<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
CAPITAL AMERICAN FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
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 Tuesday,
November 26, 1996 at the Amphitheater, Lower Level, 1001 Lakeside Avenue,
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 October 14, 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 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
October 17, 1996
<PAGE> 3
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 Tuesday, November 26, 1996 at the Amphitheater, Lower Level, 1001
Lakeside Avenue, 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, (A) Merger Sub
will be merged with and into CAF, with CAF being the surviving corporation
(the "Merger"), and (B) 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 October
14, 1996, as the 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
October 17, 1996
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 CAF 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.
<PAGE> 4
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 November 26, 1996 at the Amphitheater,
Lower Level, 1001 Lakeside Avenue, Cleveland, Ohio, commencing at 10:00 a.m.,
local time, (the "CAF Special Meeting"). The CAF Special Meeting 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 (the "Merger Sub"),
pursuant to which the Merger Sub will be merged with and into CAF (the "Merger")
with CAF surviving the Merger as a wholly-owned subsidiary of Conseco.
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 October 16, 1996, the closing price of
the Conseco Common Stock as reported on the NYSE was $50 3/4.
The CAF Common Stock is listed on the NYSE under the symbol "CAF". On
October 16, 1996, the closing price of the CAF Common Stock as reported on the
NYSE was $36.
This Proxy Statement/Prospectus and the related form of proxy are first
being mailed to shareholders of CAF on or about October 18, 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 OCTOBER 17, 1996.
<PAGE> 5
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. 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.
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<PAGE> 6
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, TRANSPORT HOLDINGS INC. 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, DIRECTOR OF INVESTOR RELATIONS, 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
NOVEMBER 19, 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, March 14, 1996, April 10, 1996, August 2, 1996, August 25, 1996 and
September 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 Transport Holdings Inc. ("THI") for
the fiscal year ended December 31, 1995 ("THI's Annual Report"); THI's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 and
June 30, 1996; and THI's Current Report on Form 8-K dated September 25,
1996.
5. 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.
All documents filed by Conseco, CAF, ATC, THI 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
iii
<PAGE> 7
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.
iv
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
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.................................................... 3
Selected Historical Financial Information of Conseco................................ 10
Selected Historical Financial Information of LPG.................................... 12
Selected Historical Financial Information of CAF.................................... 14
Selected Historical Financial Information of ATC.................................... 16
Selected Historical Financial Information of THI.................................... 18
Summary Unaudited Pro Forma Consolidated Financial Information...................... 20
Comparative Unaudited Per Share Data of Conseco and CAF............................. 23
Market Price Information............................................................ 24
INFORMATION CONCERNING CONSECO AND THE MERGER SUB..................................... 25
Background.......................................................................... 25
Insurance Operations................................................................ 25
Fee-Based Operations................................................................ 26
Other Pending Acquisitions By Conseco............................................... 26
General Information Concerning Conseco and the Merger Sub........................... 27
INFORMATION CONCERNING CAF............................................................ 27
CAF SHAREHOLDER MEETING............................................................... 28
General............................................................................. 28
Matters to be Considered at the CAF Special Meeting................................. 28
Voting at the CAF Special Meeting; Record Date; Quorum.............................. 28
Proxies; Revocation of Proxies...................................................... 29
THE MERGER............................................................................ 30
Background of the Merger............................................................ 30
Conseco's Reasons for the Merger.................................................... 31
CAF's Reasons for the Merger; Recommendation of the CAF Board of Directors.......... 32
Opinion of CAF's Financial Advisor.................................................. 33
Certain Consequences of the Merger.................................................. 39
Conduct of the Business of Conseco and CAF after the Merger......................... 40
Interests of Certain Persons In the Merger.......................................... 40
Indemnification of Directors and Officers; Insurance................................ 41
Accounting Treatment................................................................ 41
Certain Federal Income Tax Consequences............................................. 42
Regulatory Approvals................................................................ 43
</TABLE>
v
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<TABLE>
PAGE
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<S> <C>
NYSE Listing of Conseco Common Stock................................................ 43
Rights of Dissenting Shareholders................................................... 44
THE MERGER AGREEMENT.................................................................. 45
The Merger.......................................................................... 45
Effective Time...................................................................... 45
Conversion of Shares; Exchange of Stock Certificates; No Fractional Amounts......... 46
Treatment of CAF Stock Options...................................................... 47
CAF Employee Matters................................................................ 47
Dissenting Shares................................................................... 47
Representations and Warranties...................................................... 48
Certain Covenants................................................................... 48
Conditions to the Merger............................................................ 50
Termination......................................................................... 50
Right of CAF Board of Directors to Withdraw Its Recommendation...................... 51
Acquisition Proposal Fees........................................................... 51
Expenses............................................................................ 51
Modification or Amendment........................................................... 51
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF CONSECO...................... 52
COMPARISON OF SHAREHOLDERS' RIGHTS.................................................... 75
Amendment of By-Laws................................................................ 75
Voting with Respect to Certain Business Combinations................................ 75
Certain Provisions Relating to Acquisitions......................................... 75
Right to Bring Business Before an Annual or Special Meeting of Shareholders......... 77
Shareholder Action By Written Consent............................................... 77
Removal of Directors................................................................ 77
Director Liability.................................................................. 77
Indemnification..................................................................... 78
Dividends and Repurchases........................................................... 79
Dissenters' Rights.................................................................. 79
Director and Officer Discretion..................................................... 80
MANAGEMENT OF THE SURVIVING CORPORATION UPON CONSUMMATION OF THE MERGER............... 80
LEGAL MATTERS......................................................................... 80
EXPERTS............................................................................... 80
INDEPENDENT ACCOUNTANTS............................................................... 81
OTHER MATTERS......................................................................... 81
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>
vi
<PAGE> 10
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 Merger of Merger Sub with
and into CAF 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"). On September 30, 1996, Conseco
acquired the shares of American Life Holdings,
Inc. ("ALH") (of which Conseco previously owned
approximately 37 percent) which Conseco did not
own for approximately $165 million in cash.
Conseco (including ALH) 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 would have been
approximately $23 billion and $1.9 billion,
respectively. See "Information Concerning
Conseco and the Merger Sub."
Conseco has also entered into (1) 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 and (2) an Agreement and Plan of
Merger (the "THI Merger Agreement") with
Transport Holdings Inc.
1
<PAGE> 11
("THI") pursuant to which THI will be merged
into Conseco (the "THI Merger"), with each
share of THI Common Stock converted into the
right to receive between 1.40 and 1.83 shares
of Conseco Common Stock. Conseco has also
announced that it intends to acquire 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 the Merger 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 November 26, 1996, at the
Amphitheater, Lower Level, 1001 Lakeside
Avenue, 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 October 14, 1996
(the "CAF Record Date"), are entitled to notice
of and to vote at the CAF Special Meeting. As
of the CAF Record Date, there were 17,507,190
shares of CAF Common Stock outstanding and
entitled to vote which were held by 104 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
2
<PAGE> 12
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 October 14, 1996, CAF's directors and
officers as a group beneficially owned 87,165
shares (or approximately .5 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 of the
Merger Agreement and the Merger. As of the CAF
Record Date, Barry J. Hershey and Connie
Hershey were entitled to vote 9,487,284 shares
of CAF Common Stock, or approximately 54.2
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
Special 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
3
<PAGE> 13
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 achievement 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 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
4
<PAGE> 14
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) the 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."
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
5
<PAGE> 15
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 -- 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
6
<PAGE> 16
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 shareholders
will own approximately 96 percent of the shares
of Conseco Common Stock then outstanding, and
the current CAF shareholders will own
approximately 4 percent 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 is
scheduled to expire on November 6, 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 may 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. If
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.
7
<PAGE> 17
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."
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
8
<PAGE> 18
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 9,487,284
shares of CAF Common Stock, or approximately
54.2 percent of the number of shares of CAF
Common Stock outstanding and entitled to vote
on such date.
9
<PAGE> 19
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
YEARS ENDED DECEMBER 31, ENDED 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
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
</TABLE>
(See footnotes on following page)
10
<PAGE> 20
- -------------------------
(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 April 1,
1996 two-for-one stock split.
(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.
(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.
11
<PAGE> 21
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
YEARS ENDED DECEMBER 31, ENDED 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
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
</TABLE>
(See footnotes on following page)
12
<PAGE> 22
- -------------------------
(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.
13
<PAGE> 23
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
</TABLE>
(See footnotes on following page)
14
<PAGE> 24
- -------------------------
(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.
15
<PAGE> 25
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
</TABLE>
(See footnotes on following page)
16
<PAGE> 26
- -------------------------
(a) All share and per share amounts have been restated to reflect the April 10,
1996 three-for-two stock split.
(b) Amounts under this heading are included to assist the reader in analyzing
ATC'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.
(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 purposes, 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.
17
<PAGE> 27
SELECTED HISTORICAL FINANCIAL INFORMATION OF THI
The selected historical financial information set forth below reflects a
series of transactions which occurred on September 29, 1995, pursuant to which
previously separate companies (all of which were wholly owned subsidiaries of
Travelers Group Inc.) were combined with THI and the outstanding common stock of
THI was distributed to the shareholders of Travelers Group Inc. The financial
statements of THI for periods prior to the September 29, 1995 transactions,
reflect the results of operations and the financial position of the previously
separate companies as if such companies had been combined at the beginning of
the periods presented using the pooling of interests method. In conjunction with
the September 29, 1995 transactions, THI issued $50 million of its subordinated
notes and borrowed $62 million from a group of banks. The proceeds of the
borrowings were used, in part, to make a distribution of $96 million to the
former parent and to pay expenses of $6.5 million associated with the September
29, 1995 transactions. During the fourth quarter of 1995, THI sold its long-term
care business to ATC. These transactions significantly affect the comparability
of the results of operations in 1996 with prior periods.
