ 27.1 $ (17.1) $ 150.5 $ 150.5
======== ======= ======= ======== ========
Earnings per common share and common equivalent share
Primary:
Weighted average shares outstanding 68.3 2.7 (8) 71.0 8.7 (20) 79.7
======== ======= ======= ===== =====
Income before extraordinary charge $1.93 $2.12 $1.89
======== ======= =====
Fully diluted:
Weighted average shares outstanding 77.8 2.7 (8) 80.5 80.5
======== ======= ======= =====
Income before extraordinary charge $1.81 $1.87 $1.87
======== ======= =====
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts are carried forward to page 63.
</FN>
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
for the six months ended June 30, 1996
(Amounts in millions, except per share amounts)
(unaudited)
Pro forma Pro forma Pro forma
adjustments adjustments adjustments
Pro forma relating to Pro forma relating to Pro forma relating Pro forma
Conseco the ALH Conseco the BLH Conseco ATC to the Conseco
subtotal(a) Transaction subtotal Transaction subtotal historical ATC Merger subtotal(b)
--------- ------------ ----------- ----------- --------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income $1,043.8 $ - $1,043.8 $ - $1,043.8 $186.9 $ - $1,230.7
Investment activity:
Net investment income 744.6 0.6 (23) 745.0 0.1 (34) 745.1 21.3 0.7 (40) 767.1
(0.2)(24)
Net trading losses (7.3) (7.3) (7.3) (7.3)
Net realized gains 14.4 1.0 (23) 15.4 15.4 1.3 2.3 (40) 19.0
Fee revenue 20.1 20.1 20.1 20.1
Restructuring income 30.4 30.4 30.4 30.4
Other income 10.2 10.2 10.2 10.2
------- ----- ------- ---- ------- ------ ---- -------
Total revenues 1,856.2 1.4 1,857.6 0.1 1,857.7 209.5 3.0 2,070.2
------- ----- ------- ---- ------- ------ ---- -------
Benefits and expenses:
Insurance policy benefits
and change in future
policy benefits 705.4 705.4 (1.0)(34) 704.4 127.3 831.7
Interest expense
on annuities and
financial products 378.3 378.3 378.3 378.3
Interest expense on
notes payable 80.8 10.2 (25) 85.6 85.6 4.0 1.0 (41) 88.1
(5.0)(26) (2.5)(42)
(0.4)(26)
Interest expense on
investment borrowings 10.7 10.7 10.7 10.7
Amortization related
to operations 187.4 (11.5)(23) 187.3 0.1 (34) 187.4 10.9 (10.9)(43) 206.9
0.6 (23) 13.2 (43)
10.8 (23) 6.3 (44)
Amortization related
to realized gains 14.2 0.9 (23) 15.1 0.1 (34) 15.2 15.2
Acquisition and
merger expenses
Other operating
costs and expenses 196.1 196.1 1.1 (34) 197.2 42.4 239.6
-------- ----- -------- ---- ------- ------ ---- -------
Total benefits
and expenses 1,572.9 5.6 1,578.5 0.3 1,578.8 184.6 7.1 1,770.5
-------- ----- -------- ---- ------- ------ ---- -------
Income (loss)
before income
taxes,
minority
interest and
extraordinary charge 283.3 (4.2) 279.1 (0.2) 278.9 24.9 (4.1) 299.7
Income tax expense (benefit) 109.3 (0.6)(27) 107.4 0.1 (35) 107.5 8.1 0.8 (45) 116.4
(1.3)(27)
------- ----- ------- ---- ------- ------ ---- -------
Income (loss) before
minority interest and
extraordinary charge 174.0 (2.3) 171.7 (0.3) 171.4 16.8 (4.9) 183.3
Minority interest 23.5 (11.7)(28) 11.8 (7.4)(36) 4.4 4.4
------- ----- ------- ---- ------ ------ ---- -------
Income (loss) before
extraordinary charge $ 150.5 $ 9.4 $ 159.9 $ 7.1 $ 167.0 $16.8 $(4.9) $ 178.9
======= ===== ======= ==== ======= ===== ===== =======
Earnings per common share and
common equivalent share:
Primary:
Weighted average
shares outstanding 79.7 79.7 2.9 (37) 82.6 13.6 (46) 96.2
====== ====== ==== ====== ==== =====
Income before
extraordinary charge $1.89 (21) $2.01 $2.02 $1.86
====== ===== ====== =====
Fully diluted:
Weighted average shares
outstanding 80.5 80.5 2.9 (37) 83.4 18.8 (46) 102.2
===== ====== ==== ====== ==== ======
Income before
extraordinary charge $1.87 $1.99 $2.00 $1.78
===== ====== ====== =====
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts have been carried forward from page 62.
(b) Amounts are carried forward to page 64.
</FN>
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
for the six months ended June 30, 1996
(Amounts in millions, except per share amounts)
(unaudited)
Pro forma
Pro forma for the
adjustments Merger
Pro forma relating to the and other
Conseco Preferred planned
subtotal(a) Securities Offering transactions
------------ --------------------- ---------------
<S> <C> <C> <C>
Revenues:
Insurance policy income $1,230.7 $ - $ 1,230.7
Investment activity:
Net investment income 767.1 767.1
Net trading losses (7.3) (7.3)
Net realized gains 19.0 19.0
Fee revenue 20.1 20.1
Restructuring income 30.4 30.4
Other income 10.2 10.2
-------- ------ --------
Total revenues 2,070.2 2,070.2
-------- ------ --------
Benefits and expenses:
Insurance policy benefits and change in future policy
benefits 831.7 831.7
Interest expense on annuities and financial products 378.3 378.3
Interest expense on notes payable 88.1 (10.8) (55) 77.3
Interest expense on investment borrowings 10.7 10.7
Amortization related to operations 206.9 206.9
Amortization related to realized gains 15.2 15.2
Acquisition and merger expenses
Other operating costs and expenses 239.6 239.6
-------- ------ --------
Total benefits and expenses 1,770.5 (10.8) 1,759.7
-------- ------ --------
Income (loss) before income taxes,
minority interest and
extraordinary charge 299.7 10.8 310.5
Income tax expense (benefit) 116.4 3.8 (56) 120.2
-------- ------ -------
Income (loss) before minority interest and
extraordinary charge 183.3 7.0 190.3
Minority interest 4.4 4.4
-------- ------ -------
Income (loss) before extraordinary charge $ 178.9 $ 7.0 $ 185.9
======== ====== =======
Earnings per common share and common equivalent share:
Primary:
Weighted average shares outstanding 96.2 96.2
===== =====
Income before extraordinary charge $1.86 $1.82 (57)
===== =====
Fully diluted:
Weighted average shares outstanding 102.2 102.2
===== =====
Income before extraordinary charge $1.78 $1.74 (57)
===== =====
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts have been carried forward from page 63.
</FN>
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
for the year ended December 31, 1995
(Amounts in millions, except per share amounts)
(unaudited)
Pro forma
adjustments
Pro forma Pro forma relating
Conseco adjustments Pro forma to the Pro forma
before the CAF relating to the for the Series D Conseco
Merger historical Merger Merger Call subtotal(a)
------------ ----------- --------------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income $1,752.8 $ 282.1 $ - $2,034.9 $ 2,034.9
Investment activity:
Net investment income 1,457.8 48.6 (3.4)(1) 1,503.0 1,503.0
Net trading income 2.5 2.5 2.5
Net realized gains 203.9 (0.1)(1) 203.8 203.8
Fee revenue 33.9 33.9 33.9
Restructuring income 15.2 15.2 15.2
Other income 12.6 0.1 12.7 12.7
------- -------- -------- -------- --------
Total revenues 3,478.7 330.8 (3.5) 3,806.0 3,806.0
------- -------- -------- -------- --------
Benefits and expenses:
Insurance policy benefits and change in future
policy benefits 1,261.4 155.3 (3.0)(2) 1,413.7 1,413.7
Interest expense on annuities and financial
products 758.5 758.5 758.5
Interest expense on notes payable 132.9 2.4 (2.4)(3) 170.0 170.0
37.1 (4)
Interest expense on investment borrowings 30.2 30.2 30.2
Amortization related to operations 308.8 21.5 (21.5)(5) 346.6 346.6
32.0 (5)
5.8 (6)
Amortization related to realized gains 133.6 133.6 133.6
Other operating costs and expenses 356.4 80.0 436.4 436.4
------- -------- ------- -------- --------
Total benefits and expenses 2,981.8 259.2 48.0 3,289.0 3,289.0
------- -------- ------- -------- --------
Income (loss) before income taxes,
minority interest and
extraordinary charge 496.9 71.6 (51.5) 517.0 517.0
Income tax expense (benefit) 193.4 25.6 (16.0)(7) 203.0 203.0
------- -------- ------- -------- --------
Income (loss) before minority interest
and extraordinary charge 303.5 46.0 (35.5) 314.0 314.0
Minority interest 72.5 72.5 72.5
------- -------- ------- -------- --------
Income (loss) before extraordinary charge $ 231.0 $ 46.0 $ (35.5) $ 241.5 $ 241.5
======= ======== ======= ======= =======
Earnings per common share and common equivalent share:
Primary:
Weighted average shares outstanding 66.8 2.7 (8) 69.5 8.9 (20) 78.4
===== ===== ===== ===== ======
Income before extraordinary charge $3.18 $3.47 $3.08(21)
===== ===== ======
Fully diluted:
Weighted average shares outstanding 76.0 2.7 (8) 78.7 78.7
===== ===== ===== =====
Income before extraordinary charge $3.04 $3.07 $3.07
===== ===== =====
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts are carried forward to page 66.
</FN>
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
for the year ended December 31, 1995
(Amounts in millions, except per share amounts)
(unaudited)
Pro forma Pro forma Pro forma
adjustments adjustments adjustments
Pro forma relating to Pro forma relating to Pro forma relating Pro forma
Conseco the ALH Conseco the BLH Conseco ATC to the Conseco
subtotal(a) Transaction subtotal Transaction subtotal historical ATC Merger subtotal(b)
--------- ------------ ----------- ----------- --------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income $2,034.9 $ - $ 2,034.9 $ (0.3)(34) $2,034.6 $273.9 $ - $2,308.5
Investment activity:
Net investment income 1,503.0 3.8 (23) 1,506.3 (0.1)(34) 1,506.2 23.2 1.8 (40) 1,531.2
(0.5)(24)
Net trading income 2.5 2.5 2.5 2.5
Net realized gains 203.8 16.4(23) 220.2 (0.4)(34) 219.8 0.2 2.0 (40) 222.0
Fee revenue 33.9 33.9 33.9 33.9
Restructuring income 15.2 15.2 15.2 15.2
Other income 12.7 12.7 (0.1)(34) 12.6 12.6
-------- ---- --------- ----- -------- ----- ----- --------
Total revenues 3,806.0 19.7 3,825.7 (0.9) 3,824.8 297.3 3.8 4,125.9
-------- ---- --------- ----- -------- ------ ----- --------
Benefits and expenses:
Insurance policy benefits
and change in future policy
benefits 1,413.7 1,413.7 (1.7)(34) 1,412.0 172.9 1,584.9
Interest expense on
annuities and
financial products 758.5 758.5 0.3 (34) 758.8 758.8
Interest expense on
notes payable 170.0 20.3 (25) 179.8 (0.4)(34) 179.4 3.3 1.9 (41) 179.4
(9.5)(26) (5.2)(42)
(1.0)(26)
Interest expense on
investment borrowings 30.2 30.2 30.2 30.2
Amortization related
to operations 346.6 1.3 (23) 344.9 (2.8)(34) 342.1 22.7 (22.7)(43) 378.2
(21.1)(23) 23.5 (43)
18.1 (23) 12.6 (44)
Amortization related to
realized gains 133.6 10.8 (23) 144.4 (0.6)(34) 143.8 143.8
Other operating
costs and expenses 436.4 436.4 5.9 (34) 442.3 63.7 506.0
-------- ----- -------- ----- -------- ----- ----- --------
Total benefits and expenses 3,289.0 18.9 3,307.9 0.7 3,308.6 262.6 10.1 3,581.3
-------- ---- -------- ----- -------- ----- ----- --------
Income (loss)
before income
taxes,
minority interest and
extraordinary charge 517.0 0.8 517.8 (1.6) 516.2 34.7 (6.3) 544.6
Income tax expense (benefit) 203.0 (1.6)(27) 202.1 (0.6)(35) 201.5 11.0 2.2 (45) 214.7
0.7 (27)
-------- ---- -------- ----- -------- ----- ----- --------
Income (loss) before
minority interest and
extraordinary charge 314.0 1.7 315.7 (1.0) 314.7 23.7 (8.5) 329.9
Minority interest 72.5 (54.4)(28) 18.1 (9.4)(36) 8.7 8.7
-------- ------ -------- ----- -------- ----- ----- --------
Income (loss) before
extraordinary charge $ 241.5 $56.1 $ 297.6 $ 8.4 $306.0 $23.7 $(8.5) 321.2
======= ===== ======== ===== ======== ====== ===== ========
Earnings per common share and
common equivalent share:
Primary:
Weighted average
shares outstanding 78.4 78.4 2.9 (37) 81.3 13.6 (46) 94.9
===== ======== ===== ==== ===== ======
Income before
extraordinary charge $3.08 (21) $3.79 $3.76 $3.38
===== ===== ===== =====
Fully diluted:
Weighted average
shares outstanding 78.7 78.7 2.9 (37) 81.6 18.8 (46) 100.4
===== ===== ==== ===== ===== =====
Income before
extraordinary charge $3.07 $3.78 $3.75 $3.21
===== ===== ===== =====
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts have been carried forward from page 65.
(b) Amounts are carried forward to page 67.
</FN>
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
for the year ended December 31, 1995
(Amounts in millions, except per share amounts)
(unaudited)
Pro forma
Pro forma for the
adjustments Merger
Pro forma relating to the and other
Conseco Preferred planned
subtotal(a) Securities Offering transactions
----------- --------------------- --------------
<S> <C> <C> <C>
Revenues:
Insurance policy income $2,308.5 $ - $2,308.5
Investment activity:
Net investment income 1,531.2 1,531.2
Net trading income 2.5 2.5
Net realized gains 222.0 222.0
Fee revenue 33.9 33.9
Restructuring income 15.2 15.2
Other income 12.6 12.6
-------- ------- ---------
Total revenues 4,125.9 4,125.9
-------- ------- ---------
Benefits and expenses:
Insurance policy benefits and change in future policy benefits 1,584.9 1,584.9
Interest expense on annuities and financial products 758.8 758.8
Interest expense on notes payable 179.4 (21.5) (55) 157.9
Interest expense on investment borrowings 30.2 30.2
Amortization related to operations 378.2 378.2
Amortization related to realized gains 143.8 143.8
Other operating costs and expenses 506.0 506.0
-------- ------- --------
Total benefits and expenses 3,581.3 (21.5) 3,559.8
-------- ------- --------
Income (loss) before income taxes, minority interest
and extraordinary charge 544.6 21.5 566.1
Income tax expense (benefit) 214.7 7.5 (56) 222.2
-------- ------- --------
Income (loss) before minority interest and
extraordinary charge 329.9 14.0 343.9
Minority interest 8.7 8.7
-------- ------- --------
Income (loss) before extraordinary charge $ 321.2 $ 14.0 $ 335.2
======== ======= ========
Earnings per common share and common equivalent share:
Primary:
Weighted average shares outstanding 94.9 94.9
====== =====
Income before extraordinary charge $3.38 $3.31(57)
====== =====
Fully diluted:
Weighted average shares outstanding 100.4 100.4
====== =====
Income before extraordinary charge $3.21 $3.14(57)
====== =====
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts have been carried forward from page 66.
</FN>
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1996
(Dollars in millions)
(unaudited)
Pro forma
adjustments
Pro forma Pro forma relating
Conseco adjustments Pro forma to the Pro forma
before the CAF relating to the for the Series D Conseco
Merger historical Merger Merger Call subtotal(a)
------------ ----------- --------------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investments:
Actively managed fixed maturity
securities at fair value $15,872.3 $318.1 $ 351.8 (9) $ 16,639.3 $ - $16,639.3
97.1 (10)
Held-to-maturity fixed maturity
securities - 351.8 (351.8) (9)
Equity securities at fair value 99.6 99.6 99.6
Mortgage loans 404.2 404.2 404.2
Credit-tenant loans 309.7 309.7 309.7
Policy loans 528.7 528.7 528.7
Other invested assets 191.0 191.0 191.0
Trading account securities 0.7 0.7 0.7
Short-term investments 217.3 2.2 (534.0) (11) 219.5 219.5
(26.0) (11)
(29.5) (11)
589.5 (12)
Assets held in separate accounts 271.6 271.6 271.6
--------- ------ ------- --------- ----- ---------
Total investments 17,895.1 672.1 97.1 18,664.3 18,664.3
Accrued investment income 284.1 8.3 292.4 292.4
Cost of policies purchased 1,794.8 483.3 (13) 2,278.1 2,278.1
Cost of policies produced 561.2 266.4 (266.4)(14) 561.2 561.2
Reinsurance receivables 374.6 374.6 374.6
Income taxes 212.0 (80.1)(15) 80.1 80.1
(51.8)(15)
Goodwill 1,508.0 232.5 (16) 1,740.5 1,740.5
Property and equipment 89.0 4.8 93.8 93.8
Securites segregated for future redemption
of redeemable preferred stock of a
Partnership II entity 40.7 40.7 40.7
Other assets 234.2 28.8 263.0 263.0
--------- ------ ------- ---------- ---- ---------
Total assets $22,993.7 $980.4 $ 414.6 $ 24,388.7 $ - $24,388.7
========= ====== ======= ========== ==== =========
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts are carried forward to page 69.
</FN>
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1996
(Dollars in millions)
(unaudited)
Pro forma Pro forma Pro forma
adjustments adjustments adjustments
Pro forma relating to Pro forma relating to Pro forma relating Pro forma
Conseco the ALH Conseco the BLH Conseco ATC to the Conseco
subtotal(a) Transaction subtotal Transaction subtotal historical ATC Merger subtotal(b)
--------- ------------ ----------- ----------- --------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments:
Actively managed fixed
maturity securities
at fair value $16,639.3 $ - $16,639.3 $ - $16,639.3 $ 651.8 $ - $17,291.1
Held-to-maturity
fixed maturity
securities -
Equity securities at
fair value 99.6 99.6 99.6 99.6
Mortgage loans 404.2 404.2 404.2 0.4 404.6
Credit-tenant loans 309.7 309.7 309.7 309.7
Policy loans 528.7 528.7 528.7 528.7
Other invested assets 191.0 191.0 191.0 191.0
Trading account securities 0.7 0.7 0.7 0.7
Short-term investments 219.5 290.0 (29) 207.1 207.1 17.5 (30.4)(47) 224.6
(165.0)(29) 30.4 (48)
(125.0)(29)
(12.4)(29)
Assets held in separate
accounts 271.6 271.6 271.6 271.6
--------- ------ -------- ----- -------- ------ ----- ---------
Total investments 18,664.3 (12.4) 18,651.9 0.0 18,651.9 669.7 0.0 19,321.6
Accrued investment income 292.4 292.4 292.4 7.4 299.8
Cost of policies purchased 2,278.1 (178.4)(23) 2,376.9 65.0 (34) 2,441.9 11.2 256.2 (49) 2,698.1
277.2 (23) (11.2)(49)
Cost of policies produced 561.2 (78.0)(23) 483.2 (50.0)(34) 433.2 160.8 (160.8)(50) 433.2
Reinsurance receivables 374.6 - 374.6 374.6 374.6
Income taxes 80.1 (4.6)(27) 77.8 (5.3)(35) 72.5 (25.6)(51) 25.9
2.3 (30) (21.0)(51)
Goodwill 1,740.5 51.5 (23) 1,792.0 63.1 (34) 1,855.1 503.1 (52) 2,358.2
Property and equipment 93.8 93.8 93.8 4.0 97.8
Securites segregated for
future redemption of
of redeemable preferred
stock of a
Partnership II entity 40.7 40.7 40.7 40.7
Other assets 263.0 263.0 263.0 14.3 277.3
--------- ------ --------- ------ --------- ------ ------ ---------
Total assets $24,388.7 $ 57.6 $24,446.3 $ 72.8 $24,519.1 $ 867.4 $540.7 $25,927.2
========= ====== ========= ====== ========= ====== ====== =========
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts have been carried forward from page 68.
(b) Amounts are carried forward to page 70.
</FN>
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1996
(Dollars in millions)
(unaudited)
Pro forma
Pro forma for the
adjustments Merger
Pro forma relating to the and other
Conseco Preferred planned
subtotal(a) Securities Offering transactions
----------- --------------------- ------------
<S> <C> <C> <C>
Assets
Investments:
Actively managed fixed maturity securities
at fair value $17,291.1 $ - $17,291.1
Held-to-maturity fixed maturity securities - -
Equity securities at fair value 99.6 99.6
Mortgage loans 404.6 404.6
Credit-tenant loans 309.7 309.7
Policy loans 528.7 528.7
Other invested assets 191.0 191.0
Trading account securities 0.7 0.7
Short-term investments 224.6 331.2 (58) 224.6
(331.2)(58)
Assets held in separate accounts 271.6 271.6
--------- ------- ---------
Total investments 19,321.6 - 19,321.6
Accrued investment income 299.8 299.8
Cost of policies purchased 2,698.1 2,698.1
Cost of policies produced 433.2 433.2
Reinsurance receivables 374.6 374.6
Income taxes 25.9 25.9
Goodwill 2,358.2 2,358.2
Property and equipment 97.8 97.8
Securites segregated for future redemption
of redeemable preferred stock of a
Partnership II entity 40.7 40.7
Other assets 277.3 277.3
--------- ------- ---------
Total assets $25,927.2 $ - $25,927.2
========= ======= =========
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts have been carried forward from page 69.
</FN>
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1996
(Dollars in millions)
(unaudited)
Pro forma
adjustments
Pro forma Pro forma relating
Conseco adjustments Pro forma to the Pro forma
before the CAF relating to the for the Series D Conseco
Merger Historical Merger Merger Call subtotal(a)
------------ ----------- --------------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Liabilities:
Insurance liabilities $18,133.2 $587.9 $ 85.0 (17) $ 18,806.1 $ - $18,806.1
Income tax liabilities - 51.8 (51.8)(15) - -
Investment borrowings 516.6 516.6 516.6
Other liabilities 457.9 16.9 474.8 474.8
Liabilities related to separate accounts 271.6 271.6 271.6
Notes payable of Conseco 888.7 29.5 (29.5)(18) 1,478.2 1,478.2
589.5 (12)
Notes payable of Bankers Life Holding
Corporation, not direct obligations
of Conseco 297.9 297.9 297.9
Notes payable of Partnership II entities,
not direct obligations of Conseco 277.1 277.1 277.1
--------- ------ ------- --------- ------ ---------
Total liabilities 20,843.0 686.1 593.2 22,122.3 22,122.3
--------- ------ ------- --------- ------ ---------
Minority interest 285.8 285.8 285.8
--------- ------ ------- --------- ------ ---------
Shareholders' equity:
Preferred stock 536.5 536.5 (269.4)(22) 267.1
Monthly income preferred stock
Common stock and additional paid-in capital 771.8 35.5 (35.5)(19) 887.5 269.4 (22) 1,156.9
115.7 (19)
Unrealized appreciation (depreciation) of
securities (56.1) (2.1) 2.1 (19) (56.1) (56.1)
Retained earnings 612.7 260.9 (260.9)(19) 612.7 612.7
--------- ------ ------- --------- ----- ---------
Total shareholders' equity 1,864.9 294.3 (178.6) 1,980.6 - 1,980.6
--------- ------ ------- --------- ----- ---------
Total liabilities and shareholders'
equity $22,993.7 $980.4 $414.6 $24,388.7 $ - $24,388.7
========= ====== ====== ========= ===== =========
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts are carried forward to page 72.
