<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 / /
Filed by a party other than the registrant /X/
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
CONSECO, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
BOWNE OF DETROIT
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $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 transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
/ / 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:
- --------------------------------------------------------------------------------
- -------------------------
1Set forth the amount on which the filing fee is calculated and state how it was
determined.
<PAGE> 2
[LOGO]
11825 NORTH PENNSYLVANIA STREET
CARMEL, INDIANA 46032
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 7, 1994
NOTICE IS HEREBY GIVEN THAT the Annual Meeting of the shareholders of
Conseco, Inc. (the "Company"), will be held at the Hotel Crescent Court, 400
Crescent Court, Dallas, Texas, at 10:30 a.m., local time, on June 7, 1994, for
the following purposes:
1. To elect one director for a term ending in 1996 and three directors for
terms ending in 1997;
2. To approve the adoption of the 1994 Stock and Incentive Plan;
3. To approve the adoption of a Performance-Based Compensation Bonus Plan
for Executive Vice Presidents; and
4. To consider such other matters as may properly come before the meeting.
Holders of record of outstanding shares of the common stock of the Company
as of the close of business on April 22, 1994, are entitled to notice of and to
vote at the meeting.
Whether or not you plan to be present at the meeting, please complete, sign
and return the enclosed form of proxy. No postage is required to return the form
of proxy in the enclosed envelope. The proxies of shareholders who attend the
meeting in person may be withdrawn and such shareholders may vote personally at
the meeting.
By Order of The Board of Directors
/s/ Lawrence W. Inlow
Lawrence W. Inlow, Secretary
April 29, 1994
Carmel, Indiana
<PAGE> 3
[LOGO]
11825 NORTH PENNSYLVANIA STREET
CARMEL, INDIANA 46032
- --------------------------------------------------------------------------------
PROXY STATEMENT
- --------------------------------------------------------------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Conseco, Inc. ("Conseco" or the "Company"),
for the Annual Meeting of Shareholders (the "Annual Meeting") to be held at the
Hotel Crescent Court, 400 Crescent Court, Dallas, Texas, on June 7, 1994, at
10:30 a.m., local time. It is expected that this Proxy Statement will be mailed
to the shareholders on or about April 29, 1994. Proxies are being solicited
principally by mail. Georgeson and Company, Inc. has been engaged to solicit
proxies and provide certain investor analysis services for the Company for a fee
of $12,000 plus reasonable out-of-pocket expenses. Directors, officers and
regular employees of Conseco may also solicit proxies personally by telephone,
telegraph or special letter. All expenses incident to the preparation and
mailing to the shareholders of the Notice, Proxy Statement and form of proxy are
to be paid by Conseco.
If the enclosed form of proxy is properly executed and returned in time for
the meeting, the named proxyholders will vote the shares represented by the
proxy in accordance with the instructions marked on the proxy. Proxies returned
unmarked will be voted in favor of the proposals referred to in the Notice of
Annual Meeting of Shareholders. A shareholder may revoke a proxy at any time
before it is exercised by mailing or delivering to Conseco a written notice of
revocation or a later-dated proxy, or by attending the meeting and voting in
person.
Only holders of record of Conseco's Common Stock ("Common Stock") as of the
close of business on April 22, 1994, will be entitled to vote at the meeting. On
such record date, Conseco had 25,509,505 shares of Common Stock outstanding and
entitled to vote. Each share will be entitled to one vote with respect to each
matter submitted to a vote at the meeting. The presence in person or by proxy of
the holders of a majority of the outstanding shares entitled to vote at the
Annual Meeting is necessary to constitute a quorum.
The election of Directors will be determined by the plurality of the votes
cast by the holders of shares present in person or by proxy and entitled to
vote. Consequently, the four nominees who receive the greatest number of votes
cast for election as Directors will be elected as Directors of the Company.
Shares present which are properly withheld as to voting with respect to any one
or more nominees, and shares present with respect to which a broker indicates
that it does not have authority to vote ("broker non-votes"), will not be
counted. Action on any matter, other than the election of directors, is approved
if the votes cast in favor of the action exceed the votes cast against it.
Abstention from voting or broker non-votes will have no effect since such
actions do not represent votes cast by shareholders.
1
<PAGE> 4
SECURITIES OWNERSHIP
OWNERSHIP OF COMMON STOCK
The following table sets forth information as of April 15, 1994, regarding
ownership of Conseco's Common Stock (excluding shares held by subsidiaries not
entitled to vote) by the only persons known to own beneficially more than five
percent thereof, by the current Directors and the nominees for Director
individually, by the executive officers named in the Summary Compensation Table
on page 7 individually, and by all executive officers and Directors (including
nominees) as a group. Where any footnote indicates that shares included in the
table are owned by, or jointly with, family members or by an affiliate of such
person, the executive officer or Director may be deemed to exercise shared
voting and investment power with respect to those shares, unless otherwise
indicated. The Company's executive officers and Directors do not own any shares
of any other class of equity securities of the Company.
<TABLE>
<CAPTION>
SHARES OWNED AND
NATURE OF OWNERSHIP
-----------------------
NAME AND ADDRESS(1) NUMBER PERCENT
------------------- --------- -------
<S> <C> <C>
Five-Percent Owners:
Alex. Brown Investment Management................................... 4,247,150(2) 16.6%
135 East Baltimore Street
Baltimore, Maryland 21202
Kemper Financial Services, Inc...................................... 2,028,600(3) 8.0
120 South LaSalle Street
Chicago, Illinois 60603
Directors, Nominees and Executive Officers:
Michael G. Browning................................................. 130,780(4) .5
Ngaire E. Cuneo..................................................... 3,900(5) *
Rollin M. Dick...................................................... 447,479(6) 1.8
Louis P. Ferrero.................................................... -- --
Donald F. Gongaware................................................. 484,299(7) 1.9
M. Phil Hathaway.................................................... 19,298(8) .1
Stephen C. Hilbert.................................................. 542,055(9) 2.1
Lawrence W. Inlow................................................... 370,901(10) 1.4
Walter T. Kirkbride................................................. 306,125(11) 1.2
James D. Massey..................................................... -- --
Dennis E. Murray, Sr. .............................................. 205,400(12) .8
All executive officers, Directors and the nominees for Director as a
group (11 persons)............................................... 2,510,237(13) 9.8
- ------------
</TABLE>
(1) Address given for five-percent holders only.
(2) According to a Schedule 13G dated February 25, 1994, filed with the
Securities and Exchange Commission, the holder is an investment adviser
registered under Section 203 of the Investment Advisers Act of 1940. The
holder has indicated that it has sole voting power and shared dispositive
power with respect to 424,764 of such shares and has the sole power to
direct the disposition of 3,822,386 of such shares.
(3) According to a Schedule 13G dated February 11, 1994, filed with the
Securities and Exchange Commission, the holder is an investment adviser
registered under Section 203 of the Investment Advisers Act of 1940. The
holder has indicated that it has shared power to vote and to dispose of
such shares.
(4) Of these shares, 65,690 are owned by Mr. Browning's wife.
(5) Of these shares, 3,750 are subject to options held by Ms. Cuneo which are
exercisable within 60 days.
(6) Of these shares, 128,331 are owned by Mr. Dick's wife, 25,500 are owned by
a charitable foundation as to which shares he shares voting and investment
power, 8,800 are owned by irrevocable trusts as to which Mr. Dick's wife
has sole voting and investment power, and 3,750 are subject to options held
by Mr. Dick which are exercisable within 60 days. Mr. Dick expressly
disclaims beneficial ownership of all shares owned by his wife, the
charitable foundation and the trusts.
(7) Of these shares, 31,000 are owned by Mr. Gongaware's wife, 70,000 are owned
by a charitable trust as to which he shares voting and investment power,
18,000 are owned by irrevocable trusts as to which Mr. Gongaware's wife has
sole voting and investment power, and 73,750 shares are subject to options
held by Mr. Gongaware which are exercisable within 60 days. Mr. Gongaware
expressly disclaims beneficial ownership of all shares owned by his wife
and the trusts as to which she has sole voting and investment power.
(8) Of these shares, 4,000 are owned by Mr. Hathaway's wife.
(9) Of these shares, 3,750 are subject to options held by Mr. Hilbert which are
exercisable within 60 days.
(10) Of these shares, 123,750 are subject to options held by Mr. Inlow which are
exercisable within 60 days.
(11) Of these shares, 3,750 are subject to options held by Mr. Kirkbride which
are exercisable within 60 days.
(12) Of these shares, 125,000 are owned by retirement plan trusts as to which
Mr. Murray shares voting and investment power.
(13) Includes 212,500 shares subject to outstanding stock options which are
exercisable within 60 days.
* Less than .1%.
2
<PAGE> 5
OWNERSHIP OF BANKERS LIFE HOLDING CORPORATION COMMON STOCK
The following table sets forth the beneficial ownership of the common stock
of Bankers Life Holding Corporation ("Bankers Common Stock"), a majority owned
subsidiary of Conseco, by the current Directors of Conseco and the nominees for
Director individually, by the executive officers named in the Summary
Compensation Table on page 7 individually, and by all executive officers and
Directors (including nominees) as a group as of April 15, 1994.
<TABLE>
<CAPTION>
SHARES OF BANKERS
COMMON STOCK OWNED
AND NATURE OF
OWNERSHIP
--------------------
NUMBER PERCENT
------- -------
<S> <C> <C>
Michael G. Browning...................................................... 25,000(1) *
Ngaire E. Cuneo.......................................................... 4,000 *
Rollin M. Dick........................................................... 28,500(2) *
Louis P. Ferrero......................................................... -- --
Donald F. Gongaware...................................................... 10,000 *
M. Phil Hathaway......................................................... -- --
Stephen C. Hilbert....................................................... 100,000 *
Lawrence W. Inlow........................................................ -- --
Walter T. Kirkbride...................................................... -- --
James D. Massey.......................................................... -- --
Dennis E. Murray, Sr. ................................................... 106,000(3) *
All executive officers, Directors and the nominees for Director as a
group (11 persons)..................................................... 273,500 *
- ------------
</TABLE>
(1) Of these shares, 9,000 are owned by Mr. Browning's wife.
(2) These shares are owned by Mr. Dick's wife.
(3) This amount includes 1,000 shares owned by Mr. Murray's wife and 45,000
shares owned by a retirement plan trust of which Mr. Murray is a trustee.
Mr. Murray has sole investment power and shared voting power with respect to
the shares owned by such trust.
* Less than 1%.
BOARD MEETINGS AND COMMITTEES
During 1993, the Board of Directors held four meetings. All Directors
attended at least 75% of the aggregate meetings of the Board and the committees
on which they served.
The Board has a Compensation Committee which held three meetings during
1993. The Compensation Committee reviews and approves compensation plans in
which the Company's officers and directors are entitled to participate, the
terms of employment contracts with the Company's senior executive officers and
the annual cash bonuses paid to the Company's executive vice presidents. The
Compensation Committee also administers the Company's stock option and other
incentive plans. The Board also has an Audit Committee which held one meeting in
1993. The Audit Committee oversees the Company's accounting and financial
reporting activities, including meeting with the Company's independent auditors
and its Chief Financial Officer to review the scope, cost and results of the
independent audit and to review internal accounting controls, policies and
procedures. The Board selects the independent auditors, upon recommendation of
the Audit Committee. The members of these committees are identified in the table
below. See, ELECTION OF DIRECTORS.
The Board of Directors does not have a nominating committee. The Board
reviews and approves all nominees for Directors and will consider candidates
whose names are submitted in writing by shareholders. See, SHAREHOLDER PROPOSALS
below.
3
<PAGE> 6
COMPLIANCE WITH SECTION 16(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's Directors and executive officers, and each person who is
the beneficial owner of more than ten percent of the Company's outstanding
equity securities, to file with the Securities and Exchange Commission ("SEC")
and the New York Stock Exchange initial reports of ownership and reports of
changes in ownership of common stock and other equity securities of the Company.
Specific due dates for these reports have been established by the SEC and the
Company is required to disclose in this Proxy Statement any failure to file such
reports for fiscal year 1993 by the prescribed dates. Officers, Directors and
greater than ten percent beneficial owners are required by SEC regulations to
furnish the Company with copies of all reports filed with the SEC pursuant to
Section 16(a) of the 1934 Act. To the Company's knowledge, based solely on
review of the copies of reports furnished to the Company and written
representations that no other reports were required, all filings required
pursuant to Section 16(a) of the 1934 Act applicable to the Company's officers,
Directors and greater than ten percent beneficial owners were made for the year
ended December 31, 1993.