The selected historical financial information was derived from the
consolidated financial statements of THI. The consolidated balance sheets of THI
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 KPMG Peat Marwick LLP, independent
public accountants, and are included in THI's Annual Report which is
incorporated by reference herein. The consolidated financial information should
be read in conjunction with THI's Annual Report. The consolidated financial
information as of December 31, 1992, and as of and for the year ended December
31, 1991, and the six months ended June 30, 1995 and 1996, is unaudited;
however, in the opinion of THI'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
YEARS ENDED DECEMBER 31, ENDED 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................... $342.7 $289.0 $256.9 $227.7 $ 190.2 $108.6 $ 55.6
Investment activity:
Net investment income................... 42.1 43.7 44.0 46.6 49.7 26.0 19.9
Net realized gains (losses)............. 2.8 19.7 26.8 (3.4) 6.7 .4 .3
Total revenues............................ 399.6 368.1 331.0 270.9 246.6 135.0 76.4
Interest expense.......................... -- -- -- -- 2.3 -- 4.5
Expenses of spin-off and related
transactions............................ -- -- -- -- 2.2 -- --
Loss on sale of long term care business... -- -- -- -- 68.5 -- --
Total benefits and expenses............... 356.5 305.3 281.0 234.9 287.7 113.9 62.5
Income (loss) before income taxes and
cumulative effect of change in
accounting principle.................... 43.1 62.8 50.0 36.0 (41.1) 21.1 13.9
Cumulative effect of change in accounting
principle............................... -- -- (.3) -- -- -- --
Net income (loss)......................... 30.3 42.7 32.6 23.0 (26.8) 14.0 9.0
PER SHARE DATA
Net income (loss), primary(a)............. $(17.75) $ 3.85
Net income (loss), fully diluted(a)....... (17.75) 2.42
Book value per fully diluted common
share(b)................................ 66.59 61.60
Shares outstanding at period end.......... 1.6 1.6
Average fully diluted shares
outstanding............................. 2.0 3.1
BALANCE SHEET DATA -- PERIOD END
Total assets.............................. $740.0 $813.3 $890.7 $885.2 $ 950.5 $949.7 $924.5
Notes payable (including convertible
subordinated debentures)................ -- -- -- -- 110.3 -- 108.3
Total liabilities......................... 502.1 548.3 587.6 595.8 746.4 619.9 756.4
Shareholders' equity...................... 237.9 265.0 303.1 289.4 204.1 329.8 168.1
</TABLE>
18
<PAGE> 28
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED 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)
Operating earnings(d)..................... $ 28.5 $ 29.7 $ 15.5 $ 25.2 $ 15.4 $ 13.8 $ 8.8
Operating earnings per fully diluted
common share(a), (d).................... 7.50 2.35
Shareholders' equity excluding unrealized
appreciation (depreciation) of fixed
maturity securities(e).................. 237.9 265.0 303.1 312.2 180.9 317.5 164.6
Book value per common share outstanding
excluding unrealized appreciation of
fixed maturity securities(e)............ 59.14 60.49
Ratio of debt total capital(f):
As reported............................. (j) (j) (j) (j) .35X (j) .39X
Excluding unrealized appreciation(e).... (j) (j) (j) (j) .38X (j) .40X
Adjusted statutory capital (at period
end)(g)................................. $ 96.9 $122.2 $132.0 $130.7 $ 163.5 $129.2 $146.7
Adjusted statutory earnings (loss)(h)..... 28.0 39.3 8.1 24.5 51.8 10.9 19.3
Ratio of adjusted statutory earnings to
cash interest(i)........................ (j) (j) (j) (j) 45.98X (j) 5.42X
</TABLE>
- ---------------
(a) Per share data for the year ended December 31, 1995, is presented as if the
1,590,461 shares outstanding after the September 29, 1995 distribution were
outstanding for the entire year. Operating earnings per fully diluted share
data for the year ended December 31, 1995, also include the dilutive effect
of the issuance of the subordinated convertible notes from the date of
issuance, September 29, 1995 (such equivalent shares were anti-dilutive for
purposes of computing net loss per fully diluted share for the year ended
December 31, 1995).
(b) Book value per common share reflects the dilution which would occur if the
subordinated convertible notes were converted to common stock and
outstanding options were exercised.
(c) Amounts under this heading are included to assist the reader in analyzing
THI'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.
(d) Represents income before cumulative effect of change in accounting
principle, excluding: (i) net realized gains (losses), net of income taxes;
(ii) the loss on the sale of long-term care business, net of income taxes;
and (iii) expenses related to THI's September 29, 1995 spin-off and related
transactions, net of income taxes.
(e) 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 THI began to
do effective January 1, 1994. Such adjustments are in accordance with SFAS
115, as described in the notes to the consolidated financial statements
included in THI's Annual Report which is incorporated herein by reference.
(f) Represents the ratio of notes payable (including convertible subordinated
debentures) to the sum of shareholders' equity and notes payable (including
convertible subordinated debentures).
(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 THI'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 and income taxes of
THI's consolidated insurance subsidiaries as reported for statutory
accounting purposes plus income before interest expense, expenses related to
THI's September 29, 1995 spin-off, and income taxes of all non-life
companies.
(i) Represents the ratio of adjusted statutory earnings to cash interest. Cash
interest includes interest of THI and its consolidated subsidiaries that is
required to be paid in cash.
(j) Not applicable.
19
<PAGE> 29
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, ATC and THI 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 call of Conseco's Series D
Convertible Preferred Stock (the "Series D Call") completed on September 29,
1996; (2) the acquisition of all of the outstanding common stock of ALH, not
previously owned by Conseco, and related transactions (the "ALH Transaction")
completed on September 30, 1996; (3) the acquisition and merger of LPG completed
effective June 30, 1996 (the "LPG Merger"); (4) 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); (5) 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; (6) the issuance of 4.37 million
shares of Conseco PRIDES in January 1996; (7) 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 (8)
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 acquisition of all of the outstanding
common stock of BLH not previously owned by Conseco and related transactions
(the "BLH Transaction"); (2) the ATC Merger; and (3) the planned issuance by
Conseco 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"); and (4) the THI Merger.
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,
the Series D Call and the ALH Transaction, which have 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 BLH Transaction; (2) the ATC Merger; (3) the
Preferred Securities Offering; and (4) the THI Merger.
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
20
<PAGE> 30
of the combined companies have not been included as adjustments to the pro forma
consolidated financial statements. The Merger, the ATC Merger and the THI Merger
will be accounted for under the purchase method of accounting. 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 PRO FORMA FOR PRO FORMA PRO FORMA FOR
CONSECO THE MERGER CONSECO THE MERGER
BEFORE PRO FORMA AND OTHER BEFORE PRO FORMA AND OTHER
THE FOR THE PLANNED 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 $ 2,498.7 $ 897.2 $ 1,043.8 $ 1,286.3
Investment activity:
Net investment income....................... 1,461.1 1,506.3 1,574.0 719.4 745.0 783.7
Net trading income (losses)................. 2.5 2.5 2.5 (7.3) (7.3) (7.3)
Net realized gains.......................... 220.3 220.2 222.0 15.4 15.4 19.0
Total revenues................................ 3,498.4 3,825.7 4,358.9 1,685.4 1,857.6 2,143.0
Interest expense on notes payable............. 143.5 180.6 161.9 67.6 86.2 78.5
Total benefits and expenses................... 3,001.7 3,308.9 3,771.9 1,423.9 1,579.2 1,822.7
Income before income taxes, minority interest
and extraordinary charge.................... 496.7 516.8 587.0 261.5 278.4 320.3
Income before extraordinary charge............ 283.1 293.6 327.5 148.9 158.9 181.3
PER SHARE DATA
Income before extraordinary charge, primary... $3.74 $3.76 $3.33 $1.93 $2.00 $1.82
Income before extraordinary charge, fully
diluted..................................... 3.72 3.74 3.17 1.91 1.98 1.74
Book value per common share outstanding at
period end.................................. 24.29 25.12 30.11
Shares outstanding at period end.............. 65.7 68.1 88.5 66.9 69.3 89.7
Average fully diluted shares outstanding...... 76.0 78.4 103.8 77.8 80.2 105.6
BALANCE SHEET DATA -- PERIOD END
Total assets.................................. $23,058.3 $24,453.3 $26,644.5
Notes payable for which Conseco is directly
liable...................................... 1,198.5 1,788.0 2,183.6
Notes payable of BLH, not direct obligations
of Conseco.................................. 437.9 437.9 --
Total liabilities............................. 21,015.7 22,295.0 23,233.3
Minority interest in consolidated
subsidiaries:
Company-obligated mandatorily redeemable
preferred stock........................... -- -- 350.0
Preferred stock............................. 93.2 93.2 93.2
Common stock................................ 57.5 57.5 --
Shareholders' equity.......................... 1,891.9 2,007.6 2,968.0
OTHER FINANCIAL DATA(A)
Premiums collected(b)......................... $3,671.8 $3,953.9 $ 4,418.1 $ 1,781.7 $ 1,928.3 $ 2,170.8
Operating earnings(c)......................... 231.0 241.6 274.1 136.0 146.0 165.3
Operating earnings per fully diluted common
share(c).................................... 3.04 3.08 2.65 1.75 1.82 1.59
Shareholders' equity excluding unrealized
appreciation (depreciation) of fixed
maturity securities(d)...................... 1,948.3 2,064.0 3,024.4
Book value per common share outstanding,
excluding unrealized appreciation
(depreciation) of fixed maturity
securities(d)............................... 25.13 25.93 30.74
Ratio of debt for which Conseco is directly
liable to total capital of Conseco only(e):
As reported................................. .38X .46X .39X
Excluding unrealized appreciation
(depreciation)(d)......................... .37X .45X .39X
Excluding unrealized appreciation
(depreciation) and assuming conversion of
ATC's Convertible Subordinated Debentures
into Conseco Common Stock(d).............. .34X
</TABLE>
21
<PAGE> 31
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------- ---------------------------------------
PRO FORMA PRO FORMA FOR PRO FORMA PRO FORMA FOR
CONSECO THE MERGER CONSECO THE MERGER
BEFORE PRO FORMA AND OTHER BEFORE PRO FORMA AND OTHER
THE FOR THE PLANNED THE FOR THE PLANNED
MERGER MERGER TRANSACTIONS MERGER MERGER TRANSACTIONS
--------- --------- ------------- --------- --------- -------------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Ratio of debt for which Conseco is directly
liable and Preferred Securities to total
capital of Conseco only(f):
As reported................................. .45X
Excluding unrealized appreciation
(depreciation)(d)......................... .45X
Excluding unrealized appreciation
(depreciation) and assuming conversion of
ATC's Convertible Subordinated Debentures
into Conseco Common Stock(d).............. .41X
Adjusted statutory capital (at period
end)(g)..................................... $1,508.6 $1,597.1 $ 1,834.9 $ 1,515.6 $ 1,615.1 $ 1,849.5
Adjusted statutory earnings(h)................ 480.7 511.6 533.8 253.4 274.5 301.2
Ratio of adjusted statutory earnings to cash
interest(i)................................. 3.36X 2.84X 3.26X 3.74X 3.18X 3.78X
</TABLE>
- -------------------------
(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, minority interest
related to preferred stock issued by a subsidiary of ALH and the Preferred
Securities.