</FN>
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1996
(Dollars in millions)
(unaudited)
Pro forma Pro forma Pro forma
adjustments adjustments adjustments
Pro forma relating to Pro forma relating to Pro forma relating Pro forma
Conseco the ALH Conseco the BLH Conseco ATC to the Conseco
subtotal(a) Transaction subtotal Transaction subtotal Historical ATC Merger subtotal(b)
--------- ------------ ----------- ----------- --------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities:
Insurance liabilities $18,806.1 $ - $18,806.1 $ - $18,806.1 $563.9 $ - $19,370.0
Income tax liabilities - - - 21.0 (21.0)(51) -
Investment borrowings 516.6 516.6 516.6 - 516.6
Other liabilities 474.8 474.8 474.8 8.0 11.2 (53) 494.0
Liabilities related
to separate accounts 271.6 271.6 271.6 271.6
Notes payable of Conseco 1,478.2 187.8 (29) 1,827.2 400.1 (38) 2,227.3 103.5 30.4 (48) 2,477.7
161.2 (31) 116.5 (53)
Notes payable of
Bankers Life Holding
Corporation, not
direct obligations
of Conseco 297.9 102.2 (29) 400.1 (400.1)(38) - -
Notes payable of
Partnership II entities,
not direct obligations
of Conseco 277.1 (123.6)(29) - - -
7.7 (23)
(161.2)(31)
-------- ------ --------- ----- --------- ------ ------- ----------
Total liabilities 22,122.3 174.1 22,296.4 0.0 22,296.4 696.4 137.1 23,129.9
-------- ------ --------- ----- --------- ------ ------- ---------
Minority interest 285.8 (130.5)(32) 142.9 (49.7)(36) 93.2 93.2
(12.4)(32)
-------- ------ --------- ------ --------- ------ ------- ---------
Shareholders' equity:
Preferred stock 267.1 267.1 267.1 267.1
Monthly income preferred
stock
Common stock and additional
paid-in capital 1,156.9 1,156.9 122.5 (39) 1,279.4 63.8 (63.8)(54) 1,854.0
574.6 (54)
Unrealized appreciation
(depreciation) of securities (56.1) (56.1) (56.1) (10.8) 10.8 (54) (56.1)
Retained earnings 612.7 26.4 (33) 639.1 639.1 118.0 (118.0)(54) 639.1
------- ------ --------- ------ --------- ------ ------- ---------
Total shareholders' equity 1,980.6 26.4 2,007.0 122.5 2,129.5 171.0 403.6 2,704.1
------- ------ --------- ------ --------- ------ ------- ---------
Total liabilities and
shareholders' equity $24,388.7 $ 57.6 $24,446.3 $72.8 $24,519.1 $867.4 $ 540.7 $25,927.2
========= ====== ========= ===== ========= ====== ======= =========
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts have been carried forward from page 71.
(b) Amounts are carried forward to page 73.
</FN>
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1996
(Dollars in millions)
(unaudited)
Pro forma
Pro forma for the
adjustments Merger
Pro forma relating to the and other
Conseco Preferred planned
subtotal(a) Securities Offering transactions
----------- --------------------- --------------
<S> <C> <C> <C>
Liabilities:
Insurance liabilities $19,370.0 $ - $19,370.0
Income tax liabilities - -
Investment borrowings 516.6 516.6
Other liabilities 494.0 494.0
Liabilities related to separate accounts 271.6 271.6
Notes payable of Conseco 2,477.7 (331.2)(58) 2,146.5
Notes payable of Bankers Life Holding
Corporation, not direct obligations of Conseco - -
Notes payable of Partnership II entities, not
direct obligations of Conseco - -
--------- ------- ---------
Total liabilities 23,129.9 (331.2) 22,798.7
--------- ------- ---------
Minority interest 93.2 93.2
--------- ------- ---------
Shareholders' equity:
Preferred stock 267.1 267.1
Monthly income preferred stock - 350.0 (59) 350.0
Common stock and additional paid-in capital 1,854.0 (18.8)(59) 1,835.2
Unrealized appreciation (depreciation) of securities (56.1) (56.1)
Retained earnings 639.1 639.1
--------- ------- ---------
Total shareholders' equity 2,704.1 331.2 3,035.3
--------- ------- ---------
Total liabilities and shareholders' equity $25,927.2 $ - $25,927.2
========= ======= =========
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<FN>
(a) Amounts have been carried forward from page 72.
</FN>
</TABLE>
73
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
PRO FORMA ADJUSTMENTS
TRANSACTIONS RELATING TO THE MERGER
The Merger will be accounted for under the purchase method of accounting.
Under this method, the total cost to acquire CAF will be allocated to the assets
and liabilities acquired based on their fair values as of the date of the
Merger, with any excess of the total purchase cost over the fair value of the
assets acquired less the fair value of the liabilities assumed recorded as
goodwill. In the Merger, each outstanding share of CAF Common Stock is assumed
to be exchanged for $30 in cash and the right to receive a fraction of a share
of Conseco Common Stock to be determined based on the average price of Conseco
Common Stock prior to its closing (it is assumed this shall be .1517 shares
valued at $6.50). Conseco will pay approximately $534 million in cash and issue
an assumed 2.7 million shares of Conseco Common Stock with a value of
approximately $115.7 million to acquire the CAF Common Stock. In addition,
Conseco is expected to assume a note payable of CAF of $29.5 million and incur
costs related to the Merger (including contract termination, relocation, legal,
accounting and other costs) of approximately $26 million.
The cost to acquire CAF is allocated as follows (dollars in millions):
<TABLE>
<S> <C>
Book value of assets acquired based on the assumed date of the
Merger (June 30, 1996) ............................................................ $294.3
Notes payable of CAF assumed by Conseco at the assumed date of the Merger............... 29.5
Increase (decrease) in CAF's net asset value to reflect estimated fair value and
asset reclassifications at the assumed date of the Merger:
Actively managed fixed maturity securities...................................... 448.9
Held-to-maturity fixed maturity securities...................................... (351.8)
Cost of policies purchased (related to the Merger).............................. 483.3
Cost of policies produced....................................................... (266.4)
Goodwill (related to the Merger)................................................ 232.5
Insurance liabilities .......................................................... (85.0)
Income taxes.................................................................... (80.1)
--------
Total estimated fair value adjustments..................................... 381.4
-------
Total cost to acquire CAF.......................................................... $705.2
======
</TABLE>
Adjustments to the pro forma consolidated statement of operations to give
effect to the Merger as of January 1, 1995, are summarized below.
(1) Net investment income and net realized gains of CAF are adjusted to
include the effect of adjustments to restate the amortized cost
basis of fixed maturity securities to their estimated fair value.
(2) Change in policy benefits is reduced to reflect the purchase
accounting adjustments made at the assumed date of the Merger. Such
adjustment reflects the lower discount rate used to discount
amounts of expected future benefit payments to correspond to the
adjustments to restate the amortized cost of fixed maturity
investments to their estimated fair value.
(3) Interest expense is reduced to reflect the repayment of notes
payable of CAF by Conseco at the assumed date of the Merger.
(4) Interest expense is increased to reflect the increase in borrowing
under Conseco's revolving credit facility used to complete the
Merger.
A change in interest rates of .5 percent on the additional
borrowings under Conseco's revolving credit facility used to
complete the Merger would result in: (1) an increase (or decrease)
in pro forma interest expense of $2.9 million and $1.5 million for
the year ended December 31, 1995, and the six months ended June 30,
1996, respectively; and (2) a decrease (or increase) in pro forma
net income of $1.9 million and $1.0 million for the same respective
periods.
74
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(5) Amortization of the cost of policies produced for policies sold by
CAF prior to January 1, 1995, is replaced with the amortization of
the cost of policies purchased (amortized in relation to estimated
premiums on the policies purchased with interest equal to the
liability rate which averages 5.5 percent).
(6) Amortization of goodwill acquired in the Merger is recognized over
a 40-year period on a straight-line basis.
(7) Reflects the tax adjustment for the pro forma adjustments at the
appropriate rate for the specific item.
(8) Common shares outstanding are increased to reflect the shares
issued in the Merger.
Adjustments to the pro forma consolidated balance sheet to give effect to
the Merger as of June 30, 1996, are summarized below.
(9) After the Merger, all held-to-maturity securities are classified as
actively managed fixed maturity securities consistent with the
intention of the new management.
(10) CAF's fixed maturity securities are restated to estimated fair
value.
(11) Cash is reduced for payments made to complete the Merger.
(12) Short-term investments and notes payable of Conseco are increased
for additional borrowings by Conseco to complete the Merger.
(13) CAF's historical cost of policies purchased is eliminated and
replaced with the cost of policies purchased recognized in the
Merger. Cost of policies purchased reflects the estimated fair
value of CAF's business in force and represents the portion of the
cost to acquire CAF that is allocated to the value of the right to
receive future cash flows from the acquired policies.
The 18 percent discount rate used to determine such value is the
rate of return required by Conseco to invest in the business being
acquired. In determining such rate of return, the following factors
are considered:
- The magnitude of the risks associated with each of the
actuarial assumptions used in determining the expected cash
flows.
- Cost of capital available to fund the acquisition.
- The perceived likelihood of changes in insurance regulations
and tax laws.
- Complexity of the acquired company.
- Prices paid (i.e., discount rates used in determining
valuations) on similar blocks of business sold recently.
The value allocated to the cost of policies purchased is based on a
preliminary valuation; accordingly, this allocation may be adjusted
upon final determination of such value. Expected gross amortization
of such value using current assumptions and accretion of interest
based on an interest rate equal to the liability rate (such rate
averages 5.5 percent) for each of the years in the five-year period
ending June 30, 2001, are as follows (dollars in millions):
<TABLE>
<CAPTION>
Year ending Beginning Gross Accretion Net Ending
June 30, balance amortization of interest amortization balance
----------- ---------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
1997 $483.3 $59.3 $26.6 $32.7 $450.6
1998 450.6 54.2 24.7 29.5 421.1
1999 421.1 51.3 23.2 28.1 393.0
2000 393.0 48.6 21.7 26.9 366.1
2001 366.1 46.1 20.1 26.0 340.1
</TABLE>
75
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(14) CAF's cost of policies produced is eliminated since such amounts
are reflected in the determination of the cost of policies
purchased.
(15) All of the applicable pro forma balance sheet adjustments are tax
affected at the appropriate rate. In addition, deferred tax
liabilities of CAF are netted against deferred tax assets of
Conseco.
(16) Goodwill acquired in the Merger is recognized.
(17) Additional insurance liabilities are recognized to reflect the
lower discount rates used to determine the present value of future
obligations, consistent with the lower yields to be earned on
invested assets as a result of recognizing the fair value of fixed
maturity securities.
(18) Notes payable are reduced to reflect the repayment of notes payable
of CAF by Conseco at the assumed date of the Merger.
(19) The prior shareholders' equity of CAF is eliminated in conjunction
with the Merger. Common stock and additional paid-in capital is
increased by the value of Conseco Common Stock issued in the
Merger.
OTHER PLANNED TRANSACTIONS
Transactions related to the Series D Call
At June 30, 1996, Conseco has approximately 5.7 million shares of Series D
preferred stock outstanding with a carrying value of $269.4 million. Each Series
D share is convertible at any time into shares of Conseco Common Stock at a
conversion price of $31.875 per common share (equivalent to 1.56860 shares of
Conseco Common Stock for each share of Series D preferred stock outstanding).
The Series D preferred stock is redeemable at Conseco's option at any time
subsequent to January 22, 1996, at a price of $52.275 per share (such price
declines to $50 per share over the period through January 15, 2003). Dividends
on the Series D preferred stock are paid quarterly at an annual rate of 6.5
percent.
On August 27, 1996, Conseco called for redemption all outstanding shares of
the Series D preferred stock at a redemption price plus accrued dividends of
$52.916. As long as the market price of Conseco Common Stock (after giving
effect to commissions and other costs of sale) is equal to or greater than
$33.735, upon conversion, holders of Series D preferred stock will receive
shares of Conseco Common Stock having a current market value greater than the
amount of cash that they would be entitled to receive upon redemption of the
Series D preferred stock. The last reported sale price of Conseco Common Stock
on the New York Stock Exchange on September 6, 1996, was $42.50. Accordingly,
the pro forma adjustments assume that the outstanding shares of Series D
preferred stock will be converted to common shares as a result of the call.
Adjustments to give effect to the Series D Call are summarized below:
(20) Primary weighted average shares outstanding are adjusted to reflect
the issuance of Conseco Common Stock assuming each share of Series
D preferred stock is converted based on the stock's conversion
provisions (1.56860 shares of Conseco Common Stock for each share
of Series D preferred stock outstanding). Such issuance has no
effect on fully diluted average shares outstanding or fully diluted
earnings per share since the Series D preferred stock is considered
to have been converted for fully diluted calculations.
(21) Primary earnings per share are adjusted to reflect the elimination
of the Series D preferred stock dividend and the increase in the
Conseco common shares outstanding.
(22) Preferred stock is reduced and common stock and additional paid-in
capital is increased to reflect the conversion effected by the
Series D Call.
76
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Transactions relating to the ALH Transaction
Conseco has proposed to acquire all of the common stock of ALH, not
previously owned by Conseco, for a purchase price of $165.0 million. In the
proposed transaction, ALH's former shareholders, other than Conseco, would
receive $23.00 per common share. In related transactions, Conseco intends to
purchase all outstanding payment-in-kind preferred stock of ALH, not owned by
Conseco, and repay ALH's outstanding senior credit facility. These transactions
will be financed using available cash and additional borrowings under Conseco's
Credit Agreement and BLH's credit facility (the "BLH Credit Agreement').
Hereinafter ALH refers to ALH or the former subsidiaries of ALH.
The proposed sources and uses of the financing to complete the ALH
Transaction are summarized below (dollars in millions):
<TABLE>
<S> <C>
Sources of funds:
Available cash......................................................................... $ 12.4
Conseco Credit Agreement............................................................... 187.8
BLH Credit Agreement................................................................... 102.2
-------
Total sources....................................................................... $302.4
======
Uses of funds:
Purchase of all outstanding common stock of ALH, not owned by Conseco*................. $165.0
Repayment of ALH senior credit facility................................................ 125.0
Purchase of all outstanding payment-in-kind preferred stock of ALH,
not owned by Conseco................................................................. 12.4
------
Total uses ..................................................................... $302.4
======
- --------------------
<FN>
* Excludes approximately 1.1 million shares of ALH common stock which will
be distributed to Conseco, the general partner of Conseco Capital Partners II,
L.P ("Partnership II"), based on the returns earned by the limited partners on
the ALH investment as defined by Partnership II's Partnership Agreement. Conseco
will recognize a gain of approximately $25.0 million representing the value of
the common stock distributed to Conseco from the limited partners (other than
limited partners which are subsidiaries of Conseco).
</FN>
</TABLE>
The pro forma adjustments are applied to the historical consolidated
financial statements of Conseco using the step acquisition method of accounting.
Under this method, the total purchase cost of the common stock of ALH, not
already owned by Conseco, is allocated to the assets and liabilities acquired
based on their relative fair values as of the date of acquisition, with any
excess of the total purchase cost over the fair value of the assets acquired
less the fair value of the liabilities assumed recorded as goodwill. The values
of the assets and liabilities of ALH included in Conseco's pro forma
consolidated financial statements represent the combination of the following
values: (1) the portion of ALH's net assets acquired by Conseco in the initial
acquisition made by Partnership II is valued as of its acquisition date,
September 29, 1994; (2) the portion acquired in the fourth quarter of 1995, is
valued as of its assumed acquisition date; and (3) the portion of ALH's net
assets acquired in the ALH Transaction is valued as of the assumed dates of
acquisition.
Adjustments to give effect to the ALH Transaction are summarized below:
(23) As described above, the ALH Transaction is accounted for as a step
acquisition. The accounts of ALH are adjusted to reflect the step
acquisition method of accounting as if the ALH Transaction was
completed on the assumed dates of acquisition.
(24) Net investment income is reduced for the lost investment income on
cash used in the ALH Transaction.
(25) Interest expense is increased to reflect the additional borrowings
under the Conseco Credit Agreement and the BLH Credit Agreement.
77
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A change in interest rates of .5 percent on the additional
borrowings under the Conseco Credit Agreement and the BLH Credit
Agreement used to complete the ALH Transaction would result in: (1)
an increase (or decrease) in pro forma interest expense of $1.5
million and $.7 million for the year ended December 31, 1995, and
the six months ended June 30, 1996, respectively; and (2) a
decrease (or increase) in pro forma net income of $1.0 million and
$.5 million for the same respective periods.
(26) Interest expense is reduced to reflect the repayment of the ALH
senior credit facility. In addition, interest expense is adjusted
to reflect the fair value of ALH's subordinated debentures.
(27) All pro forma adjustments are tax affected based on the appropriate
rate for the specific item. In addition, tax expense is adjusted to
reflect the reduction in tax expense as a result of Conseco's
increased ownership of ALH.
(28) Minority interest is reduced to eliminate the income attributable
to the former shareholders of ALH and the preferred dividends on
the payment-in-kind preferred stock of ALH, not owned by Conseco.
(29) The proposed sources and uses of the financing to complete the
purchase of additional shares of ALH and related transactions (as
summarized above) are recorded.
(30) A tax benefit is recognized as a result of the release of deferred
tax previously accrued on income related to ALH. Such deferred tax
is no longer required since Conseco is permitted to file a
consolidated tax return with ALH and the income to which this tax
relates can be distributed to Conseco without the payment of tax.
(31) Notes payable of Partnership II entities are reclassified as notes
payable of Conseco since ALH is now a wholly owned subsidiary of
Conseco.
(32) Minority interest is reduced to eliminate the ownership interest of
the former shareholders of ALH and the payment-in-kind preferred
stock of ALH, not owned by Conseco prior to the ALH Transaction.
(33) The retained earnings account is adjusted to reflect: (1) the gain
representing the value of the common stock of ALH distributed to
Conseco from the limited partners (other than limited partners
which are subsidiaries of Conseco); (2) the tax benefit recognized
as described in entry (30) above; and (3) Conseco's share of the
extraordinary charge related to the repayment of the ALH senior
credit facility.
Transactions relating to the BLH Transaction
Conseco has proposed to acquire all of the common stock of BLH, not
previously owned by Conseco. In the BLH Transaction, each share of BLH common
stock would be converted into the right to receive a fraction of a share of
Conseco Common Stock to be determined based on the average price of Conseco
Common Stock prior to closing (it is assumed this shall be .615 shares valued at
$25.00). Conseco will issue an assumed 2.9 million shares of Conseco Common
Stock with a value of approximately $122.5 million.
The pro forma adjustments are applied to the historical consolidated
financial statements of Conseco using the step acquisition method of accounting.
Under this method, the total purchase cost of the common stock of BLH, not
already owned by Conseco, is allocated to the assets and liabilities acquired
based on their relative fair values as of the date of acquisition, with any
excess of the total purchase cost over the fair value of the assets acquired
less the fair value of the liabilities assumed recorded as goodwill. The values
of the assets and liabilities of BLH included in Conseco's pro forma
consolidated financial statements represent the combination of the following
values: (1) the portion of BLH's net assets acquired by Conseco in the initial
acquisition made by Conseco Capital Partners, L.P. on October 31, 1992, is
valued as of that acquisition date; (2) the portion of BLH's net assets acquired
by Conseco on September 30, 1993, is valued as of that acquisition date; (3) the
portion of BLH's net assets acquired during 1995 and the first quarter of 1996
is valued as of its assumed date of acquisition; and (4) the portion of BLH's
net assets acquired in the BLH Transaction is valued at the assumed dates of
acquisition.
Adjustments to give effect to the BLH Transaction are summarized below:
(34) As described above, the BLH Transaction is accounted for as a step
acquisition. The accounts of BLH are adjusted to reflect the step
basis method of accounting as if the BLH Transaction was completed
on the assumed dates of acquisition.
(35) All pro forma adjustments are tax affected based on the appropriate
rate for the specific item.
78
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(36) Minority interest is reduced to eliminate the ownership interest
of the former shareholders of BLH.
(37) Common shares outstanding are increased to reflect the shares of
Conseco Common Stock issued in the acquisition of additional shares
of BLH common stock.
(38) Notes payable of BLH are reclassified as notes payable of Conseco,
since BLH is now wholly owned by Conseco.
(39) Common stock and additional paid-in capital is increased by the
value of Conseco Common Stock issued in the acquisition of
additional shares of BLH common stock.
Transactions relating to the ATC Merger
The ATC Merger will be accounted for under the purchase method of
accounting. Under this method, the total cost to acquire ATC will be allocated
to the assets and liabilities acquired based on their fair values as of the date
of the ATC Merger, with any excess of the total purchase cost over the fair
value of the assets acquired less the fair value of the liabilities assumed
recorded as goodwill. Conseco believes the ATC Merger will not qualify to be
accounted for under the pooling of interests method in accordance with APB No.
16 because an affiliate of ATC intends to sell a portion of the Conseco Common
Stock it receives in the ATC Merger shortly after the Effective Time. In the ATC
Merger, each outstanding share of ATC Common Stock is assumed to be exchanged
for a fraction of a share of Conseco Common Stock to be determined based on an
average price of Conseco's Common Stock prior to its closing (it is assumed this
shall be .7574 shares valued at $32.00). Conseco will issue an assumed 13.6
million shares of Conseco Common Stock with a value of approximately $574.6
million to acquire the ATC Common Stock. In addition, Conseco will assume ATC's
outstanding convertible subordinated debentures, which will be convertible into
an assumed 5.2 million shares of Conseco Common Stock with a value of
approximately $220 million. In addition, Conseco is expected to incur costs
related to the ATC Merger (including contract termination, relocation, legal,
accounting and other costs) of approximately $30 million.
The cost to acquire ATC is allocated as follows (dollars in millions):
<TABLE>
<S> <C>
Book value of assets acquired based on assumed date of the
ATC Merger (June 30, 1996) ........................................................ $171.0
Convertible subordinated debentures assumed by Conseco at the assumed date
of the ATC Merger.................................................................. 103.5
Increase (decrease) in ATC's net asset value to reflect estimated fair value and
asset reclassifications at the assumed date of the ATC Merger:
Cost of policies purchased (related to the ATC Merger).......................... 256.2
Cost of policies produced and cost of policies purchased (historical)........... (172.0)
Goodwill (related to the ATC Merger)............................................ 503.1
Income taxes.................................................................... (25.6)
Other liabilities............................................................... (11.2)
-----
Total estimated fair value adjustments..................................... 550.5
------
Total cost to acquire ATC.......................................................... $825.0
======
</TABLE>
Adjustments to the pro forma consolidated statement of operations to give
effect to the ATC Merger as of January 1, 1995, are summarized below.
(40) Net investment income and net realized gains of ATC are adjusted to
include the effect of adjustments to restate the amortized cost
basis of fixed maturity securities to their estimated fair value.
(41) Interest expense is increased to reflect the increase in borrowings
under Conseco's revolving credit facility used to complete the ATC
Merger.
79
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A change in interest rates of .5 percent on the additional
borrowings under Conseco's revolving credit facility used to
complete the ATC Merger would result in: (1) an increase (or
decrease) in pro forma interest expense of $.2 million and $.1
million for the year ended December 31, 1995, and the six months
ended June 30, 1996, respectively; and (2) a decrease (or increase)
in pro forma net income of $.1 million and $.1 million for the same
respective periods.