ELECTION OF DIRECTORS
The Board of Directors is being increased from seven Directors to nine
Directors, effective on the date of the Annual Meeting. The nine Directors will
be divided into three classes containing three members each. One of the two
additional Directors will be in the class of Directors whose term expires at the
1996 annual meeting and the other new Director will be in the class of Directors
being elected to serve for three-year terms expiring at the 1997 annual meeting.
In each case, Directors will serve until their successors are duly elected and
qualified. One of the nominees, James D. Massey, is a Director of CCP Insurance,
Inc., an affiliate of Conseco, and will continue in such position until the
expiration of his term at the 1994 Annual Meeting of Shareholders of CCP
Insurance, Inc. Another nominee, Dennis E. Murray, Sr., is a Director of Bankers
Life Holding Corporation, a majority owned subsidiary of Conseco, and will
continue in such position until the expiration of his term at the 1994 Annual
Meeting of Shareholders of Bankers Life Holding Corporation.
Unless authority is specifically withheld, the shares represented by the
enclosed form of proxy will be voted in favor of all nominees. Should any of the
nominees become unable to accept election, the persons named in the proxy will
exercise their voting power in favor of such person or persons as the management
of Conseco may recommend. All of the nominees have consented to being named in
this Proxy Statement and to serve if elected. The Board of Directors knows of no
reason why any of its nominees would be unable to accept election.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF EACH OF THE NOMINEES
FOR DIRECTOR.
4
<PAGE> 7
The following information regarding each person nominated for election as
Director, and each person whose term will continue after the meeting, includes
such person's age, positions with Conseco, principal occupation and business
experience for the last five years, and tenure as a Director of Conseco:
<TABLE>
<CAPTION>
DIRECTOR POSITIONS WITH CONSECO, PRINCIPAL TERM
NAME AND AGE SINCE OCCUPATION AND BUSINESS EXPERIENCE EXPIRING
- ----------------------------------- -------- ---------------------------------- --------
<S> <C> <C> <C>
Nominees For Election As Directors:
Ngaire E. Cuneo, 42................ -- Since 1992, Executive Vice 1996
President of Corporate Development
of Conseco. From 1986 to 1992,
Senior Vice President and
Corporate Officer of General
Electric Capital Corporation.
Also a Director of Bankers Life
Holding Corporation.
Rollin M. Dick, 62................. 1986 Since 1986, Executive Vice 1997
President and Chief Financial
Officer of Conseco. Also a
Director of CCP Insurance, Inc.,
Bankers Life Holding Corporation
and Wholesale Cellular USA, Inc.
James D. Massey, 59................ -- Retired. From 1986 to June 1992 1997
President and Deputy Chief
Executive Officer of Merchants
National Corp. and Chairman,
President and Chief Executive
Officer of Merchants National
Bank (banking). Also a Director
of CCP Insurance, Inc.
Dennis E. Murray, Sr., 54.......... -- Since 1964, partner and or 1997
principal of the Ohio law firm of
Murray & Murray Co., L.P.A. and
its predecessor. Also a Director
of Bankers Life Holding
Corporation.
Directors Whose Terms of Office
Will Continue After the Meeting:
Stephen C. Hilbert, 48............. 1979 Since 1979, Chairman of the Board 1995
and Chief Executive Officer, and
since 1988, President, of
Conseco. Also a Director of CCP
Insurance, Inc. and Bankers Life
Holding Corporation.
Michael G. Browning, 47 (1,2)...... 1984 President of Browning Investments, 1995
Inc. (real estate development,
construction, management and
investment). Also a Director of
PSI Resources, Inc. (electric
utility and energy services).
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
DIRECTOR POSITIONS WITH CONSECO, PRINCIPAL TERM
NAME AND AGE SINCE OCCUPATION AND BUSINESS EXPERIENCE EXPIRING
- ----------------------------------- -------- ---------------------------------- --------
<S> <C> <C> <C>
M. Phil Hathaway, 64 (1,2)......... 1984 Retired. Formerly, Treasurer of 1995
Cook Group, Inc. (medical
equipment, property and casualty
insurance, and real estate
development operations).
Donald F. Gongaware, 58............ 1985 Since 1985, Executive Vice 1996
President of Conseco. Also a
Director of CCP Insurance, Inc.
and Bankers Life Holding
Corporation.
Louis P. Ferrero, 51 (1,2,3) --.... Chairman of the Board and Chief 1996
Executive Officer of Anacomp,
Inc. (computer-based information
storage and management).
Director of Conseco since 1988.
- ------------
</TABLE>
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
(3) On March 7, 1991, in response to a complaint filed by the Securities and
Exchange Commission in the United States District Court in Indianapolis,
Indiana, against Mr. Ferrero and three other individuals, Mr. Ferrero,
without admitting or denying the allegations made in the complaint,
consented to the entry of a judgment permanently enjoining him from
engaging in transactions, acts, practices or courses of business which
would constitute violations of Section 17(a) of the Securities Act or
Sections 10(b) or 14(e) of the Exchange Act or Rules 10b-5 or 14e-3
thereunder, and requiring him to pay a civil penalty of $277,750. The
amount of the penalty represented alleged profits realized and losses
avoided in securities trading by the other defendants, for whom Mr. Ferrero
was allegedly a source of material nonpublic information concerning a
pending transaction involving Anacomp, Inc. It was not alleged that Mr.
Ferrero or any member of his family used the information to profit from
securities trading in any of their own accounts.
6
<PAGE> 9
EXECUTIVE COMPENSATION, RELATED PARTY TRANSACTIONS
AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth the cash compensation
and certain other components of the compensation of Stephen C. Hilbert, the
Chairman of the Board, President and Chief Executive Officer of the Company, and
the other five most highly compensated executive officers of the Company in 1993
(the "Named Officers").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------------------
AWARDS
----------------------------------
ANNUAL NUMBER OF PAYOUTS
COMPENSATION RESTRICTED SECURITIES UNDERLYING ----------
NAME AND PRINCIPAL --------------------------------- STOCK OPTIONS/SARS LTIP ALL OTHER
POSITION YEAR SALARY BONUS OTHER(1) AWARDS(2) (IN SHARES)(3) PAYOUTS COMPENSATION(4)
- -------------------- ---- -------- ----------- -------- ---------- --------------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stephen C.
Hilbert........... 1993 $250,000 $14,107,372 $194,124 $2,871,474 250,000 $ 0 $ 4,011
Chairman of the
Board, 1992 250,000 8,287,674 186,886 1,707,535 0 0 3,684
President and 1991 250,000 5,221,300 1,020,000 0 0
Chief Executive
Officer
Ngaire E.
Cuneo(5).......... 1993 250,000 3,750,000 800,000 100,000 0 38,899
Executive Vice
President, 1992 91,346 283,654 75,000 50,000 0 9,091
Corporate
Development 1991 0 0 0 0 0
Rollin M. Dick...... 1993 250,000 3,750,000 800,000 100,000 0 12,905
Executive Vice
President and 1992 250,000 1,750,000 400,000 0 2,652,722 6,792
Chief Financial
Officer 1991 250,000 800,000 210,000 0 0
Donald F.
Gongaware......... 1993 250,000 3,750,000 800,000 100,000 0 10,282
Executive Vice
President and 1992 250,000 1,750,000 400,000 0 0 5,010
Chief Operations
Officer 1991 250,000 800,000 210,000 0 0
Lawrence W. Inlow... 1993 250,000 3,750,000 800,000 100,000 0 5,775
Executive Vice
President, 1992 250,000 1,450,000 340,000 0 0 1,147
Secretary and 1991 250,000 700,000 190,000 0 0
General Counsel
Walter T.
Kirkbride......... 1993 250,000 3,750,000 800,000 100,000 0 7,868
Executive Vice
President and 1992 250,000 1,750,000 400,000 54,300 0 3,024
Chief Investment
Officer 1991 250,000 800,000 210,000 0 0
- ------------
</TABLE>
(1) Amounts for 1993 and 1992 include $162,450 which represents imputed interest
on a $1.9 million interest-free loan made to Mr. Hilbert in 1988. The other
Named Officers did not have other annual compensation for 1993 or 1992 which
is required to be listed under SEC rules on executive officer and director
compensation disclosure. In accordance with the transition provisions
applicable to such rules, amounts of Other Annual Compensation are excluded
for Conseco's 1991 fiscal year.
(2) The amounts shown in this column represent provisional awards denominated in
cash under the Company's Stock Bonus and Deferred Compensation Program. At
the end of 1994, the cash awards for 1991, 1992 and 1993 will be converted
to units representing shares of the Company's Common Stock based on a
formula which utilizes the average market prices of the Common Stock for the
four years ending December 31, 1994. After conversion to stock units, the
awards may have a cash value greater or lesser than that shown above.
Dividends are paid on the stock units. The aggregate holdings of stock units
and their aggregate value as of December 31, 1993, for each Named Officer
were as follows:
<TABLE>
<CAPTION>
UNITS VALUE
--------- -----------
<S> <C> <C>
Stephen C. Hilbert.................................................. 195,823.2 $10,868,188
Ngaire E. Cuneo..................................................... -- --
Rollin M. Dick...................................................... -- --
Donald F. Gongaware................................................. 58,202.2 3,230,222
Lawrence W. Inlow................................................... 45,763.9 2,539,896
Walter T. Kirkbride................................................. 53,858.9 2,989,169
</TABLE>
(3) No stock appreciation rights have been granted under the Company's Stock
Option Plan.
(4) In accordance with the transitional provisions applicable to the revised
rules on executive officer and director compensation disclosure adopted by
the SEC, amounts of All Other Compensation are excluded for Conseco's 1991
fiscal year. The amounts reported in this column represent amounts paid for
the Named Officers for group and individual life insurance premiums and also
includes (i) for Mr. Hilbert, $3,750 and $3,510 in 1993 and 1992,
respectively, of reportable income for a split-dollar life insurance policy,
(ii) for each of Messrs. Dick, Gongaware, Inlow and Kirkbride $4,497 for a
matching contribution made under the ConsecoSave 401(k) Plan, and (iii) for
Ms. Cuneo, relocation and moving expenses of $38,235 and $9,065 in 1993 and
1992, respectively.
(5) Ms. Cuneo joined the Company in September 1992.
7
<PAGE> 10
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
Mr. Hilbert is employed pursuant to an employment agreement dated January
1, 1987 which provides for an annual base salary of $250,000, an annual bonus
equal to 3% of Conseco's annual pre-tax net profits, and certain insurance and
other fringe benefits. This agreement renews annually for a five-year period,
unless either party notifies the other, in which case the agreement expires five
years from the last renewal date. In February 1988, as a reward for
extraordinary efforts in accomplishing the acquisition of Western National Life
Insurance Company in 1987, in recognition of enhanced responsibilities as a
result of such acquisition, and in consideration of his agreeing to enter into a
covenant not to compete with the Company, the Company made a $1,900,000
interest-free loan to Mr. Hilbert. The loan is evidenced by a secured promissory
note which does not bear interest prior to maturity and is payable in one
installment due two years after termination of Mr. Hilbert's employment
agreement with the Company. The note includes a covenant not to compete which
continues in effect until maturity or until the note is paid in full, if
earlier. The note is secured by the pledge of 100,000 shares of the Company's
Common Stock held by Mr. Hilbert.
Effective July 1, 1991, the Company entered into employment agreements with
Messrs. Dick, Gongaware, Inlow and Kirkbride for terms ending December 31, 1996,
and, effective September 1, 1992, the Company entered into an employment
agreement with Ms. Cuneo for a term ending December 31, 1997. Each employment
agreement provides for a minimum annual salary of $250,000, annual bonuses in
the discretion of the Board of Directors, and certain insurance and other fringe
benefits.
Each of the employment agreements described above includes provisions
pursuant to which the employee may elect to receive, in the event of a
termination of the agreement following a change in control of the Company (a
"Control Termination"), a severance allowance equal to 60 months of his or her
monthly rate of salary, bonus and other benefits. For such purposes a Control
Termination includes a termination by the employee if his or her duties or
responsibilities are changed following a change in control. The employee also
may elect to have the Company purchase all Company stock and all options to
purchase Company stock held by such person at a price per share equal to the
highest market price in the preceding six months.