(f) Represents the ratio of pro forma notes payable for which Conseco is
directly liable and the Preferred Securities to the sum of pro forma
shareholders' equity, pro forma notes payable for which Conseco is directly
liable, minority interest related to preferred stock issued by a subsidiary
of ALH and the Preferred Securities.
(g) 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.
(h) 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.
(i) 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.
22
<PAGE> 32
COMPARATIVE UNAUDITED PER SHARE DATA OF CONSECO AND CAF
The following table sets forth selected historical per share data of
Conseco, LPG, CAF, ATC and THI 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
Series D Call, the ALH Transaction, the Merger, the ATC Merger, the BLH
Transaction, the Preferred Securities Offering and the THI Merger. Pro forma
equivalent amounts are presented assuming that the Conseco Share Price will be
$48.00, so that: (1) each share of CAF Common Stock is exchanged for $30 in cash
and .1354 shares of Conseco Common Stock in the Merger; (2) each share of BLH
Common Stock, not previously owned by Conseco, is exchanged for .5208 shares of
Conseco Common Stock in the BLH Transaction; (3) each outstanding share of ATC
Common Stock is exchanged for .7298 shares of Conseco Common Stock in the ATC
Merger; and (4) each outstanding share of THI Common Stock is exchanged for
1.4583 shares of Conseco Common Stock in the THI 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, THI'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
THI........................................................................ (17.75)(a) 2.42
Pro forma:
Conseco before the Merger.................................................. 3.72 1.91
Adjusted for the Merger.................................................... 3.74 1.98
Further adjusted for the ATC Merger, the THI Merger and other planned
transactions.............................................................. 3.17 1.74
Equivalent for one share of CAF Common Stock(b)............................ .43 .24
DIVIDENDS PER COMMON SHARE:
Historical:
Conseco.................................................................... $ .093 $ .040
LPG........................................................................ .110 .060
CAF........................................................................ .360 .200
ATC........................................................................ -- --
THI........................................................................ -- --
Pro forma:
Conseco before the Merger.................................................. .093 .040
Adjusted for the Merger.................................................... .093 .040
Further adjusted for the ATC Merger, the THI Merger and other planned
transactions.............................................................. .093 .040
Equivalent for one share of CAF Common Stock(b)............................ .013 .005
BOOK VALUE PER COMMON SHARE:
Historical:
Conseco.................................................................... $17.68
LPG........................................................................ 12.47
CAF........................................................................ 16.83
ATC........................................................................ 10.50
THI........................................................................ 61.60(c)
Pro forma:
Conseco before the Merger.................................................. 24.29
Adjusted for the Merger.................................................... 25.12
Further adjusted for the ATC Merger, the THI Merger and other planned
transactions.............................................................. 30.11
Equivalent for one share of CAF Common Stock(b)............................ 4.08
</TABLE>
- -------------------------
(a) Per share data for the year ended December 31, 1995, is presented as if the
1,590,461 shares outstanding after the September 29, 1995 distribution were
outstanding for the entire year.
(b) 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.
(c) Book value per common share reflects the dilution which would occur if THI's
subordinated convertible notes were converted into common stock and
outstanding options were exercised.
23
<PAGE> 33
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> <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........................ 49 3/8 35 1/4 0.02 35 3/8 23 3/4 0.10
Fourth Quarter (through October 16,
1996)............................. 52 3/8 48 7/8 0.0625 36 35 3/4
</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 October 16, 1996, the last full
trading day for which information was available prior to the date of this Proxy
Statement/Prospectus, and (2) the "Equivalent Per Share Price" (as hereinafter
defined) of CAF Common Stock on August 23, 1996 and October 16, 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
$48.03 assuming consummation of the Merger had occurred on August 23, 1996 and
October 16, 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
COMMON STOCK
CONSECO CAF EQUIVALENT
COMMON COMMON PER SHARE
PER SHARE PRICE STOCK STOCK PRICE
- ------------------------------------------------------------- ------ ------ ------------
<S> <C> <C> <C>
August 23, 1996.............................................. $42.00 $25.00 $36.68
October 16, 1996............................................. 50.75 36.00 36.87
</TABLE>
Listing on the NYSE of the shares of Conseco Common Stock issuable in
connection with the Merger is a condition to consummation of the Merger.
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.
24
<PAGE> 34
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.
On September 30, 1996, Conseco completed the acquisition of the common
shares of ALH not already owned by Conseco for approximately $165 million in
cash. ALH is a provider of retirement savings annuities. ALH has been included
in Conseco's consolidated financial statements since September 1994, when it was
acquired by Conseco Capital Partners II, L.P. Conseco now holds 59.2 percent of
the outstanding common shares of ALH and BLH holds the remaining 40.8 percent of
such shares.
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.; (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.
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 permits one-on-one contacts with potential
policyholders and builds loyalty to BLH among existing policyholders. Its
efficient and highly automated
25
<PAGE> 35
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 (Great American Reserve and
Beneficial Standard), 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 beginning
with its acquisition on September 30, 1996. 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.
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
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<PAGE> 36
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 additional information concerning ATC,
see ATC's Annual Report and other filings listed under "Incorporation of Certain
Documents by Reference" and "Selected Historical Financial Information of ATC."
THI. On September 25, 1996, Conseco and THI entered into an Agreement and
Plan of Merger (the "THI Merger Agreement") pursuant to which THI will be merged
with and into Conseco, with Conseco being the surviving corporation. Under the
THI Merger Agreement, each of the outstanding shares of common stock of THI
would be converted into the right to receive the whole number and fraction
(rounded to the nearest ten-thousandth) of a share of Conseco Common Stock
determined by dividing $70.00 by the Conseco/THI Share Price (as hereinafter
defined). The "Conseco/THI Share Price" shall be equal to the Trading Average
(as hereinafter defined); provided, however, that if the Trading Average is less
than $38.25, then the Conseco/THI Share Price shall be $38.25, and if the
Trading Average is greater than $50.00, then the Conseco/THI Share Price shall
be $50.00. The "Trading Average" 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 consecutive trading days immediately preceding the second
trading day prior to the date of the THI Merger. For additional information
concerning THI, see THI's Annual Report and other filings listed under
"Incorporation of Certain Documents by Reference" and "Selected Historical
Financial Information of THI."
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 additional information concerning Conseco, including information
concerning ALH and BLH, see Conseco's Annual Report and other filings listed
under "Incorporation of Certain Documents by Reference" and "Selected Historical
Financial Information of Conseco." For additional information concerning LPG,
see LPG's Annual Report and other filings listed under "Incorporation of Certain
Documents by Reference" and "Selected Historical Financial Information of LPG."
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.
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<PAGE> 37
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.
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 November 26, 1996 at
the Amphitheater, Lower Level, 1001 Lakeside Avenue, 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 October
18, 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 October 14, 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 17,507,190 shares of CAF Common
Stock outstanding and entitled to vote which were held by 104 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 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 authorization 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.
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<PAGE> 38
As of the CAF Record Date, the directors and executive officers (as a
group, 16 persons) and their affiliates were entitled to vote 87,165 shares (or
approximately .5 percent) of CAF Common Stock. As of such date, Barry J. Hershey
and Connie Hershey were entitled to vote 9,487,284 shares of CAF Common Stock,
or approximately 54.2 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
been reported to be changed and is now reported to be as set forth below:
<TABLE>
<CAPTION>
NUMBER OF PERCENT
SHARES OF CLASS(1)
--------- -----------
<S> <C> <C>
Debra S. Guren(2)................................................... 1,826,490 10.4
Barry J. Hershey(3)................................................. 7,602,224 43.4
Connie Hershey(4)................................................... 1,885,060 10.8
Loren W. Hershey(5)................................................. 2,515,795 14.4
Hershey Family Foundation........................................... 1,310,371 7.5
</TABLE>
- -------------------------
(1) Based on 17,507,190 shares of CAF Common Stock outstanding as of October 14,
1996.
(2) Includes 711,680 shares of CAF Common Stock with respect to which Mrs. Guren
exercises shared voting power and 10,300 shares of CAF Common Stock held by
Peter Guren, Mrs. Guren's husband.
(3) Includes 2,943,652 shares of CAF Common Stock with respect to which Barry J.
Hershey exercises shared voting power. Excludes 1,885,060 additional shares
of CAF Common Stock beneficially owned by Connie Hershey, Barry J. Hershey's
wife.
(4) Excludes 1,310,371 shares of CAF Common stock with respect to which Mrs.
Hershey exercises shared voting power; these shares are reflected in Barry
J. Hershey's total. Excludes 6,291,853 additional shares of CAF Common Stock
beneficially owned by Barry J. Hershey, Mrs. Hershey's husband.
(5) 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.
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
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<PAGE> 39
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.
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
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<PAGE> 40
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.
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
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<PAGE> 41
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 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 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
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THE PROPOSAL TO AUTHORIZE AND ADOPT THE MERGER AGREEMENT SET FORTH AS ITEM 1 ON
THE PROXY CARD.
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 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.
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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 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
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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.
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
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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 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, for the Selected Large Capitalization Companies. Based on
the same offer price,the implied multiple of Transaction Value to CAF's
statutory capital and surpluses 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
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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 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
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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 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
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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 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 and THI in connection with the THI Merger.
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.
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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."
Following the Merger, Conseco expects to achieve operating cost savings
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 operations. There can be no assurance
that such cost savings will be realized as anticipated by Conseco.
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 employees of CAF for six
months after the Effective Time or are 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:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
CAF COMMON STOCK NUMBER OF
NAME COVERED BY OPTIONS RESTRICTED SHARES
- ------------------------------------------------------------ ------------------- -----------------
<S> <C> <C>
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
</TABLE>
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
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<PAGE> 50
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 maximum 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 $664 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 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 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
(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.