(42) Interest expense is reduced to reflect the amortization of the
liability established at the assumed date of the ATC Merger
representing the present value of the interest payable on ATC's
convertible subordinated debentures to October 1, 1998 (the
earliest call date), less the present value of the dividends that
would be paid on the Conseco Common Stock that such debentures
would be convertible into during the same period.
(43) Amortization of the cost of policies produced and the cost of
policies purchased prior to the ATC Merger is replaced with the
amortization of the cost of policies purchased (amortized in
relation to estimated premiums on the policies purchased with
interest equal to the liability rate which averages 5.5 percent).
(44) Amortization of goodwill acquired in the ATC Merger is recognized
over a 40-year period on a straight-line basis.
(45) Reflects the tax adjustment for the pro forma adjustments at the
appropriate rate for the specific item.
(46) Common shares outstanding are increased to reflect the Conseco
shares issued in the ATC Merger. Fully diluted shares also include
Conseco shares which will be issued when ATC's convertible
subordinated debentures are converted.
Adjustments to the pro forma consolidated balance sheet to give effect to
the ATC Merger as of June 30, 1996, are summarized below.
(47) Cash is reduced for payments made to complete the ATC Merger.
(48) Short-term investments and notes payable of Conseco are increased
for additional borrowings by Conseco to complete the ATC Merger.
(49) ATC's historical cost of policies purchased is eliminated and
replaced with the cost of policies purchased recognized in the ATC
Merger. Cost of policies purchased reflects the estimated fair
value of ATC's business in force and represents the portion of the
cost to acquire ATC that is allocated to the value of the right to
receive future cash flows from the acquired policies.
The 18 percent discount rate used to determine such value is the
rate of return required by Conseco to invest in the business being
acquired. In determining such rate of return, the following factors
are considered:
- The magnitude of the risks associated with each of the
actuarial assumptions used in determining the expected cash
flows.
- Cost of capital available to fund the acquisition.
- The perceived likelihood of changes in insurance regulation
and tax laws.
- Complexity of the acquired company.
- Prices paid (i.e., discount rates used in determining
valuations) on similar blocks of business sold recently.
80
<PAGE>
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The value allocated to the cost of policies purchased is based on a
preliminary valuation; accordingly, this allocation may be adjusted
upon final determination of such value. Expected gross amortization
of such value using current assumptions and accretion of interest
based on an interest rate equal to the liability rate (such rate
averages 5.5 percent) for each of the years in the five-year period
ending June 30, 2001, are as follows (dollars in millions):
<TABLE>
<CAPTION>
Year ending Beginning Gross Accretion Net Ending
June 30, balance amortization of interest amortization balance
----------- --------- ------------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
1997 $256.2 $33.7 $13.5 $20.2 $236.0
1998 236.0 30.8 12.3 18.5 217.5
1999 217.5 28.2 11.4 16.8 200.7
2000 200.7 26.0 10.4 15.6 185.1
2001 185.1 24.0 9.6 14.4 170.7
</TABLE>
(50) ATC's cost of policies produced is eliminated since such amounts
are reflected in the determination of the cost of policies
purchased.
(51) All of the applicable pro forma balance sheet adjustments are tax
affected at the appropriate rate. Deferred tax liabilities of ATC
are netted against deferred tax assets of Conseco.
(52) Goodwill acquired in the ATC Merger is recognized.
(53) Notes payable are increased to reflect the fair value of ATC's
convertible subordinated debentures at the date of the ATC Merger.
Such fair value represents the value of the Conseco Common Stock
which ATC's convertible subordinated debentures will be convertible
into after the ATC Merger. It is assumed that the holders of such
debentures do not convert into Conseco Common Stock at the time of
the ATC Merger.
In addition, a liability is established representing the present
value of the interest payable on such debentures to October 1, 1998
(the earliest call date), less the present value of the dividends
that would be paid on the Conseco Common Stock that such debentures
would be convertible into during the same period.
(54) The prior shareholders' equity of ATC is eliminated in conjunction
with the ATC Merger. Common stock and additional paid-in capital is
increased by the value of Conseco Common Stock issued in the ATC
Merger.
Transactions relating to the Preferred Securities Offering
Conseco intends to issue $350 million par value of 9.25 percent tax
deductible Preferred Securities and use the proceeds to reduce borrowings under
the Conseco Credit Agreement.
(55) Interest expense is reduced to reflect the repayment of borrowings
under the Conseco Credit Agreement.
A change in interest rates of .5 percent on the borrowings under
the Conseco Credit Agreement to be repaid from the Preferred
Securities Offering would result in: (1) a decrease (or increase)
in pro forma interest expense of $1.7 million and $.8 million for
the year ended December 31, 1995, and the six months ended June 30,
1996, respectively; and (2) an increase (or decrease) in pro forma
net income of $1.1 million and $.5 million for the same respective
periods.
(56) The pro forma adjustment is tax affected, based on Conseco's
effective tax rate of 35 percent.
(57) Earnings per share are adjusted to reflect the change in net income
and the payment of dividends (net of related tax benefit) on the
Preferred Securities.
(58) Notes payable are reduced to reflect the repayment of borrowings
under the Conseco Credit Agreement using the net proceeds from the
Preferred Securities.
(59) Preferred stock is increased by the total par value of the
Preferred Securities. Issuance and other transaction costs related
to the Preferred Securities are charged to paid-in capital.
81
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<PAGE>
COMPARISON OF SHAREHOLDERS' RIGHTS
The rights of Conseco shareholders are governed by Conseco's Amended
and Restated Articles of Incorporation (the "Conseco Articles of
Incorporation"), its Amended and Restated Code of By-laws (the "Conseco
By-laws") and the Indiana Corporation Law. The rights of CAF shareholders are
governed by its Amended and Restated Articles of Incorporation (the "CAF
Articles of Incorporation"), its Amended Code of Regulations (the "CAF Code of
Regulations") and the Ohio Revised Code. After the Effective Time, the rights of
CAF shareholders who become Conseco shareholders will be governed by the Conseco
Articles of Incorporation, the Conseco By-laws and the Indiana Corporation Law.
The following is a summary of the material differences between the rights of
Conseco shareholders and the rights of CAF shareholders.
Amendment of By-laws
The Conseco By-laws may be amended by majority vote of the Board of
Directors.
The CAF Code of Regulations may be amended by the affirmative vote of
the holders of shares entitling them to exercise a majority of the voting power
of CAF on such proposal.
Voting with Respect to Certain Business Combinations
The Conseco Articles of Incorporation provide that Conseco may not
enter into a "Special Business Combination Transaction" (defined as a merger or
other business combination transaction with or involving a beneficial owner of
more than ten percent of Conseco Common Stock (a "Related Person")) unless (1)
the consideration to be received per share by holders of Conseco Common Stock in
such transaction is at least equal to the highest per share price paid in order
to acquire any shares of Conseco Common Stock beneficially owned by the Related
Person or (2) the transaction shall have been approved by two-thirds of the
Continuing Directors (defined as the directors of Conseco in office prior to the
date on which a Related Person became such).
The CAF Articles of Incorporation provides that the affirmative vote of
the holders of a majority of the CAF Common Stock and at least two-thirds of the
CAF Preferred Shares, if any outstanding (no CAF Preferred Shares were
outstanding as of the date of the Proxy Statement/Prospectus), shall be
necessary to effect the merger or consolidation of CAF into or with any other
corporation or the merger of any other corporation into CAF. In addition,
Section 1704.01 et seq. of the Ohio Revised Code prohibits "Transactions
Involving Interested Shareholders" (defined to include a merger, consolidation,
combination or majority share acquisition with or involving a beneficial owner
of a sufficient number of shares of a public corporation that would entitle that
person, directly or indirectly, to exercise ten percent or more of the voting
power of such public corporation (the "Interested Shareholder")) within three
years of the Interested Shareholder's share acquisition date unless (1) prior to
the Interested Shareholder's share acquisition date, the directors of the
issuing public corporation have approved the acquisition for purposes of Section
1704.02 of the Ohio Revised Code or (2) any of the exceptions of Section 1704.05
of the Ohio Revised Code are applicable.
Certain Provisions Relating to Acquisitions
The Indiana Corporation Law contains certain provisions, including the
ones described below, which purport to apply to certain types of shares
acquisitions or corporate transactions.
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
82
<PAGE>
Business Combinations. Section 23-1-43 of the Indiana Corporation Law
provides that a corporation may not engage in any business combination with any
interested shareholder (defined as the beneficial owner of ten percent or more
of the voting power of the outstanding voting shares) for a period of five years
following the interested shareholder's share acquisition date unless the
business combination or the purchase of shares made by the interested
shareholder is approved by the board of directors of the corporation before the
interested shareholder's share acquisition date.
Control Share Acquisitions. Section 23-1-42 of the Indiana Corporation
Law requires that, unless the articles of incorporation or by-laws of a
corporation exempt the corporation (which Conseco's Articles of Incorporation
and By-Laws do not), the acquisition by any person of more than one-fifth,
one-third or a majority of the voting power of an issuing public corporation in
the election of directors be approved by the shareholders of the issuing public
corporation.
Takeover Offers. Section 23-2-3.1 of the Indiana Corporation Law
provides that a person shall not make a takeover offer unless the following
conditions are satisfied: (1) a statement which consists of each document
required to be filed with the Commission is filed with the Indiana securities
commissioner and delivered to the president of the target company; (2) a consent
to service of process and the requisite filing fee accompanies the statement
filed with the Indiana securities commissioner; (3) the takeover offer is made
to all offerees holding the same class of equity securities on substantially
equivalent terms; (4) a hearing is held within 20 business days after required
statements are filed; and (5) the Indiana securities commissioner shall have
approved the takeover offer. A "takeover bid" includes an offer to acquire or an
acquisition of any equity security of a target company pursuant to a tender
offer or request or invitation for tenders if, after the acquisition, the
offeror is directly or indirectly a record or beneficial owner of more than ten
percent of any class of the outstanding equity securities of the target company.
A "target company" means an issuer of securities which is organized under the
laws of Indiana, has its principal place of business in Indiana and has
substantial assets in Indiana.
The Ohio Revised Code contains certain provisions, including the ones
described below, which purport to apply to certain types of share acquisitions
or corporate transactions.
Combination and Majority Share Acquisition. Section 1701.83 of the Ohio
Revised Code (the "Majority Share Acquisition Statute") requires the directors
and shareholders of an acquiring corporation to authorize transactions involving
a combination or majority share acquisition if such transaction involves the
issuance or transfer by the acquiring corporation of such numbers of its shares
as entitle the holders to exercise one-sixth or more of the voting power of such
corporation in the election of directors immediately after the consummation of
such transaction.
Control Share Acquisitions. The Ohio Revised Code contains a provision
(the "Ohio Control Share Acquisition Act") which, unless the articles or
regulations of a corporation exempt the corporation (which CAF's Articles of
Incorporation do not), requires that the acquisition by any person of more than
one-fifth, one-third or a majority of the voting power of a publicly held
corporation be approved by a majority of the voting power of the corporation
excluding shares held by the potential acquiror or any officer or employee
director of the corporation. The Ohio Control Share Acquisition Act requires
shareholder approval of such an acquisition regardless of approval by the
corporation's board of directors and requires that a special meeting of
shareholders be held to vote on a proposed acquisition.
Control Bids. Chapter 1707 of the Ohio Revised Code purports to
regulate control bids for the securities of a subject company by a tender offer.
It would require a filing with the division of securities of Ohio and permit the
division to call a hearing. A "control bid" includes the purchase of or offer to
purchase any equity security of a subject company from a resident of Ohio if (1)
after the purchase, the
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
83
<PAGE>
offeror would become the beneficial owner of more than ten percent of any class
of equity security of the issuer, or (2) the offeror is the subject company,
there is a pending control bid by a person other than the issuer, and the number
of issued and outstanding shares of the subject company would be reduced by over
ten percent. A control bid does not include, among other things, an offer to
acquire any equity security solely in exchange for any other equity security, or
the acquisition of any equity security pursuant to an offer, for the sole
account of the offeror, in good faith and not for the purpose of avoiding the
provisions of the chapter, and not involving any public offering of the other
security. The subject company includes an issuer that has (A) its principal
place of business or principal executive office in Ohio, and (B) more than ten
percent of its beneficial or equity security holders resident in Ohio, more than
ten percent of its equity securities owned beneficially or of record by
residents of Ohio, or more than one thousand of its beneficial or equity
security holders resident in Ohio.
Certain Short-Term Profits. Chapter 1707 of the Ohio Revised Code
generally requires a person or entity that makes a proposal, or publicly
discloses an intention or possibility of making a proposal to acquire control of
a corporation to repay to that corporation any profits of an aggregate of
$250,000 or more made from dispositions of the company's stock within 18 months
after making the control proposal, unless such person can establish either that
his, her or its sole intention in making such proposal or disclosure was to
succeed in acquiring control of the corporation or that the proposal or
disclosure was not made with the purpose of affecting, and did not materially
affect, market trading in the corporation's stock.
Right to Bring Business Before an Annual or Special Meeting of Shareholders
The Conseco Articles of Incorporation and the Conseco By-laws do not
contain any restriction on the ability of shareholders to bring business before
a special meeting of shareholders.
The CAF Code of Regulations provides that no business other than that
specified in the call of a special meeting of the shareholders shall be
considered at any special meeting. Special meetings of the shareholders of CAF
shall be called upon the written request of the chairman of the board, the
president, the directors by action at a meeting, a majority of the directors
acting without a meeting, or of the holders of shares entitling them to exercise
50 percent of the voting power of CAF entitled to vote thereat. Unless waived,
written notice of each annual or special meeting stating the time, place and the
purposes thereof shall be given to each shareholder of CAF not more than 60 days
nor less than seven days before any such meeting.
Shareholder Action by Written Consent
The Conseco By-laws specifically authorize shareholder action by
written consent of all the shareholders entitled to vote on such action.
The Ohio Revised Code provides that unless the articles or the
regulations prohibit the authorization or taking of any action of the
shareholders without a meeting, any action which may be authorized or taken at a
meeting of the shareholders may be authorized or taken without a meeting with
the affirmative vote or approval of, and in a writing or writings signed by all
of the shareholders who would be entitled to notice of a shareholders' meeting
held for such purpose. Neither CAF's Articles of Incorporation nor Code of
Regulations prohibit the authorization or taking of any action of the
shareholders without a meeting and thus CAF's shareholders can take action by a
written consent signed by all shareholders.
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<PAGE>
Removal of Directors
The Conseco Articles of Incorporation provides for the board of
directors to be divided into three classes. Under the Conseco By-laws, a
director may be removed, either for or without cause, at any special meeting of
shareholders called for that purpose, by the affirmative vote of a majority in
number of shares of the shareholders present in person or by proxy and entitled
to vote for the election of such director.
The CAF Code of Regulations provides for nine directors, all of whom
hold office until the annual meeting next succeeding his or her election and
until his or her successor is elected and qualified. Under the CAF Code of
Regulations, a director may be removed either for cause or without cause by the
vote of the holders of a majority of the voting power entitling them to elect
directors in place of those to be removed.
Director Liability
The Conseco Articles of Incorporation and the Conseco By-laws do not
contain a specific exculpatory provision regarding director liability. The
Indiana Corporation Law, however, provides that a director is not liable for any
action taken as a director, or any failure to take any action, unless (1) the
director has breached or failed to perform the duties of the director's office
in compliance with Section 23-1-35-1 of the Indiana Corporation Law (which
requires, among other things, that a director discharge his or her duties as a
director in good faith, with the care an ordinarily prudent person in a like
position would exercise under similar circumstances and in a manner the director
reasonably believes to be in the best interests of the corporation), and (2) the
breach or failure to perform constitutes willful misconduct or recklessness.
Similarly, the CAF Articles of Incorporation and the CAF Code of
Regulations do not contain a specific exculpatory provision regarding director
liability. However, Section 1701.59 of the Ohio Revised Code provides that a
director is liable for any action he fails to take as a director only if it is
proved by clear and convincing evidence in a court of competent jurisdiction
that his or her action or failure to act involved an act or omission undertaken
with deliberate intent to cause injury to the corporation or undertaken with
reckless disregard for the best interests of the corporation. The Ohio
Corporation Law further provides that a director shall not be found to have
violated his duties unless it is proved by clear and convincing evidence that
the director has not acted in good faith, in a manner he or she reasonably
believes to be in or not opposed to the best interests of the corporation, or
with the care that an ordinarily prudent person in a like position would use
under similar circumstances.
Indemnification
The Indiana Corporation Law grants authorization to Indiana
corporations to indemnify officers and directors for their conduct if such
conduct was in good faith and was in the corporation's best interests or, in the
case of directors, was not opposed to such best interests, and permits the
purchase of insurance in this regard. In addition, the shareholders of a
corporation may approve the inclusion of other or additional indemnification
provisions in the articles of incorporation and by-laws.
The Ohio Revised Code grants authorization to Ohio corporations to
indemnify officers and directors for their conduct if such person acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, if he or she had no reasonable cause to believe his or her
conduct was unlawful; provided, however, if the indemnification relates to an
action or suit by or in the right of the corporation
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
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to procure a judgment in its favor, additional requirements must be satisfied
prior to indemnification. The Ohio Revised Code permits corporations to purchase
insurance in this regard. The indemnification provided in the Ohio Revised Code
is in addition to any other rights granted to those seeking indemnification
under the articles, regulations, any agreement, a vote of shareholders or
disinterested directors or otherwise.
The Conseco By-laws provides for the indemnification of any person made
a party to any action, suit or proceeding by reason of the fact that he or she
is a director, officer or employee of Conseco, unless it is adjudged in such
action, suit or proceeding that such person is liable for negligence or
misconduct in the performance of his or her duties. Such indemnification shall
be against the reasonable expenses, including attorneys' fees, incurred by such
person in connection with the defense of such action, suit or proceeding. In
some circumstances, Conseco may reimburse any such person for the reasonable
costs of settlement of any such action, suit or proceeding if a majority of the
members of the Board of Directors not involved in the controversy shall
determine that it was in the interests of Conseco that such settlement be made
and that such person was not guilty of negligence or misconduct.
The Conseco Articles of Incorporation and Conseco By-laws do not
provide for the advancement of expenses. However, under the Indiana Corporation
Law, a corporation may advance expenses if (1) the director furnishes the
corporation a written affirmation of the director's good faith belief that the
director has met the standard of conduct called for by Section 23-1-37-8 of the
Indiana Corporation Law (which states that a corporation may indemnify an
individual made a part to a proceeding because the individual is or was a
director against liability incurred in the proceeding if: (A) the individual's
conduct was in good faith; and (B) the individual reasonably believed: (i) in
the case of conduct in the individual's official capacity with the corporation,
that the individual's conduct was in its best interests; and (ii) in all other
cases, that the individual's conduct was at least not opposed to its best
interests; and (C) in the case of any criminal proceeding, the individual
either: (i) had reasonable cause to believe the individual's conduct was lawful;
or (ii) had no reasonable cause to believe the individual's conduct was
unlawful), (2) the director furnishes a written undertaking to repay the advance
if it is ultimately determined that he or she did not meet such standard of
conduct and (3) a determination is made that the facts then known would not
preclude indemnification under Indiana laws.
The CAF Code of Regulations provides that CAF shall indemnify any
person who was, is, or is threatened to be made a party to a proceeding by
reason of the fact that he or she (1) is or was a director or officer of CAF or
(2) is or was serving at the request of CAF as a director, trustee, officer,
employee or agent of another corporation, domestic or foreign, nonprofit or for
profit, partnership, joint venture, trust, or other enterprise, against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding if he or she acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of CAF, and
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful.
In addition, the CAF Code of Regulations provides that CAF shall
indemnify any person who was or is threatened to be named a party to a
proceeding by or in the right of CAF by reason of the fact that he or she (1) is
or was a director or officer of CAF or (2) is or was serving at the request of
CAF as a director, trustee, officer, employee or agent of another corporation,
domestic or foreign, nonprofit or for profit, partnership, joint venture, trust,
or other enterprise, against expenses, including attorneys' fees, actually and
reasonably incurred by him or her in connection with the defense or settlement
of such action or suit if he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of CAF.
However, no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
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<PAGE>
misconduct in the performance of his or her duty to CAF unless, and only to the
extent that the Court of Common Pleas, or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability, but in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnification for such expenses as the Court
of Common Pleas or such court shall deem proper.
The CAF Code of Regulations provides that the right of indemnification
shall include the right to be paid by CAF expenses incurred in defending any
such proceeding in advance of its final disposition as authorized by the
directors in the specific case upon receipt of an undertaking by or on behalf of
the director, trustee, officer, employee or agent to repay such amount, unless
it shall ultimately be determined that he or she is entitled to be indemnified
by CAF. In the event of the death of any person having a right of
indemnification, such right shall inure to the benefit of his or her heirs,
executors and administrators. The rights conferred by the CAF Code of
Regulations are not exclusive of any other right to which any person may be
entitled under the CAF Articles of Incorporation, the CAF Code of Regulations or
any agreement, vote of shareholders or disinterested directors, or otherwise.
Dividends and Repurchases
Under the Indiana Corporation Law, a corporation may make distributions
to its shareholders as long as the corporation's net assets are greater than
zero, debts may be paid as they come due, and the payment of these distributions
is consistent with the corporation's articles of incorporation.
Under the Ohio Revised Code, a corporation may pay dividends and
distributions in an amount not to exceed the combination of the surplus of the
corporation and the difference between (1) the reduction in surplus that results
from the immediate recognition of the transition obligation under Statement of
Financial Accounting Standards No. 106, "Employers Accounting for Post
Retirement Benefits Other Than Pensions" ("SFAS No. 106"), issued by the
financial accounting standards board, and (2) the aggregate amount of the
transition obligation that would have been recognized as of the date of the
declaration of a dividend or distribution if the Corporation had elected to
amortize its recognition of the transition obligation under SFAS No. 106. Under
the Ohio Revised Code, a corporation shall not purchase or redeem its own shares
if immediately thereafter its assets would be less than its liabilities plus its
stated capital, if any, or if the corporation is insolvent, or if there is
reasonable ground to believe that by such purchase or redemption it would be
rendered insolvent.
Dissenters' Rights
Under both Ohio and Indiana law, a shareholder is entitled, under
certain circumstances, to receive payment of the fair value of the shareholder's
common stock if the shareholder dissents from a proposed merger or
consolidation, a share exchange or the sale of all or substantially all of the
assets of a corporation. Dissenters' rights will be available to CAF
shareholders in connection with the Merger. See "The Merger Agreement -
Dissenting Shares."
The Indiana Corporation Law further provides that dissenters' rights
can also be made applicable by affirmative provision in the articles of
incorporation, bylaws or a Board of Directors' resolution, or by other actions
requiring a shareholder vote. However, unlike the Ohio Revised Code, under the
Indiana Corporation Law, dissenters' rights are unavailable to holders of shares
registered on a national securities exchange or quoted on NASDAQ on the record
date for a meeting of shareholders at which action on the proposed transaction
otherwise subject to dissenters' rights is to be taken.
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
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<PAGE>
Director and Officer Discretion
Under Sections 23-1-35-1-(d), (f), and (g) of the Indiana Corporation
Law, in discharging his or her duties to the corporation and in determining what
he or she believes to be in the best interests of the corporation, a director or
officer may, in addition to considering the effects of any action on
shareholders, consider the effects of the action on employees, suppliers,
customers, the communities in which the corporation operates and any other
factors that the director or officer considers pertinent.