OPTION GRANTS IN 1993
The following table sets forth certain information concerning options to
purchase Common Stock granted in 1993 to the six Named Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS GRANTED PER SHARE
OPTIONS TO EMPLOYEES EXERCISE EXPIRATION GRANT DATE
NAME GRANTED(1) IN 1993 PRICE(2) DATE PRESENT VALUE(3)
- ----------------------------------- --------- --------------- --------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Stephen C. Hilbert................. 250,000 17.1% $ 53.25 6/8/03 $5,205,000
Ngaire E. Cuneo.................... 100,000 6.8 53.25 6/8/03 2,082,000
Rollin M. Dick..................... 100,000 6.8 53.25 6/8/03 2,082,000
Donald F. Gongaware................ 100,000 6.8 53.25 6/8/03 2,082,000
Lawrence W. Inlow.................. 100,000 6.8 53.25 6/8/03 2,082,000
Walter T. Kirkbride................ 100,000 6.8 53.25 6/8/03 2,082,000
- ------------
</TABLE>
(1) The options reported in this table have the following terms: (i) 91% of
these options are non-qualified stock options which vest over a five year
period, with 50% of such shares becoming exercisable on the third
anniversary of the date of grant and an additional 25% of such shares
becoming exercisable on each of the fourth and fifth anniversaries of the
date of grant; and (ii) 9% of these options are incentive stock options
which vest in equal amounts each year commencing with the date of grant
through the fifth anniversary of grant.
(2) Exercise price is the fair market value on the date of grant, using the
closing sale price as reported by the New York Stock Exchange for the date
of grant.
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<PAGE> 11
(3) Valued using a modified Black-Scholes option pricing model. The exercise
price of each option is equal to the fair market value of the underlying
Common Stock on the date of grant. The assumptions used in the model were:
56.7% volatility (which was the volatility of the Common Stock for the 36
month period preceding the date of grant); a 6.52% risk-free rate of return
(which was the yield as of the date of grant on a U.S. Strip Treasury
zero-coupon bond expiring in June 2003); a .94% dividend yield (which was
the dividend yield on the date of grant); and a five-year average life for
the options (which was the approximate average life of all previously issued
options that became vested prior to April 15, 1994). A discount of 25% was
applied to the option value yielded by the model to reflect the
non-transferability and the possibility of forfeiture of employee options.
The Company's use of this model does not constitute an acknowledgement that
the resulting values are accurate or reasonable. The actual gain executives
will realize on the options will depend on the future price of the Common
Stock and cannot be accurately forecast by application of an option pricing
model.
AGGREGATED OPTION EXERCISES IN 1993 AND YEAR-END OPTION VALUES
The following table sets forth certain information concerning the exercise
in 1993 of options to purchase Common Stock by the six Named Officers and the
unexercised options to purchase Common Stock held by such individuals at
December 31, 1993.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS (IN SHARES) AT IN-THE-MONEY OPTIONS AT
NUMBER OF DECEMBER 31, 1993 DECEMBER 31, 1993(2)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen C. Hilbert..... 446,000 $25,054,447 1,943,875 648,125 $99,692,656 $ 20,258,281
Ngaire E. Cuneo........ -- -- 1,875 148,125 4,219 1,727,031
Rollin M. Dick......... 65,000 3,715,156 486,875 218,125 24,896,561 6,130,781
Donald F. Gongaware.... -- -- 531,875 218,125 27,252,968 6,130,781
Lawrence W. Inlow...... -- -- 461,875 218,125 23,602,969 6,130,781
Walter T. Kirkbride.... 20,000 1,025,000 451,875 272,425 23,082,309 7,644,394
</TABLE>
- ------------
(1) The value realized equals the aggregate amount of the excess of the fair
market value on the date of exercise (the closing sale price of the Common
Stock as reported by the New York Stock Exchange for the exercise date) over
the relevant exercise price(s).
(2) The value is calculated based on the aggregate amount of the excess of
$55.50 (the closing sale price of the Common Stock as reported by the New
York Exchange for December 31, 1993) over the relevant exercise price(s).
COMPENSATION OF DIRECTORS
Directors who are not also employees of Conseco are entitled to receive an
annual fee of $25,000, a fee of $500 for each Board or committee meeting they
attend, and an annual fee of $3,000 for serving as chairman of a Board
committee. For 1993 and prior years, the Directors were eligible to participate
in and receive annual awards of up to $30,000 under the Company's Executive
Stock Bonus and Deferred Compensation Program. Beginning in 1994, the Directors
will be eligible to participate in and receive similar annual awards under the
1994 Stock and Incentive Plan and will receive under such plan options to
purchase 5,000 shares of Common Stock on the date of each annual meeting of
shareholders at a price equal to the market price of the Common Stock on the
date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Mr. Michael G. Browning, Chairman of the Compensation Committee and a
Director of the Company since 1984, is the President of Browning Real Estate,
Inc., the President and sole stockholder of Browning Investments, Inc. and
Carmel Drive Realty, Inc., and the majority stockholder of Browning
Construction, Inc. Browning Real Estate, Inc. is the general partner of Browning
Real Estate Partnership, L.P. ("BRP"). BRP
9
<PAGE> 12
is, and Mr. Browning was formerly, the general partner of Technology Center
Associates, L.P. ("TCA") and Meridian Mile Associates, L.P. Mr. Browning is the
general partner of Pierson Street Associates, L.P. ("PSA").
Bankers National Life Insurance Company ("Bankers National"), a wholly
owned subsidiary of the Company, is the successor by merger to Lincoln Income
Life Insurance Company ("Lincoln Income"), which also was a wholly owned
subsidiary of the Company prior to December 31, 1992, the effective date of the
merger.
On January 13, 1993, Bankers National purchased from TCA for an aggregate
price of $2,367,456 a three-story, 55,000 square foot office building located on
an 11.5-acre tract of land and an adjacent 3.7-acre tract of unimproved land in
the Meridian Technology Center near the Company's office complex in Carmel,
Indiana (the "Conseco Complex"). Browning Investments, Inc. received a brokerage
fee of $142,047 from the seller in connection with this transaction. In 1993,
Bankers National paid Browning Construction, Inc. $171,649 under a Construction
Agreement dated July 29, 1993 for an expansion of the parking lot for such
building.
On September 9, 1988, Lincoln Income made a loan in the amount of
$9,000,000 to PSA, an Indiana limited partnership which owns two office
buildings located in downtown Indianapolis, Indiana (the "PSA Loan"). The PSA
Loan was repayable in nine equal annual installments of $1,000,000 each,
together with accrued interest payable semiannually on the unpaid balance at the
rate of 1% over the prime rate, adjusted daily, of NBD Bank, N.A. (formerly INB
National Bank) ("NBD Prime"). The entire balance of unpaid principal and
interest was due August 1, 1997. The PSA Loan was secured by the pledge of Mr.
Browning's 42% economic interest in PSA as its general partner and by his
personal unconditional guaranty.
On August 31, 1989, Lincoln Income accepted the personal promissory note of
Mr. Browning in the principal amount of $8,000,000 (the "Browning Note") as
payment in full of the $8,000,000 balance of the PSA Loan. The Browning Note,
with interest at 1% per annum over NBD Prime, adjusted daily, was due and
payable in full on December 29, 1989. Effective January 1, 1990, Lincoln Income
accepted a second promissory note of Mr. Browning in the principal amount of
$8,000,000 (the "Amended Browning Note") in return for cancellation of the
Browning Note. The principal of the Amended Browning Note is payable in eight
equal annual installments due June 30 of each year commencing in 1990, and
accrued interest of 1% per annum over INB Prime, adjusted daily, is payable
semiannually. Payment of the Amended Browning Note was secured by a pledge of
securities owned by Mr. Browning having an estimated value of more than
$9,500,000. Since January 1, 1993, Mr. Browning has made principal payments of
$3,000,000 on the Amended Browning Note and Bankers National has released a
portion of the collateral held as security. The Amended Browning Note was
purchased by Conseco from Bankers National in January 1993 for an amount equal
to the outstanding principal balance plus accrued interest. As of April 1, 1994,
the remaining principal balance of the Amended Browning Note was $2,000,000, and
the securities still held as collateral had an estimated value of approximately
$3.3 million.
On December 22, 1993, Bankers National purchased a 103,000 square foot
building located on a 13-acre tract of land adjacent to the Conseco Complex for
a purchase price of $2.8 million. Browning Investments, Inc. served as agent for
Bankers National in connection with the real estate purchase and the termination
of a lease on the property, for which services Browning Investments, Inc.
received a fee of $100,000. Browning Investments, Inc. also received a brokerage
fee of $111,000 from the seller in connection with this transaction.
On January 7, 1994, Bankers National purchased for $1,065,870 a 7.3-acre
tract of land adjacent to the Conseco Complex from two unaffiliated sellers. The
purchase agreement had been negotiated by Carmel Drive Realty, Inc. and assigned
to Bankers National. On January 7, 1994, Bankers National also purchased for
$248,000 a 1.6-acre tract of land, which is adjacent to the 7.3-acre parcel and
the Conseco Complex, from Meridian Mile Associates, L.P. Browning Investments,
Inc. received a brokerage fee of $14,880 from the seller in connection with this
transaction. On January 7, 1994, Bankers National entered into a Development
Agreement with Browning Investments, Inc. pursuant to which Browning
Investments, Inc. has agreed to direct and coordinate the future development of
63 acres in the Conseco Complex, including the two parcels
10
<PAGE> 13
described in this paragraph. Browning Investments, Inc. received a fee of
$75,000 for agreeing to provide such services.
On January 31, 1994, the Company entered into a Construction Agreement with
Browning Construction, Inc. for expansion of the Company's aircraft hangar
facilities at the Indianapolis International Airport. As of April 20, 1994,
$53,110 had been paid to Browning Construction, Inc. under that agreement.
Bankers National paid Browning Construction, Inc. $140,484 in 1993 for
building repairs and $68,061 for other construction activities on the Conseco
Complex.
The Company paid Anacomp, Inc. $374,766 in 1993 for microfiche and related
supplies. Mr. Ferrero, a Director of the Company and a member of the
Compensation Committee, is the Chairman of the Board and Chief Executive Officer
of Anacomp, Inc.
Conseco believes that all of the foregoing agreements and transactions are
on terms at least as favorable to Conseco as would have been available from
nonaffiliated persons. The Company's policy is that all transactions between the
Company and any of its officers, directors or principal shareholders, or their
affiliates, are approved by a majority of the independent and disinterested
directors. All of the foregoing agreements and the transactions described in the
next section were approved in accordance with this policy.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1994, the Named Officers, two of the Company's current
independent directors, Mr. Browning and Mr. Ferrero, and one nominee, Mr.
Murray, made personal commitments to invest in Conseco Capital Partners II, L.P.
(the "Partnership"), the Delaware limited partnership organized by the Company
as its second acquisition fund to invest in privately-negotiated acquisitions of
annuity, life and accident and health insurance companies. Organization of the
Partnership was completed in January 1994 with total capital commitments of
$623.8 million from 36 investors. The Company itself committed a total of $100
million to the Partnership. The Company believes that the personal commitments
from the Named Officers and Directors, which totalled $31 million, were
instrumental in helping to market the Partnership to institutional investors.
The Named Officers subscribed for Partnership commitments in the following
amounts: Mr. Hilbert, $15 million; Mr. Dick, $4 million; Mr. Gongaware, $4
million; Mr. Inlow, $4 million; Ms. Cuneo, $2 million; and Mr. Kirkbride, $2
million.
On July 23, 1993, the Company made a 60-day personal loan in the principal
amount of $3,000,000 to Mr. Hilbert, its Chief Executive Officer. Such loan was
repaid by Mr. Hilbert on August 31, 1993, with interest at the prime rate of
Bankers Trust Company of New York.
In February 1994, as part of its ongoing stock repurchase program, the
Company purchased from the marital estate of Mr. Hilbert and his ex-wife 683,545
shares of Common Stock for a purchase price of $40,500,000, or $59.25 per share.
The price paid equalled the closing price for the common stock on the date of
purchase as reported on the New York Stock Exchange. The Compensation Committee
authorized the purchase to permit the liquidation of a portion of the stock
holdings of the marital estate, as part of the settlement of the Hilberts'
divorce proceeding, without adversely affecting the market for the Company's
Common Stock.
Effective January 19, 1994, the Company's wholly owned subsidiary, CNC Real
Estate, Inc. ("CNC"), purchased from Mr. Hilbert a residential condominium unit
located in New York City for a purchase price of $6,000,000. CNC also paid real
estate transfer taxes of approximately $110,000 and other costs customarily
payable by the seller in connection with such a transaction. Mr. Hilbert had
purchased such unit in November of 1993 for the same price from an unaffiliated
seller, with the intention of using it in the future as his personal residence.