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<PAGE> 51
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 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 (1) the cash and the fair market value of any other property
received on disposition, and (2) 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
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<PAGE> 52
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.
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 October 7, 1996. The required waiting period
under the HSR Act is scheduled to expire on November 6, 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
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<PAGE> 53
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 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 seeks 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 (3) 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 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
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<PAGE> 54
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.
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
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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 (1) $30.00 in cash
plus the Time Factor (as defined below), if any (collectively, "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 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 October 16, 1996, the last full trading day for which information was
available prior to the date of this Proxy Statement/Prospectus, the closing
prices reported for shares of Conseco Common Stock and CAF Common Stock on the
NYSE were $50 3/4 per share and $36 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.
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.
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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 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."
47
<PAGE> 57
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 on 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 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
48
<PAGE> 58
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, 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 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.
49
<PAGE> 59
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
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
50
<PAGE> 60
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."
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 CAF's
shareholders under the Merger Agreement without the approval of such
shareholders.
51
<PAGE> 61
UNAUDITED PRO FORMA 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
BLH Transaction; (3) the ATC Merger; (4) the Preferred Securities Offering; and
(5) the THI Merger.
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 Series D Call; (2) the ALH Transaction; (3)
the LPG Merger; (4) 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); (5) 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; (6) the issuance of 4.37 million shares of Conseco PRIDES in
January 1996; (7) the BLH Tender Offer; and (8) the debt restructuring of ALH in
the fourth quarter of 1995. Such pro forma adjustments are set forth in: (1)
Exhibit 99.2 included in Conseco's Current Report on Form 8-K dated September
25, 1996; (2) Conseco's Current Report on Form 8-K dated August 2, 1996; and (3)
Exhibit 99.1 included in Conseco's Current Report on 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 Series D Call; (2) the ALH
Transaction; (3) the LPG Merger; (4) the issuance of 4.37 million shares of
Conseco PRIDES in January 1996; and (5) the BLH Tender Offer. Such pro forma
adjustments are set forth in: (1) Exhibit 99.2 included in Conseco's Current
Report on Form 8-K dated September 25, 1996; (2) Conseco's Current Report on
Form 8-K dated August 2, 1996; and (3) 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 BLH Transaction; (3) the ATC Merger; (4)
the Preferred Securities Offering; and (5) the THI Merger.
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 following transactions, all of which have already
occurred, as if such transactions had occurred on June 30, 1996: (1) the Series
D Call; (2) the ALH Transaction; and (3) the LPG Merger. Such pro forma
adjustments are set forth in: (1) Exhibit 99.2 included in Conseco's Current
Report on Form 8-K dated September 25, 1996; and (2) 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, ATC and THI 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, the ATC Merger and the THI Merger using estimated values of the
assets and liabilities of LPG, CAF, ALH, BLH, ATC and THI 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, the ATC
Merger and the THI Merger had occurred on the assumed merger dates.
52
<PAGE> 62
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
PRO FORMA PRO FORMA RELATING
CONSECO ADJUSTMENTS PRO FORMA TO THE PRO FORMA
BEFORE THE CAF RELATING TO FOR THE BLH CONSECO
MERGER HISTORICAL THE MERGER MERGER TRANSACTION 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.............. 719.4 27.3 (1.7)(1) 745.0 0.1(20) 745.1
Net trading losses................. (7.3) (7.3) (7.3)
Net realized gains................. 15.4 .1 (.1)(1) 15.4 15.4
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................... 1,685.4 174.0 (1.8) 1,857.6 0.1 1,857.7
-------- ------ ------ -------- ---- --------
Benefits and expenses:
Insurance policy benefits and change
in future policy benefits.......... 626.0 80.9 (1.5)(2) 705.4 (1.0)(20) 704.4
Interest expense on annuities and
financial products................. 378.3 378.3 378.3
Interest expense on notes payable.... 67.6 1.0 (1.0)(3) 86.2 86.2
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 0.1(20) 187.5
16.2(5)
2.9(6)
Amortization related to realized
gains.............................. 15.1 15.1 0.1(20) 15.2
Other operating costs and expenses... 157.9 38.2 196.1 1.1(20) 197.2
-------- ------ ------ -------- ---- --------
Total benefits and expenses...... 1,423.9 132.4 22.9 1,579.2 0.3 1,579.5
-------- ------ ------ -------- ---- --------
Income (loss) before income
taxes, minority interest and
extraordinary charge.......... 261.5 41.6 (24.7) 278.4 (0.2) 278.2
Income tax expense (benefit)........... 100.3 14.5 (7.6)(7) 107.2 0.1(21) 107.3
-------- ------ ------ -------- ---- --------
Income (loss) before minority
interest and extraordinary
charge........................ 161.2 27.1 (17.1) 171.2 (0.3) 170.9
Minority interest in consolidated
subsidiaries:
Dividends on redeemable preferred
stock.............................. -- -- --
Dividends on preferred stock......... 4.4 4.4 4.4
Equity in earnings................... 7.9 7.9 (7.9)(22) --
-------- ------ ------ -------- ---- --------
Income (loss) before
extraordinary charge.......... $ 148.9 $ 27.1 $ (17.1) $ 158.9 $ 7.6 $ 166.5
======== ====== ====== ======== ==== ========
Earnings per common share and common
equivalent share:
Primary:
Weighted average shares
outstanding...................... 77.0 2.4(8) 79.4 2.6(23) 82.0
======== ====== ======== ==== ========
Income before extraordinary
charge........................... $ 1.93 $ 2.00 $ 2.03
======== ======== ========
Fully diluted:
Weighted average shares
outstanding...................... 77.8 2.4(8) 80.2 2.6(23) 82.8
======== ====== ======== ==== ========
Income before extraordinary
charge........................... $ 1.91 $ 1.98 $ 2.01
======== ======== ========
</TABLE>
- -------------------------
(a) Amounts are carried forward to page 54.
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
53
<PAGE> 63
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
RELATING
PRO FORMA TO THE
PRO FORMA ADJUSTMENTS PRO FORMA PREFERRED PRO FORMA
CONSECO ATC RELATING TO CONSECO SECURITIES CONSECO
SUBTOTAL(A) HISTORICAL THE ATC MERGER SUBTOTAL OFFERING SUBTOTAL(B)
----------- ---------- -------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income........... $ 1,043.8 $186.9 $ -- $1,230.7 $ -- $ 1,230.7
Investment activity:
Net investment income........... 745.1 21.3 .7(26) 767.1 767.1
Net trading losses.............. (7.3) (7.3 ) (7.3)
Net realized gains.............. 15.4 1.3 2.3(26) 19.0 19.0
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................ 1,857.7 209.5 3.0 2,070.2 2,070.2
-------- ------ ------ -------- ------ --------
Benefits and expenses:
Insurance policy benefits and
change in future policy
benefits........................ 704.4 127.3 831.7 831.7
Interest expense on annuities and
financial products.............. 378.3 378.3 378.3
Interest expense on notes
payable......................... 86.2 4.0 1.0(27) 88.7 (10.8)(41) 77.9
(2.5)(28)
Interest expense on investment
borrowings...................... 10.7 10.7 10.7
Amortization related to
operations...................... 187.5 10.9 (10.9)(29) 207.9 207.9
13.2(29)
7.2(30)
Amortization related to realized
gains........................... 15.2 15.2 15.2
Other operating costs and
expenses........................ 197.2 42.4 239.6 239.6
-------- ------ ------ -------- ------ --------
Total benefits and expenses... 1,579.5 184.6 8.0 1,772.1 (10.8) 1,761.3
-------- ------ ------ -------- ------ --------
Income (loss) before income
taxes, minority interest and
extraordinary charge........ 278.2 24.9 (5.0) 298.1 10.8 308.9
Income tax expense (benefit)........ 107.3 8.1 .8(31) 116.2 3.8(42) 120.0
-------- ------ ------ -------- ------ --------
Income (loss) before minority
interest and extraordinary
charge...................... 170.9 16.8 (5.8) 181.9 7.0 188.9
Minority interest in consolidated
subsidiaries:
Dividends on redeemable
preferred stock............... -- -- 10.6(43) 10.6
Dividends on preferred stock.... 4.4 4.4 4.4
Equity in earnings.............. -- -- --
-------- ------ ------ -------- ------ --------
Income (loss) before
extraordinary charge........ $ 166.5 $ 16.8 $ (5.8) $ 177.5 $ (3.6) $ 173.9
======== ====== ====== ======== ====== ========
Earnings per common share and common
equivalent share:
Primary:
Weighted average shares
outstanding................... 82.0 13.1(32) 95.1 95.1
======== ====== ======== ========
Income before extraordinary
charge........................ $ 2.03 $ 1.87 $ 1.83
======== ======== ========
Fully diluted:
Weighted average shares
outstanding................... 82.8 18.1(32) 100.9 100.9
======== ====== ======== ========
Income before extraordinary
charge........................ $ 2.01 $ 1.78 $ 1.75
======== ======== ========
</TABLE>
- -------------------------
(a) Amounts have been carried forward from page 53.
(b) Amounts have been carried forward to page 55.