Under Section 1701.59 of the Ohio Revised Code, a director, in
determining what he or she reasonably believes to be in the best interests of
the corporation, shall consider the interests of the corporation's shareholders
and, in his or her discretion, may consider any of the following: (1) the
interests of the corporation's employees, suppliers, creditors and customers;
(2) the economy of the state and nation; (3) community and societal
considerations; and (4) the long-term as well as short-term interests of the
corporation and its shareholders, including the possibility that these interests
may be best served by the continued independence of the corporation.
The foregoing discussion of certain similarities and material
differences between the rights of Conseco shareholders and the rights of CAF
shareholders is only a summary of certain provisions and does not purport to be
a complete description of such similarities and differences, and is qualified in
its entirety by reference to the Indiana Corporation Law and the common law
thereunder, the Ohio Revised Code and the common law thereunder, and the full
text of the Articles of Incorporation and By-laws or Code of Regulations, as the
case may be, of Conseco and CAF.
MANAGEMENT OF THE SURVIVING CORPORATION
UPON CONSUMMATION OF THE MERGER
The directors and executive officers of Merger Sub are Stephen C.
Hilbert, Ngaire E. Cuneo, Rollin M. Dick, Donald F. Gongaware and Lawrence W.
Inlow, and such individuals will be the directors and executive officers of the
Surviving Corporation upon consummation of the Merger. Such individuals are also
the executive officers of Conseco and will have the same titles with the
Surviving Corporation as they currently have with Conseco. For information with
respect to the directors and executive officers of Conseco, see Items 10 - 13 of
Conseco's Annual Report (which incorporates portions of Conseco's proxy
statement dated April 24, 1996), which is incorporated herein by reference.
LEGAL MATTERS
The validity of the Conseco Common Stock to be issued in connection
with the Merger will be passed upon for Conseco by Lawrence W. Inlow, Executive
Vice President, General Counsel and Secretary of Conseco. Mr. Inlow is a
full-time employee and officer of Conseco and owns 778,814 shares of Conseco
Common Stock and holds options to purchase 1,406,900 shares of Conseco Common
Stock.
EXPERTS
The consolidated financial statements of Conseco at December 31, 1995
and 1994, and for each of the three years in the period ended December 31, 1995,
incorporated by reference in this Proxy Statement/Prospectus, have been audited
by Coopers & Lybrand L.L.P., independent auditors, as set forth in their report
thereon incorporated by reference herein, and are incorporated by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
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<PAGE>
The consolidated financial statements of CAF at December 31, 1995 and
1994, and for each of the three years in the period ended December 31, 1995,
incorporated by reference in this Proxy Statement/Prospectus, have been audited
by KPMG Peat Marwick LLP, independent auditors, as set forth in their report
thereon incorporated by reference herein, and are incorporated by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of ATC at December 31, 1995 and
1994, and for each of the three years in the period ended December 31, 1995,
incorporated by reference in this Proxy Statement/Prospectus, have been audited
by Arthur Andersen LLP, independent public accountants, as set forth in their
report with respect thereto and are incorporated by reference in reliance upon
the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of LPG at December 31, 1995 and
1994, and for each of the three years in the period ended December 31, 1995,
incorporated by reference in this Proxy Statement/Prospectus, have been audited
by Coopers & Lybrand L.L.P., independent auditors, as set forth in their report
thereon incorporated by reference herein, and are incorporated by reference in
reliance upon such report, given upon authority of such firm as experts in
accounting and auditing.
INDEPENDENT ACCOUNTANTS
Representatives of KPMG Peat Marwick LLP will be present at the CAF
Special Meeting and will be available to respond to appropriate questions and
have the opportunity to make a statement if they desire.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the Board of
Directors of CAF does not intend to present, and has not been informed that any
other person intends to present, any matter for action at the CAF Special
Meeting, other than as discussed herein.
If the Merger is consummated, shareholders of CAF will become
shareholders of Conseco as of the Effective Time. Conseco shareholders may
submit to Conseco proposals for formal consideration at the 1997 annual meeting
of Conseco's shareholders and inclusion in Conseco's proxy statement for such
meeting. Any such proposals must have been received in writing by the Secretary
of Conseco, 11825 North Pennsylvania Street, Carmel, Indiana 46032, by December
27, 1996 in order to be considered for inclusion in Conseco's proxy statement
and proxy for the 1997 annual meeting.
CAF will not hold a 1997 annual meeting of shareholders if the Merger
is consummated. If such a meeting is held, any shareholder proposal intended to
be presented at the CAF 1997 annual meeting of shareholders and to be included
in the proxy statement and form of proxy relating to that meeting must be
received by CAF at its principal executive offices located at 1001 Lakeside
Avenue, Cleveland, Ohio 44114 not later that December 1, 1996.
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
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<PAGE>
PART II.
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Indiana Corporation Law grants authorization to Indiana
corporations to indemnify officers and directors for their conduct if such
conduct was in good faith and was in the corporation's best interests or, in the
case of directors, was not opposed to such best interests, and permits the
purchase of insurance in this regard. In addition, the shareholders of a
corporation may approve the inclusion of other or additional indemnification
provisions in the articles of incorporation and by-laws.
The By-laws of Conseco provides for the indemnification of any person
made a party to any action, suit or proceeding by reason of the fact that he is
a director, officer or employee of Conseco, unless it is adjudged in such
action, suit or proceeding that such person is liable for negligence or
misconduct in the performance of his duties. Such indemnification shall be
against the reasonable expenses, including attorneys' fees, incurred by such
person in connection with the defense of such action, suit or proceeding. In
some circumstances, Conseco may reimburse any such person for the reasonable
costs of settlement of any such action, suit or proceeding if a majority of the
members of the Board of Directors not involved in the controversy shall
determine that it was in the interests of Conseco that such settlement be made
and that such person was not guilty of negligence or misconduct.
The above discussion of Conseco's By-laws and the Indiana Corporation
Law is not intended to be exhaustive and is qualified in its entirety by such
By-laws and the Indiana Corporation Law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person thereof in the
successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<S> <C>
2 - Agreement and Plan of Merger dated as of August 25, 1996 by and among
Conseco, Inc., CAF Acquisition Company and Capitol American Financial
Corporation (included as Annex A to the Proxy Statement/Prospectus (schedules
omitted -- the Registrant agrees to furnish a copy of any schedule to the
Securities and Exchange Commission (the "Commission") upon request)).*
5 - Opinion of Lawrence W. Inlow, General Counsel to Conseco, Inc., as to the
validity of the issuance of the securities registered hereby.*
23(a) - Consent of Lawrence W. Inlow, General Counsel to Conseco, Inc. (included in
the opinion filed as Exhibit 5 to the Registration Statement).*
23(b) - Consent of Coopers & Lybrand L.L.P. with respect to the financial statements
of the Registrant.*
23(c) - Consent of KPMG Peat Marwick LLP with respect to the financial statements of
Capitol American Financial Corporation.*
23(d) - Consent of Arthur Andersen LLP with respect to the financial statements of
American Travellers Corporation.*
23(e) - Consent of Coopers & Lybrand L.L.P. with respect to the financial statements
of Life Partners Group, Inc.*
23(f) - Consent of Donaldson, Lufkin & Jenrette Securities Corporation.*
24 - Powers of Attorney of directors and officers of Conseco. (See page II-5 of this
Registration Statement).
99(a) - Opinion of Donaldson, Lufkin & Jenrette Securities Corporation (included as
Annex B to the Proxy Statement/Prospectus).*
99(b) - Form of proxy card for CAF Common Stock.*
99(c) - Shareholders Agreement dated as of August 25, 1996 by and among Conseco,
Barry J. Hershey and Connie Hershey (incorporated by reference to Exhibit 99.1
to the Registrant's Current Report on Form 8-K dated August 25, 1996).
<FN>
* Filed herewith.
(b) Financial Statement Schedules - Inapplicable.
</FN>
</TABLE>
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
II-2
<PAGE>
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes as follows:
(1) that prior to any public reoffering of the
securities registered hereunder through use of a
prospectus which is a part of this registration
statement, by any person or party who is deemed to
be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for
by the applicable registration form with respect
to reofferings by persons who may be deemed
underwriters, in addition to the information
called for by the other items of the applicable
form.
(2) That every prospectus: (i) that is filed pursuant
to paragraph (1) immediately preceding, or (ii)
that purports to meet the requirements of Section
10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject
to Rule 415, will be filed as a part of an
amendment to the registration statement and will
not be used until such amendment is effective, and
that, for purposes of determining any liability
under the Securities Act of 1933, each such post-
effective amendment, shall be deemed to be a new
registration statement relating to the securities
offered therein, and the offering of such
securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
II-3
<PAGE>
(e) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
Registration Statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the
Registration Statement (or the most recent
post-effective amendment thereof) which,
individually or in the aggregate, represent a
fundamental change in the information set forth in
the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high
end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price
represent no more than a 20% change in the maximum
aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect
to the plan of distribution not previously
disclosed in the Registration Statement or any
material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability
under the Securities Act, each such post-effective
amendment shall be deemed to be a new registration
statement relating to the securities offered therein,
and the offering of such securities at that time
shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(f) See Part II - Item 20.
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
II-4
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Carmel and
the State of Indiana, on the 18th day of September, 1996.
CONSECO, INC.
By: /s/ Stephen C. Hilbert
----------------------------------------
Stephen C. Hilbert, Chairman of the Board,
President and Chief Executive Officer
Each person whose signature to this Registration Statement appears
below hereby appoints Lawrence W. Inlow, Karl W. Kindig and Kathleen S. Kiefer,
and each of them, any of whom may act without the joinder of the others, as his
or her attorney-in-fact to sign on his or her behalf individually and in the
capacity stated below and to file all amendments and post-effective amendments
to this Registration Statement, which amendments may make such changes in and
additions to this Registration Statement as such attorney-in-fact may deem
necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ------ -------
<S> <C> <C>
/s/ Stephen C. Hilbert Director, Chairman of the Board, Chief September 18, 1996
- -----------------------------------------
Stephen C. Hilbert Executive Officer President and (Principal
Executive Officer of the Registrant)
/s/ Rollin M. Dick Director, Executive Vice President and September 18, 1996
- -----------------------------------------
Rollin M. Dick Chief Financial Officer (Principal Financial
and Accounting Officer of the Registrant)
/s/ Ngaire E. Cuneo Director September 18, 1996
- -----------------------------------------
Ngaire E. Cuneo
Director
David R. Decatur
Director
M. Phil Hathaway
/s/ Louis P. Ferrero Director September 18, 1996
- -----------------------------------------
Louis P. Ferrero
/s/ Donald F. Gongaware Director September 18, 1996
- ----------------------------------------
Donald F. Gongaware
/s/ James D. Massey Director September 18, 1996
- -----------------------------------------
James D. Massey
/s/ Dennis E. Murray, Sr. Director September 18, 1996
- -----------------------------------------
Dennis E. Murray, Sr.
</TABLE>
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
II-5
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
By and Among
CONSECO, INC.
CAF ACQUISITION COMPANY
and
CAPITOL AMERICAN FINANCIAL CORPORATION
Dated as of August 25, 1996
NYMAIN02 Doc: 168782_1
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
------
<S> <C>
ARTICLE I THE MERGER......................................................................................... 1
1.1 The Merger.................................................................................. 1
1.2 Closing..................................................................................... 1
1.3 Effective Time.............................................................................. 1
1.4 Articles of Incorporation................................................................... 2
1.5 Code of Regulations......................................................................... 2
1.6 Directors................................................................................... 2
1.7 Officers.................................................................................... 2
1.8 Conversion of CAF Acquisition Shares........................................................ 2
1.9 Conversion of Shares........................................................................ 2
1.10 Exchange of Certificates.................................................................... 4
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................................... 6
2.1 Organization, Standing and Corporate Power.................................................. 6
2.2 Capital Structure........................................................................... 7
2.3 Authority; Noncontravention................................................................. 7
2.4 SEC Documents............................................................................... 8
2.5 Absence of Certain Changes or Events........................................................ 9
2.6 Absence of Changes in Benefit Plans......................................................... 9
2.7 Benefit Plans............................................................................... 9
2.8 Taxes....................................................................................... 10
2.9 No Excess Parachute Payments; Section 162(m) of the Code.................................... 11
2.10 Voting Requirements......................................................................... 11
2.11 Compliance with Applicable Laws............................................................. 11
2.12 State Takeover Laws......................................................................... 13
2.13 Opinion of Financial Advisor................................................................ 13
2.14 Brokers..................................................................................... 13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF CONSECO AND CAF
ACQUISITION.............................................................................. 13
3.1 Organization, Standing and Corporate Power.................................................. 13
3.2 Conseco Capital Structure................................................................... 13
3.3 Authority; Noncontravention................................................................. 14
3.4 SEC Documents............................................................................... 15
3.5 Absence of Certain Changes or Events........................................................ 15
3.6 Compliance with Applicable Laws............................................................. 16
3.7 No Prior Activities......................................................................... 16
3.8 Brokers..................................................................................... 16
3.9 Financing................................................................................... 17
NYMAIN02 Doc: 168782_1
i
A-2
</TABLE>
<PAGE>
TABLE OF CONTENTS
(Continued)
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ARTICLE IV ADDITIONAL AGREEMENTS............................................................................. 17
4.1 Preparation of Form S-4 and the Proxy Statement/Prospectus;
Information Supplied........................................................................ 17
4.2 Meeting of Shareholders..................................................................... 18
4.3 Letter of the Company's Accountants......................................................... 18
4.4 Letter of Conseco's Accountants............................................................. 18
4.5 Access to Information; Confidentiality...................................................... 18
4.6 Best Efforts................................................................................ 19
4.7 Public Announcements........................................................................ 19
4.8 Acquisition Proposals....................................................................... 19
4.9 Fiduciary Duties............................................................................ 20
4.10 Consents, Approvals and Filings............................................................. 20
4.11 Employee Matters............................................................................ 20
4.12 Affiliates and Certain Shareholders......................................................... 21
4.13 NYSE Listing................................................................................ 22
4.14 Shareholder Litigation...................................................................... 22
4.15 Indemnification............................................................................. 22
4.16 Capitol Insurance Company of Ohio........................................................... 22
4.17 Certain Fees................................................................................ 22
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO
MERGER..................................................................................... 23
5.1 Conduct of Business by the Company.......................................................... 23
5.2 Conduct of Business by Conseco.............................................................. 25
5.3 Stock Options and Restricted Shares......................................................... 26
5.4 Other Actions............................................................................... 27
5.5 Conduct of Business of CAF Acquisition...................................................... 27
5.6 Investment Advisory Agreements.............................................................. 27
5.7 Certain Company Actions..................................................................... 27
ARTICLE VI CONDITIONS PRECEDENT.............................................................................. 28
6.1 Conditions to Each Party's Obligation To Effect the Merger.................................. 28
6.2 Conditions to Obligations of Conseco and CAF Acquisition.................................... 29
6.3 Conditions to Obligation of the Company..................................................... 29
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER................................................................. 30
7.1 Termination................................................................................. 30
7.2 Effect of Termination....................................................................... 31
7.3 Amendment................................................................................... 31
7.4 Extension; Waiver........................................................................... 31
7.5 Procedure for Termination, Amendment, Extension or Waiver................................... 31
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ARTICLE VIII SURVIVAL OF PROVISIONS.......................................................................... 31
8.1 Survival.................................................................................... 31
ARTICLE IX NOTICES........................................................................................... 32
9.1 Notices..................................................................................... 32
ARTICLE X MISCELLANEOUS...................................................................................... 33
10.1 Entire Agreement............................................................................ 33
10.2 Expenses.................................................................................... 33
10.3 Counterparts................................................................................ 33
10.4 No Third Party Beneficiary.................................................................. 33
10.5 Governing Law............................................................................... 33
10.6 Assignment; Binding Effect.................................................................. 33
10.7 Headings, Gender, etc....................................................................... 34
10.8 Invalid Provisions.......................................................................... 34
10.9 Waiver of Jury Trial........................................................................ 34
10.10 Enforcement................................................................................. 34
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made
and entered into as of August 25, 1996 by and among Conseco, Inc., an Indiana
corporation ("Conseco"), CAF Acquisition Company, an Ohio corporation and
wholly-owned subsidiary of Conseco ("CAF Acquisition"), and Capitol American
Financial Corporation, an Ohio corporation (the "Company").
PREAMBLE
WHEREAS, the respective Boards of Directors of Conseco, CAF
Acquisition and the Company have approved the merger of CAF Acquisition with and
into the Company, upon the terms and subject to the conditions set forth herein;
and
WHEREAS, Conseco, CAF Acquisition 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
THE MERGER
1.1 The Merger. Subject to the terms and conditions of
this Agreement, at the Effective Time (as such term is defined in Section 1.3
hereof), CAF Acquisition shall be merged with and into the Company (the
"Merger"), in accordance with the Ohio Revised Code (the "Ohio Code"), and the
separate corporate existence of CAF Acquisition shall cease and the Company
shall continue as the surviving corporation under the laws of the State of Ohio
(the "Surviving Corporation") with all the rights, privileges, immunities and
powers, and subject to all the duties and liabilities, of a corporation
organized under the Ohio Code. The Merger shall have the effects set forth in
the Ohio Code.
1.2 Closing. Unless this Agreement shall have been terminated
and the transactions herein contemplated shall have been abandoned pursuant to
Section 7.1, and subject to the satisfaction or waiver of the conditions set
forth in Article VI, the closing of the Merger (the "Closing") will take place
at 9:00 a.m. on the second business day following the date on which the last to
be fulfilled or waived of the conditions set forth in Article VI shall be
fulfilled or waived in accordance with this Agreement (the "Closing Date"), at
the office of Conseco in Carmel, Indiana, unless another date, time or place is
agreed to in writing by the parties hereto.
1.3 Effective Time. The parties hereto will file with
the Secretary of State of the State of Ohio (the "Ohio Secretary of State") on
the date of the Closing (or on such other date as Conseco and the Company may
agree) a certificate of merger or other
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appropriate documents, executed in accordance with the relevant provisions of
the Ohio Code, and make all other filings or recordings required under the Ohio
Code in connection with the Merger. The Merger shall become effective upon the
filing of the certificate of merger with the Ohio Secretary of State, or at such
later time as is specified in the certificate of merger (the "Effective Time").
1.4 Articles of Incorporation. The Articles of Incorporation
of the Surviving Corporation, 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.
1.5 Code of Regulations. The Code of Regulations of CAF
Acquisition, as in effect immediately prior to the Effective Time, shall be the
Code of Regulations of the Surviving Corporation until thereafter amended as
provided by law.
1.6 Directors. The directors of CAF Acquisition at the
Effective Time shall be the directors of the Surviving Corporation and will hold
office from the Effective Time until their respective successors are duly
elected or appointed and qualify in the manner provided in the Articles of
Incorporation and the Code of Regulations of the Surviving Corporation, or as
otherwise provided by law.
1.7 Officers. The officers of CAF Acquisition at the Effective
Time shall be the officers of the Surviving Corporation.
1.8 Conversion of CAF Acquisition Shares. Each share of common
stock of CAF Acquisition issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into and become one validly issued, fully
paid and nonassessable share of common stock of the Surviving Corporation.
1.9 Conversion of Shares. (a) Outstanding Shares. Each of the
shares of common stock, without par value, of the Company (the "Shares") issued
and outstanding immediately prior to the Effective Time (other than Shares held
as treasury shares by the Company or Dissenting Shares (as defined below))
including all outstanding Restricted Shares (as defined below) shall, by virtue
of the Merger and without any action on the part of the holder thereof, be
converted into a right to receive (i) $30.00 in cash plus the Time Factor (as
defined below), if any (collectively, the "Cash Consideration") and (ii) the
fraction (rounded to the nearest ten-thousandth of a share) of a validly issued,
fully paid and nonassessable share of common stock, without par value, of
Conseco ("Conseco Common Stock") determined by dividing (x) $6.50 by (y) the
Trading Value (as defined below). For purposes hereof, the term "Total
Consideration Amount" shall mean the sum of the amount of the Cash Consideration
and $6.50. The "Trading Value" shall be equal to the average of the closing
prices of the Conseco Common Stock on the New York Stock Exchange ("NYSE")
Composite Transactions Reporting System, as reported in The Wall Street Journal,
for the 20 consecutive trading days immediately preceding the second trading day
prior to the Effective Time. The "Time Factor", if any, shall be equal to $0.25
if the Effective Time shall not have occurred by December 10, 1996, which amount
shall be increased by an additional $0.25 on the tenth day of each calendar
month thereafter until the occurrence of the Effective Time. The Cash
Consideration, the Conseco Common Stock to be issued to holders of Shares in
accordance with this Section and any cash to be paid in accordance with Section
1.10 in lieu of fractional shares of Conseco Common Stock are referred to
collectively as the "Merger Consideration."
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(b) Treasury Shares. Each Share issued and outstanding
immediately prior to the Effective Time which is then held as a treasury share
by the Company or any of its subsidiaries immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of the
Company, be cancelled and retired and cease to exist, without any conversion
thereof.
(c) Impact of Stock Splits, etc. In the event of any change in
Conseco Common Stock between the date of this Agreement and the Effective Time
of the Merger by reason of any stock split, stock dividend, subdivision,
reclassification, recapitalization, combination, exchange of shares or the like,
the number and class of shares of Conseco Common Stock to be issued and
delivered in the Merger in exchange for each outstanding Share as provided in
this Agreement and the calculation of all share prices provided for in this
Agreement shall be proportionately adjusted.
(d) Company Dissenting Shares. Notwithstanding anything in
this Agreement to the contrary, Shares which are held by the Company
shareholders who shall have effectively dissented from the Merger and perfected
their dissenters' rights in accordance with the provisions of Section 1701.85 of
the Ohio Code (the "Dissenting Shares") shall not be converted into or be
exchangeable for the right to receive the Merger Consideration, but the holders
thereof shall be entitled to payment from the Surviving Corporation of the
appraised value of such shares in accordance with the provisions of Section
1701.85 of the Ohio Code; provided, however, that if any such holder shall have
failed to perfect such dissenters' rights or shall have effectively withdrawn or
lost such rights, his or her outstanding Shares shall thereupon be converted
into and exchangeable for, as if completed at the Effective Time, the Merger
Consideration, as determined and paid in the manner set forth in this Agreement,
without any interest thereon. The Company shall give Conseco (i) prompt notice
of any notice or demands for payment for Dissenting Shares pursuant to Section
1701.85 of the Ohio Code received by the Company and (ii) the opportunity to
participate in and direct all negotiations and proceedings with respect to any
such demands or notices. The Company shall not, without the prior written
consent of Conseco, make any payment with respect to, to settle, offer to settle
or otherwise negotiate, any such demands.
(e) Treatment of Company Stock Options and Restricted Shares.
(i) Except as otherwise provided in Section 1.9(e) of the Disclosure Schedule
(as defined below), immediately prior to the Effective Time, each outstanding
unexpired employee or director stock option to purchase Shares ("Company Stock
Option") and restricted stock right ("Restricted Shares") which have been
granted pursuant to the Company's 1992 Equity Participation Plan, as amended to
the date hereof (the "Company Stock Option Plan" ) shall be fully vested.
(ii) Except as otherwise provided in Section
1.9(e)(iii) or Section 1.9(e) of the Disclosure Schedule, at the Effective Time
each Company Stock Option shall be deemed disposed to the Company in accordance
with final Rule 16b-3 as promulgated by the Securities and Exchange Commission
("SEC") pursuant to Release 34-37260 (May 31, 1996) ("New Section 16") and then
converted automatically into an option (a "New Conseco Option") to purchase such
number of shares of Conseco Common Stock (rounding the result to the nearest
ten-thousandth of a share) equal to the number of Shares subject to such Company
Stock Option immediately prior to the Effective Time, multiplied by the
Conversion Ratio (as defined below), for an exercise price equal to the Adjusted
Exercise Price (as defined below), but otherwise on the same terms and
conditions as were applicable under the Company Stock Option Plan and the
underlying stock option agreement. The "Conversion
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Ratio" shall mean the number determined by dividing the Total Consideration
Amount by the Trading Value (rounding the result to the nearest ten-thousandth
of a share). The "Adjusted Exercise Price" shall be determined by multiplying
(A) the Trading Value by (B) the quotient of the current exercise price divided
by Total Consideration Amount.