The Company had opened an office in New York City in early November 1993, and
Mr. Hilbert anticipated that he would be spending a substantial amount of time
in the New York office and would need a personal residence there. It was
subsequently determined that Mr. Hilbert's time in the New York office would be
limited to not more than one or two days per week, on average, and accordingly
he decided he would
11
<PAGE> 14
not need a New York residence. The Company then decided to purchase such
condominium unit from Mr. Hilbert to be used for corporate receptions, business
entertainment and overnight accommodations for senior executives of the Company
in connection with business purposes related to the New York office.
In November 1993, the Company asked Ms. Cuneo, the Company's Executive Vice
President of Corporate Development, to work primarily out of the Company's New
York office, which required that she and her family relocate their residence
from Indiana to the New York metropolitan area. In that connection, the Company
purchased Ms. Cuneo's Indiana residence for $1,025,000, the same price paid by
her a year earlier when she joined the Company and moved to Indiana. The Company
subsequently resold the residence for net proceeds of approximately $850,000,
after deduction of sales costs and expenses.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors reviews and approves
compensation plans in which the Company's officers and directors are entitled to
participate, the terms of employment contracts with the Company's senior
executive officers and the annual cash bonuses paid to the Company's executive
vice presidents. The Compensation Committee also administers the Company's stock
option and other incentive plans. The Compensation Committee is currently
composed of the four independent, non-employee members of the Board.
The compensation of the Company's Chief Executive Officer (the "CEO") is
established by the terms of his Employment Agreement dated January 1, 1987, as
amended (the "CEO Contract"). Under the CEO Contract, the major portion of the
CEO's cash compensation is tied directly to the Company's financial performance,
because his annual cash bonus is a fixed percentage of the Company's
consolidated pre-tax net profits for the year. The Compensation Committee has no
discretion to change the terms of the CEO Contract.
The Company's Executive Vice Presidents ("EVPs"), all of whom are Named
Officers in the Summary Compensation Table, are employed under employment
agreements which provide for a base salary of $250,000 per year and annual cash
bonuses in the discretion of the Board of Directors. For 1993 and prior years,
the Compensation Committee relied heavily on the CEO with respect to its
determination of the annual cash bonuses paid to the EVPs. In November or
December of each year, the CEO made a recommendation to the Compensation
Committee regarding the amount of the cash bonus to be paid to each EVP based on
his assessment of (1) the Company's financial performance for the first three
quarters of the year and expected performance for the fourth quarter, with
particular emphasis on growth in earnings per share of common stock, (2) each
individual's contributions to the achievement of specific goals or projects
undertaken on behalf of the Company for the year, (3) the relative contribution
of the individual's business unit or function toward the Company's overall
success for the year and (4) such other factors as he believed may have been
relevant for the year in question. The Compensation Committee usually adopted
the CEO's recommendations as its own, but sometimes with modifications. The
Compensation Committee then submitted for approval by the full Board its
recommendation with respect to the bonuses of the EVPs. The cash bonuses paid to
the EVPs in 1993 were equal to the recommendation made by the CEO.
For 1994 and future years, the Compensation Committee has adopted a
performance-based compensation program for the EVPs under which their cash
bonuses will be determined by a formula in compliance with new provisions of the
Internal Revenue Code. This program is being submitted to the shareholders for
approval and is described in detail elsewhere in this Proxy Statement. The
Compensation Committee will retain the discretion to decrease the bonus
otherwise payable to an EVP under this program, if the CEO recommends such a
decrease based on his subjective assessment of the factors discussed in the
preceding paragraph.
The Compensation Committee views the grant of stock options to be the
Company's key long-term incentive reward program for the Company's officers,
including the Named Officers. The Committee believes that because options are
granted with an exercise price equal to the market value of the Company's common
stock on the date of grant, they are an effective incentive for officers to
create value for the Company's
12
<PAGE> 15
shareholders and are an excellent means of rewarding executives who are in a
position to contribute to the Company's long-term growth and profitability.
Options have been granted annually to the Company's officers below the EVP
level, based on a formula which relates the value of the options granted to a
percentage of the recipient's annual cash compensation. Options have been
granted on a less-frequent basis to the Named Officers as a reward for
contributing to the achievement of a specific project or transaction or
exceptional performance relative to targeted profit goals, or as an incentive to
future growth and profitability.
As reflected in the table on page 7, the Named Officers were granted
options in 1993. With the exception of Mr. Kirkbride and Ms. Cuneo, none of the
Named Officers had been granted any options for common stock of the Company
since 1990. The number of options granted to the Named Officers in 1993 was
intended to give them, in conjunction with the options already held by each of
them, a material incentive to further enhance the Company's stock price from its
level at the time of the grant, as well as a material inducement for them to
remain with the Company, in light of the three-to-five-year vesting schedule.
The number of options granted to the CEO and the EVPs is not based on a
formula such as the one which is used to determine the number of options granted
to the other officers of the Company. The Compensation Committee determined the
number of options granted to the CEO and the EVPs in 1993 based on the
recommendation of the CEO. In deciding to adopt the CEO's recommendation, the
Compensation Committee considered the Company's performance during 1993,
including the continued achievement of record operating earnings, the successful
completion of the initial public offerings of Bankers Life Holding Corporation
in early 1993 and of CCP Insurance, Inc. and Life Re Corporation in 1992, and
the significant additional capital raised by Conseco in recent months.
In February 1994, the Compensation Committee approved a program to induce
the CEO and four of the EVPs to exercise outstanding vested stock options held
by them to purchase approximately 3.6 million shares of the Company's common
stock. The options would otherwise have remained exercisable until the years
1998 through 2000. Because the options were exercised at this time, the Company
was able to realize a tax deduction of approximately $200 million, equal to the
aggregate tax gain recognized by the executives as a result of the exercise.
This tax deduction will be used currently to offset taxable income of the
Company, including the gain resulting from the sale in February 1994 by the
Company of 60 percent of its interest in Western National Corporation, the newly
public parent of Western National Life Insurance Company. The Company withheld
shares to cover federal and state taxes owed by the executives as a result of
the exercise transaction and to cover the exercise prices for all but one of the
executives. Net of withheld shares, the Company issued approximately 1.8 million
shares of common stock to the executives. As part of the inducement to exercise
the options, the Compensation Committee also granted new options to the
executive officers under the Company's 1994 Stock and Incentive Plan equal to
the number of shares withheld for taxes and exercise prices from this exercise
program and other exercises of options by them in 1993. These so-called
"re-load" options will insure that the affected executives have the same
percentage interest in the Company's fully diluted shares prior to and after the
early exercise of the options and, because of the three-to-five-year vesting
schedule placed on the "re-load" options, will also act as a material inducement
for them to remain with the Company.
For 1994 and future years, the CEO, EVPs and outside Directors will also be
eligible to receive annual stock unit awards under the Company's 1994 Stock and
Incentive Plan (the "1994 Plan"). The total amount to be awarded by the Company
in any year, together with all prior stock unit awards under the 1994 Plan and
all similar awards under the Company's Stock Bonus and Deferred Compensation
Program since January 1, 1989, may not exceed the Company's consolidated total
net gains from the sale of investments since January 1, 1989. The Company's
total award for a year is allocated pro rata among the participants based on
their relative salary, fee and bonus compensation for the year. However, the
amount awarded to a participant in any year may not exceed the greater of
$15,000 or 10% of his or her salary and bonus compensation for such year, unless
the Company's earnings per share from operations for such year exceed 110% of
its earnings per share from operations for the preceding year, in which case the
amount awarded may not exceed the greater of $30,000 or 20% of the participant's
salary, fee and bonus compensation for the year. The awards will be converted
each year to units representing shares of the Company's Common Stock on the
basis of a formula
13
<PAGE> 16
which divides the awards by the average market price per share for the Common
Stock for the year. Each Company award becomes vested only if the participant
remains employed with the Company for five years after the award or dies,
becomes disabled or attains age 60 while so employed, or upon a change of
control of the Company.
COMPENSATION COMMITTEE
Michael G. Browning, Chairman
Louis P. Ferrero
M. Phil Hathaway
14
<PAGE> 17
PERFORMANCE GRAPH
The Performance Graph compares the Company's cumulative total shareholder
return on its Common Stock for a five year period (December 31, 1988 to December
31, 1993) with the cumulative total return of the Standard & Poor's 500 stock
index and the Dow Jones Life Insurance Index. The comparison for each of the
periods assumes that $100 was invested on December 31, 1988 in each of Conseco
Common Stock, the stocks included in the S&P 500 Index and the stocks included
in the Dow Jones Life Insurance Index. The Performance Graph was filed
separately under cover of Form SE and is represented by the following table of
data points:
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG CONSECO, S&P 500 INDEX AND DOW JONES LIFE INSURANCE INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD DJ LIFE IN- S&P 500 IN-
(FISCAL YEAR COVERED) CONSECO, INC. SURANCE INDEX DEX
<S> <C> <C> <C>
1988 100 100 100
1989 247 159 132
1990 258 136 128
1991 1141 202 166
1992 1719 264 179
1993 2062 263 197
</TABLE>
15
<PAGE> 18
PROPOSAL TO ADOPT 1994 STOCK AND INCENTIVE PLAN
Background. The Board of Directors has adopted, and the shareholders are
asked to approve, the Conseco, Inc. 1994 Stock and Incentive Plan (the "1994
Plan"). The purpose of the 1994 Plan is to provide incentives to increase the
personal financial identification of key personnel with the long-term growth of
the Company and the interests of the Company's shareholders through the
ownership and performance of the Company's Common Stock, to enhance the
Company's ability to retain key personnel and to attract outstanding prospective
employees and directors.
The adoption of the 1994 Plan is part of the Company's long term incentive
programs. In structuring the 1994 Plan, the Board of Directors sought to provide
for a variety of awards that could be flexibly administered in order to carry
out the purposes of the 1994 Plan. This authority will permit the Company to
keep pace with changing developments in management compensation and make the
Company competitive with those companies that offer creative incentives to
attract and keep key management employees. The flexibility of the 1994 Plan is
designed to allow the Company to respond to changing circumstances such as
changes in tax laws, accounting rules, securities regulations and other rules
regarding benefit plans. The 1994 Plan grants the Compensation Committee, which
will administer the Plan, flexibility in creating the terms and restrictions
deemed appropriate for particular awards as facts and circumstances warrant.
Also, the Omnibus Budget Reconciliation Act of 1993 ("OBRA") restricts the
ability of public companies to deduct for tax purposes compensation in excess of
$1,000,000 per year paid to its five most highly compensated officers. The
shareholders are asked to approve the material terms of the 1994 Plan, in part,
to satisfy the requirements of OBRA with respect to the deductibility of this
compensation. The material terms consist of (i) the individuals eligible to
receive stock options and other incentive compensation awards, (ii) the business
criteria on which awards under the 1994 Plan are based, and (iii) the maximum
amount of stock options and other incentive compensation permitted under the
1994 Plan.
The summary of the 1994 Plan which appears below is qualified in its
entirety by reference to the full text of the 1994 Plan attached hereto as
Exhibit A.
Types of Awards. The 1994 Plan provides for the grant of any or all of the
following types of awards: (1) stock options, including incentive stock options
and non-qualified stock options; (2) stock appreciation rights, in tandem with
stock options or freestanding; (3) restricted stock; (4) incentive awards; (5)
performance awards; and (6) performance stock unit grants. Any stock option
granted in the form of an incentive stock option must satisfy the applicable
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"). Awards may be made to the same person on more than one occasion
and may be granted singly, in combination, or in tandem as determined by the
Compensation Committee of the Board of Directors (the "Committee").
Term. The 1994 Plan was effective as of February 17, 1994. No incentive
stock options may be granted under the 1994 Plan after February 17, 1994. The
1994 Plan will remain in effect until all awards have been satisfied or expired.
The 1994 Plan may be terminated by the Board of Directors, but any such
termination will not affect awards made prior to termination.
Administration. The 1994 Plan will be administered by the Committee. None
of the members of the Committee are officers or employees, or former officers or
employees, of the Company or its subsidiaries. Other than participating in
formula awards, no member of the Committee shall be eligible to participate in
the 1994 Plan while serving on the Committee. The Board intends that each member
of the Committee shall be a "Disinterested Person" within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act") and an
"Outside Director" within the meaning of Section 162(m) of the Code; provided,
however, that a director who is a "Disinterested Person" within the meaning of
the Exchange Act will be treated as satisfying the requirements of an "Outside
Director" until the first meeting of stockholders at which directors are to be
elected that occurs after July 1, 1994 or such later date as may be permissible
under the Code or regulations promulgated thereunder. Subject to the terms of
the 1994 Plan, the Committee, consistent with the terms of the 1994 Plan, will
have authority (i) to select personnel to receive awards, (ii) to determine the
timing, form, amount or value and terms of grants and awards, and the conditions
and restrictions, if any, subject to which grants and awards will be made and
become payable under the 1994 Plan
16
<PAGE> 19
(other than nondiscretionary stock options for non-employee directors), (iii) to
construe the 1994 Plan and to prescribe rules and regulations with respect to
the administration of the 1994 Plan and (iv) to make such other determinations
authorized under the 1994 Plan, as the Committee deems necessary or appropriate.