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
54
<PAGE> 64
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
PRO FORMA MERGER
PRO FORMA ADJUSTMENTS AND OTHER
CONSECO THI RELATING TO PLANNED
SUBTOTAL(A) HISTORICAL THE THI MERGER TRANSACTIONS
----------- ---------- -------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income....................... $ 1,230.7 $ 55.6 $ -- $1,286.3
Net investment income...................... 767.1 19.9 (3.3)(46) 783.7
Net trading losses......................... (7.3) (7.3)
Net realized gains......................... 19.0 0.3 (0.3)(46) 19.0
Fee revenue................................... 20.1 20.1
Restructuring income.......................... 30.4 30.4
Other income.................................. 10.2 0.6 10.8
-------- ----- ------ --------
Total revenues........................... 2,070.2 76.4 (3.6) 2,143.0
-------- ----- ------ --------
Benefits and expenses:
Insurance policy benefits and change in future
policy benefits............................ 831.7 37.1 868.8
Interest expense on annuities and financial
products................................... 378.3 378.3
Interest expense on notes payable............. 77.9 4.5 (4.5)(47) 78.5
0.6(47)
Interest expense on investment borrowings..... 10.7 10.7
Amortization related to operations............ 207.9 4.2 (4.2)(48) 214.9
7.0(48)
Amortization related to realized gains........ 15.2 15.2
Other operating costs and expenses............ 239.6 16.7 256.3
-------- ----- ------ --------
Total benefits and expenses.............. 1,761.3 62.5 (1.1) 1,822.7
-------- ----- ------ --------
Income (loss) before income taxes,
minority interest and extraordinary
charge................................ 308.9 13.9 (2.5) 320.3
Income tax expense (benefit).................... 120.0 4.9 (0.9)(49) 124.0
-------- ----- ------ --------
Income (loss) before minority interest
and extraordinary charge.............. 188.9 9.0 (1.6) 196.3
Minority interest in consolidated subsidiaries:
Dividends on redeemable preferred stock....... 10.6 10.6
Dividends on preferred stock.................. 4.4 4.4
Equity in earnings............................ -- --
-------- ----- ------ --------
Income (loss) before extraordinary
charge................................ $ 173.9 $ 9.0 $ (1.6) $ 181.3
======== ===== ====== ========
Earnings per common share and common equivalent
share:
Primary:
Weighted average shares outstanding........ 95.1 4.7(50) 99.8
======== ====== ========
Income before extraordinary charge......... $ 1.83 $ 1.82
======== ========
Fully diluted:
Weighted average shares outstanding........ 100.9 4.7(50) 105.6
======== ====== ========
Income before extraordinary charge......... $ 1.75 $ 1.74
======== ========
</TABLE>
- -------------------------
(a) Amounts have been carried forward from page 54.
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
55
<PAGE> 65
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ADJUSTMENTS
CONSECO PRO FORMA RELATING
BEFORE ADJUSTMENTS PRO FORMA TO THE PRO FORMA
THE CAF RELATING TO FOR THE BLH CONSECO
MERGER HISTORICAL THE MERGER MERGER TRANSACTION SUBTOTAL(A)
--------- ---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income............. $1,752.8 $282.1 $ -- $2,034.9 $ (0.3)(20) $ 2,034.6
Investment activity:
Net investment income............. 1,461.1 48.6 (3.4)(1) 1,506.3 (0.1)(20) 1,506.2
Net trading income................ 2.5 2.5 2.5
Net realized gains................ 220.3 (.1)(1) 220.2 (0.4)(20) 219.8
Fee revenue......................... 33.9 33.9 33.9
Restructuring income................ 15.2 15.2 15.2
Other income........................ 12.6 .1 12.7 (0.1)(20) 12.6
-------- ------ ------ -------- ------ --------
Total revenues.................. 3,498.4 330.8 (3.5) 3,825.7 (0.9) 3,824.8
-------- ------ ------ -------- ------ --------
Benefits and expenses:
Insurance policy benefits and change
in future policy benefits......... 1,261.4 155.3 (3.0)(2) 1,413.7 (1.7)(20) 1,412.0
Interest expense on annuities and
financial products................ 758.5 758.5 0.3(20) 758.8
Interest expense on notes payable... 143.5 2.4 (2.4)(3) 180.6 (0.4)(20) 180.2
37.1(4)
Interest expense on investment
borrowings........................ 30.2 30.2 30.2
Amortization related to
operations........................ 307.3 21.5 (21.5)(5) 345.1 (2.8)(20) 342.3
32.0(5)
5.8(6)
Amortization related to realized
gains............................. 144.4 144.4 (0.6)(20) 143.8
Loss on sale of long-term care
business.......................... --
Expenses of spin-off and related
transactions...................... --
Other operating costs and
expenses.......................... 356.4 80.0 436.4 5.9(20) 442.3
-------- ------ ------ -------- ------ --------
Total benefits and expenses..... 3,001.7 259.2 48.0 3,308.9 0.7 3,309.6
-------- ------ ------ -------- ------ --------
Income (loss) before income
taxes, minority interest and
extraordinary charge......... 496.7 71.6 (51.5) 516.8 (1.6) 515.2
Income tax expense (benefit).......... 192.3 25.6 (16.0)(7) 201.9 (0.6)(21) 201.3
-------- ------ ------ -------- ------ --------
Income (loss) before minority
interest and extraordinary
charge....................... 304.4 46.0 (35.5) 314.9 (1.0) 313.9
Minority interest in consolidated
subsidiaries:
Dividends on redeemable preferred
stock........................... -- -- --
Dividends on preferred stock...... 8.7 8.7 8.7
Equity in earnings................ 12.6 12.6 (12.6)(22) --
-------- ------ ------ -------- ------ --------
Income (loss) before
extraordinary charge......... $ 283.1 $ 46.0 $ (35.5) $ 293.6 $ 11.6 $ 305.2
======== ====== ====== ======== ====== ========
Earnings per common share and common
equivalent share:
Primary:
Weighted average shares
outstanding..................... 75.7 2.4(8) 78.1 2.6(23) 80.7
======== ====== ======== ====== ========
Income before extraordinary
charge.......................... $ 3.74 $ 3.76 $ 3.78
======== ======== ========
Fully diluted:
Weighted average shares
outstanding..................... 76.0 2.4(8) 78.4 2.6(23) 81.0
======== ====== ======== ====== ========
Income before extraordinary
charge.......................... $ 3.72 $ 3.74 $ 3.77
======== ======== ========
</TABLE>
- -------------------------
(a) Amounts are carried forward to page 57.
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
56
<PAGE> 66
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
RELATING
PRO FORMA TO THE
PRO FORMA ADJUSTMENTS PRO FORMA PREFERRED PRO FORMA
CONSECO ATC RELATING TO CONSECO SECURITIES CONSECO
SUBTOTAL(A) HISTORICAL THE ATC MERGER SUBTOTAL OFFERING SUBTOTAL(B)
--------- ---------- -------------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income................... $2,034.6 $ 273.9 $ -- $ 2,308.5 $ -- $2,308.5
Investment activity:
Net investment income................... 1,506.2 23.2 1.8(26) 1,531.2 1,531.2
Net trading income...................... 2.5 2.5 2.5
Net realized gains...................... 219.8 .2 2.0(26) 222.0 222.0
Fee revenue............................... 33.9 33.9 33.9
Restructuring income...................... 15.2 15.2 15.2
Other income.............................. 12.6 12.6 12.6
-------- ----- ------ ------- ------- ---------
Total revenues...................... 3,824.8 297.3 3.8 4,125.9 -- 4,125.9
-------- ----- ------ ------- ------- ---------
Benefits and expenses:
Insurance policy benefits and change in
future policy benefits.................. 1,412.0 172.9 1,584.9 1,584.9
Interest expense on annuities and
financial products...................... 758.8 758.8 758.8
Interest expense on notes payable......... 180.2 3.3 1.9(27) 182.2 (21.5)(41) 160.7
(3.2)(28)
Interest expense on investment
borrowings.............................. 30.2 30.2 30.2
Amortization related to operations........ 342.3 22.7 (22.7)(29) 380.2 380.2
23.5(29)
14.4(30)
Amortization related to realized gains.... 143.8 143.8 143.8
Loss on sale of long-term care business... -- --
Expenses of spin-off and related
transactions............................ -- --
Other operating costs and expenses........ 442.3 63.7 506.0 506.0
-------- ----- ------ ------- ------- ---------
Total benefits and expenses......... 3,309.6 262.6 13.9 3,586.1 (21.5) 3,564.6
-------- ----- ------ ------- ------- ---------
Income (loss) before income taxes,
minority interest and
extraordinary charge.............. 515.2 34.7 (10.1) 539.8 21.5 561.3
Income tax expense (benefit)................ 201.3 11.0 1.5(31) 213.8 7.5(42) 221.3
-------- ----- ------ ------- ------- ---------
Income (loss) before minority
interest and extraordinary
charge............................ 313.9 23.7 (11.6) 326.0 14.0 340.0
Minority interest in consolidated
subsidiaries:
Dividends on redeemable preferred stock... -- -- 21.1(43) 21.1
Dividends on preferred stock.............. 8.7 8.7 8.7
Equity in earnings........................ -- -- --
-------- ----- ------ ------- ------- ---------
Income (loss) before extraordinary
charge............................ $ 305.2 $ 23.7 $(11.6) $ 317.3 $ (7.1) $ 310.2
======== ===== ====== ======= ======= =========
Earnings per common share and common
equivalent share:
Primary:
Weighted average shares outstanding..... 80.7 13.1(32) 93.8 93.8
======== ====== ======= =========
Income before extraordinary charge...... $ 3.78 $ 3.38 $ 3.31
======== ======= =========
Fully diluted:
Weighted average shares outstanding..... 81.0 18.1(32) 99.1 99.1
======== ====== ======= =========
Income before extraordinary charge...... $ 3.77 $ 3.22 $ 3.14
======== ======= =========
</TABLE>
- -------------------------
(a) Amounts have been carried forward from page 56.
(b) Amounts have been carried forward to page 58.