(iii) If prior to the Effective Time Conseco has
given notice that any holder of a Company Stock Option who is an employee of the
Company will not be asked to remain in his or her position beyond the period
ending at the end of six months after the Effective Time, with respect to each
Company Stock Option held by such person immediately prior to the Effective Time
and, irrespective of the giving of any notice, with respect to each Company
Stock Option held by a non-employee director of the Company, except as otherwise
provided in Section 1.9(e) of the Disclosure Schedule, at the Effective Time
such Company Stock Option shall be deemed disposed to the Company in accordance
with New Section 16 and then converted automatically at the Effective Time into
the right to receive an amount (the "Spread") in cash equal to the product of
(A) the Total Consideration Amount minus the current exercise price thereof
multiplied by (B) the total number of Shares subject thereto.
(iv) With respect to any holder of a Company Stock
Option who is an employee of the Company immediately prior to the Effective Time
who does not receive the Spread at the Effective Time pursuant to Section
1.9(e)(iii), if the employment of such person shall be terminated prior to the
end of the six month period after the Effective Time, with respect to each New
Conseco Option held by such person at the time of termination of his employment,
such New Conseco Option shall be deemed not to have been issued pursuant to
Section 1.9(e)(ii) and the holder thereof shall be deemed to have disposed to
the Company immediately prior to the Effective Time the Company Stock Options
then held by such employee in accordance with New Section 16 and, with respect
to each such Company Stock Option, then converted automatically into the right
to receive the Spread, which Spread shall be payable to the employee in cash
upon termination.
1.10 Exchange of Certificates. (a) Paying Agent. As of the
Effective Time, Conseco shall deposit with its transfer agent and registrar (the
"Paying Agent"), for the benefit of the holders of Shares, cash equal to the
total Cash Consideration to be paid to holders of Shares pursuant to Section
1.9(a) and certificates representing the shares of Conseco Common Stock to be
issued to holders of Shares pursuant to Section 1.9(a) (such cash and
certificates, together with any dividends or distributions with respect to such
certificates and cash payable pursuant to Section 1.10(f), being hereinafter
referred to as the "Payment Fund").
(b) Exchange Procedures. As soon as practicable after the
Effective Time, each holder of an outstanding certificate or certificates which
prior thereto represented Shares shall, upon surrender to the Paying Agent of
such certificate or certificates and acceptance thereof by the Paying Agent, be
entitled to (i) a certificate representing that number of whole shares of
Conseco Common Stock (and cash in lieu of fractional shares of Conseco Common
Stock as contemplated by this Section 1.10) which the aggregate number of Shares
previously represented by such certificate or certificates surrendered shall
have been converted into the right to receive pursuant to Section 1.9(a) of this
Agreement, and (ii) cash equal to the amount of the Cash Consideration
multiplied by the number of Shares previously represented by such certificate or
certificates surrendered. The Paying Agent shall accept such certificates upon
compliance with such reasonable terms and conditions as the Paying Agent may
impose to effect an orderly exchange thereof in accordance with normal exchange
practices. If the
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consideration to be paid in the Merger (or any portion thereof) is to be
delivered to any person other than the person in whose name the certificate
representing Shares surrendered in exchange therefor is registered, it shall be
a condition to such exchange that the certificate so surrendered shall be
properly endorsed or otherwise be in proper form for transfer and that the
person requesting such exchange shall pay to the Paying Agent any transfer or
other taxes required by reason of the payment of such consideration to a person
other than the registered holder of the certificate surrendered, or shall
establish to the satisfaction of the Paying Agent that such tax has been paid or
is not applicable. After the Effective Time, there shall be no further transfer
on the records of the Company or its transfer agent of certificates representing
Shares and if such certificates are presented to the Company for transfer, they
shall be cancelled against delivery of the Merger Consideration as hereinabove
provided. Until surrendered as contemplated by this Section 1.10(b), each
certificate representing Shares (other than certificates representing Shares to
be cancelled in accordance with Section 1.9(b)), shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the Merger Consideration, without any interest thereon, as
contemplated by Section 1.9. No interest will be paid or will accrue on any cash
payable as Merger Consideration.
(c) Letter of Transmittal. Promptly after the Effective Time
(but in no event more than five business days thereafter), the Surviving
Corporation shall require the Paying Agent to mail to each record holder of
certificates that immediately prior to the Effective Time represented Shares
which have been converted pursuant to Section 1.9, a form of letter of
transmittal and instructions for use in surrendering such certificates and
receiving the consideration to which such holder shall be entitled therefor
pursuant to Section 1.9.
(d) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions with respect to Conseco Common Stock with a
record date after the Effective Time shall be paid to the holder of any
certificate that immediately prior to the Effective Time represented Shares
which have been converted pursuant to Section 1.9, until the surrender for
exchange of such certificate in accordance with this Article l. Following
surrender for exchange of any such certificate, there shall be paid to the
holder of such certificate, without interest, (i) at the time of such surrender,
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to the number of whole shares of
Conseco Common Stock into which the Shares represented by such certificate
immediately prior to the Effective Time were converted pursuant to Section 1.9,
and (ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time, but prior to such
surrender, and with a payment date subsequent to such surrender, payable with
respect to such whole shares of Conseco Common Stock.
(e) No Further Ownership Rights in Shares. The Merger
Consideration paid upon the surrender for exchange of certificates representing
Shares in accordance with the terms of this Article l shall be deemed to have
been issued and paid in full satisfaction of all rights pertaining to the Shares
theretofore represented by such certificates, subject, however, to the Surviving
Corporation's obligation (if any) to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have been
declared by the Company on such Shares in accordance with the terms of this
Agreement or prior to the date of this Agreement and which remain unpaid at the
Effective Time.
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(f) No Fractional Shares. (i) No certificates or scrip
representing fractional shares of Conseco Common Stock shall be issued upon the
surrender for exchange of certificates that immediately prior to the Effective
Time represented Shares which have been converted pursuant to Section 1.9, and
such fractional share interests will not entitle the owner thereof to vote or to
any rights of a shareholder of Conseco.
(ii) Notwithstanding any other provisions of this Agreement,
each holder of Shares who would otherwise have been entitled to receive a
fraction of a share of Conseco Common Stock (after taking into account all
certificates delivered by such holder) shall receive, in lieu thereof, cash
(without interest) in an amount equal to such fractional part of a share of
Conseco Common Stock multiplied by the Trading Value.
(g) Termination of Payment Fund. Any portion of the Payment
Fund which remains undistributed to the holders of the certificates representing
Shares for 180 days after the Effective Time shall be delivered to Conseco, upon
demand, and any holders of Shares who have not theretofore complied with this
Article shall thereafter look only to Conseco and only as general creditors
thereof for payment of their claim for any Merger Consideration and any
dividends or distributions with respect to Conseco Common Stock.
(h) Merger Consideration for Dissenting Shares. Any portion of
the Merger Consideration together with any dividends or other distributions
payable pursuant to Section 1.10(d) and cash for payment in lieu of fractional
Shares deposited with the Paying Agent to pay for Dissenting Shares for which
the right to receive a payment pursuant to Section 1701.85 of the Ohio Code
shall have been perfected shall be returned to the Surviving Corporation, upon
demand.
(i) No Liability. None of Conseco, CAF Acquisition, the
Surviving Corporation or the Paying Agent shall be liable to any person in
respect of any cash, shares, dividends or distributions payable from the Payment
Fund delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. If any certificates representing Shares shall
not have been surrendered prior to five years after the Effective Time (or
immediately prior to such earlier date on which any Merger Consideration in
respect of such certificate would otherwise escheat to or become the property of
any Governmental Entity (as defined in Section 2.3)), any such cash, shares,
dividends or distributions payable in respect of such certificate shall, to the
extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any person previously
entitled thereto.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Conseco and CAF
Acquisition as follows:
2.1 Organization, Standing and Corporate Power. (i) Each of
the Company and each Subsidiary of the Company (as hereinafter defined) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction in which it is incorporated and has the requisite corporate
power and authority to carry on its business as
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now being conducted. Each of the Company and each Subsidiary of the Company is
duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary. The Company has
delivered to Conseco complete and correct copies of its Articles of
Incorporation and Code of Regulations, as amended to the date of this Agreement.
(ii) Except as disclosed in Section 2.1(ii) of the Disclosure
Schedule (the "Disclosure Schedule") dated the date hereof and delivered by the
Company to Conseco concurrently herewith (the "Subsidiaries"), the Company has
no subsidiaries and does not control, directly or indirectly, any other person.
2.2 Capital Structure. The authorized capital stock of the
Company consists of (i) 40,000,000 Shares and (ii) 5,000,000 shares of Preferred
Stock without par value (the "Preferred Stock"). At the close of business on
August 23, 1996: (a) 17,489,190 Shares were issued and outstanding, 696,000
Shares were reserved for issuance pursuant to outstanding Company Stock Options
(b) 18,000 Restricted Shares were issued and outstanding; and (c) no shares of
Preferred Stock were issued and outstanding. Except as set forth above, at the
close of business on August 23, 1996, no shares of capital stock or other equity
securities of the Company were issued, reserved for issuance or outstanding. All
outstanding shares of capital stock of the Company are, and all shares which may
be issued pursuant to the Company Stock Option Plan, or any outstanding Company
Stock Options will be, when issued, duly authorized, validly issued, fully paid
and nonassessable and not subject to preemptive rights. Except as set forth in
Section 2.2 of the Disclosure Schedule, no bonds, debentures, notes or other
indebtedness of the Company or any Subsidiary of the Company having the right to
vote (or convertible into, or exchangeable for, securities having the right to
vote) on any matters on which the shareholders of the Company or any Subsidiary
of the Company may vote are issued or outstanding. Except for the Restricted
Shares and as disclosed in Section 2.2 of the Disclosure Schedule, all the
outstanding shares of capital stock of each Subsidiary of the Company have been
validly issued and are fully paid and nonassessable and are owned by the
Company, by one or more subsidiaries of the Company or by the Company and one or
more such subsidiaries, free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens") except as may be provided by law. Except for the
Restricted Shares and as set forth above or in Section 2.2 of the Disclosure
Schedule, neither the Company nor any Subsidiary of the Company has any
outstanding option, warrant, subscription or other right, agreement or
commitment which either (i) obligates the Company or any Subsidiary of the
Company to issue, sell or transfer, repurchase, redeem or otherwise acquire or
vote any shares of the capital stock of the Company or any Subsidiary of the
Company or (ii) restricts the transfer of Shares.
2.3 Authority; Noncontravention. The Company has the requisite
corporate power and authority to enter into this Agreement and, subject to the
approval of its shareholders as set forth in Section 6.1(a) with respect to the
consummation of the Merger, to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Company,
subject, in the case of the Merger, to the approval of its shareholders as set
forth in Section 6.1(a). This Agreement has been duly executed and delivered by
the Company and, assuming this Agreement constitutes the valid and binding
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agreement of Conseco and CAF Acquisition, constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms except that the enforcement thereof may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to creditor's rights generally and (b) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity). Except as disclosed in Section 2.3 of the Disclosure
Schedule, the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions hereof will not, (i) conflict with any of the provisions of
the Articles of Incorporation or the Code of Regulations of the Company or the
comparable documents of any Subsidiary of the Company, (ii) subject to the
governmental filings and other matters referred to in the following sentence,
conflict with, result in a breach of or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a material benefit under, or require
the consent of any person under, any indenture or other agreement, permit,
concession, franchise, license or similar instrument or undertaking to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or any of their assets is bound or affected, or (iii) subject
to the governmental filings and other matters referred to in the following
sentence, contravene any law, rule or regulation of any state or of the United
States or any political subdivision thereof or therein, or any order, writ,
judgment, injunction, decree, determination or award currently in effect. No
consent, approval or authorization of, or declaration or filing with, or notice
to, any governmental agency or regulatory authority (a "Governmental Entity")
which has not been received or made, is required by or with respect to the
Company or any of its subsidiaries in connection with the execution and delivery
of this Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby, except for (i) the filing of premerger
notification and report forms under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act") with respect to the Merger, (ii) the
filings and/or notices required under the insurance laws of the jurisdictions
set forth in Section 2.3 of the Disclosure Schedule, (iii) the filing with the
SEC of (x) a proxy statement relating to the adoption by the shareholders of the
Company of this Agreement (such proxy statement, as amended or supplemented from
time to time, the "Proxy Statement"), and (y) such reports under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as may be required in
connection with this Agreement and the transactions contemplated by this
Agreement, (iv) the filing of the certificate of merger with the Ohio Secretary
of State and appropriate documents with the relevant authorities of other states
in which the Company is qualified to do business, (v) such other consents,
approvals, authorizations, filings or notices as are set forth in Section 2.3 of
the Disclosure Schedule and (vi) any applicable filings under state
anti-takeover laws.
2.4 SEC Documents. (i) The Company has filed all required
reports, schedules, forms, statements and other documents with the SEC since
January 1, 1994 (such reports, schedules, forms, statements and other documents
are hereinafter referred to as the "SEC Documents"); (ii) as of their respective
dates, the SEC Documents complied with the requirements of the Securities Act of
1933, as amended (the "Securities Act"), or the Exchange Act, as the case may
be, and the rules and regulations of the SEC promulgated thereunder applicable
to such SEC Documents, and none of the SEC Documents as of such dates contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and (iii) the consolidated financial statements of the Company
included in the SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and
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regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto or,
in the case of unaudited statements, as permitted by Rule 10-01 of Regulation
S-X) and fairly present, in all material respects, the consolidated financial
position of the Company and its consolidated subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited quarterly statements, to
normal year-end audit adjustments).
2.5 Absence of Certain Changes or Events. Except as disclosed
in the SEC Documents filed and publicly available prior to the date of this
Agreement (the "Filed SEC Documents") or in Section 2.5 of the Disclosure
Schedule, since the date of the most recent audited financial statements
included in the Filed SEC Documents, the Company and its subsidiaries have
conducted their business only in the ordinary course, and there has not been (i)
any change which would have a material adverse effect on the business, financial
condition or results of operations of the Company and its subsidiaries taken as
a whole, (ii) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any of the
Company's outstanding capital stock (other than regular quarterly cash dividends
of $0.10 per Share, in accordance with usual record and payment dates and in
accordance with the Company's present dividend policy), (iii) any split,
combination or reclassification of any of its outstanding capital stock or any
issuance or the authorization of any issuance of any other securities in respect
of, in lieu of or in substitution for shares of its outstanding capital stock,
(iv) (x) any granting by the Company or any of its subsidiaries to any executive
officer or other employee of the Company or any of its subsidiaries of any
increase in compensation, except in the ordinary course of business consistent
with prior practice or as was required under employment agreements in effect as
of the date of the most recent audited financial statements included in the
Filed SEC Documents, (y) any granting by the Company or any of its subsidiaries
to any such executive officer or other employee of any increase in severance or
termination pay, except in the ordinary course of business consistent with prior
practice or as was required under any employment, severance or termination
agreements in effect as of the date of the most recent audited financial
statements included in the Filed SEC Documents or (z) any entry by the Company
or any of its subsidiaries into any employment, severance or termination
agreement with any such executive officer or other employee or (v) any change in
accounting methods, principles or practices by the Company or any of its
subsidiaries materially affecting its assets, liabilities or business, except
insofar as may have been required by a change in generally accepted accounting
principles.
2.6 Absence of Changes in Benefit Plans. Except as disclosed
in the Filed SEC Documents or in Section 2.6 of the Disclosure Schedule, since
the date of the most recent audited financial statements included in the Filed
SEC Documents, there has not been any adoption or amendment in any material
respect by the Company or any of its subsidiaries of any collective bargaining
agreement or any Benefit Plan (as defined in Section 2.7). Except as disclosed
in the Filed SEC Documents or in Section 2.6 of the Disclosure Schedule, there
exist no employment, consulting, severance, termination or indemnification
agreements, arrangements or understandings between the Company or any of its
subsidiaries and any current or former employee, officer or director of the
Company or any of its subsidiaries.
2.7 Benefit Plans. (i) Each "employee pension benefit plan"
(as defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"))
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(hereinafter a "Pension Plan"), "employee welfare benefit plan" (as defined in
Section 3(1) of ERISA) (hereinafter a "Welfare Plan"), and each other plan,
arrangement or policy (written or oral) relating to stock options, stock
purchases, compensation, deferred compensation, severance, fringe benefits or
other employee benefits, in each case maintained or contributed to, or required
to be maintained or contributed to, by the Company and its subsidiaries for the
benefit of any present or former officers, employees, agents, directors or
independent contractors of the Company or any of its subsidiaries (all the
foregoing being herein called "Benefit Plans") has been administered in
accordance with its terms. The Company, its subsidiaries and all the Benefit
Plans are in compliance in all material respects with the applicable provisions
of ERISA, the Internal Revenue Code of 1986, as amended (the "Code"), all other
applicable laws and all applicable collective bargaining agreements.
(ii) None of the Company or any other person or
entity that together with the Company is treated as a single employer under
Section 414(b), (c), (m) or (o) of the Code (each a "Commonly Controlled
Entity") (a) has incurred any liability to a Pension Plan covered by Title IV of
ERISA (other than for contributions not yet due) or to the Pension Benefit
Guaranty Corporation (other than for the payment of premiums not yet due) which
liability has not been fully paid as of the date hereof.
(iii) No Commonly Controlled Entity is required to
contribute to any "multiemployer plan" (as defined in Section 4001(a)(3) of
ERISA) or has withdrawn from any multiemployer plan where such withdrawal has
resulted or would result in any "withdrawal liability" (within the meaning of
Section 4201 of ERISA) that has not been fully paid.
2.8 Taxes. Except as disclosed in Section 2.8 of the
Disclosure Schedule,
(i) Each of the Company and its subsidiaries has filed all tax
returns and reports required to be filed by it or requests for
extensions to file such returns or reports have been timely filed,
granted and have not expired, except to the extent that such failures
to file or to have extensions granted that remain in effect
individually and in the aggregate would not have a material adverse
effect on the business, financial condition or results of operations of
the Company and its subsidiaries taken as a whole. All tax returns
filed by the Company and each of its subsidiaries are complete and
accurate except to the extent that such failure to be complete and
accurate would not have a material adverse effect on the business,
financial condition or results of operations of the Company and its
subsidiaries taken as a whole. The Company and each of its subsidiaries
has paid (or the Company has paid on the subsidiaries' behalf) all
taxes shown as due on such returns, and the most recent financial
statements contained in the Filed SEC Documents reflect an adequate
reserve for all taxes payable by the Company and its subsidiaries for
all taxable periods and portions thereof accrued through the date of
such financial statements.
(ii) No deficiencies for any taxes have been proposed,
asserted or assessed against the Company or any of its subsidiaries
that are not adequately reserved for, except for deficiencies that
individually or in the aggregate would not have a material adverse
effect on the business, financial condition or results of operations of
the Company and its subsidiaries taken as a whole, and, except as set
forth on Section 2.8 of the Disclosure Schedule, no requests for
waivers of the time to assess any such taxes have been granted or are
pending. The Federal income tax returns of the Company and each of its
subsidiaries consolidated in such returns have been examined
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by and settled with the United States Internal Revenue Service, or the
statute of limitations on assessment or collection of any Federal
income taxes due from the Company or any of its subsidiaries has
expired, through such taxable years as are set forth in Section 2.8 of
the Disclosure Schedule.
(iii) As used in this Agreement, "taxes" shall include all
Federal, state, local and foreign income, property, premium, sales,
excise, employment, payroll, withholding and other taxes, tariffs or
governmental charges of any nature whatsoever and any interest,
penalties and additions to taxes relating thereto.
2.9 No Excess Parachute Payments; Section 162(m) of the Code.
(i) Except as disclosed in Section 2.9 of the Disclosure Schedule, any amount
that could be received (whether in cash or property or the vesting of property)
as a result of any of the transactions contemplated by this Agreement by any
employee, officer or director of the Company or any of its affiliates who is a
"disqualified individual" (as such term is defined in proposed Treasury
Regulation Section 1.280G-1) under any employment, severance or termination
agreement, other compensation arrangement or Benefit Plan currently in effect
would not be characterized as an "excess parachute payment" (as such term is
defined in Section 280G(b)(1) of the Code).
(ii) Except as disclosed in Section 2.9 of the
Disclosure Schedule, the disallowance of a deduction under Section 162(m) of the
Code for employee remuneration will not apply to any amount paid or payable by
the Company or any subsidiary of the Company under any contract, Benefit Plan,
program, arrangement or understanding currently in effect.
2.10 Voting Requirements. The affirmative vote of a majority
of the votes cast by the holders of the Shares entitled to vote thereon at the
Shareholders Meeting with respect to the approval of this Agreement is the only
vote of the holders of any class or series of the Company's capital stock
necessary to approve this Agreement and the transactions contemplated by this
Agreement under the Articles of Incorporation, the Code of Regulations or the
Ohio Code.
2.11 Compliance with Applicable Laws. (i) Each of the Company
and its subsidiaries has in effect all Federal, state, local and foreign
governmental approvals, authorizations, certificates, filings, franchises,
licenses, notices, permits and rights ("Permits") necessary for it to own, lease
or operate its properties and assets and to carry on its business as now
conducted, and there has occurred no default under any such Permit. Except as
disclosed in the Filed SEC Documents and except with respect to the matters
covered by Section 2.11(iii), the Company and its subsidiaries are in compliance
in all material respects with all applicable statutes, laws, ordinances, rules,
orders and regulations of any Governmental Entity. Except as disclosed in the
Filed SEC Documents and except for routine examinations by state Governmental
Entities charged with supervision of insurance companies ("Insurance
Regulators") and except with respect to the matters covered by Section
2.11(iii), as of the date of this Agreement, to the knowledge of the Company, no
investigation by any Governmental Entity with respect to the Company or any of
its subsidiaries is pending or threatened.
(ii) The Annual Statements (including without
limitation the Annual Statements of any separate accounts) for the year ended
December 31, 1995, together with all exhibits and schedules thereto, and
financial statements relating thereto, and any actuarial
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opinion, affirmation or certification filed in connection therewith, and the
Quarterly Statements for the periods ended after January 1, 1996, together with
all exhibits and schedules thereto, with respect to each subsidiary of the
Company that is a regulated insurance company (an "Insurance Company"), in each
case as filed with the applicable Insurance Regulator of its jurisdiction of
domicile, were prepared in conformity with statutory accounting practices
prescribed or permitted by such Insurance Regulator applied on a consistent
basis ("SAP"), present fairly, in all material respects, to the extent required
by and in conformity with SAP, the statutory financial condition of such
Insurance Company at their respective dates and the results of operations,
changes in capital and surplus and cash flow of such Insurance Company for each
of the periods then ended, and were correct in all material respects when filed
and there were no material omissions therefrom when filed. No deficiencies or
violations material to the financial condition or operations of any Insurance
Company have been asserted in writing by any Insurance Regulator which have not
been cured or otherwise resolved to the satisfaction of such Insurance Regulator
and which have not been disclosed in writing to Conseco prior to the date of
this Agreement.