All decisions made by the Committee shall be final, conclusive, and binding on
all parties.
Eligibility. All of the employees of the Company and its subsidiaries are
eligible to participate in the 1994 Plan, except that only executive officers of
the Company, as designated by the Committee, may be entitled to performance
stock unit grants under the 1994 Plan. In addition, non-employee directors
receive nondiscretionary annual stock options and performance stock units as
described below under "Stock Options" and "Performance Stock Unit Grants." The
selection of participants from eligible personnel is within the discretion of
the Committee, except with respect to nondiscretionary stock options
automatically awarded to non-employee directors.
Shares Subject to the 1994 Plan. The number of shares of Common Stock which
may be issued under the 1994 Plan, or as to which stock appreciation rights or
other awards may be granted, may not exceed 6,000,000. These shares may be
authorized and unissued shares or treasury shares.
Shares shall be deemed to be issued under the 1994 Plan only to the extent
actually issued pursuant to an award or settled in cash. To the extent that an
award lapses or is forfeited, any shares subject to such award shall again be
made available for grant. In the event of any increases or decreases in the
number of issued and outstanding shares of Common Stock pursuant to stock
splits, mergers, reorganizations, recapitalizations, stock dividends or other
events described under the terms of the 1994 Plan, the Committee shall make
appropriate adjustments to the aggregate number of shares available for issuance
under the 1994 Plan and the number of shares subject to outstanding grants or
awards, in the exercise price per share of outstanding stock options and in the
number and kinds of shares which may be distributed under the 1994 Plan. The
terms of stock options, stock appreciation rights, restricted stock, incentive
and performance awards and stock performance unit grants shall also be subject
to adjustments by the Committee to reflect changes in the Company's
capitalization.
Maximum Awards. The maximum number of shares of Common Stock that may be
subject to options, stock appreciation rights, restricted stock awards,
performance awards or incentive awards granted under the 1994 Plan to an
individual optionee during any calendar year cannot exceed 1,500,000 shares in
the year ended December 31, 1994 and 250,000 shares in any calendar year
thereafter (subject to adjustment in the event of stock dividends, stock splits
and certain other events). The maximum number of performance stock units awarded
will be determined by the formula providing for such awards under the 1994 Plan
as described below under "Performance Stock Unit Grants."
Stock Options. The Committee may grant awards in the form of options to
purchase shares of the Common Stock. The Committee will, with regard to each
stock option, determine the number of shares subject to the option and the
manner and time of the option's exercise. The exercise price of a stock option
will be equal to the fair market value of the Common Stock on the date the
option is granted, except in the case of an incentive stock option granted to an
employee who owns more than 10% of the Company's voting stock, in which case the
exercise price will be equal to 110% of the fair market value of the Common
Stock on the date of grant. The Committee will designate each option as a
non-qualified or an incentive stock option. The option price upon exercise may,
at the discretion of the Committee, be paid by a participant in cash, shares of
Common Stock or a combination thereof. Except as set forth below with regard to
Change of Control, no option will be exercisable within six months of the date
of grant. The effect of an optionee's termination of employment by reason of
death, retirement, disability, or otherwise will be specified in the option
agreement which evidences each option grant.
In addition, each non-employee director of the Company will receive, on the
date of the Company's annual meeting of shareholders, a non-discretionary option
covering 5,000 shares of Common Stock, at the fair market value thereof on such
date.
Stock Appreciation Rights. The 1994 Plan also authorizes the Committee to
grant stock appreciation rights ("SARs") either independent of, or in connection
with, a stock option. If granted with a stock option, exercise of the SAR will
result in the surrender of the right to purchase the shares under the option as
to which
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<PAGE> 20
the SAR was exercised. Upon exercising an SAR, the holder receives for each
share with respect to which the SAR is exercised, an amount equal to the
difference between the exercise price (which will be the fair market value of
such shares on the date of grant except in the case of the grant of an SAR in
connection with an incentive stock option to an employee who owns more than 10%
of the Company's voting stock, in which case the exercise price will be 110% of
the fair market value of Common Stock on the date of grant) and the fair market
value of the Common Stock on the date of exercise. Payment of such amount may be
made in shares of Common Stock, cash, or a combination thereof, as determined by
the Committee. Except as set forth below with respect to Change of Control, the
SARs will not be exercisable within six months of the date of grant. Each grant
of an SAR will be evidenced by an agreement which specifies the terms and
conditions of the award, including the effect of termination of employment (by
reason of death, disability, retirement or otherwise) on the exercisability of
the SAR.
Restricted Stock. The 1994 Plan provides that shares of Common Stock
subject to certain restrictions may be awarded to eligible persons from time to
time as determined by the Committee. The Committee will determine the nature and
extent of the restrictions on such shares, the duration of such restrictions,
and any circumstance under which restricted shares will be forfeited. During any
such period of restriction, recipients will have the right to receive dividends
and the right to vote the shares. The Committee will determine the effect of the
termination of employment or service as a director of a recipient of restricted
Common Stock (by reason of retirement, disability, death or otherwise) prior to
the lapse of any applicable restrictions.
Performance Awards. The 1994 Plan permits the Committee to grant
performance awards to eligible persons under the Plan from time to time. A
performance award will be contingent upon future performance by the Company or
any subsidiary, division or department thereof. The Committee will establish the
relevant performance criteria, subject to later revision. In determining the
value of performance awards, the Committee will take into account a person's
responsibility level, performance, potential, other awards and such other
considerations as it deems appropriate. Payment of a performance award may be
made in cash, Common Stock, or a combination thereof, as determined by the
Committee. A performance award shall terminate if the employee does not remain
continuously in the employ of the Company at all times during the applicable
performance period, unless the Committee determines otherwise.
Incentive Awards. The 1994 Plan permits the Committee to grant incentive
awards. Incentive awards are rights to receive shares of Common Stock (or cash
incentive awards equal to the fair market value thereof), or rights to receive
any appreciation or increase in the fair market value of Common Stock over a
specified period of time or upon the occurrence of an event (such as a Change of
Control). Incentive awards vest in the manner established by the Committee, and
do not require any payment for shares by the recipient (except to the extent
otherwise required by law) or satisfaction of any performance criteria or
objectives. In determining the value of incentive awards, the Committee will
take into account a person's responsibility level, performance, potential, other
awards and such other considerations as it deems appropriate. Payment by the
Company of an incentive award may be made in cash, Common Stock or a combination
thereof, as determined by the Committee. An incentive award will terminate if
the recipient does not remain continuously in the employ of the Company or in
service as a director at all times during the applicable vesting period, unless
the Committee determines otherwise.
Performance Stock Unit Grants. The 1994 Plan permits the Committee to
designate executive officers of the Company who may be eligible for grants of
performance stock units. In addition, all non-employee directors are entitled to
receive performance stock units. Performance stock units are granted to
participants based upon an established formula largely dependent upon the
Company's consolidated net investment gains. Participants in the Plan may earn
up to the greater of $30,000 or 20% of their annual compensation in the form of
performance stock units. Annual compensation includes the sum of all amounts of
authorized salary, bonus and fees paid directly to a participant by the Company
which would be reportable for federal income tax purposes. Allocations are made
to each participant based upon a formula provided for in the 1994 Plan, on March
31 of each year beginning March 31, 1995. The number of stock units for each
participant is calculated by dividing the allocations made to each respective
participant's account by the average daily closing price of the Company's Common
Stock computed for the fiscal year covered by the allocations. The stock units
vest on the fifth anniversary of the end of the fiscal year for which the stock
units were awarded. The stock units also
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<PAGE> 21
vest upon a participant's attainment of age sixty, a participant's total and
permanent disability or death, or upon the occurrence of a Change of Control, as
defined in the 1994 Plan. The 1994 Plan also provides for a one time
contribution to a participant's stock unit account in an amount equal to 100% of
the participant's compensation for the preceding fiscal year divided by the
annual average stock price for such year in the event of a participant's death
or total and permanent disability while the participant is still in the employ
of the Company and prior to the attainment of age sixty-five. The stock units
pursuant to such award would vest immediately.
Shareholders are urged to read Article XII of the 1994 Plan attached hereto
as Exhibit A for the specific formula to be employed to determine the specific
number of performance stock units to be granted. For a director or executive
officer to be entitled to an allocation equal to the greater of $30,000 or 20%
of such person's annual compensation, (i) the net investment gains of the
Company since January 1, 1989, less any awards of stock units previously made
under the 1994 Plan and any similar awards made under the Company's Stock Bonus
and Deferred Compensation Program since January 1, 1989, must exceed 20% of the
compensation for all participant employees plus $30,000 for each non-employee
director and (ii) the fully diluted earnings per share on Company Common Stock
from general operations of the Company and not attributable to gains or losses
from the sale of investments must equal at least 115% of the fully diluted
earnings per share from general operations of the Company (and not attributable
to gains or losses from the sale of investments) on Company Common Stock for the
previous fiscal year. In addition, such grants may be made only from the
Company's consolidated net investment gains. The Compensation Committee believes
that this formula provides the appropriate incentives for participants to
maximize the Company's net investment gains and also to increase earnings per
share from general operations.
If the performance stock unit grants were made for 1993 and all of the
executive officers and directors of the Company participated in such a plan,
they would have been awarded up to 116,199 shares of Common Stock of the Company
with a market value of $6,289,271 based upon the closing price of the Common
Stock of the Company on March 31, 1994. The maximum amount that would have been
granted to any one participant would have not exceeded 47,758 shares of Common
Stock with a fair market value of $2,584,902 at March 31, 1994. As disclosed on
page 7 of this Proxy Statement, provisional awards denominated in cash were made
for 1993 under the Company's Stock Bonus and Deferred Compensation Program to
the executive officers of the Company based upon net investment gains. The
amounts of these provisional awards approximate those that would have been
derived from the 1994 Plan had it been in place for 1993.
Agreements. Each award under the 1994 Plan will be evidenced by an
agreement in such form and containing such provisions not inconsistent with the
provisions of the applicable plan as the Compensation Committee from time to
time approves. In applicable situations, such agreements may include provisions
to qualify an incentive stock option, or providing for the payment of the option
price, in whole or in part, by the delivery of a number of shares of Common
Stock (plus cash if necessary) having a fair market value equal to any option
price. Such agreements may also include, without limitation, provisions relating
to (i) vesting (including a provision that options shall continue to vest and
remain exercisable for so long as a holder who terminates employment with the
Company remains an employee of any Conseco subsidiary or an affiliate of
Conseco), (ii) tax matters (including provisions (x) covering any applicable
employee wage withholding requirements, (y) prohibiting a holder from making an
election under Section 83(b) of the Code, or (z) providing "gross up" payments
to compensate eligible individuals for any excise taxes imposed as a result of a
Change of Control payment) and (iii) any other matters not inconsistent with the
terms and provisions of the relevant plan that the Committee in its sole
discretion determines. The terms and conditions of agreements need not be
identical.
Amendment. The Board of Directors may at any time terminate or amend the
1994 Plan in any respect, except that the Board may not, without approval of the
shareholders of the Company, amend the 1994 Plan so as to (i) increase the
number of shares of Common Stock which may be issued under the 1994 Plan (except
for adjustments in the number of shares permitted with respect to certain stock
splits, stock dividends, mergers, reorganizations or recapitalizations as
described under "Shares Subject to the 1994 Plan" above) or change the option
exercise price; (ii) modify the requirements as to eligibility for
participation; (iii) materially increase the benefits accruing to participants
under the 1994 Plan; or (iv) extend the duration of the 1994 Plan
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<PAGE> 22
beyond February 17, 2004. No amendment or termination of the 1994 Plan shall,
without the consent of the optionee or participant in the 1994 Plan, alter or
impair the rights of such person under any options or other awards theretofore
granted under the 1994 Plan.