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
57
<PAGE> 67
CONSECO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA FOR THE
ADJUSTMENTS MERGER
PRO FORMA RELATING AND OTHER
CONSECO THI TO THE PLANNED
SUBTOTAL(A) HISTORICAL THI MERGER TRANSACTIONS
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income...................... $2,308.5 $190.2 $ -- $2,498.7
Investment activity:
Net investment income..................... 1,531.2 49.7 (6.9)(46) 1,574.0
Net trading income........................ 2.5 2.5
Net realized gains........................ 222.0 6.7 (6.7)(46) 222.0
Fee revenue.................................. 33.9 33.9
Restructuring income......................... 15.2 15.2
Other income................................. 12.6 12.6
-------- ------ ------ --------
Total revenues....................... 4,125.9 246.6 (13.6) 4,358.9
-------- ------ ------ --------
Benefits and expenses:
Insurance policy benefits and change in
future policy benefits.................... 1,584.9 131.9 1,716.8
Interest expense on annuities and financial
products.................................. 758.8 758.8
Interest expense on notes payable............ 160.7 2.3 (2.3)(47) 161.9
1.2(47)
Interest expense on investment borrowings.... 30.2 30.2
Amortization related to operations........... 380.2 24.5 (24.5)(48) 396.1
15.9(48)
Amortization related to realized gains....... 143.8 143.8
Loss on sale of long-term care business...... 68.5 (68.5)(51) --
Expenses of spin-off and related
transactions.............................. 2.2 (2.2)(51) --
Other operating costs and expenses........... 506.0 58.3 564.3
-------- ------ ------ --------
Total benefits and expenses.......... 3,564.6 287.7 (80.4) 3,771.9
-------- ------ ------ --------
Income (loss) before income taxes,
minority interest and extraordinary
charge............................. 561.3 (41.1) 66.8 587.0
Income tax expense (benefit)................... 221.3 (14.3) 22.7(49) 229.7
-------- ------ ------ --------
Income (loss) before minority
interest and extraordinary
charge............................. 340.0 (26.8) 44.1 357.3
Minority interest in consolidated subsidiaries:
Dividends on redeemable preferred stock...... 21.1 21.1
Dividends on preferred stock................. 8.7 8.7
Equity in earnings........................... -- --
-------- ------ ------ --------
Income (loss) before extraordinary
charge............................. $ 310.2 $(26.8) $ 44.1 $ 327.5
======== ====== ====== ========
Earnings per common share and common equivalent
share:
Primary:
Weighted average shares outstanding....... 93.8 4.7(50) 98.5
======== ====== ========
Income before extraordinary charge........ $ 3.31 $ 3.33
======== ========
Fully diluted:
Weighted average shares outstanding....... 99.1 4.7(50) 103.8
======== ====== ========
Income before extraordinary charge........ $ 3.14 $ 3.17
======== ========
</TABLE>
- ---------------
(a) Amounts have been carried forward from page 57.
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
58
<PAGE> 68
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA ADJUSTMENTS
CONSECO ADJUSTMENTS PRO FORMA RELATING TO PRO FORMA
BEFORE THE CAF RELATING TO FOR THE THE BLH CONSECO
MERGER HISTORICAL THE MERGER MERGER TRANSACTION 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.......... 204.6 2.2 (534.0)(11) 206.8 206.8
(26.0)(11)
(29.5)(11)
589.5(12)
Assets held in separate
accounts............. 271.6 -- 271.6 271.6
--------- ------ ------- --------- ------ ---------
Total investments.... 17,882.4 672.1 97.1 18,651.6 -- 18,651.6
Accrued investment income
....................... 284.1 8.3 292.4 292.4
Cost of policies purchased... 1,893.6 483.3(13) 2,376.9 65.0(20) 2,441.9
Cost of policies produced... 483.2 266.4 (266.4)(14) 483.2 (50.0)(20) 433.2
Reinsurance receivables... 374.6 -- 374.6 374.6
Income taxes.............. 209.7 -- (80.1)(15) 77.8 (5.3)(21) 72.5
(51.8)(15)
Goodwill.................. 1,566.8 -- 232.5(16) 1,799.3 55.3(20) 1,854.6
Property and equipment.... 89.0 4.8 93.8 93.8
Securities 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......... $ 23,058.3 $980.4 $ 414.6 $24,453.3 $ 65.0 $ 24,518.3
========= ====== ======= ========= ====== =========
</TABLE>
- -------------------------
(a) Amounts are carried forward to page 60.
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
59
<PAGE> 69
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
JUNE 30, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
PRO FORMA RELATING
ADJUSTMENTS TO THE
PRO FORMA RELATING PRO FORMA PREFERRED PRO FORMA
CONSECO ATC TO THE CONSECO SECURITIES CONSECO
SUBTOTAL(A) HISTORICAL ATC MERGER SUBTOTAL OFFERING SUBTOTAL(B)
----------- ---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Actively managed fixed
maturity securities at
fair value............... $ 16,639.3 $651.8 $ -- $17,291.1 $ -- $ 17,291.1
Held-to-maturity fixed
maturity securities...... -- -- --
Equity securities at fair
value.................... 99.6 -- 99.6 99.6
Mortgage loans............. 404.2 .4 404.6 404.6
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..... 206.8 17.5 (30.4)(33) 224.3 331.2(44) 224.3
30.4(34) (331.2)(44)
Assets held in separate
accounts................. 271.6 -- 271.6 271.6
--------- ------- --------- ------ -------- - -------
Total investments........ 18,651.6 669.7 -- 19,321.3 -- 19,321.3
Accrued investment income..... 292.4 7.4 299.8 299.8
Cost of policies purchased.... 2,441.9 11.2 256.2(35) 2,698.1 2,698.1
(11.2)(35)
Cost of policies produced..... 433.2 160.8 (160.8)(36) 433.2 433.2
Reinsurance receivables....... 374.6 -- 374.6 374.6
Income taxes.................. 72.5 -- (25.6)(37) 25.9 25.9
(21.0)(37)
Goodwill...................... 1,854.6 -- 577.3(38) 2,431.9 2,431.9
Property and equipment........ 93.8 4.0 97.8 97.8
Securites segregated for
future redemption of
redeemable preferred stock
of a Partnership II
entity..................... 40.7 -- 40.7 40.7
Other assets.................. 263.0 14.3 277.3 277.3
--------- ------- --------- ------ -------- - -------
Total assets............. $ 24,518.3 $867.4 $ 614.9 $26,000.6 $ -- $ 26,000.6
========= ======= ========= ====== ========= =======
</TABLE>
- -------------------------
(a) Amounts have been carried forward from page 59.
(b) Amounts have been carried forward to page 61.
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
60
<PAGE> 70
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
JUNE 30, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
PRO FORMA MERGER
PRO FORMA ADJUSTMENTS AND OTHER
CONSECO THI RELATING TO PLANNED
SUBTOTAL(A) HISTORICAL THE THI MERGER TRANSACTIONS
----------- ---------- -------------- ------------
<S> <C> <C> <C> <C>
Assets:
Investments:
Actively managed fixed maturity securities
at fair value............................. $ 17,291.1 $480.5 $ (83.1)(52) $ 17,688.5
Held-to-maturity fixed maturity
securities................................ -- --
Equity securities at fair value............. 99.6 0.9 100.5
Mortgage loans.............................. 404.6 8.6 413.2
Credit-tenant loans......................... 309.7 309.7
Policy loans................................ 528.7 17.8 546.5
Other invested assets....................... 191.0 5.1 196.1
Trading account securities.................. 0.7 0.7
Short-term investments...................... 224.3 21.0 83.1(52) 245.3
18.5(53)
(18.5)(53)
(58.3)(53)
(24.8)(53)
Assets held in separate accounts............ 271.6 271.6
--------- ------ ------- ---------
Total investments......................... 19,321.3 533.9 (83.1) 19,772.1
Accrued investment income...................... 299.8 6.4 306.2
Cost of policies purchased..................... 2,698.1 11.3 121.9(54) 2,820.0
(11.3)(54)
Cost of policies produced...................... 433.2 28.8 (28.8)(55) 433.2
Reinsurance receivables........................ 374.6 319.7 (253.4)(57) 440.9
Income taxes................................... 25.9 (25.9)(56) --
Goodwill....................................... 2,431.9 2,431.9
Property and equipment......................... 97.8 97.8
Securities segregated for future redemption of
redeemable preferred stock of a Partnership
II entity................................... 40.7 40.7
Other assets................................... 277.3 24.4 301.7
--------- ------ ------- ---------
Total assets.............................. $ 26,000.6 $924.5 $ (280.6) $ 26,644.5
========= ====== ======= =========
</TABLE>
- -------------------------
(a) Amounts have been carried forward from page 60.
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
61
<PAGE> 71
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
JUNE 30, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA ADJUSTMENTS
CONSECO ADJUSTMENTS PRO FORMA RELATING TO THE PRO FORMA
BEFORE THE CAF RELATING TO THE FOR THE BLH CONSECO
MERGER HISTORICAL MERGER MERGER TRANSACTION 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.... 1,198.5 29.5 (29.5)(18) 1,788.0 437.9(24) 2,225.9
589.5(12)
Notes payable of Bankers
Life Holding Corporation,
not direct obligations of
Conseco................... 437.9 -- 437.9 (437.9)(24) --
--------- ------ ------- --------- ------- ---------
Total liabilities....... 21,015.7 686.1 593.2 22,295.0 -- 22,295.0
Minority interest in
consolidated subsidiaries:
Company-obligated
mandatorily redeemable
preferred stock......... -- -- --
Preferred stock........... 93.2 93.2 93.2
Common stock.............. 57.5 57.5 (57.5)(22) --
--------- ------ ------- --------- ------- ---------
Shareholders' equity:
Preferred stock............. 267.1 -- 267.1 267.1
Common stock and additional
paid-in capital........... 1,040.9 35.5 (35.5)(19) 1,156.6 122.5(25) 1,279.1
115.7(19)
Unrealized appreciation
(depreciation) of
securities................ (56.1) (2.1) 2.1(19) (56.1) (56.1)
Retained earnings........... 640.0 260.9 (260.9)(19) 640.0 640.0
--------- ------ ------- --------- ------- ---------
Total shareholders'
equity............... 1,891.9 294.3 (178.6) 2,007.6 122.5 2,130.1
--------- ------ ------- --------- ------- ---------
Total liabilities and
shareholders'
equity............... $ 23,058.3 $980.4 $ 414.6 $24,453.3 $ 65.0 $24,518.3
========= ====== ======= ========= ======= =========
</TABLE>
- -------------------------
(a) Amounts are carried forward to page 63.