(iii) Except as set forth in Section 2.11(iii) of
the Disclosure Schedule, (a) the Company and its subsidiaries (exclusive of
their agents) and, to the knowledge of the Company (without independent
inquiry), their agents have marketed, sold and issued Company products in
compliance, in all material respects, with all statutes, laws, ordinances,
rules, orders and regulations of any Governmental Entity applicable to the
business of the Company and its subsidiaries ("Laws") in the respective
jurisdictions in which such products have been sold, except where the failure to
do so, individually or in the aggregate, has not had or would not reasonably be
expected to have, a material adverse effect on the business, financial condition
or results of operations of the Company and its subsidiaries, taken as a whole,
(b) there are (x) to the knowledge of the Company, no claims asserted, (y) no
actions, suits, investigations or proceedings by or before any court or other
Governmental Entity or (z) no investigations by or on behalf of the Company
(other than routine investigations in connection with the Company's hiring
practices) ((x), (y) and (z) being collectively referred to as "Actions")
pending or, to the knowledge of the Company, threatened, against or involving
the Company, any of its subsidiaries or, to the knowledge of the Company
(without independent inquiry), any of its agents that include allegations that
the Company, any of its subsidiaries or any of its agents were in violation of
or failed to comply with such Laws, and, to the knowledge of the Company, no
facts exist which would reasonably be expected to result in the filing or
commencement of any such Action, which Actions, individually or in the
aggregate, would reasonably be expected to have a material adverse effect on the
business, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, and (c) the Company and its subsidiaries are in
compliance, in all material respects, with and have performed, in all material
respects, all obligations required to be performed by each of them under any
cease-and-desist or other order issued by any Insurance Regulator or other
Governmental Entity to the Company or any of its subsidiaries or under any
written agreement, consent agreement, memorandum of understanding or commitment
letter or similar undertaking entered into between any Insurance Regulator or
other Governmental Entity and the Company or any of its subsidiaries
("Regulatory Agreement"), which Regulatory Agreement remains in effect on the
date hereof, except where the failure to do so, individually or in the
aggregate, has not had or would not reasonably be expected to have, a material
adverse effect on the business, financial condition or results of operations of
the Company and its subsidiaries, taken as a whole. Each Regulatory Agreement
issued or entered into after December 31, 1992 is identified in Section
2.11(iii) of the Disclosure Schedule.
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2.12 State Takeover Laws. The Board of Directors of the
Company has approved the transactions contemplated by this Agreement and by the
Shareholders Agreement (as defined below) such that the provisions of Section
1701.83 of the Ohio Code and the provisions of Chapter 1704 of the Ohio Code
will not apply to this Agreement or the Shareholders Agreement or any of the
transactions contemplated hereby or thereby.
2.13 Opinion of Financial Advisor. The Company has received
the opinion of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"),
dated the date hereof, to the effect that, as of such date, the consideration to
be received in the Merger by the Company's shareholders is fair from a financial
point of view to the Company's shareholders.
2.14 Brokers. Except with respect to DLJ, all negotiations
relative to this Agreement and the transactions contemplated hereby have been
carried out by the Company directly with Conseco, without the intervention of
any person on behalf of the Company in such manner as to give rise to any valid
claim by any person against Conseco, the Company or any subsidiary for a
finder's fee, brokerage commission, or similar payment. The Company has provided
Conseco with a true and complete copy of the agreement between the Company and
DLJ, and the Company has no other agreements or understandings (written or oral)
with respect to such services.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CONSECO AND CAF ACQUISITION
Conseco and CAF Acquisition hereby represent and warrant to
the Company as follows:
3.1 Organization, Standing and Corporate Power. Each of
Conseco and CAF Acquisition and each Significant Subsidiary of Conseco (as
hereinafter defined) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it is incorporated and
has the requisite corporate power and authority to carry on its business as now
being conducted. Each of Conseco and CAF Acquisition and each Significant
Subsidiary of Conseco is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary. Conseco has delivered to the Company complete and correct copies of
its Articles of Incorporation and Bylaws, as amended to the date of this
Agreement. For purposes of this Agreement, a "Significant Subsidiary" of Conseco
means any subsidiary of Conseco that would constitute a Significant Subsidiary
within the meaning of Rule 1-02 of Regulation S-X of the SEC.
3.2 Conseco Capital Structure. The authorized capital stock of
Conseco consists of 500,000,000 shares of Conseco Common Stock and 20,000,000
shares of preferred stock, without par value. At the close of business on August
23, 1996, (i) 58,416,433 shares of Conseco Common Stock, 5,264,767 shares of
$3.25 Series D Cumulative Convertible Preferred Stock of Conseco (the "Conseco
Series D Preferred Stock") and 4,369,700 shares of Preferred Redeemable
Increased Dividend Equity Securities of Conseco (the "Conseco PRIDES") were
issued and outstanding (net of treasury shares or shares held by subsidiaries),
(ii) 13,721,689 shares of Conseco Common Stock were reserved for issuance
pursuant to outstanding options to purchase shares of Conseco Common Stock
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and other benefits granted under Conseco's benefit plans (the "Conseco Stock
Plans"), (iii) 8,258,314 shares of Conseco Common Stock were reserved for
issuance upon conversion of the Conseco Series D Preferred Stock and (iv)
8,739,400 shares of Conseco Common Stock were reserved for issuance upon
conversion of the Conseco PRIDES. Except (x) as set forth above, (y) for
outstanding options to purchase an aggregate of 1,105,550 shares of Bankers Life
Holding Corporation under its Stock Option Plan and (z) with respect to stock
units awarded under the Conseco Stock Plans, at the close of business on August
23, 1996, no shares of capital stock or other voting securities of Conseco were
issued, reserved for issuance or outstanding. All outstanding shares of capital
stock of Conseco are, and all shares which may be issued pursuant to this
Agreement will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. The authorized capital stock
of CAF Acquisition consists of 750 shares of common stock, no par value, 100 of
which have been validly issued, are fully paid and nonassessable and are owned
by Conseco free and clear of any Lien. No bonds, debentures, notes or other
indebtedness of Conseco or any Significant Subsidiary of Conseco having the
right to vote (or convertible into, or exchangeable for, securities having the
right to vote) on any matters on which the shareholders of Conseco or any
Significant Subsidiary of Conseco may vote are issued or outstanding. All the
outstanding shares of capital stock of each Significant Subsidiary of Conseco
have been validly issued and are fully paid and nonassessable and (other than
Bankers Life Holding Corporation) are owned by Conseco, free and clear of all
Liens except as disclosed in the Filed Conseco SEC Documents (as defined below).
Except as set forth above or as disclosed in the Filed Conseco SEC Documents,
neither Conseco nor any Significant Subsidiary of Conseco has any outstanding
option, warrant, subscription or other right, agreement or commitment which
either (i) obligates Conseco or any Significant Subsidiary of Conseco to issue,
sell or transfer, repurchase, redeem or otherwise acquire or vote any shares of
the capital stock of Conseco or any Significant Subsidiary of Conseco or (ii)
restricts the transfer of Conseco Common Stock.
3.3 Authority; Noncontravention. Conseco and CAF Acquisition
have all requisite corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated by this Agreement. The execution
and delivery of this Agreement by Conseco and CAF Acquisition and the
consummation by Conseco and CAF Acquisition of the transactions contemplated by
this Agreement have been duly authorized by all necessary corporate action on
the part of Conseco and CAF Acquisition. This Agreement has been duly executed
and delivered by and, assuming this Agreement constitutes the valid and binding
agreement of the Company, constitutes a valid and binding obligation of each of
Conseco and CAF Acquisition, enforceable against such party in accordance with
its terms except that the enforcement thereof may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to creditor's rights generally and (b) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity). The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions of this Agreement will not (i) conflict with any of the
provisions of the Articles of Incorporation or Bylaws of Conseco, the Articles
of Incorporation or the Code of Regulations of CAF Acquisition or the comparable
documents of any Significant Subsidiary of Conseco, (ii) subject to the
governmental filings, other matters referred to in the following sentence and
Section 3.3 of the Conseco Disclosure Schedule, conflict with, result in a
breach of or default (with or without notice or lapse of time, or both) under,
or give rise to a right of termination, cancellation or acceleration of any
obligation or loss of a material benefit under, or require the consent of any
person under, any indenture, or other agreement, permit, concession,
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franchise, license or similar instrument or undertaking to which Conseco or any
of its subsidiaries is a party or by which Conseco or any of its subsidiaries or
any of their assets is bound or affected, or (iii) subject to the governmental
filings and other matters referred to in the following sentence, contravene any
law, rule or regulation of any state or of the United States or any political
subdivision thereof or therein, or any order, writ, judgment, injunction,
decree, determination or award currently in effect. No consent, approval or
authorization of, or declaration or filing with, or notice to, any Governmental
Entity which has not been received or made is required by or with respect to
Conseco or CAF Acquisition in connection with the execution and delivery of this
Agreement by Conseco or CAF Acquisition or the consummation by Conseco or CAF
Acquisition, as the case may be, of any of the transactions contemplated by this
Agreement, except for (i) the filing of premerger notification and report forms
under the HSR Act with respect to the Merger, (ii) the filings and/or notices
required under the insurance laws of the jurisdictions set forth in Section 2.3
of the Disclosure Schedule, (iii) the filing with the SEC of the registration
statement on Form S-4 to be filed with the SEC by Conseco in connection with the
issuance of Conseco Common Stock in the Merger (the "Form S-4"), and such
reports under the Exchange Act as may be required in connection with this
Agreement and the transactions contemplated hereby, (iv) the filing of the
certificate of merger with the Ohio Secretary of State, and appropriate
documents with the relevant authorities of the other states in which the Company
is qualified to do business, (v) such other consents, approvals, authorizations,
filings or notices as are set forth in Section 2.3 of the Disclosure Schedule
and (vi) any applicable filings under state anti-takeover laws.
3.4 SEC Documents. Conseco and its subsidiaries have filed all
required reports, schedules, forms, statements and other documents with the SEC
since January 1, 1994 (the "Conseco SEC Documents"). As of their respective
dates, the Conseco SEC Documents complied with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Conseco SEC
Documents, and none of the Conseco SEC Documents as of such dates contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of Conseco included in the Conseco SEC Documents comply as
to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited statements, as permitted by Rule
10-01 of Regulation S-X) and fairly present, in all material respects, the
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
3.5 Absence of Certain Changes or Events. Except as disclosed
in the Conseco SEC Documents filed and publicly available prior to the date of
this Agreement (the "Filed Conseco SEC Documents") or in Section 3.5 of a
Disclosure Schedule dated the date hereof and delivered concurrently herewith by
Conseco to the Company (the "Conseco Disclosure Schedule"), since the date of
the most recent audited financial statements included in the Filed Conseco SEC
Documents, Conseco has conducted its business only in the ordinary course, and
there has not been (i) any change which would have a material adverse effect on
the business, financial condition or results of operations of Conseco and its
subsidiaries, taken as a whole, (ii) any declaration, setting aside or payment
of any dividend or distribution
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(whether in cash, stock or property) with respect to any of Conseco's
outstanding capital stock (other than regular quarterly cash dividends of $.0625
per share, on Conseco Common Stock and regular cash dividends on the Conseco
Series D Preferred Stock and the Conseco PRIDES, in each case in accordance with
usual record and payment dates and in accordance with Conseco's dividend policy
and Articles of Incorporation at the date of such payment), (iii) any split,
combination or reclassification of any of its outstanding capital stock or any
issuance or the authorization of any issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock, or (iv) any
change in accounting methods, principles or practices by Conseco materially
affecting its assets, liabilities or business, except as may have been required
by a change in generally accepted accounting principles.
3.6 Compliance with Applicable Laws. (i) Each of Conseco and
its subsidiaries has in effect all Permits necessary for it to own, lease or
operate its properties and assets and to carry on its business as now conducted,
and there has occurred no default under any such Permit. Except as disclosed in
the Filed Conseco SEC Documents, Conseco and its subsidiaries are in compliance
in all material respects with all applicable statutes, laws, ordinances, rules,
orders and regulations of any Governmental Entity. Except as disclosed in the
Filed Conseco SEC Documents and except for routine examinations by state
Governmental Entities charged with supervision of insurance companies
("Insurance Regulators"), as of the date of this Agreement, to the knowledge of
Conseco, no investigation by any Governmental Entity with respect to Conseco or
any of its subsidiaries is pending or threatened.
(ii) The Annual Statements (including without
limitation the Annual Statements of any separate accounts) for the year ended
December 31, 1995, together with all exhibits and schedules thereto, and any
actuarial opinion, affirmation or certification filed in connection therewith,
and the Quarterly Statements for the periods ended after January 1, 1996,
together with all exhibits and schedules thereto, with respect to each
subsidiary of Conseco that is an Insurance Company, in each case as filed with
the applicable Insurance Regulator of its jurisdiction of domicile, were
prepared in conformity with, present fairly, in all material respects, to the
extent required by and in conformity with SAP, the statutory financial condition
of such Insurance Company at their respective dates and the results of
operations, changes in capital and surplus and cash flow of such Insurance
Company for each of the periods then ended, and were correct in all material
respects when filed and there were no material omissions therefrom when filed.
No deficiencies or violations material to the financial condition or operations
of any Insurance Company have been asserted in writing by any Insurance
Regulator which have not been cured or otherwise resolved to the satisfaction of
such Insurance Regulator and which have not been disclosed in writing to Conseco
prior to the date of this Agreement.
3.7 No Prior Activities. CAF Acquisition has not incurred, and
will not incur, directly or through any subsidiary, any liabilities or
obligations for borrowed money or otherwise, except incidental liabilities or
obligations not for borrowed money incurred in connection with its organization
and except in connection with obtaining financing in connection with the Merger.
Except as contemplated by this Agreement, CAF Acquisition (i) has not engaged,
directly or through any subsidiary, in any business activities of any type or
kind whatsoever, (ii) has not entered into any agreements or arrangements with
any person or entity, and (iii) is not subject to or bound by any obligation or
undertaking.
3.8 Brokers. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried out by Conseco
directly with the Company, without
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the intervention of any person on behalf of Conseco in such manner as to give
rise to any valid claim by any person against the Company or any of the
Subsidiaries for a finder's fee, brokerage commission, or similar payment.
3.9 Financing. At the Effective Time, Conseco will have
sufficient funds to pay the aggregate Cash Consideration and any other cash
payable in respect of Shares pursuant to Section 1.9, on the terms and subject
to the conditions contemplated by this Agreement.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Preparation of Form S-4 and the Proxy
Statement/Prospectus; Information Supplied. (a) As soon as practicable following
the date of this Agreement, the Company and Conseco shall prepare and file with
the SEC the Proxy Statement and Conseco shall prepare and file with the SEC the
Form S-4 and the Proxy Statement and Prospectus required pursuant to such Form
shall be included (the "Proxy Statement/Prospectus"). Each of the Company and
Conseco shall use its best efforts to have the Form S-4 declared effective under
the Securities Act as promptly as practicable after such filing. The Company
shall use its best efforts to cause the Proxy Statement/Prospectus to be mailed
to the Company's shareholders as promptly as practicable after the Form S-4 is
declared effective under the Securities Act. Conseco shall also take any action
(other than qualifying to do business in any jurisdiction in which it is not now
so qualified) required to be taken under any applicable state securities laws in
connection with the issuance of Conseco Common Stock in the Merger and the
Company shall furnish all information concerning the Company and the holders of
the Common Stock as may be reasonably requested in connection with any such
action.
(b) The Company agrees that none of the information supplied
or to be supplied by the Company specifically for inclusion or incorporation by
reference in (i) the Form S-4 will, at the time the Form S-4 is filed with the
SEC, at any time it is amended or supplemented or at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) the Proxy
Statement will, at the date it is first mailed to the Company's shareholders or
at the time of the Shareholders Meeting (as defined in Section 4.2), contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The Proxy
Statement will comply as to form in all material respects with the requirements
of the Exchange Act and the rules and regulations thereunder, except with
respect to statements made or incorporated by reference therein based on
information supplied by Conseco or CAF Acquisition specifically for inclusion or
incorporated by reference in the Proxy Statement.
(c) Conseco agrees that none of the information supplied or to
be supplied by Conseco or CAF Acquisition specifically for inclusion or
incorporation by reference in (i) the Form S-4 will, at the time the Form S-4 is
filed with the SEC, at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. The Form S-4 and the
Prospectus
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contained therein will comply as to form in all material respects with the
requirements of the Securities Act and the rules and regulations promulgated
thereunder, except with respect to statements made or incorporated by reference
in either the Form S-4 or the Prospectus based on information supplied by the
Company specifically for inclusion or incorporation by reference therein.
4.2 Meeting of Shareholders. The Company will take all action
necessary in accordance with applicable law and its Articles of Incorporation
and the Code of Regulations to convene a meeting of its shareholders (the
"Shareholders Meeting") to consider and vote upon the adoption of this
Agreement. Subject to Section 4.9 hereof, the Company will, through its Board of
Directors, recommend to its shareholders the adoption of this Agreement. Without
limiting the generality of the foregoing, the Company agrees that, subject to
its right to terminate this Agreement pursuant to Section 4.9, its obligations
pursuant to the first sentence of Section 4.2 shall not be affected by (i) the
commencement, public proposal, public disclosure or communication to the Company
of any Acquisition Proposal (as defined in Section 4.8) or (ii) the withdrawal
or modification by the Board of Directors of the Company of its approval or
recommendation of this Agreement or the Merger. The Company will use its best
efforts to hold the Shareholders Meeting and (subject to Section 4.9 hereof) to
obtain the favorable votes of its shareholders as soon as practicable after the
date hereof.
4.3 Letter of the Company's Accountants. The Company shall use
its best efforts to cause to be delivered to Conseco a letter of KPMG Peat
Marwick L.L.P., the Company's independent public accountants, dated a date
within two business days before the date on which the Form S-4 shall become
effective and a letter of KPMG Peat Marwick L.L.P., dated a date within two
business days before the Closing Date, addressed to Conseco, in form and
substance reasonably satisfactory to Conseco and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Form S-4.
4.4 Letter of Conseco's Accountants. Conseco shall use its
best efforts to cause to be delivered to the Company a letter of Coopers &
Lybrand L.L.P., Conseco's independent public accountants, dated a date within
two business days before the date on which the Form S-4 shall become effective
and a letter of Coopers & Lybrand L.L.P., dated a date within two business days
before the Closing Date, each addressed to the Company, in form and substance
reasonably satisfactory to the Company and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.
4.5 Access to Information; Confidentiality. Upon reasonable
notice, each of the Company and Conseco shall, and shall cause each of its
respective subsidiaries to, afford to the other party and to the officers,
employees, counsel, financial advisors and other representatives of such other
party reasonable access during normal business hours during the period prior to
the Effective Time to all its properties, books, contracts, commitments,
personnel and records and, during such period, each of the Company and Conseco
shall, and shall cause each of its respective subsidiaries to, furnish as
promptly as practicable to the other party such information concerning its
business, properties, financial condition, operations and personnel as such
other party may from time to time reasonably request. Except as required by law,
Conseco will hold, and will cause its respective directors, officers, partners,
employees, accountants, counsel, financial advisors and other representatives
and affiliates to hold, any nonpublic information obtained from the Company in
confidence to the extent
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required by, and in accordance with, the provisions of the letter dated August
12, 1996, between Conseco and the Company (the "Confidentiality Agreement").
Except as required by law, the Company will hold, and will cause its directors,
officers, partners, employees, accountants, counsel, financial advisors and
other representatives and affiliates to hold, any nonpublic information obtained
from Conseco in confidence to the same extent that Conseco is required to hold
information of the Company in confidence pursuant to the Confidentiality
Agreement.
4.6 Best Efforts. Upon the terms and subject to the conditions
and other agreements set forth in this Agreement, each of the parties agrees to
use its best efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement.
4.7 Public Announcements. Conseco and CAF Acquisition, on the
one hand, and the Company, on the other hand, will consult with each other
before issuing, and provide each other the opportunity to review and comment
upon, any press release or other public statements with respect to the
transactions contemplated by this Agreement, including the Merger, and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange.
4.8 Acquisition Proposals. The Company shall not, nor shall it
permit any of its subsidiaries to, nor shall it authorize or permit any officer,
director or employee of, or any investment banker, attorney or other advisor or
representative of, the Company or any of its subsidiaries to, directly or
indirectly, (i) solicit, initiate or encourage the submission of any Acquisition
Proposal (as herein after defined) or (ii) participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal; provided, however, that nothing contained in this Section
4.8 shall prohibit the Board of Directors of the Company from furnishing
information to, or entering into discussions or negotiations with, any person or
a entity that makes an unsolicited Acquisition Proposal if, and only to the
extent that (A) the Board of Directors of the Company, after consultation with
and based upon the advice of outside counsel, determines in good faith that such
action is necessary for the Board of Directors of the Company to comply with its
fiduciary duties to the Company under applicable law and (B) prior to taking
such action, the Company (x) provides reasonable notice to Conseco to the effect
that it is taking such action and (y) receives from such person or entity an
executed confidentiality agreement in reasonably customary form. Notwithstanding
anything in this Agreement to the contrary, the Company shall promptly advise
Conseco orally and in writing of the receipt by it (or any of the other entities
or persons referred to above) after the date hereof of any Acquisition Proposal,
of any inquiry which could lead to any Acquisition Proposal, the material terms
and conditions of such Acquisition Proposal or inquiry, and the identity of the
person making any such Acquisition Proposal or inquiry. The Company will keep
Conseco informed of the status and details of any such Acquisition Proposal or
inquiry. For purposes of this Agreement, "Acquisition Proposal" means any bona
fide proposal with respect to a merger, consolidation, share exchange or similar
transaction involving the Company or any Subsidiary of the Company, or any
purchase of all or any significant portion
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of the assets of the Company or any Subsidiary of the Company, or any equity
interest in the Company or any Subsidiary of the Company, other than the
transactions contemplated hereby.
4.9 Fiduciary Duties. The Board of Directors of the Company
shall not (i) withdraw or modify, in a manner materially adverse to Conseco or
CAF Acquisition, the approval or recommendation by such Board of Directors of
this Agreement or the Merger, (ii) approve or recommend an Acquisition Proposal
or (iii) enter into any agreement with respect to any Acquisition Proposal,
unless the Company receives an Acquisition Proposal and the Board of Directors
of the Company determines in good faith, following consultation with outside
counsel, that in order to comply with its fiduciary duties to the Company under
applicable law it is necessary for the Board of Directors to withdraw or modify,
in a manner materially adverse to Conseco or CAF Acquisition, its approval or
recommendation of this Agreement or the Merger, approve or recommend such
Acquisition Proposal, enter into an agreement with respect to such Acquisition
Proposal or terminate this Agreement. In the event the Board of Directors of the
Company takes any of the foregoing actions, the Company shall, concurrently with
the taking of any such action, pay to Conseco the Section 4.17 Fee (as defined
below). Nothing contained in this Section 4.9 shall prohibit the Company from
taking and disclosing to its shareholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to the
Company's shareholders which, in the good faith reasonable judgment of the Board
of Directors of the Company based on the advice of outside counsel, is required
under applicable law; provided that the Company does not withdraw or modify, in
a manner materially adverse to Conseco or CAF Acquisition, its position with
respect to the Merger or approve or recommend an Acquisition Proposal.
Notwithstanding anything contained in this Agreement to the contrary, any action
by the Board of Directors permitted by this Section 4.9 shall not constitute a
breach of this Agreement by the Company.