Change of Control. In order to maintain all of the participants' rights in
the event of a Change of Control (as defined in the 1994 Plan), all outstanding
awards (of whatever type) shall immediately vest and become exercisable or
satisfiable upon the occurrence of a Change of Control. The Committee, in its
discretion, may determine that upon the occurrence of such a transaction, each
award outstanding shall terminate within a specified number of days after notice
to the holder thereof, and such holder shall receive, with respect to each share
of Common Stock subject to such award, cash in an amount equal to the excess of
(i) the higher of (x) the Fair Market Value (as defined in the 1994 Plan) of
such share of Common Stock immediately prior to the occurrence of such
transaction or (y) the value of the consideration to be received in such
transaction for one share of Common Stock over (ii) the price per share, if
applicable, of Common Stock set forth in such award. If the consideration
offered to shareholders of the Company in any transaction described in this
paragraph consists of anything other than cash, the Committee shall determine
the fair cash equivalent of the portion of the consideration offered which is
other than cash. These provisions will not terminate any rights of a holder to
further payments pursuant to any agreement between the Company and such holder
following a Change of Control. A "Change of Control" of the Company is deemed to
occur under the 1994 Plan if: (i) any "person," as such term is used in Sections
13(d) and 14(d)(2) of the Exchange Act, becomes the beneficial owner, directly
or indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's outstanding securities then entitled to
vote for the election of directors; or (ii) as the result of a tender offer,
merger, consolidation, sale of assets, or contest for election of directors, or
any combination of the foregoing transactions or events, individuals who were
members of the Board of Directors of the Company immediately prior to any such
transaction or event shall not constitute a majority of the Board of Directors
following such transaction or event. However, no change of control shall be
deemed to have occurred if and when either (A) any such change is the result of
a transaction which constitutes a "Rule 13e-3 transaction" as such term is
defined in Rule 13e-3 promulgated under the Exchange Act or (B) any such person
becomes, with the approval of the Board of Directors of the Company, the
beneficial owner of securities of the Company representing 25% or more but less
than 50% of the combined voting power of the Company's then outstanding
securities entitled to vote with respect to the election of its Board of
Directors and in connection therewith represents, and at all times continues to
represent, in a filing, as amended, with the Securities and Exchange Commission
on Schedule 13D or Schedule 13G (or any successor Schedule thereto) that "such
person has acquired such securities for investment and not with the purpose nor
with the effect of changing or influencing the control of the Company, nor in
connection with or as a participant in any transaction having such purpose or
effect", or words of comparable meaning and import.
FEDERAL INCOME TAX CONSEQUENCES
Non-Qualified Stock Options. Under current federal income tax law, the
grant of a non-qualified stock option has no tax effect on the Company or the
option holder to whom it is granted. Generally, the exercise of the option will
result in ordinary income to the option holder equal to the excess of the fair
market value of the shares at the time of exercise over the option price. If the
option holder pays cash to exercise the option, the option holder's tax basis in
the shares received will be the aggregate exercise price paid by the option
holder plus the amount of taxable income recognized upon exercise. Upon any
subsequent disposition of such shares, gain or loss will be capital gain or loss
and will be long term if such shares are held more than one year after exercise.
Generally, the Company will be allowed to take a deduction for federal income
tax purposes in an amount equal to such recognized income at the time of
recognition for ordinary income by the option holder.
If the option holder pays the exercise price by delivering existing shares
of the Company's Common Stock, the tax treatment of the income from the
difference between the option price and the fair market value of the stock
received is the same as described above. Generally no gain is recognized by the
option holder on the transfer of the option holder's existing stock. The
corresponding number of shares received on exercise of the option will be
treated as if they are the same as the shares used to pay for the exercise of
the option. Thus,
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<PAGE> 23
gain on the shares used to pay the option price will be deferred until the
substituted shares received are later sold.
Stock Appreciation Rights. The recipient is not taxed by reason of the
grant of a stock appreciation right or its subsequent appreciation in value.
However, any cash in the fair market value of any shares received generally will
constitute taxable ordinary income to the recipient upon the date of exercise.
Any subsequent disposition of the shares received will generate capital gain or
loss if the sales price is different from the amount of taxable income
recognized with respect to the receipt of such shares as described above. The
Company generally will be allowed an equal deduction at the time the recipient
recognizes ordinary income.
Effect of Restrictions. Under general tax rules, if the shares received on
exercise of non-qualified options or stock appreciation rights are subject to
restrictions on transfer and risk of forfeiture, taxation of the transaction
(and the Company's deduction) will be deferred until the restrictions lapse,
unless the participant makes an election to be taxed at the time of exercise in
which case a corresponding deduction will be allowed for the Company. Award
agreements may also prohibit a holder from making an election to be taxed before
the lapse of the restrictions.
Incentive Stock Options. In general, incentive stock options, like
non-qualified stock options, have no federal income tax consequences to the
Company or the option holder as a result of the grant of the option. Unlike
non-qualified options, however, the employee does not have taxable income on the
exercise of an incentive stock option (although the gain at exercise of
incentive options can be taxed under the alternative minimum tax) and the
employer generally does not have a deduction. Another difference is that, if the
option holder holds the shares for at least two years from the date of the grant
of the option and at least one year from the date of exercise, all gain or loss
on a subsequent sale is taxed as a capital gain or loss.
If, however, the option holder "disposes" of the shares prior to satisfying
both of the holding periods described above (a "disqualifying disposition"),
then (i) the option holder will realize ordinary income in the year of such
disposition in an amount equal to the difference between the option price and
the lesser of (a) the fair market value of such shares on the date of exercise
or (b) the sale price; (ii) the Company generally will be entitled to a
deduction for such year in the amount of the ordinary income so realized; and
(iii) the option holder will realize capital gain or loss (short-term or
long-term, depending upon whether the shares have been held for less or more
than one year), in an amount equal to the difference between (a) the amount
realized by the option holder upon such sale of the shares, and (b) the option
price paid by the option holder increased by the amount of ordinary income, if
any, realized by the option holder upon such disposition. Disqualifying
dispositions of stock include (in addition to ordinary sales) gifts, pledges of
stock to secure loans under certain circumstances and shares used to pay for the
exercise of other options.
The alternative minimum tax may apply to an incentive stock option holder,
because the spread between the market value of shares and exercise price of an
incentive stock option on the exercise date constitutes an item of tax
preference (unless there is a subsequent disqualifying disposition in the year
of exercise). The alternative minimum tax may produce a higher total tax than
the regular income tax otherwise applicable to the option holder.
While there are obvious tax advantages to the employees or other person who
receive incentive stock options rather than non-qualified stock options, there
are potential tax disadvantages to the Company. As discussed above, the Company
normally is entitled to take a deduction for tax purposes in an amount equal to
the ordinary income recognized by the option holder at the time of exercise or
sale of a non-qualified stock option. In the case of an incentive stock option,
however, the Company normally will not be entitled to any deduction.
Restricted Shares. An individual receiving restricted shares generally will
recognize ordinary income when the restrictions lapse in an amount equal to the
excess of (i) the fair market value of the shares of Common Stock at the time
the restrictions lapse over (ii) any amount paid for the restricted shares.
However, the individual may elect, within 30 days after the date of receipt of
the restricted shares, to report ordinary income at the time of such receipt
equal to the excess of (i) the fair market value of the restricted shares of
Common Stock at the time the restrictions lapse over (ii) any amount paid for
the restricted shares. One risk
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<PAGE> 24
in making such an election is that, if the restrictions fail to lapse for any
reason, the individual will not be entitled to a deduction. Generally, the
Company will be entitled to a deduction equal to the amount of income recognized
by the individual at the time income is recognized. An individual disposing of
restricted shares will recognize short term or long term capital gain or loss,
depending on whether their stock is held for less or more than one year from (a)
the date the restrictions lapse (if no election has been made), or (b) from the
date of receipt if an election has been made.
Performance Awards and Other Stock-Based Awards. A participant receiving
any performance award or other stock-based award will recognize income, and the
Company will generally be allowed a deduction, when the award is paid. The
amount of cash and the fair market value of the shares of Common Stock received
will be ordinary income to the participant and the Company will generally be
entitled to a tax deduction therefor.
Dividend Equivalents. Dividend Equivalents credited in respect of
performance awards and other stock-based awards generally will be taxed at
ordinary income rates when paid to the participant and in most instances will be
treated as additional compensation deductible by the Company at such time.
OBRA Deductibility Limitation. As noted above, under OBRA the allowable
federal income tax deduction for compensation paid or accrued with respect to
the chief executive officer and as many as four other officers of the Company
will be limited to no more than $1,000,000 per year for 1994 and subsequent
years. However, Section 162(m) of the Code provides an exception to the
deductibility limitation. The 1994 Plan is intended to comply with Section
162(m) of the Code, thereby preserving the Company's deduction for any
compensation paid to its executive officers. Section 162(m) provides that income
received by the five most highly compensated officers of a publicly-traded
company in excess of $1,000,000 will not be deductible by that company unless
such income is derived from a performance-based plan within the meaning of
Section 162(m). Compensation generated by options and stock appreciation rights
granted under the 1994 Plan generally will be entitled to the benefit of an
exception if they are granted at fair market value on the date of grant because
(a) the 1994 Plan, as it applies to such officers, will be administered by a
committee consisting solely of "outside directors" within the meaning of Section
162(m), (b) the 1994 Plan will be effective only upon approval by the Company's
shareholders and (c) the 1994 Plan limits the maximum number of options that can
be granted to any executive during 1994 to 1,500,000 shares and 250,000 shares
per year on a cumulative basis, for any calendar year thereafter (subject to
adjustment under the 1994 Plan for stock splits, etc.). Any options and stock
appreciation rights granted at a price below fair market value on the date of
grant may be subject to the OBRA deduction limitation unless such awards meet a
separate performance exception.
The performance stock unit grants provided for under the 1994 Plan are
intended to comply with the performance-based exception provided for in Section
162(m). The number of stock units granted to the executive officers will be
pursuant to an objective formula. Accordingly, upon shareholder approval, the
Company will be entitled to a deduction for awards made under the performance
stock unit grant provisions of the 1994 Plan.
Other Deductibility Limits. Awards under the 1994 Plan provide for
accelerated exercisability or vesting upon a change in ownership or control of
the Company, which may cause certain amounts to be characterized as parachute
payments. An employee generally is deemed to have received a "parachute payment"
in the amount of compensation that is contingent upon a change in ownership if
such compensation exceeds, in the aggregate, three times the employee's base
amount, which is generally the employee's average annual compensation for the
five preceding years. An employee's "excess parachute payment" is the excess of
the employee's total parachute payments over three times such base amount. An
employee will be subject to a 20% excise tax on, and the Company will be denied
a deduction for, any "excess parachute payment."
The following table sets forth awards that have been made subject to
shareholder approval of the 1994 Plan. All of the options listed below in excess
of 250,000 for Mr. Hilbert and 150,000 for each of the other executive officers
were "reload" options to replace shares tendered by such persons in connection
with the
22
<PAGE> 25
early exercise of options. See, "Report of the Compensation Committee," for
further information on the reload options. Except for the options listed below,
no awards have been made under the 1994 Plan.
<TABLE>
<CAPTION>
NONQUALIFIED
STOCK EXERCISE
NAME OPTIONS PRICE
--------------------------------------------------------- ------------ --------
<S> <C> <C>
Stephen C. Hilbert....................................... 1,442,000 $59.25
Ngaire E. Cuneo.......................................... 150,000 59.25
Rollin M. Dick........................................... 422,000 59.25
Donald F. Gongaware...................................... 382,000 59.25
Lawrence W. Inlow........................................ 322,000 59.25
Walter K. Kirkbride...................................... 318,000 59.25
All executive officers as a group........................ 3,036,000 59.25
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE 1994 STOCK
AND INCENTIVE PLAN.
PROPOSAL TO APPROVE PERFORMANCE-BASED COMPENSATION
BONUS PLAN FOR EXECUTIVE VICE PRESIDENTS
The shareholders are asked to approve the Conseco Performance-Based
Compensation Bonus Plan for Executive Vice Presidents (the "Bonus Plan"), in
order to satisfy the requirements of OBRA with respect to the deductibility of
this compensation. For purposes of OBRA, the material terms which must be
approved by shareholders consist of the following:
(i) the individuals eligible to receive compensation,
(ii) the business criteria on which annual and long-term performance
incentives are based, and
(iii) the maximum amount of compensation payable.
A copy of the Bonus Plan is attached to this Proxy Statement as Exhibit B.
ELIGIBLE INDIVIDUALS
The officers who are eligible for performance-based incentive awards under
the Bonus Plan are the executive vice presidents ("EVPs") of the Company. The
Company currently has five EVPs.