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
62
<PAGE> 72
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
JUNE 30, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
PRO FORMA RELATING
ADJUSTMENTS TO THE
PRO FORMA RELATING TO PRO FORMA PREFERRED PRO FORMA
CONSECO ATC THE ATC CONSECO SECURITIES CONSECO
SUBTOTAL(A) HISTORICAL MERGER SUBTOTAL OFFERING SUBTOTAL(B)
----------- ---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Liabilities:
Insurance liabilities.............. $ 18,806.1 $563.9 $ -- $19,370.0 $ -- $ 19,370.0
Income tax liabilities............. -- 21.0 (21.0)(37) -- --
Investment borrowings.............. 516.6 -- 516.6 516.6
Other liabilities.................. 474.8 8.0 11.2(39) 494.0 494.0
Liabilities related to separate
accounts......................... 271.6 -- 271.6 271.6
Notes payable of Conseco........... 2,225.9 103.5 30.4(34) 2,496.3 (331.2)(44) 2,165.1
136.5(39)
Notes payable of Bankers Life
Holding Corporation, not direct
obligations of Conseco........... -- -- -- --
--------- ------ ------- --------- ------- ---------
Total liabilities........... 22,295.0 696.4 157.1 23,148.5 (331.2) 22,817.3
--------- ------ ------- --------- ------- ---------
Minority interest in consolidated
subsidiaries:
Company-obligated mandatorily
redeemable preferred stock..... -- -- 350.0(45) 350.0
Preferred stock.................. 93.2 93.2 93.2
Common stock..................... -- -- --
--------- ------ ------- --------- ------- ---------
Shareholders' equity:
Preferred stock.................... 267.1 -- 267.1 267.1
Common stock and additional paid-in
capital.......................... 1,279.1 63.8 (63.8)(40) 1,907.9 (18.8)(45) 1,889.1
628.8(40)
Unrealized appreciation
(depreciation) of securities..... (56.1) (10.8) 10.8(40) (56.1) (56.1)
Retained earnings.................. 640.0 118.0 (118.0)(40) 640.0 640.0
--------- ------ ------- --------- ------- ---------
Total shareholders' equity..... 2,130.1 171.0 457.8 2,758.9 (18.8) 2,740.1
--------- ------ ------- --------- ------- ---------
Total liabilities and
shareholders' equity........ $ 24,518.3 $867.4 $ 614.9 $26,000.6 $ -- $ 26,000.6
========= ====== ======= ========= ======= =========
</TABLE>
- -------------------------
(a) Amounts have been carried forward from page 62.
(b) Amounts have been carried forward to page 64.
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
63
<PAGE> 73
CONSECO
PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
JUNE 30, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
PRO FORMA MERGER
PRO FORMA ADJUSTMENTS AND OTHER
CONSECO THI RELATING TO PLANNED
SUBTOTAL(A) HISTORICAL THE THI MERGER TRANSACTIONS
----------- ---------- -------------- ------------
<S> <C> <C> <C> <C>
Liabilities:
Insurance liabilities........................ $ 19,370.0 $612.7 $ (253.4)(57) $ 19,729.3
Income tax liabilities....................... -- 18.4 2.8(56) 21.2
Investment borrowings........................ 516.6 516.6
Other liabilities............................ 494.0 17.0 511.0
Liabilities related to separate accounts..... 271.6 271.6
Notes payable of Conseco..................... 2,165.1 108.3 (58.3)(58) 2,183.6
(50.0)(58)
18.5(58)
Notes payable of Bankers Life Holding
Corporation, not direct obligations of
Conseco................................... -- --
--------- ------ ------- ---------
Total liabilities.................... 22,817.3 756.4 (340.4) 23,233.3
--------- ------ ------- ---------
Minority interest in consolidated subsidiaries:
Company-obligated mandatorily redeemable
preferred stock........................... 350.0 350.0
Preferred stock.............................. 93.2 93.2
Common stock................................. -- --
--------- ------ ------- ---------
Shareholders' equity:
Preferred stock.............................. 267.1 22.8 (22.8)(59) 267.1
Common stock and additional paid-in
capital................................... 1,889.1 169.7 (169.7)(59) 2,117.0
121.7(59)
106.2(59)
Unrealized appreciation (depreciation) of
securities................................ (56.1) 4.0 (4.0)(59) (56.1)
Retained earnings............................ 640.0 (28.4) 28.4(59) 640.0
--------- ------ ------- ---------
Total shareholders' equity.............. 2,740.1 168.1 59.8 2,968.0
--------- ------ ------- ---------
Total liabilities and shareholders'
equity............................... $ 26,000.6 $924.5 $ (280.6) $ 26,644.5
========= ====== ======= =========
</TABLE>
- -------------------------
(a) Amounts have been carried forward from page 63.
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
64
<PAGE> 74
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 that such average price per
share of Conseco Common Stock will be $48.00, resulting in an exchange ratio of
.1354). Conseco will pay approximately $534 million in cash and issue an assumed
2.4 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
borrowings under Conseco's revolving credit facility used to complete the
Merger.
65
<PAGE> 75
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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.
(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) 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
66
<PAGE> 76
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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>
(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 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 that such price per share of
Conseco Common Stock will be $48.00, resulting in an exchange ratio of .5208
shares valued at $25.00). Conseco will issue an assumed 2.6 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.
67
<PAGE> 77
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Adjustments to give effect to the BLH Transaction are summarized below:
(20) 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.
(21) All pro forma adjustments are tax affected based on the
appropriate rate for the specific item.
(22) Minority interest is reduced to eliminate the ownership interest
of the former shareholders of BLH.
(23) Common shares outstanding are increased to reflect the shares of
Conseco Common Stock issued in the acquisition of additional shares of BLH
common stock.
(24) Notes payable of BLH are reclassified as notes payable of
Conseco, since BLH is now wholly owned by Conseco.
(25) 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 the
Conseco Share Price will be $48.00, resulting in an exchange ratio of .7298
shares valued at $35.03). Conseco will issue an assumed 13.1 million shares of
Conseco Common Stock with a value of approximately $628.8 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 5.0 million
shares of Conseco Common Stock with a value of approximately $240 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 $30.4 million.
68
<PAGE> 78
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The cost to acquire ATC is allocated as follows (dollars in millions):
<TABLE>
<S> <C>
Book value of assets acquired based on the 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)........................... 577.3
Income taxes................................................... (25.6)
Other liabilities.............................................. (11.2)
-------
Total estimated fair value adjustments....................... 624.7
-------
Total cost to acquire ATC........................................... $ 899.2
=======
</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.
(26) 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.
(27) Interest expense is increased to reflect the increase in
borrowings under Conseco's revolving credit facility used to complete the
ATC Merger.
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.
(28) 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.
(29) 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).
(30) Amortization of goodwill acquired in the ATC Merger is recognized
over a 40-year period on a straight-line basis.
(31) Reflects the tax adjustment for the pro forma adjustments at the
appropriate rate for the specific item.
(32) 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.
69
<PAGE> 79
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Adjustments to the pro forma consolidated balance sheet to give effect to
the ATC Merger as of June 30, 1996, are summarized below.
(33) Cash is reduced for payments made to complete the ATC Merger.
(34) Short-term investments and notes payable of Conseco are increased
for additional borrowings by Conseco to complete the ATC Merger.
(35) 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 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............................ $ 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>
(36) ATC's cost of policies produced is eliminated since such amounts
are reflected in the determination of the cost of policies purchased.
(37) 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.
(38) Goodwill acquired in the ATC Merger is recognized.
(39) 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.
70
<PAGE> 80
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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.
(40) 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
A subsidiary of Conseco intends to issue $350 million par value of 9.25
percent tax deductible Preferred Securities. The Conseco subsidiary will
purchase $350 million subordinated notes from Conseco. Conseco will use the
proceeds to reduce borrowings under the Conseco Credit Agreement.
(41) 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.
(42) The pro forma adjustment is tax affected, based on Conseco's
effective tax rate of 35 percent.
(43) Minority interest is adjusted to reflect the dividends (net of
the related tax benefit) on the Preferred Securities.
(44) Notes payable are reduced to reflect the repayment of borrowings
under the Conseco Credit Agreement using the net proceeds from the
Preferred Securities.
(45) The Company's obligations are 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.
Transactions relating to the THI Merger
The THI Merger will be accounted for under the purchase method of
accounting. Under this method, the total cost to acquire THI will be allocated
to the assets and liabilities acquired based on their fair values as of the date
of the THI 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 THI Merger will not qualify to be
accounted for under the pooling of interests method in accordance with APB No.
16 because THI was a subsidiary of another corporation within two years of the
contemplated transaction. In the THI Merger, each outstanding share of THI
common stock (or its equivalent) is assumed to be exchanged for a fraction of a
share of Conseco Common Stock to be determined based on the price of Conseco
Common Stock prior to its closing (it is assumed such average price per share of
Conseco Common Stock will be $48.00, resulting in an exchange ratio of 1.4583
shares valued at $70.00). Conseco will issue an assumed 2.5 million shares of
Conseco Common Stock with a value of approximately $121.7 million to acquire the
THI Common Stock (or equivalents). In addition, THI's convertible subordinated
notes (the "THI Convertible Notes") will be exchanged for Conseco convertible
subordinated notes (the "Conseco Convertible Notes") which will be convertible
into shares of Conseco Common Stock based on the price of Conseco Common
71
<PAGE> 81
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Stock prior to the THI Merger (such fully converted value being the same as the
THI Convertible Notes). Using the same assumption that each share of THI will be
convertible into 1.4583 shares of Conseco Common Stock with a value of $70.00,
in the aggregate, the Conseco Convertible Notes will be convertible into 2.2
million shares of Conseco Common Stock with a value of approximately $106.2
million. Immediately after the THI Merger, Conseco plans to cause the Conseco
Convertible Notes to be converted by payment of a premium of $8.5 million.
Conseco is expected to incur costs related to the THI Merger (including contract
termination, relocation, legal, accounting and other costs) of approximately $10
million.
The cost to acquire THI is allocated as follows (dollars in millions):
<TABLE>
<S> <C>
Book value of assets acquired based on assumed date of the THI Merger
(June 30, 1996).................................................... $168.1
THI Convertible Notes exchanged into Conseco Convertible Notes and
converted to Conseco Common Stock at the assumed date of the THI
Merger............................................................. 50.0
Less book value of THI preferred stock............................... (22.8)
Increase (decrease) in THI's net asset value to reflect estimated
fair value and asset reclassifications at the assumed date of the
THI Merger:
Cost of policies purchased (related to the THI Merger).......... 121.9
Cost of policies produced and cost of policies purchased
(historical)................................................... (40.1)
Income taxes.................................................... (28.7)
Premium incurred to cause the conversion of the Conseco
Convertible Notes.............................................. (8.5)
Premium incurred to retire THI preferred stock.................. (2.0)
------
Total estimated fair value adjustments........................ 42.6
------
Total cost to acquire THI............................................ $237.9
======
</TABLE>
Adjustments to the pro forma consolidated statement of operations to give
effect to the THI Merger as of January 1, 1995, are summarized below.