4.10 Consents, Approvals and Filings. The Company and Conseco
will make and cause their respective subsidiaries to make all necessary filings,
as soon as practicable, including, without limitation, those required under the
HSR Act, the Securities Act, the Exchange Act, and applicable state insurance
laws in order to facilitate prompt consummation of the Merger and the other
transactions contemplated by this Agreement. In addition, the Company and
Conseco will each use their best efforts, and will cooperate fully with each
other (i) to comply as promptly as practicable with all governmental
requirements applicable to the Merger and the other transactions contemplated by
this Agreement and (ii) to obtain as promptly as practicable all necessary
permits, orders or other consents of Governmental Entities and consents of all
third parties necessary for the consummation of the Merger and the other
transactions contemplated by this Agreement. Each of the Company and Conseco
shall use best efforts to promptly provide such information and communications
to Governmental Entities as such Governmental Entities may reasonably request.
Each of the parties shall provide to the other party copies of all applications
in advance of filing or submission of such applications to Governmental Entities
in connection with this Agreement and shall make such revisions thereto as
reasonably requested by such other party. Each party shall provide to the other
party the opportunity to participate in all meetings and material conversations
with Governmental Entities.
4.11 Employee Matters. (i) From and after the Effective Time,
Conseco shall, with respect to benefits accrued, honor in accordance with their
respective terms the employee benefit plans, programs, policies, arrangements
and agreements listed on Section 4.11 of the Disclosure Schedule (the "Section
4.11 Plans") and shall not take, or permit to be
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taken, any action that would reduce, eliminate or otherwise adversely affect the
compensation accrued or benefits accrued at the Effective Time (or, if greater,
at termination of employment after the Effective Time) for any employee or
former employee of the Company or any Company Affiliate under any Section 4.11
Plan. For purposes of any Section 4.11 Plan that contains a provision relating
to a change in control of the Company, Conseco acknowledges that the
consummation of the Merger constitutes such a change in control.
(ii) For the year ending December 31, 1996, the
Company or the Surviving Corporation shall pay to each employee of the Company
and/or its Subsidiaries who is entitled to receive a cash bonus under the bonus
arrangement established by the Company prior to the date of this Agreement (the
"Bonus") and who is an employee of the Company or its Subsidiaries as of the
Effective Time (each, a "Bonus Payee"), one or more cash payments as follows:
(a) with respect to the non-discretionary portion of the Bonus, the amount
thereof shall be calculated in accordance with the terms of the Bonus and shall
be paid at the time it is determined in accordance with past practice, whether
or not any Bonus Payee is then an employee of the Company or the Surviving
Corporation; provided, that if the employment with the Company of any Bonus
Payee is terminated between the Effective Time and December 31, 1996, such Bonus
Payee shall be entitled to receive a prorated portion thereof based on the
number of days that such Bonus Payee was employed by the Company or the
Surviving Corporation during the year ending December 31, 1996 (the "Prorated
Portion") and (b) with respect to the discretionary portion of the Bonus, the
amount thereof shall equal 75% of the amount previously established by the
Company as the maximum to be paid as a discretionary award for 1996, which
amount shall be paid in cash at the earlier of (i) the time of the payment of
the non-discretionary portion of the Bonus and (ii) termination of any Bonus
Payee's employment with the Company or the Surviving Corporation; provided, that
if the employment with the Company of any Bonus Payee is terminated between the
Effective Time and December 31, 1996, upon termination such Bonus Payee shall be
paid the Prorated Portion.
4.12 Affiliates and Certain Shareholders. Prior to the Closing
Date, the Company shall deliver to Conseco a letter identifying all persons who
are, at the time the Merger is submitted for approval to the shareholders of the
Company, "affiliates" of the Company for purposes of Rule 145 under the
Securities Act. The Company shall use its best efforts to cause each such person
to deliver to Conseco on or prior to the Closing Date a written agreement
substantially in the form attached as Exhibit A to the Disclosure Schedule.
Conseco shall not be required to maintain the effectiveness of the Form S-4 or
any other registration statement under the Securities Act for the purposes of
resale of Conseco Common Stock by such affiliates. Conseco Common Stock received
by such affiliates in the Merger shall bear a customary legend regarding
applicable Securities Act restrictions and the provisions of this Agreement.
If any such affiliate is unable because of the volume limitations of
Rule 144 of the SEC to sell pursuant to Rule 144 the shares of Conseco Common
Stock received by such affiliate as Merger Consideration and still held by such
affiliate, such affiliate shall have the right, for so long as any such balance
of the affiliate's Merger Consideration is not eligible for immediate sale under
the applicable provisions of Rule 144, to require Conseco to elect, in Conseco's
sole discretion, with respect to such balance, either to (i) acquire such shares
directly from such affiliate at the current market price, (ii) amend the Form
S-4 and maintain its effectiveness to provide for registration of such shares or
(iii) file promptly and in any event
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within 10 business days a Registration Statement on Form S-3 with the SEC to
register such shares for resale by such affiliate and provide customary
indemnities with respect thereto.
4.13 NYSE Listing. Conseco shall use its best efforts to cause
the shares of Conseco Common Stock to be issued in the Merger to be approved for
listing on the NYSE, subject to official notice of issuance, prior to the
Closing Date.
4.14 Shareholder Litigation. The Company shall give Conseco
the opportunity to participate in the defense or settlement of any shareholder
litigation against the Company and its directors relating to the transactions
contemplated by this Agreement; provided, however, that no such settlement shall
be agreed to without Conseco's consent, which consent shall not be unreasonably
withheld.
4.15 Indemnification. (a) The articles of incorporation and
the code of regulations of the Surviving Corporation and each of its
subsidiaries shall contain the provisions with respect to indemnification set
forth in the Articles of Incorporation and the Code of Regulations of the
Company or the respective Subsidiary, as the case may be, on the date of this
Agreement, and such provisions shall not be amended, repealed or otherwise
modified for a period of six years after the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who at any time
prior to the Effective Time were directors or officers of the Company or any of
its subsidiaries (the "Indemnified Parties") in respect of actions or omissions
occurring at or prior to the Effective Time (including, without limitation, the
transactions contemplated by this Agreement), unless such modification is
required by law. Conseco agrees to be jointly and severally liable for the
indemnification obligations of the Company to the Indemnified Parties, as set
forth above.
(b) From and after the Effective Time, Conseco shall honor in
accordance with their respective terms the indemnification agreements identified
in Section 4.15 of the Disclosure Schedule and shall not take, or permit to be
taken, any action that would reduce, eliminate or otherwise adversely affect the
rights of the persons entitled to indemnification thereunder.
(c) For a period of two years after the Effective Time,
Conseco shall cause to be maintained officers' and directors' liability
insurance covering the Indemnified Parties who are currently covered, in their
capacities as officers and directors, by the Company's existing officers' and
directors' liability insurance policies on terms substantially no less
advantageous to the Indemnified Parties than such existing insurance.
(d) The provisions of this Section 4.15 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party, his heirs
and his personal representatives and shall be binding on all successors and
assigns of Conseco, CAF Acquisition, the Company and the Surviving Corporation.
4.16 Capitol Insurance Company of Ohio. The Company shall use
its reasonable best efforts to have control of Capitol Insurance Company of
Ohio, a mutual association organized under the Ohio Non-Profit Corporation Law,
transferred to Conseco.
4.17 Certain Fees. The Company shall pay to Conseco upon
demand $15
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million (the "Section 4.17 Fee"), payable in same-day funds, if a bona fide
Acquisition Proposal is commenced, publicly proposed, publicly disclosed or
communicated to the Company (or the willingness of any person to make such an
Acquisition Proposal is publicly disclosed or communicated to the Company) and
the Board of Directors of the Company, in accordance with Section 4.9, withdraws
or modifies in a manner materially adverse to Conseco its approval or
recommendation of this Agreement or the Merger, approves or recommends such
Acquisition Proposal, enters into an agreement with respect to such Acquisition
Proposal or terminates this Agreement.
ARTICLE V
COVENANTS RELATING TO CONDUCT
OF BUSINESS PRIOR TO MERGER
5.1 Conduct of Business by the Company. Except as contemplated
by this Agreement or as set forth in Section 5.1 of the Disclosure Schedule,
during the period from the date of this Agreement to the Effective Time, the
Company shall, and shall cause its subsidiaries to, act and carry on their
respective businesses in the ordinary course of business and, to the extent
consistent therewith, use reasonable efforts to preserve intact their current
business organizations, keep available the services of their current key
officers and employees and preserve the goodwill of those engaged in material
business relationships with them. The Company agrees throughout such time to
allow representatives of Conseco to have access to the management and other
personnel of the Company so that Conseco can be fully informed at all times as
to significant day-to-day executive, legal, financial, marketing and other
operational matters involving the Company, its Subsidiaries or their businesses.
Prior to taking or approving any action with respect to any such significant
matters involving the Company, management of the Company will notify the
representative of Conseco designated by Conseco for oversight of the functional
area(s) involved with such decision and will, if consistent with the legal or
fiduciary obligations of such officer or the Directors of the Company, follow
any suggestions made by the Conseco representative with respect to the proposed
action. During such time, the Company will cause its personnel to cooperate with
personnel from Conseco in preparing for any proposed relocation by Conseco of
the Company's operations following Closing. Without limiting the generality of
the foregoing, during the period from the date of this Agreement to the
Effective Time, the Company shall not, and shall not permit any of its
subsidiaries to, without the prior consent of Conseco:
(i) (x) declare, set aside or pay any dividends on, or make
any other distributions (whether in cash, stock or property) in respect
of, any of the Company's outstanding capital stock (other than regular
quarterly cash dividends not in excess of $0.10 per Share, with usual
record and payment dates and in accordance with the Company's present
dividend policy), (y) split, combine or reclassify any of its
outstanding capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for
shares of its outstanding capital stock, or (z) purchase, redeem or
otherwise acquire any shares of outstanding capital stock or any
rights, warrants or options to acquire any such shares;
(ii) issue, sell, grant, pledge or otherwise encumber any
shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible
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securities other than upon the exercise of Company Stock Options
outstanding on the date of this Agreement;
(iii) amend its Articles of Incorporation, the Code of
Regulations or other comparable charter or organizational documents;
(iv) acquire any business or any corporation, partnership,
joint venture, association or other business organization or division
thereof;
(v) sell, mortgage or otherwise encumber or subject to any
Lien or otherwise dispose of any of its properties or assets that are
material to the Company and its subsidiaries taken as a whole, except
in the ordinary course of business;
(vi) (x) incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, other than (A)
indebtedness owing to or guarantees of indebtedness owing to the
Company or any direct or indirect wholly-owned subsidiary of the
Company, (B) indebtedness incurred by the Company in connection with
the declaration and payment of the regular quarterly dividend or (C)
indebtedness incurred by the Company in connection with the payment of
its expenses relating to this Agreement and the transactions
contemplated hereby, subject to the limitation set forth in Section
10.2 or (y) make any loans or advances to any other person, other than
(A) to the Company, or to any direct or indirect wholly-owned
subsidiary of the Company, (B) routine advances to agents of the
Company or (C) special individual advances of not more than $30,000
each to agents of the Company;
(vii) make any tax election or settle or compromise any income
tax liability that would reasonably be expected to be material to the
Company and its subsidiaries taken as a whole;
(viii) pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the most recent consolidated
financial statements (or the notes thereto) of the Company included in
the Filed SEC Documents or incurred since the date of such financial
statements in the ordinary course of business consistent with past
practice;
(ix) except as otherwise provided in the investment guidelines
to be contained in the investment advisory agreements specified in
Section 5.6 hereof, invest its future cash flow, any cash from matured
and maturing investments, any cash proceeds from the sale of its assets
and properties, and any cash funds currently held by it, in any
investments (which investments shall, in each case, be classified as
available-for-sale in accordance with SFAS 115, as defined in Section
5.6) other than cash equivalent assets or in short-term investments
(consisting of United States government issued or guaranteed
securities, or commercial paper rated A-I or P-1), except (i) as
otherwise required by law, (ii) as required to provide cash (in the
ordinary course of business and consistent with past practice) to meet
its actual or anticipated obligations or (iii) publicly-traded
corporate bonds that are rated investment grade by at least two
nationally recognized statistical rating organizations;
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(x) except as may be required by law,
(i) make any change to, or amend in any way,
the contracts, salaries, wages, or other compensation of any
employee or any agent or consultant of the Company or any
subsidiary other than routine changes or amendments that are
required under existing contracts or by law;
(ii) adopt, enter into, amend, alter or
terminate, partially or completely, any Benefit Plan or any
election made pursuant to the provisions of any Benefit Plan,
to accelerate any payments, obligations or vesting schedules
under any Benefit Plan;
(iii) approve any general or company-wide pay
increases for employees; or
(iv) make any representation or promise, oral
or written, to any employee or former director, officer or
employee of the Company or any subsidiary to do any of the
foregoing;
(xi) except in the ordinary course of business, modify, amend
or terminate any material agreement, permit, concession, franchise,
license or similar instrument to which the Company or any subsidiary is
a party or waive, release or assign any material rights or claims
thereunder;
(xii) hold any meeting of the Board of Directors of the
Company or any Subsidiary or any committee of any such board, or take
any action by written consent of any such board or committee, without
providing to Conseco (i) written notice of any such meeting or any
proposed action by written consent at the same time such notice or
action is provided to the directors and (ii) an agenda of any specific
matters to be considered at such meeting or a copy of the proposed
written consent; or
(xiii) authorize any of, or commit or agree to take any of,
the foregoing actions.
5.2 Conduct of Business by Conseco. During the period from the
date of this Agreement to the Effective Time, Conseco shall, and shall cause its
subsidiaries to, carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and, to
the extent consistent therewith, use all reasonable efforts to preserve intact
their current business organizations, keep available the services of their
current officers and employees and preserve their relationships with customers,
suppliers, licensors, licensees, distributors and others having business
dealings with them to the end that their goodwill and ongoing businesses shall
be unimpaired at the Effective Time. Except as set forth in Sections 3.5 or 5.2
of the Conseco Disclosure Schedule, without limiting the generality of the
foregoing, during the period from the date of this Agreement to the Effective
Time, Conseco shall not, and shall not permit any of its subsidiaries to:
(i) (x) declare, set aside or pay any dividends on, or make
any other distributions (whether in cash, stock or property) in respect of, any
outstanding capital stock of Conseco (other than regular quarterly cash
dividends of $.0625 per share of Conseco Common Stock and regular cash dividends
on the Conseco Series D Preferred Stock and the
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Conseco PRIDES, in each case with usual record and payment dates and in
accordance with Conseco's Articles of Incorporation and its present dividend
policy) or (y) split, combine or reclassify any of its outstanding capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of Conseco's outstanding capital stock;
(ii) issue, sell, grant, pledge or otherwise encumber any
shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities,
in each case if any such action could reasonably be expected to (A)
delay materially the date of mailing of the Proxy Statement/Prospectus
or, (B) if it were to occur after such date of mailing, require an
amendment of the Proxy Statement/Prospectus;
(iii) acquire any business or any corporation, partnership,
joint venture, association or other business organization or division
thereof, in each case if any such action could reasonably be expected
to (A) delay materially the date of mailing of the Proxy
Statement/Prospectus or, (B) if it were to occur after such date of
mailing, require an amendment of the Proxy Statement/Prospectus; or
(iv) authorize any of, or commit or agree to take any of,
the foregoing actions.
5.3 Stock Options and Restricted Shares. (i) The Company
agrees to use its best efforts, including without limitation additional actions
by its Board of Directors or the committee thereof which administers the Company
Stock Option Plan, to cause to be made such clarifications, modifications,
amendments or supplements to the Company Stock Option Plan and to the agreements
evidencing outstanding Company Stock Options and Restricted Shares to give
effect to the desires and intentions of the parties with respect to Company
Stock Options and Restricted Shares as contemplated by this Agreement, including
the following:
(a) The treatment of the Company Stock Options and Restricted
Shares in accordance with Section 1.9; and
(b) The Board of Directors of the Company shall approve the
disposition of Company Stock Options and Restricted Shares to the
Company pursuant to Section 1.9(e) in accordance with New Section 16 in
a manner intended to exempt the disposition from Section 16(b) of the
Exchange Act.
(ii) Conseco agrees to use its best efforts, including without
limitation additional actions by its Board of Directors or the committee thereof
which administers compensation, to give effect to the following desires and
intentions of the parties with respect to Company Stock Options and Restricted
Shares which remain outstanding immediately prior to the Effective Time:
(a) Conseco shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of Conseco Common
Stock for delivery upon exercise of the New Conseco Options. Following
the Effective Time, Conseco will issue the Conseco Common Shares
required to be issued upon the exercise of any New Conseco
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Options as provided in Section 1.9. As soon as practicable after the
Effective Time, Conseco shall file a registration statement on Form S-8
(or any successor form) or another appropriate form with respect to the
shares of Conseco Common Stock subject to the New Conseco Options and
shall use its best efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the
current status of the prospectus or prospectuses contained therein) for
so long as New Conseco Options remain outstanding.
(b) The Board of Directors of Conseco shall approve the grant
of the New Conseco Options in accordance with New Section 16 in a
manner intended to exempt the grant from Section 16(b) of the Exchange
Act.
(iii) The parties agree that after the date hereof, except for
the Company Stock Options and Restricted Shares outstanding on the date hereof
and the changes thereto, as described in the Disclosure Schedule, no options,
warrants or other rights of any kind to purchase capital stock of the Company
shall be granted or made, under the Company Stock Plan or otherwise, and no
amendment, repricing or other change to the outstanding Company Stock Options
and Restricted Shares shall be made, without the prior written consent of
Conseco, and any such grant, issuance, amendment, repricing or other change
without Conseco's consent shall be null, void and unenforceable against the
Surviving Corporation or Conseco.
5.4 Other Actions. Except as otherwise contemplated by this
Agreement, the Company and Conseco shall not, and shall not permit any of their
respective subsidiaries to, take any action that would, or that could reasonably
be expected to, result in (i) any of the representations and warranties of such
party set forth in this Agreement becoming untrue as of the date of this
Agreement in any material respect or (ii) any of the conditions of the Merger
set forth in Article VI not being satisfied.
5.5 Conduct of Business of CAF Acquisition. During the period
from the date of this Agreement to the Effective Time, CAF Acquisition shall not
engage in any activities of any nature except as provided in or contemplated by
this Agreement.
5.6 Investment Advisory Agreements. Except with respect to
investments classified on the date of this Agreement as "held-to-maturity" under
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"), the Company agrees to
enter into, and to cause each of its Subsidiaries to enter into, an investment
advisory agreement with Conseco Capital Management, Inc. ("CCM"), a wholly-owned
subsidiary of Conseco. Such agreements shall be effective as of the date of this
Agreement and shall contain terms and conditions which are customary in
investment advisory agreements between CCM and its clients.
5.7 Certain Company Actions. Notwithstanding any other
provision of this Agreement to the contrary, the Directors of the Company and
its officers and employees shall be entitled to take all actions necessary,
appropriate or desirable to cause the stay pay and severance arrangements
identified in Section 5.1 of the Disclosure Schedule and for the special cash
bonus described in Section 1.9(e) to the Disclosure Schedule to be adopted and
implemented and all payments identified in such Sections 1.9(e) and 5.1 of the
Disclosure Schedule to be paid as provided therein.
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ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to effect the Merger
is subject to the satisfaction or waiver on or prior to the Closing
Date of the following conditions:
(a) Shareholder Approval. This Agreement shall have been
adopted by the affirmative vote of the shareholders of the Company
entitled to cast at least a majority of the votes which all
shareholders of the Company are entitled to cast thereon.
(b) Governmental and Regulatory Consents. All required
consents, approvals, permits and authorizations to the consummation of
the transactions contemplated hereby by the Company, Conseco and CAF
Acquisition shall be obtained from (i) the Insurance Regulators in the
jurisdictions set forth in Section 2.3 of the Disclosure Schedule, and
(ii) any other Governmental Entity whose consent, approval, permission
or authorization is required by reason of a change in law after the
date of this Agreement, unless the failure to obtain such consent,
approval, permission or authorization would not reasonably be expected
to have a material adverse effect on the business, financial condition
or results of operations of the Company and its subsidiaries, taken as
a whole, or on the validity or enforceability of this Agreement;
provided, however, that, notwithstanding the foregoing, in the event
that all governmental and regulatory consents required hereunder shall
have been obtained except the approval of the Insurance Regulator of
any life insurance subsidiary of the Company, which does not constitute
a "significant subsidiary" (within the meaning of Rule 1-02 of
Regulation S-X of the SEC) of the Company (a "Non-Significant Life
Subsidiary") to the transfer of control of such Non-Significant Life
Subsidiary, then, subject to Article VII hereof, at any time thereafter
at the option of Conseco, the parties shall take one of the following
actions with respect to such Non-Significant Life Subsidiary and
otherwise proceed to consummate the Merger in accordance with this
Agreement: (a) place into escrow, pursuant to an escrow agreement
reasonably acceptable to the parties, the outstanding shares of capital
stock of such Non- Significant Life Subsidiary; such escrow agreement
shall contain customary provisions concerning duties and
responsibilities of the escrow agent and payment of the fees and
expenses of the escrow agent and shall provide that (i) pending
transfer of control of the Non-Significant Life Subsidiary to Conseco,
its current Board of Directors shall retain all power to vote its
shares of capital stock and to direct its business not inconsistent
with this Agreement, (ii) promptly following receipt of the approval of
the Insurance Regulator, control of the capital stock of such
Non-Significant Life Subsidiary shall be transferred to Conseco and
(iii) at any time following June 30, 1997 and prior to receipt of the
Insurance Regulator's approval, Conseco may elect to terminate the
escrow agreement, in which event such Non-Significant Life Subsidiary
shall be liquidated and dissolved and the proceeds thereof shall be
paid to Conseco; (b) cause such Non-Significant Life Subsidiary to
surrender its certificate of authority to do business in its state of
domicile; (c) cause such Non-Significant Life Subsidiary to commence
proceedings for its liquidation and dissolution; (d) enter into an
agreement for the sale and transfer of the Non-Significant Life
Subsidiary to a third party; or (e) take such other action as may be
mutually agreeable to the Company and Conseco.
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(c) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated
or shall have otherwise expired.
(d) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect; provided,
however, that the parties invoking this condition shall use best
reasonable efforts to have any such order or injunction vacated.
(e) NYSE Listing. The shares of Conseco Common Stock issuable
to the Company's shareholders pursuant to this Agreement shall have
been approved for listing on the NYSE, subject to official notice of
issuance.
(f) Form S-4. The Form S-4 shall have become effective under
the Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
6.2 Conditions to Obligations of Conseco and CAF Acquisition.
The obligations of Conseco and CAF Acquisition to effect the Merger are further
subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall have been
true and correct on the date of this Agreement (except to the extent
that they expressly relate only to an earlier time, in which case they
shall have been true and correct as of such earlier time) other than
such breaches of representations and warranties which in the aggregate
(after disregarding any qualification with respect to a material
adverse effect in Section 2.11(iii)) would not reasonably be expected
to have a material adverse effect on the business, financial condition
or results of operations of the Company and its subsidiaries taken as a
whole. The Company shall have delivered to Conseco a certificate dated
as of the Closing Date, signed by its Chief Executive Officer and its
Chief Financial Officer, in their capacities as officers of the
Company, to the effect set forth in this Section 6.2(a).
(b) Performance of Obligations of the Company. The Company
shall have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the Closing
Date, and Conseco shall have received a certificate dated as of the
Closing Date signed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to such effect.
(c) Shareholders Agreement. The Shareholders thereunder shall
have complied with their respective obligations under the Shareholders
Agreement, dated the date hereof, by and among Conseco and the shareholders of
the Company parties thereto (the "Shareholders Agreement").