BUSINESS CRITERIA
The Board believes the primary objective of management to be the long-term
creation of shareholder value. In keeping with this belief, the Board empowers
the Compensation Committee of the Board to prescribe annual and long-term
performance-based incentives based on business criteria such as net income,
segment profit and pre-tax net profits. The Bonus Plan will provide for annual
performance-based cash bonuses. The cash bonuses will be determined based upon a
percentage of the Company's consolidated pre-tax net profits for the year
(before deduction of bonuses payable to the EVPs, under the Bonus Plan or to the
CEO under the CEO contract).
For each of the years 1994 and 1995, each of the EVPs is entitled to
receive (subject to reduction by the Compensation Committee as discussed below)
a performance-based cash bonus equal to 1% of the pre-tax net profits (before
deduction of bonuses payable to the CEO or the EVPs) for such year. Thereafter,
the percentage amount of pre-tax net profits payable to each of the participants
under the Bonus Plan is determined based upon the average return on equity
("ROE") of the Company compared to the average ROE of all publicly-held life and
health insurance companies (the "ROE Ratio"). If the ROE Ratio is less than
100%, no cash bonus shall be paid.
For 1996 and subsequent years, if the ROE Ratio for any year is at least
100%, each of the EVPs will be entitled to a bonus of 1% of the pre-tax net
profits related to non-recurring events. For purposes of the Bonus Plan,
non-recurring events include gains from the sale of subsidiaries or affiliates,
sale of investments made or monitored by Conseco Private Capital Group, Inc.;
the 20% carried interest earned on acquisition partnership investments; and
acquisition, arrangement and investment banking fees earned from acquisition
partnerships. In addition, each of the EVPs will be entitled to cash bonuses
ranging from .1% to 1% of pre-tax profits
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<PAGE> 26
(before deduction of bonuses payable under the Bonus Plan and bonuses payable to
the CEO under the CEO Contract) from all other operations of the Company,
depending upon the ROE Ratio.
The Compensation Committee must certify in writing that the various
performance goals under the Bonus Plan have been met before any award is made.
The Compensation Committee will retain the discretion to decrease the amount of
the bonus otherwise payable to an EVP under the Bonus Plan, if the CEO
recommends such a decrease based on his subjective assessment of those factors
identified on page 12 of this Proxy Statement. The Compensation Committee shall
also have the sole authority to administer the Bonus Plan and make all decisions
concerning the interpretation and application of the provisions of the Bonus
Plan.
MAXIMUM
The annual performance-based cash bonus for each EVP may not exceed 1% of
the Company's consolidated pre-tax net profits for the year in which the award
applies. The pre-tax net profits for any given year will vary.
The amounts of any awards that may be payable to participating executive
officers under the Bonus Plan in future years cannot currently be determined. If
the Bonus Plan had been in effect in 1993, the maximum award payable (which
could have been reduced in the discretion of the Compensation Committee upon
recommendation of the CEO), to the covered executive officers would have been
$23,512,285 to all five EVPs as a group and $4,702,457 to any one EVP. The
Compensation Committee believes that the amount it would have awarded to each of
the EVPs would have been the same as the annual cash incentive award paid for
1993. As described on page 7 of this Proxy Statement, all such EVPs as a group
received annual cash bonus awards of $18,750,000, and the highest award paid to
any EVP was $3,750,000.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE
PERFORMANCE-BASED COMPENSATION BONUS PLAN FOR EXECUTIVE VICE PRESIDENTS TO
ASSURE DEDUCTIBILITY OF COMPENSATION EXCEEDING $1,000,000.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Coopers & Lybrand served as the independent accountants to audit the
financial statements of Conseco for 1993 and have been selected by the Board of
Directors to serve as such for 1994. Representatives of Coopers & Lybrand are
expected to be present at the Annual Meeting, will have the opportunity to make
a statement if they so desire, and will be available to respond to appropriate
questions from the shareholders.
SHAREHOLDER PROPOSALS
Any proper proposal which a shareholder wishes to have included in the
Board's proxy statement and form of proxy for the 1995 Annual Meeting must be
received by Conseco by December 30, 1994.
ANNUAL REPORT
Conseco's Annual Report for 1993 is being mailed to the shareholders with
this Proxy Statement, but is not part of the proxy solicitation material.
OTHER MATTERS
Management knows of no other matters which may be presented at the Annual
Meeting. If any other matters should properly come before the meeting, the
persons named in the enclosed form of proxy will vote in accordance with their
best judgment on such matters.
By Order of the Board of Directors
/s/ Lawrence W. Inlow
Lawrence W. Inlow, Secretary
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<PAGE> 27
EXHIBIT A
CONSECO, INC.
1994 STOCK AND INCENTIVE PLAN
ARTICLE I.
PURPOSE
The purpose of the CONSECO, INC. 1994 STOCK AND INCENTIVE PLAN (the "Plan")
is to provide a means through which CONSECO, INC., an Indiana corporation (the
"Company"), and its subsidiaries may attract able persons to enter the employ or
become directors of the Company and to provide a means whereby those persons
upon whom the responsibilities of the successful administration and management
of the Company rest, and whose present and potential contributions to the
welfare of the Company are of importance, can acquire and maintain stock
ownership, thereby strengthening their concern for the welfare of the Company
and their desire to remain in its employ or as directors. A further purpose of
the Plan is to provide such persons with additional incentive and reward
opportunities designed to enhance the profitable growth of the Company.
Accordingly, the Plan provides for granting Incentive Stock Options, options
which do not constitute Incentive Stock Options, Stock Appreciation Rights,
Restricted Stock Awards, Performance Awards, Incentive Awards, Stock Bonuses,
Stock Units or any combination of the foregoing, as is best suited to the
circumstances of the particular person as provided herein.
ARTICLE II.
DEFINITIONS
The following definitions shall be applicable throughout the Plan unless
specifically modified by any paragraph:
(a) "Award" means, individually or collectively, any Option,
Restricted Stock Award, Performance Award, Incentive Award, Stock
Appreciation Right or Stock Units.
(b) "Award Agreement" means a written agreement between the Company
and Holder with respect to any Award.
(c) "Board" means the Board of Directors of the Company.
(d) A "Change of Control" of the Company shall mean a change of
control of a nature that would be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A promulgated under the 1934 Act
as revised effective January 20, 1987, or, if Item 6(e) is no longer in
effect, any regulations issued by the Securities and Exchange Commission
pursuant to the 1934 Act which serve similar purposes; provided, that,
without limitation, (x) such a change of control shall be deemed to have
occurred if and when either (A) except as provided in (y) below, any
"person" (as such term is used in Sections 13(d) and 14(d) of the 1934 Act)
is or becomes a "beneficial owner" (as such term is defined in Rule 13d-3
promulgated under the 1934 Act), directly or indirectly, of securities of
the Company representing 25% or more of the combined voting power of the
Company's then outstanding securities entitled to vote with respect to the
election of its Board of Directors or (B) as the result of a tender offer,
merger, consolidation, sale of assets, or contest for election of
directors, or any combination of the foregoing transactions or events,
individuals who were members of the Board of Directors of the Company
immediately prior to any such transaction or event shall not constitute a
majority of the Board of Directors following such transaction or event, and
(y) no such change of control shall be deemed to have occurred if and when
either (A) any such change is the result of a transaction which constitutes
a "Rule 13e-3 transaction" as such term is defined in Rule 13e-3
promulgated under the 1934 Act or (B) any such person becomes, with the
approval of the Board of Directors of the Company, the beneficial owner of
securities of the Company representing 25% or more but less than 50% of the
combined voting power of the Company's then outstanding securities entitled
to vote with respect to the election of its
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Board of Directors and in connection therewith represents, and at all times
continues to represent, in a filing, as amended, with the Securities and
Exchange Commission on Schedule 13D or Schedule 13G (or any successor
Schedule thereto) that "such person has acquired such securities for
investment and not with the purpose nor with the effect of changing or
influencing the control of the Company, nor in connection with or as a
participant in any transaction having such purpose or effect," or words or
comparable meaning and import. The designation by any such person, with the
approval of the Board of Directors of the Company, of a single individual
to serve as a member of, or observer at meetings of, the Company's Board of
Directors, shall not be considered "changing or influencing the control of
the Company" within the meaning of the immediately preceding clause (B), so
long as such individual does not constitute at any time more than one-third
of the total number of directors serving on such Board.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
Reference in the Plan to any section of the Code shall be deemed to include
any amendments or successor provisions to any section and any regulations
under such section.
(f) "Committee" means not less than two members of the Board who are
selected by the Board as provided in Article IV, Section 4.01.
(g) "Common Stock" means the common stock, no par value per share, of
the Company.
(h) "Company" means Conseco, Inc., an Indiana corporation, and any
successor thereto.
(i) "Director" means an individual elected to the Board by the
shareholders of the Company or by the Board under applicable corporate law
who is serving on the Board on the date the Plan is adopted by the Board or
is elected to the Board after such date.
(j) "Eligible Compensation" for purposes of Article XII hereof shall
mean, for any calendar year, the sum of all amounts of authorized salary,
bonus and fees paid directly to the Participant by the Company which would
be reportable for federal income tax purposes. Eligible Compensation shall
include such amounts for the Participant for the entire calendar year even
though he or she may have been a Participant for only a portion of the
year.
(k) An "employee" means any person (including a Director) in an
employment relationship with the Company or any parent or subsidiary
corporation (as defined in Section 424 of the Code).
(l) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(m) "Fair Market Value" means, as of any specified date, the mean of
the reported high and low sales prices of the Common Stock on the stock
exchange composite tape on that date, or if no prices are reported on that
date, on the last preceding date on which such prices of the Common Stock
are so reported. If the Common Stock is traded over the counter at the time
a determination of its fair market value is required to be made hereunder,
its fair market value shall be deemed to be equal to the average between
the reported high and low or closing bid and asked prices of Common Stock
on the most recent date on which Common Stock was publicly traded. In the
event Common Stock is not publicly traded at the time a determination of
this value is required to be made hereunder, the determination of its fair
market value shall be made by the Committee in such manner as it deems
appropriate.
(n) "Holder" means an employee or a non-employee Director who has been
granted an Award.
(o) "Incentive Award" means an Award granted under Article XI of the
Plan.
(p) "Incentive Award Agreement" means a written agreement between the
Company and a Holder with respect to an Incentive Award.
(q) "Incentive Stock Option" means an incentive stock option within
the meaning of Section 422 of the Code.
(r) "Option" means an Award granted under Article VII of the Plan and
includes both Incentive Stock Options to purchase Common Stock and Options
which do not constitute Incentive Stock Options to purchase Common Stock.
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(s) "Option Agreement" means a written agreement between the Company
and a Holder with respect to an Option.
(t) "Performance Award" means an Award granted under Article X of the
Plan.
(u) "Performance Award Agreement" means a written agreement between
the Company and a Holder with respect to a Performance Award.
(v) "Plan" means Conseco, Inc. 1994 Stock and Incentive Plan, as
amended from time to time.
(w) "Restricted Stock Agreement" means a written agreement between the
Company and a Holder with respect to a Restricted Stock Award.
(x) "Restricted Stock Award" means an Award granted under Article IX
of the Plan.
(y) "Rule 16b-3" means SEC Rule 16b-3 promulgated under the 1934 Act,
as such may be amended from time to time, and any successor rule,
regulation or statute fulfilling the same or a similar function.
(z) "Spread" means, in the case of a Stock Appreciation Right, an
amount equal to the excess, if any, of the Fair Market Value of a share of
Common Stock on the date such right is exercised over the exercise price of
such Stock Appreciation Right.
(aa) "Stock Appreciation Right" means an Award granted under Article
VIII of the Plan.
(bb) "Stock Appreciation Rights Agreement" means a written agreement
between the Company and a Holder with respect to an Award of Stock
Appreciation Rights.
(cc) "Stock Unit" means a unit of measure used to determine the value
of each Participant's Stock Unit Account. Each Stock Unit shall be
equivalent in value to one share of the Company's no par value Common
Stock. All calculations of Stock Units shall be made to the nearest tenth
of one unit.
(dd) "Stock Unit Account" means that separate account maintained for
each Participant of Awards granted under Article XII hereof which
represents the Stock Units previously awarded to such Holder and not
previously distributed to such Holder and subsequently awarded pursuant to
Section 12.05 hereof.
(ee) "Total and Permanent Disability" means the inability of a
Participant to provide meaningful service for the Company due to a
medically determinable physical or mental impairment. Such determination of
total and permanent disability shall be made by the Company.