(46) Net investment income and net realized gains of THI are adjusted
to include the effect of adjustments to restate the amortized cost basis of
fixed maturity securities to their estimated fair value and the effect of
the assumed sale of $83.1 million fixed maturity investments, with the
proceeds used to repay $58.3 million of bank debt and redeem preferred
stock with a redemption value of $24.8 million.
(47) Interest expense is reduced to reflect the repayment of bank debt
of $58.3 million and the conversion of the Conseco Convertible Notes (which
were issued in exchange for the THI Convertible Notes) into Conseco Common
Stock. Interest expense is increased to reflect borrowings by Conseco to:
(i) pay the estimated cost of the THI Merger; and (ii) pay the $8.5 million
premium to cause Conseco's Convertible Notes to be converted.
(48) Amortization of the cost of policies produced and the cost of
policies purchased prior to the THI 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).
(49) Reflects the tax adjustment for the pro forma adjustments at the
appropriate rate for the specific item.
(50) Common shares outstanding are increased to reflect the Conseco
shares issued in the THI Merger and the conversion of the Conseco
Convertible Notes.
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CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(51) Effective October 1, 1995, THI sold its long term care business
to ATC. An adjustment is made to remove the loss on the sale of the long
term care business. However, the revenues, benefits and expenses related to
this business prior to its sale are not eliminated, since the business is
retained within the Conseco consolidated group after the ATC Merger (and
previous pro forma adjustments for the ATC Merger did not include
adjustments related to THI's long term care business prior to its purchase
by ATC). In addition, expenses related to THI's spin-off from its parent
are eliminated. Such costs include certain legal, accounting, actuarial and
advisory fees.
Adjustments to the pro forma consolidated balance sheet to give effect to
the THI Merger as of June 30, 1996, are summarized below.
(52) Actively managed fixed maturity securities with a carrying value
of $83.1 million are assumed to be sold at the date of the THI Merger.
(53) Short-term investments are reduced for: (i) payments made to
complete the THI Merger; (ii) the repayment of bank debt with a balance of
$58.3 million; (iii) the redemption of preferred stock with a redemption
value of $24.8 million; and (iv) the payment of the $8.5 million premium to
cause the Conseco Convertible Notes to be converted to Conseco Common
Stock. Short-term investments are increased by additional borrowings by
Conseco of $18.5 million to complete the THI Merger and related
transactions.
(54) THI's historical cost of policies purchased is eliminated and
replaced with the cost of policies purchased recognized in the THI Merger.
Cost of policies purchased reflects the estimated fair value of THI's
business in force and represents the portion of the cost to acquire THI
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
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<PAGE> 83
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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............................ $ 121.9 $ 20.7 $ 6.8 $ 13.9 $ 108.0
1998............................ 108.0 17.2 6.0 11.2 96.8
1999............................ 96.8 15.7 5.4 10.3 86.5
2000............................ 86.5 14.4 4.8 9.6 76.9
2001............................ 76.9 13.8 4.3 9.5 67.4
</TABLE>
(55) THI's cost of policies produced is eliminated since such amounts
are reflected in the determination of the cost of policies purchased.
(56) All of the applicable pro forma balance sheet adjustments are tax
affected at the appropriate rate. Deferred tax assets are netted against
deferred tax liabilities.
(57) Reinsurance receivables and insurance liabilities related to
business of THI ceded to ATC are eliminated in consolidation.
(58) Notes payable are decreased to reflect: (i) the repayment of bank
debt of $58.3 million; and (ii) the conversion of the Conseco Convertible
Notes (which were issued in exchange for the THI Convertible Notes) into
Conseco Common Stock. In addition, notes payable are increased to reflect
additional borrowings by Conseco used to complete the THI Merger and
related transactions.
(59) The prior shareholders' equity of THI is eliminated in
conjunction with the THI Merger. Common stock and additional paid-in
capital is increased by the value of Conseco common stock issued in the THI
Merger. The value of the Conseco Convertible Notes represents the value of
the Conseco common stock which the Conseco Convertible Notes are
convertible into. Preferred stock of THI is eliminated to reflect its
redemption.
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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.
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
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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 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
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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.
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
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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 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
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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
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
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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.
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 the 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 808,374 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.
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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 THI 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 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 24, 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.
81
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ANNEX A
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- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF AUGUST 25, 1996
BY AND AMONG
CONSECO, INC.,
CAF ACQUISITION COMPANY
AND
CAPITOL AMERICAN FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 92
TABLE OF CONTENTS
<TABLE>
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ARTICLE I
THE MERGER............................................................................. A-1
1.1 The Merger..................................................................... A-1
1.2 Closing........................................................................ A-1
1.3 Effective Time................................................................. A-1
1.4 Articles of Incorporation...................................................... A-1
1.5 Code of Regulations............................................................ A-1
1.6 Directors...................................................................... A-2
1.7 Officers....................................................................... A-2
1.8 Conversion of CAF Acquisition Shares........................................... A-2
1.9 Conversion of Shares........................................................... A-2
1.10 Exchange of Certificates....................................................... A-3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................................... A-5
2.1 Organization, Standing and Corporate Power..................................... A-5
2.2 Capital Structure.............................................................. A-5
2.3 Authority; Noncontravention.................................................... A-6
2.4 SEC Documents.................................................................. A-7
2.5 Absence of Certain Changes or Events........................................... A-7
2.6 Absence of Changes in Benefit Plans............................................ A-7
2.7 Benefit Plans.................................................................. A-8
2.8 Taxes.......................................................................... A-8
2.9 No Excess Parachute Payments; Section 162(m) of the Code....................... A-8
2.10 Voting Requirements............................................................ A-9
2.11 Compliance with Applicable Laws................................................ A-9
2.12 State Takeover Laws............................................................ A-10
2.13 Opinion of Financial Advisor................................................... A-10
2.14 Brokers........................................................................ A-10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CONSECO AND CAF ACQUISITION.......................... A-10
3.1 Organization, Standing and Corporate Power..................................... A-10
3.2 Conseco Capital Structure...................................................... A-11
3.3 Authority; Noncontravention.................................................... A-11
3.4 SEC Documents.................................................................. A-12
3.5 Absence of Certain Changes or Events........................................... A-12
3.6 Compliance with Applicable Laws................................................ A-12
3.7 No Prior Activities............................................................ A-13
3.8 Brokers........................................................................ A-13
3.9 Financing...................................................................... A-13
ARTICLE IV
ADDITIONAL AGREEMENTS.................................................................. A-13
Preparation of Form S-4 and the Proxy Statement/Prospectus; Information
4.1 Supplied....................................................................... A-13
4.2 Meeting of Shareholders........................................................ A-14
4.3 Letter of the Company's Accountants............................................ A-14
4.4 Letter of Conseco's Accountants................................................ A-14
4.5 Access to Information; Confidentiality......................................... A-14
</TABLE>
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4.6 Best Efforts................................................................... A-15
4.7 Public Announcements........................................................... A-15
4.8 Acquisition Proposals.......................................................... A-15
4.9 Fiduciary Duties............................................................... A-15
4.10 Consents, Approvals and Filings................................................ A-16
4.11 Employee Matters............................................................... A-16
4.12 Affiliates and Certain Shareholders............................................ A-17
4.13 NYSE Listing................................................................... A-17
4.14 Shareholder Litigation......................................................... A-17
4.15 Indemnification................................................................ A-17
4.16 Capitol Insurance Company of Ohio.............................................. A-18
4.17 Certain Fees................................................................... A-18
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER.............................. A-18
5.1 Conduct of Business by the Company............................................. A-18
5.2 Conduct of Business by Conseco................................................. A-20
5.3 Stock Options and Restricted Shares............................................ A-20
5.4 Other Actions.................................................................. A-21
5.5 Conduct of Business of CAF Acquisition......................................... A-21
5.6 Investment Advisory Agreements................................................. A-21
5.7 Certain Company Actions........................................................ A-21
ARTICLE VI
CONDITIONS PRECEDENT................................................................... A-22
6.1 Conditions to Each Party's Obligation to Effect the Merger..................... A-22
6.2 Conditions to Obligations of Conseco and CAF Acquisition....................... A-23
6.3 Conditions to Obligation of the Company........................................ A-23
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER...................................................... A-24
7.1 Termination.................................................................... A-24
7.2 Effect of Termination.......................................................... A-24
7.3 Amendment...................................................................... A-24
7.4 Extension; Waiver.............................................................. A-24
7.5 Procedure for Termination, Amendment, Extension or Waiver...................... A-24
ARTICLE VIII
SURVIVAL OF PROVISIONS................................................................. A-25
8.1 Survival....................................................................... A-25
ARTICLE IX
NOTICES................................................................................ A-25
9.1 Notices........................................................................ A-25
ARTICLE X
MISCELLANEOUS.......................................................................... A-26
10.1 Entire Agreement............................................................... A-26
10.2 Expenses....................................................................... A-26
10.3 Counterparts................................................................... A-26
10.4 No Third Party Beneficiary..................................................... A-26
10.5 Governing Law.................................................................. A-26
</TABLE>
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10.6 Assignment; Binding Effect..................................................... A-26
10.7 Headings, Gender, etc. ........................................................ A-26
10.8 Invalid Provisions............................................................. A-26
10.9 Waiver of Jury................................................................. A-27
10.10 Enforcement.................................................................... A-27
</TABLE>
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<PAGE> 95
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 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.
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<PAGE> 96
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."
(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
A-2
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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 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
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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
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.
(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.
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<PAGE> 99
(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 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
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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 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
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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 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.
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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")) (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 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
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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 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
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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.
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.
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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 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, 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
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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 (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,
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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 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
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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 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
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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 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 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
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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 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
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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 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.
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(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 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 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;
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(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;
(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,
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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 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
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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 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.
(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.
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(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:
(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.
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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.
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.
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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.
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 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
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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.
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
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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.
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, LUIFKIN & JENRETTE LOGO
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 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
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BOARD OF DIRECTORS
CAPITOL AMERICAN FINANCIAL CORPORATION
PAGE 2 AUGUST 25, 1996
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
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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 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
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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 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;
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(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.
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EXHIBIT 99(B)
[FORM OF CAF PROXY CARD]
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 the Amphitheater, Lower
Level, 1001 Lakeside Avenue, on Tuesday, November 26, 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 OCTOBER 17, 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.