6.3 Conditions to Obligation of the Company. The obligation
of the Company to effect the Merger is further subject to the following
conditions:
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(a) Representations and Warranties. The representations and
warranties of Conseco and CAF Acquisition contained in this Agreement
shall have been true and correct on the date of this Agreement (except
to the extent that they expressly relate only to an earlier time, in
which case they shall have been true and correct as of such earlier
time), other than such breaches of representations and warranties which
in the aggregate would not reasonably be expected to have a material
adverse effect on the business, financial condition or results of
operations of Conseco and its subsidiaries taken as a whole. Conseco
shall have delivered to the Company a certificate dated as of the
Closing Date, signed by its Chief Executive Officer and its Chief
Financial Officer, in their capacities as officers of Conseco, to the
effect set forth in this Section 6.3(a).
(b) Performance of Obligations of Conseco and CAF Acquisition.
Conseco and CAF Acquisition shall have performed in all material
respects all obligations required to be performed by them under this
Agreement at or prior to the Closing Date, and the Company shall have
received a certificate dated as of the Closing Date signed on behalf of
Conseco by the chief executive officer and the chief financial officer
of Conseco to such effect.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated and
abandoned at any time prior to the Effective Time, whether before or after
approval of matters presented in connection with the Merger by the shareholders
of the Company:
(a) by mutual written consent of Conseco and the Company;
(b) by either Conseco or the Company:
(i) if, upon a vote at a duly held
Shareholders Meeting or any adjournment thereof, any required
approval of the shareholders of the Company shall not have
been obtained;
(ii) if the Merger shall not have been
consummated on or before March 31, 1997, unless the failure to
consummate the Merger is the result of a willful and material
breach of this Agreement by the party seeking to terminate
this Agreement;
(iii) if any Governmental Entity shall have
issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting
the Merger and such order, decree, ruling or other action
shall have become final and nonappealable; or
(iv) if the Board of Directors of the Company
shall have exercised its rights set forth in Section 4.9 of
this Agreement.
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7.2 Effect of Termination. In the event of termination of this
Agreement by either the Company or Conseco as provided in Section 7.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Conseco, CAF Acquisition or the Company, other than
the last two sentences of Section 4.5 and Sections 2.14, 3.8, 4.17, 7.2 and
10.2. Nothing contained in this Section shall relieve any party from any
liability resulting from any material breach of the representations, warranties,
covenants or agreements set forth in this Agreement.
7.3 Amendment. Subject to the applicable provisions of the
Ohio Code, at any time prior to the Effective Time, the parties hereto may
modify or amend this Agreement, by written agreement executed and delivered by
duly authorized officers of the respective parties; provided, however, that
after approval of the Merger by the shareholders of the Company, no amendment
shall be made which reduces the consideration payable in the Merger or adversely
affects the rights of the Company's shareholders hereunder without the approval
of such shareholders. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties.
7.4 Extension; Waiver. At any time prior to the Effective
Time, the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties of the other parties contained in this
Agreement or in any document delivered pursuant to this Agreement or (c) subject
to Section 7.3, waive compliance with any of the agreements or conditions of the
other parties contained in this Agreement. Any agreement on the part of a party
to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. The failure of any party
to this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of such rights.
7.5 Procedure for Termination, Amendment, Extension or Waiver.
A termination of this Agreement pursuant to Section 7.1, an amendment of this
Agreement pursuant to Section 7.3 or an extension or waiver pursuant to Section
7.4 shall, in order to be effective, require in the case of Conseco, CAF
Acquisition or the Company action by its Board of Directors or the duly
authorized designee of its Board of Directors.
ARTICLE VIII
SURVIVAL OF PROVISIONS
8.1 Survival. The representations and warranties respectively
required to be made by the Company, Conseco and CAF Acquisition in this
Agreement, or in any certificate, respectively, delivered by the Company or
Conseco pursuant to Section 6.2 or Section 6.3 hereof will not survive the
Closing.
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ARTICLE IX
NOTICES
9.1 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:
Capitol American Financial Corporation
1001 Lakeside Avenue
Cleveland, OH 44114
Attention: David H. Gunning
Chairman, President
and Chief Executive Officer
Telephone: (216) 363-6306
Telecopy: (216) 363-6373
with copies to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
Attention: Joanne L. Bober
Telephone: (212) 326-3939
Telecopy: (212) 755-7306
If to Conseco, to:
Conseco
11825 N. Pennsylvania Street
Carmel, Indiana 46032
Attention: Lawrence W. Inlow, Esq.
Telephone: (317) 817-6163
Telecopy: (317) 817-6327
If to CAF Acquisition, to:
CAF Acquisition
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 IX will, if delivered personally,
be deemed given upon delivery, will, if delivered by telecopy, be deemed
delivered when confirmed and will, if
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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 X
MISCELLANEOUS
10.1 Entire Agreement. Except for documents executed by the
Company, Conseco and CAF Acquisition 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 exhibits
hereto, the Disclosure Schedule, the Conseco Disclosure Schedule and other
documents delivered in connection herewith), the Shareholders Agreement and the
Confidentiality Agreement contain the sole and entire agreement between the
parties hereto with respect to the subject matter hereof.
10.2 Expenses. Except as provided in Section 4.17, whether or
not the Merger is consummated, each of the Company, Conseco and CAF Acquisition
will pay its own costs and expenses incident to preparing for, entering into and
carrying out this Agreement and the consummation of the transactions
contemplated hereby except that the expenses incurred in connection with the
printing, mailing and distribution of the Proxy Statement/Prospectus and the
preparation and filing of the Form S-4 shall be borne equally by Conseco and the
Company. The Company agrees and covenants that the fees and expenses of the
Company's legal and investment banking advisors (including DLJ) incurred in
connection with the Merger (but excluding reasonable fees and expenses incurred
in connection with related litigation) shall not exceed $5,000,000.
10.3 Counterparts. This Agreement may be executed in one or
more counterparts, each of which will be deemed an original, but all of which
will constitute one and the same instrument and shall become effective when one
or more counterparts have been signed by each of the parties and delivered to
the other parties.
10.4 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.
10.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio, regardless of the
laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
10.6 Assignment; Binding Effect. Neither this Agreement nor
any of the rights, interests or obligations under this Agreement shall be
assigned, in whole or in part, by operation of law or otherwise by any of the
parties without the prior written consent of the other parties, and any such
assignment that is not consented to shall be null and void. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by, the parties and their respective successors and assigns.
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10.7 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; (e) all references to "dollars" or "$"
refer to currency of the United States of America; and (f) the term "person"
shall include any natural person, corporation, limited liability company,
general partnership, limited partnership, or other entity, enterprise, authority
or business organization.
10.8 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.
10.9 Waiver of Jury Trial. Each party to this Agreement
waives, to the fullest extent permitted by applicable law, any right it may have
to a trial by jury in respect of any action, suit or proceeding arising out of
or relating to this Agreement.
10.10 Enforcement. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof or were otherwise breached,
therefore the parties will be entitled to an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof, in addition to any other remedy at law or in equity.
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the Company, Conseco and CAF
Acquisition effective as of the date first written above.
CONSECO, INC.
By: /s/ Stephen C. Hilbert
----------------------
Stephen C. Hilbert
Chairman of the Board, President and Chief
Executive Officer
CAF ACQUISITION COMPANY
By: /s/ Stephen C. Hilbert
----------------------
Stephen C. Hilbert
President
CAPITOL AMERICAN FINANCIAL CORPORATION
By: /s/ David H. Gunning
--------------------
David H. Gunning
Chairman of the Board, President and Chief
Executive Officer
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Annex B
Donaldson, Lufkin & Jenrette
Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue, New York, New York 10172 (212) 892-3000
August 25, 1996
Board of Directors
Capitol American Financial Corporation
1001 Lakeside Avenue
Cleveland, OH 44114
Dear Sirs:
You have requested our opinion as to the fairness from a financial
point of view to the shareholders of Capitol American Financial Corporation (the
"Company") of the consideration to be received by such shareholders pursuant to
the terms of the Agreement and Plan of Merger to be dated as of August 25, 1996
(the "Agreement"), by and among Conseco, Inc. ("Conseco"), Capitol American
Acquisition Corp. (the "Acquisition Subsidiary"), a wholly owned subsidiary of
Conseco, and the Company, pursuant to which Acquisition Subsidiary will be
merged (the "Merger") with and into the Company whereby the Company will become
a wholly owned subsidiary of Conseco.
Pursuant to the Agreement, each share of common stock, without par
value, of the Company ("Company Common Stock") will be converted into the right
to receive, subject to certain exceptions, (i) $30.00 in cash (subject to
increase as provided in the Agreement) and (ii) the fraction of a share of
common stock, without par value, of Conseco ("Conseco Common Stock") determined
by dividing $6.50 by the average of the closing prices of Conseco Common Stock
for the 20 consecutive trading days immediately preceding the second trading day
prior to the consummation of the Merger.
In arriving at our opinion, we have reviewed the draft of August 24,
1996 of the Agreement and the exhibits thereto and the draft of August 20, 1996
of the Shareholders Agreement by and among Conseco, Inc. and Barry J. Hershey
and Connie Hershey. We have also reviewed financial and other information that
was publicly available or furnished to us by the Company and Conseco, including
information provided during discussions with their respective managements.
Included in the information provided during discussions with the respective
managements were certain financial projections of the Company for the years
ending December 31, 1996 through December 31, 1998, and certain financial
statements of Conseco which are pro forma for the Merger and for certain other
transactions contemplated by Conseco for the year ended December 31, 1995 and
the six months ended June 30, 1996 and certain financial projections of Conseco
which are pro forma for the Merger and for certain other transactions
contemplated by Conseco for the years ending December 31, 1996 through December
31, 2005 prepared by the management of Conseco. In addition, we have compared
certain financial and securities data of the Company and Conseco with certain
financial and securities data of various other companies whose securities are
traded in public markets, reviewed the historical stock prices
B-1
<PAGE>
and trading volumes of Company Common Stock and Conseco Common Stock, reviewed
prices and premiums paid in other business combinations and conducted such other
financial studies, analyses and investigations as we deemed appropriate for
purposes of this opinion.
In rendering our opinion, we have relied upon and assumed the accuracy
and completeness of all of the financial and other information that was
available to us from public sources, that was provided to us by the Company and
Conseco or its representatives, or that was otherwise reviewed by us. With
respect to the financial projections of the Company supplied to us, we have
assumed that they have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of the Company as
to the future operating and financial performance of the Company. With respect
to the pro forma financial statements and pro forma financial projections of
Conseco supplied to us, we have assumed that they have been reasonably prepared
on a basis reflecting the best currently available estimates and judgments of
the management of Conseco as to the historical pro forma results of Conseco and
future operating and financial performance of the Company and Conseco. We have
not assumed any responsibility for an independent evaluation of the Company's
and Conseco's assets or liabilities or for making any independent verification
of any of the information reviewed by us. We have relied as to all legal matters
on advice of counsel to the Company.
Our opinion is necessarily based on economic, market, financial and
other conditions as they exist on, and on the information made available to us
as of, the date of this letter. It should be understood that, although
subsequent developments may affect this opinion, we do not have any obligation
to update, revise or reaffirm this opinion. We are expressing no opinion herein
as to the prices at which Conseco Common Stock will actually trade at any time.
Our opinion does not constitute a recommendation to any member of the Board of
Directors of the Company or shareholder as to how such member or shareholder
should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of
its investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. DLJ
has performed investment banking and other services for the Company and Conseco
in the past and has received usual and customary compensation for such services.
Based upon the foregoing and such other factors as we deem relevant, we
are of the opinion that the consideration to be received by the holders of
Company Common Stock pursuant to the terms of the Agreement is fair to such
holders from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ MARK K. GORMLEY
-----------------------
Mark K. Gormley
Managing Director
S:\ACCTING\SECRPT\S-4CAP.896\DLJORG.LTR
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Annex C
APPRAISAL DISSENTER'S RIGHTS
Section 1701.85 OHIO REVISED CODE
(A)(1) A shareholder of a domestic corporation is entitled to relief as
a dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 of the Revised Code shall be a record holder
of the shares of the corporation as to which he seeks relief as of the date on
which the agreement of merger was adopted by the directors of that corporation.
Within twenty days after he has been sent the notice provided in section
1701.80 or 1701.801 of the Revised Code, the dissenting shareholder shall
deliver to the corporation a written demand for payment with the same
information as that provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the
address specified in his demand, a request for the certificates representing the
shares as to which he seeks relief, the dissenting shareholder, within fifteen
days from the date of the sending of such request, shall deliver to the
corporation, the certificates requested so that the corporation may forthwith
endorse on them a legend to the effect that demand for the fair cash value of
such shares has been made. The corporation promptly shall return such endorsed
certificates to the dissenting shareholder. A dissenting shareholder's failure
to deliver such certificates terminates his rights as a dissenting shareholder,
at the option of the corporation, exercised by written notice sent to the
dissenting shareholder within twenty days after the lapse of the fifteen-day
period, unless a court for good cause shown otherwise directs. If shares
represented by a certificate on which such a legend has been endorsed are
transferred, each new certificate issued for them shall bear a similar legend,
together with the name of the original dissenting holder of such shares. Upon
receiving a demand for payment from a dissenting shareholder who is the record
holder of uncertificated securities, the corporation shall make an appropriate
notation of the demand for payment in its shareholder records. If uncertificated
shares for which payment has been demanded are to be transferred, any new
certificate issued for the shares shall bear the legend required for
certificated securities as provided in this paragraph. A transferee of the
shares so endorsed, or of
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C-1
<PAGE>
uncertificated securities where such notation has been made, acquires only such
rights in the corporation as the original dissenting holder of such shares had
immediately after the service of a demand for payment of the fair cash value of
the shares. A request under this paragraph by the corporation is not an
admission by the corporation that the shareholder is entitled to relief under
this section.
(B) Unless the corporation and the dissenting shareholder have come to
an agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas of the
county in which the principal office of the corporation that issued the shares
is located or was located when the proposal was adopted by the shareholders of
the corporation, or, if the proposal was not required to be submitted to the
shareholders, was approved by the directors. Other dissenting shareholders,
within that three-month period, may join as plaintiffs or may be joined as
defendants in any such proceeding, and any two or more such proceedings may be
consolidated. The complaint shall contain a brief statement of the facts,
including the vote and the facts entitling the dissenting shareholder to the
relief demanded. No answer to such a complaint is required. Upon the filing of
such a complaint, the court, on motion of the petitioner, shall enter an order
fixing a date for a hearing on the complaint and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which summons is required to be served
or substituted service is required to be made in other cases. On the day fixed
for the hearing on the complaint or any adjournment of it, the court shall
determine from the complaint and from such evidence as is submitted by either
party whether the dissenting shareholder is entitled to be paid the fair cash
value of any shares and, if so, the number and class of such shares. If the
court finds that the dissenting shareholder is so entitled, the court may
appoint one or more persons as appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value. The appraisers have such power
and authority as is specified in the order of their appointment. The court
thereupon shall make a finding as to the fair cash value of a share and shall
render judgment against the corporation for the payment of it, with interest at
such rate and from such date as the court considers equitable. The costs of the
proceeding, including reasonable compensation to the appraisers to be fixed by
the court, shall be assessed or apportioned as the court considers equitable.
The proceeding is a special proceeding and final orders in it may be vacated,
modified, or reversed on appeal pursuant to the Rules of Appellate Procedure
and, to the extent not in conflict with those rules, Chapter 2505 of the Revised
Code. If, during the pendency of any proceeding instituted under this section, a
suit or proceeding is or has been instituted to enjoin or otherwise to prevent
the carrying out of the action as to which the shareholder has dissented, the
proceeding instituted under this section shall be stayed until the final
determination of the other suit or proceeding. Unless any provision in division
(D) of this section is applicable, the fair cash value of the shares that is
agreed upon by the parties or fixed under this section shall be paid within
thirty days after the date of final determination of such value under this
division, the effective date of the amendment to the articles, or the
consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a holder
of uncertificated securities entitled to such payment. In the case of holder of
shares represented by certificates, payment shall be made only upon and
simultaneously with the surrender to the corporation of the certificates
representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of
the corporation, fair cash value as to those shareholders shall be determined as
of the day prior to the day on which the vote by the shareholders was taken,
and, in the case of a merger pursuant to section 1701.80 or 1701.801 of the
Revised Code, fair cash value as to shareholders of a constituent subsidiary
corporation shall be determined as of the day before the adoption of the
agreement of merger by the directors of the particular subsidiary corporation.
The fair cash value of a share for the purposes of this section is the amount
that
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<PAGE>
a willing seller who is under no compulsion to sell would be willing to accept
and that a willing buyer who is under no compulsion to purchase would be willing
to pay, but in no event shall the fair cash value of a share exceed the amount
specified in the demand of the particular shareholder. In computing such fair
cash value, any appreciation or depreciation in market value resulting from the
proposal submitted to the directors or to the shareholders shall be excluded.
(D)(1) The right and obligation of a dissenting shareholder to receive
such fair cash value and to sell such shares as to which he seeks relief, and
the right and obligation of the corporation to purchase such shares and to pay
the fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this
section, unless the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally
enjoined or prevented from carrying it out, or the shareholders rescind
their adoption, of the action involved;
(c) The dissenting shareholder withdraws his demand, with th
consent of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not
come to an agreement as to the fair cash value per share, and neither
the shareholder nor the corporation filed or joined in a complaint
under division (B) of this section within the period provided in that
division;
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair cash
value of the shares. If the right to receive fair cash value is terminated other
than by the purchase of the shares by the corporation, all rights of the holder
shall be restored and all distributions which, except for the suspension, would
have been made shall be made to the holder of record of the shares at the time
of termination.
G:\LEGAL\REGSTMNT\CAF-9-18.S-4
C-3
EXHIBIT 5
September 18, 1996
Board of Directors
Conseco, Inc.
11825 N. Pennsylvania Street
Carmel, Indiana 46032
Gentlemen and Madam:
I am Executive Vice President and General Counsel of Conseco, Inc. (the
"Corporation"). At your request, I have examined or caused to be examined the
Registration Statement on Form S-4, which is being filed by the Corporation with
the Securities and Exchange Commission (the "Registration Statement") in
connection with the registration under the Securities Act of 1933 of shares of
common stock, no par value, of the Corporation (the "Common Stock") to be issued
pursuant to that certain Agreement and Plan of Merger dated as of August 25,
1996 among the Corporation, CAF Acquisition Company and Capitol American
Financial Corporation.
I have examined, or caused to be examined, instruments, documents and
records which I have deemed relevant and necessary for the basis of my opinions
hereinafter expressed. Based on such examination, I am of the opinion that:
1. The Corporation is a corporation duly organized and
validly existing under the laws of the State of Indiana.
2. When the Common Stock has been issued in the manner
described in the Registration Statement, any amendment thereto and the
Proxy Statement/Prospectus contained therein, such Common Stock will be
duly authorized, validly issued, fully paid and nonassessable.
I consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of my name under the caption "Legal
Matters" in the Registration Statement and the Proxy Statement/Prospectus.
Very truly yours,
/s/ Lawrence W. Inlow
----------------------------
Lawrence W. Inlow
Executive Vice President and
General Counsel
G:\LEGAL\EXHIBITS\EXHIBIT5.CAF
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Conseco, Inc. on Form S-4 (File No. 333-00000), of our reports dated March
20, 1996 on our audits of the consolidated financial statements and financial
statement schedules of Conseco, Inc. and subsidiaries as of December 31, 1995
and 1994, and for the years ended December 31, 1995, 1994 and 1993, included in
the Annual Report on Form 10-K. We also consent to the reference to our firm
under the caption "Experts."
/s/COOPERS & LYBRAND L.L.P
--------------------------
COOPERS & LYBRAND L.L.P
Indianapolis, Indiana
September 17, 1996
Exhibit 23(c)
ACCOUNTANTS' CONSENT
The Shareholders and Board of Directors
Capitol American Financial Corporation:
We consent to the incorporation by reference herein of our report dated
January 31, 1996, related to the consolidated financial statements of Capitol
American Financial Corporation and subsidiaries, and to the reference to our
firm under the headings "Selected Historical Financial Information of CAF" and
"Experts" in the Proxy Statement/Prospectus.
/s/ KPMG PEAT MARWICK LLP
-------------------------
KPMG PEAT MARWICK LLP
Columbus, Ohio
September 17, 1996
Exhibit 23(d)
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated March 4, 1996
included in American Travellers Corporation Form 10-K for the year ended
December 31, 1995 and to all references to our Firm included in this
Registration Statement.
/s/ARTHUR ANDERSEN LLP
----------------------
ARTHUR ANDERSEN LLP
Philadelphia, PA
September 18, 1996
Exhibit 23(e)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Conseco, Inc. on Form S-4 (File No. 333-00000), of our reports dated March
27, 1996 on our audits of the consolidated financial statements and financial
statement schedules of Life Partners Group, Inc. and subsidiaries as of December
31, 1995 and 1994, and for the years ended December 31, 1995, 1994 and 1993,
included in the Annual Report on Form 10-K. We also consent to the reference to
our firm under the caption "Experts."
/s/COOPERS & LYBRAND L.L.P
--------------------------
COOPERS & LYBRAND L.L.P
Denver, Colorado
September 17, 1996
Exhibit 23(f)
CONSENT OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
We hereby consent to (i) the inclusion of our opinion letter, dated
August 25, 1996, to the Board of Directors of Capitol American Financial
Corporation (the "Company") as Annex B to the Proxy Statement of the Company and
the Prospectus of Conseco, Inc. ("Conseco") relating to the proposed merger of
CAF Acquisition Company, a wholly-owned subsidiary of Conseco, and the Company
and (ii) all references to DLJ in the section captioned "Opinion of CAF's
Financial Advisor" of the Proxy Statement of the Company and the Prospectus of
Conseco which forms a part of this Registration Statement on Form S-4. In giving
such consent, we do not admit that we come within the category of persons whose
consent is required under, and we do not admit and we disclaim that we were
"experts" for purposes of, the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/PERRY H. BRAUN
---------------------------------
New York, New York
September 17, 1996
Exhibit 99(b)
CAPITOL AMERICAN FINANCIAL CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints DAVID H. GUNNING, RONALD L. SAROSY AND
PETER D. MILLER, and each of them, as the undersigned's proxies, with full power
of substitution and resubstitution to attend the Special Meeting of Shareholders
of Capitol American Financial Corporation, to be held at
_______________________________________________, on _______________ ____, 1996,
at 10:00 a.m. local time, and any adjournments or postponements thereof, and to
vote thereat the number of shares which the undersigned would be entitled to
vote, with all the power the undersigned would possess if present in person, as
follows:
1. Authorization and adoption of an Agreement and Plan of Merger,
dated as of August 25, 1996, by and among Capitol American
Financial Corporation, Conseco, Inc., an Indiana corporation,
and CAF Acquisition Company, an Ohio corporation and
wholly-owned subsidiary of Conseco, Inc., as more fully
described in the Proxy Statement/Prospectus of Capitol
American Financial Corporation and Conseco, Inc.
FOR |_| AGAINST |_| ABSTAIN |_|
2. In their discretion to vote upon such other business as may
properly come before the meeting.
The Proxies will vote as specified above, or if a choice is
not specified, they will vote FOR the authorization and adoption of the
Merger Agreement described in item 1.
Receipt of the Notice of Special Meeting of Shareholders and
the related Proxy Statement/Prospectus dated ________________ ____,
1996, is hereby acknowledged.
Dated ____________________________, 1996
(Please date your Proxy)
-------------------------
Signature of Shareholder
Please sign exactly as your name appears
hereon, indicating, where proper,
official position or representative
capacity.
When signing as Attorney, Executor,
Administrator, Trustee, etc., give full
title as such.
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