Business Context and Reporting Period
Company: Conseco, Inc. (Note: Filing lists Conseco, Inc., though metadata references CNO Financial Group, Inc.)
Date: October 13, 2009
Event: Entry into a Material Definitive Agreement (Item 1.01) and Unregistered Sales of Equity Securities (Item 3.02).
Counterparty: Paulson & Co. Inc. (on behalf of managed funds/accounts).
Key Financial Metrics and Transaction Terms
- Private Placement Proceeds: $77.9 million aggregate purchase price.
- Equity Issuance: 16.4 million shares of Common Stock and warrants to purchase 5.0 million shares.
- Warrant Terms: Exercise price of $6.50 per share (subject to adjustment); exercisable commencing June 30, 2013; expiration December 30, 2016.
- Debt Refinancing: Tender offer to acquire $293.0 million of existing 3.50% Convertible Debentures due 2035.
- New Debt Issuance: Up to $293.0 million of new 7.0% Convertible Senior Debentures due 2016 to finance the tender offer.
- Ownership Stake: Upon closing, Paulson is expected to own approximately 9.9% of outstanding Common Stock.
Material Changes and Strategic Actions
The filing details a significant recapitalization strategy involving a private placement and debt restructuring. Key changes include:
- Capital Structure Shift: The transaction involves issuing equity securities in excess of 20% of currently outstanding equity, necessitating reliance on the NYSE Exception (Section 312.05) to avoid immediate stockholder approval due to financial viability concerns.
- Debt Maturity Management: Replacement of long-term 2035 debentures with shorter-term 2016 debentures.
- Future Liquidity Plan: The Company covenanted to use reasonable best efforts to consummate a public offering of Common Stock for gross proceeds of not less than $200.0 million within 120 days of the Tender Offer consummation.
Guidance, Risks, and Contingencies
- Closing Conditions: The Private Placement is contingent upon the consummation of the Debentures Offering and the Tender Offer, receipt of governmental approvals, and the continued effectiveness of the NYSE Exception.
- Regulatory Risks: No assurance is given that the Private Placement will close as expected. The transaction relies on the NYSE Exception; if withdrawn and not replaced within 10 business days, the agreement may be terminated.
- Investor Rights Restrictions: Paulson is subject to a one-year standstill agreement limiting beneficial ownership to 19.9% and restricting actions to acquire control or nominate directors. A lock-up period applies to restricted securities (90 days post-public offering or 6 months post-closing).
- Tax Implications: The Board determined the transaction will not limit the Company's ability to use Net Operating Loss (NOL) carryforwards, designating Paulson as an "Exempted Entity" under the Section 382 Rights Agreement.
- Indemnity Caps: Company indemnification obligations to Paulson are capped at the Purchase Price ($77.9 million) with a $1.0 million aggregate threshold.
Investor Verification Checklist
- Verify the successful consummation of the Tender Offer for the $293.0 million Existing Convertible Debentures.
- Confirm the closing of the Debentures Offering for the new 7.0% Convertible Senior Debentures.
- Monitor the status of the NYSE Exception approval and ensure it remains effective.
- Track the Company's progress toward the covenanted $200.0 million public offering within 120 days of the Tender Offer.
- Review the final terms of the Investor Rights Agreement regarding lock-up periods and registration rights.