Notwithstanding the above, if a Participant qualifies for Federal Social
Security disability benefits or for payments under the Company's long-term
disability income plan, based upon his physical or mental condition, he
shall be deemed to suffer from a total and permanent disability hereunder.
ARTICLE III.
EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall be effective as of February 17, 1994, the date of its
adoption by the Board, provided the Plan is approved by the shareholders of the
Company within twelve months thereafter and on or prior to the date of the first
annual meeting of shareholders of the Company held subsequent to the acquisition
of an equity security by a Holder hereunder for which exemption is claimed under
Rule 16b-3. No Awards of Incentive Stock Options may be granted under the Plan
after February 17, 2004. The Plan shall remain in effect until all Awards
granted under the Plan have been satisfied or expired.
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ARTICLE IV.
ADMINISTRATION
Section 4.01 Composition of Committee. The Plan shall be administered by a
committee which shall be (i) appointed by the Board; (ii) constituted so as to
permit the Plan to comply with Rule 16b-3; and (iii) constituted solely of
"outside directors," within the meaning of Section 162(m) of the Code and
applicable interpretive authority thereunder. Except for Awards described in
Article VII, Section 7.08, Article XII or permitted for disinterested persons
under Rule 16b-3(c)(2), no member of the Committee shall be eligible to receive
an Award under the Plan or shall have received an Award or been granted or
awarded equity securities pursuant to any other plan of the Company or any of
its affiliates in the preceding year from the date of any service on the
Committee.
Section 4.02 Powers. Subject to the provisions of the Plan, the Committee
shall have sole authority, in its discretion, to determine which employees shall
receive an Award, the time or times when such Award shall be made, what type of
Award shall be granted, the number of shares of Common Stock which may be issued
under each Option, Stock Appreciation Right or Restricted Stock Award, and the
value of each Performance Award and Incentive Award. In making such
determinations the Committee may take into account the nature of the services
rendered by the respective individuals, their present and potential contribution
to the Company's success and such other factors as the Committee in its
discretion shall deem relevant.
Section 4.03 Additional Powers. The Committee shall have such additional
powers as are delegated to it by the other provisions of the Plan. Subject to
the express provisions of the Plan, the Committee is authorized to construe the
Plan and the respective agreements executed thereunder, to prescribe such rules
and regulations relating to the Plan as it may deem advisable to carry out the
Plan, and to determine the terms, restrictions and provisions of each Award,
including such terms, restrictions and provisions as shall be requisite in the
judgment of the Committee to cause designated Options to qualify as Incentive
Stock Options, and to make all other determinations necessary or advisable for
administering the Plan. The Committee may correct any defect or supply any
omission or reconcile any inconsistency in any agreement relating to an Award in
the manner and to the extent it shall deem expedient to carry it into effect.
The determinations of the Committee on the matters referred to in this Article
IV shall be conclusive.
ARTICLE V.
GRANT OF OPTIONS, STOCK APPRECIATION RIGHTS,
RESTRICTED STOCK AWARDS, PERFORMANCE AWARDS,
INCENTIVE AWARDS AND PERFORMANCE STOCK UNIT AWARDS;
SHARES SUBJECT TO THE PLAN
Section 5.01 Stock Grant and Award Limits. The Committee may from time to
time grant Awards to one or more individuals determined by it to be eligible for
participation in the Plan in accordance with the provisions of Article VI.
Subject to Article XIII, the aggregate number of shares of Common Stock that may
be issued under the Plan shall not exceed 6,000,000 shares. Shares shall be
deemed to have been issued under the Plan only (i) to the extent actually issued
and delivered pursuant to an Award, or (ii) to the extent an Award granted under
Article VII, VIII, IX, X, XI or XII is settled in cash. To the extent that an
Award lapses or the rights of its Holder terminate, any shares of Common Stock
subject to such Award shall again be available for the grant of an Award.
Separate stock certificates shall be issued by the Company for those shares
acquired pursuant to the exercise of any Option which does not constitute an
Incentive Stock Option. Notwithstanding any provision in the Plan to the
contrary, the maximum number of shares of Common Stock that may be subject to
Awards of Options and Stock Appreciation Rights under Article VII or VIII hereof
granted to any one individual during any calendar year is: 1,500,000 for 1994
and 250,000 per year, on a cumulative basis, for all years after 1994 (subject
to adjustment in the same manner as provided in Article XIII with respect to
shares of Common Stock subject to Awards then outstanding). The limitation set
forth in the preceding sentence shall be applied in a manner which will permit
compensation generated in connection with the exercise of Options and Stock
Appreciation Rights to constitute "performance-based" compensation for purposes
of Section 162(m) of the Code, including, without limitation, counting against
such maximum number of shares, to the extent required under Section 162(m) of
the Code and applicable
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interpretive authority thereunder, any shares subject to Options or Stock
Appreciation Rights that are canceled or repriced.
Section 5.02 Stock Offered. The stock to be offered pursuant to the grant
of an Award may be authorized but unissued Common Stock or Common Stock
previously issued and outstanding and reacquired by the Company.
ARTICLE VI.
ELIGIBILITY
Awards made pursuant to Articles IX, X, and XI may be granted only to
persons who, at the time of grant, are employees. Awards made pursuant to
Articles VII, VIII and XII may be granted only to persons who, at the time of
grant, are employees or (only as set forth in the following sentence) Directors.
Except as set forth in Article VII, Section 7.08 and Article XII, Awards under
this Plan may not be granted to any Director who is not an employee of the
Company. An Award may be granted on more than one occasion to the same person,
and, subject to the limitations set forth in the Plan, such Award may include an
Incentive Stock Option or an Option which is not an Incentive Stock Option, a
Stock Appreciation Right, a Restricted Stock Award, a Performance Award, an
Incentive Award or any combination thereof. The Committee's designation of a
person as a Participant under Article XII hereof will not limit the eligibility
of such person to be granted an Award under any provision of this Plan.
ARTICLE VII.
STOCK OPTIONS
Section 7.01 Option Period. The term of each Option shall be as specified
by the Committee at the date of grant.
Section 7.02 Limitations on Exercise of Option. An Option shall be
exercisable in whole or in such installments and at such times as determined by
the Committee.
Section 7.03 Special Limitations on Incentive Stock Options. To the extent
that the aggregate Fair Market Value (determined at the time the respective
Incentive Stock Option is granted) of Common Stock with respect to which
Incentive Stock Options granted after 1986 are exercisable for the first time by
an individual during any calendar year under all incentive stock option plans of
the Company and its subsidiary corporations exceeds $100,000, such Incentive
Stock Options shall be treated as options which do not constitute Incentive
Stock Options. The Committee shall determine, in accordance with applicable
provisions of the Code, Treasury Regulations and other administrative
pronouncements, which of an optionee's Incentive Stock Options will not
constitute Incentive Stock Options because of such limitation and shall notify
the optionee of such determination as soon as practicable after such
determination. No Incentive Stock Option shall be granted to an individual if,
at the time the Option is granted, such individual owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of its parent or subsidiary corporation, within the meaning of
Section 422(b)(6) of the Code, unless (i) at the time such Option is granted the
option price is at least 110% of the Fair Market Value of the Common Stock
subject to the Option and (ii) such Option by its terms is not exercisable after
the expiration of five years from the date of grant.
Section 7.04 Option Agreement. Each Option shall be evidenced by an Option
Agreement in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve,
including, without limitation, provisions to qualify an Incentive Stock Option
under Section 422 of the Code. An Option Agreement may provide for the payment
of the option price, in whole or in part, by the delivery of a number of shares
of Common Stock (plus cash if necessary) having a Fair Market Value equal to
such option price. Each Option Agreement shall provide that the Option may not
be exercised earlier than six months from the date of grant and shall specify
the effect of termination of employment on the exercisability of the Option.
Moreover, an Option Agreement may provide for a "cashless exercise" of the
Option by establishing procedures whereby the Holder, by a properly-executed
written notice, directs (i) an
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immediate market sale or margin loan respecting all or a part of the shares of
Common Stock to which he is entitled upon exercise pursuant to an extension of
credit by the Company to the Holder of the option price, (ii) the delivery of
the shares of Common Stock from the Company directly to a brokerage firm and
(iii) the delivery of the option price from sale or margin loan proceeds from
the brokerage firm directly to the Company. Such Option Agreement may also
include, without limitation, provisions relating to (i) subject to the
provisions hereof accelerating such vesting on a Change of Control, vesting of
Options, including a provision that Options shall continue to vest and remain
exercisable for so long as a Holder who terminates employment with the Company
remains an employee of any Company subsidiary or affiliate of the Company, (ii)
tax matters (including provisions covering any applicable employee wage
withholding requirements and requiring additional "gross-up" payments to Holders
to meet any excise taxes or other additional income tax liability imposed as a
result of a Change of Control payment resulting from the operation of the Plan
or of such Option Agreement), and (iii) any other matters not inconsistent with
the terms and provisions of this Plan that the Committee shall in its sole
discretion determine. The terms and conditions of the respective Option
Agreements need not be identical.
Section 7.05 Option Price and Payment. The price at which a share of Common
Stock may be purchased upon exercise of an Option shall be determined by the
Committee, but such purchase price (i) shall not be less than the Fair Market
Value of a share of Common Stock on the date such Option is granted, and (ii)
shall be subject to adjustment as provided in Article XIII. The Option or
portion thereof may be exercised by delivery of an irrevocable notice of
exercise to the Company. The purchase price of the Option or portion thereof
shall be paid in full in the manner prescribed by the Committee. Separate stock
certificates shall be issued by the Company for those shares acquired pursuant
to the exercise of an Incentive Stock Option and for those shares acquired
pursuant to the exercise of any Option which does not constitute an Incentive
Stock Option.
Section 7.06 Shareholder Rights and Privileges. The Holder shall be
entitled to all the privileges and rights of a shareholder only with respect to
such shares of Common Stock as have been purchased under the Option and for
which certificates of stock have been registered in the Holder's name.
Section 7.07 Options and Rights in Substitution for Stock Options Granted
by Other Corporations. Options and Stock Appreciation Rights may be granted
under the Plan from time to time in substitution for stock options held by
individuals employed by corporations who become employees as a result of a
merger or consolidation of the employing corporation with the Company or any
subsidiary, or the acquisition by the Company or a subsidiary of the assets of
the employing corporation, or the acquisition by the Company or a subsidiary of
stock of the employing corporation with the result that such employing
corporation becomes a subsidiary.
Section 7.08 Fixed Grants to Non-Employee Directors. Each non-employee
Director shall receive on the date of each annual shareholders' meeting during
the period beginning on January 1, 1994 and ending upon the expiration of the
Plan an Option to purchase 5,000 shares of Common Stock at the Fair Market Value
thereof on the date of grant. Each Option granted under this Article VII,
Section 7.08, shall (i) not constitute an Incentive Stock Option, (ii) not have
Stock Appreciation Rights granted in connection therewith, (iii) have a term of
ten years, (iv) vest twenty percent (20%) per year on each of the first five
anniversary dates of grant subject to acceleration and vesting pursuant to
Section 13.03, and (v) cease to be exercisable after the date which is three
months after the termination of such individual's service as a Director
(provided that such exercise period shall be extended to one year in the event
of the death of the non-employee Director). Any non-employee Director holding
Options granted under this Section 7.08 who is a member of the Committee shall
not participate in any action of the Committee with respect to any claim or
dispute involving such non-employee Director. Notwithstanding the terms and
provisions of Article XIV hereof, the terms and provisions of this Section 7.08
shall not be amended more than once every six months, other than to comport with
changes in the Code, the Employee Retirement Security Act, or the rules
thereunder.
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ARTICLE VIII.
STOCK APPRECIATION RIGHTS
Section 8.01 Stock Appreciation Rights. A Stock Appreciation Right is the
right to receive an amount equal to the Spread with respect to a share of Common
Stock upon the exercise of such Stock Appreciation Right. Stock Appreciation
Rights may be granted in connection with the grant of an Option, in which case
the Option Agreement will provide that exercise of Stock Appreciation Rights
will result in the surrender of the right to purchase the shares under the
Option as to which the Stock Appreciation Rights were exercised. Alternatively,
Stock Appreciation Rights may be granted independently of Options in which case
each Award of Stock Appreciation Rights shall be evidenced by a Stock
Appreciation Rights Agreement which shall contain such terms and conditions as
may be approved by the Committee including without limitation all applicable
matters set forth with specificity in Article VII, Section 7.04, with respect to
Option Agreements. The terms and conditions of the respective Stock Appreciation
Rights Agreements need not be identical. The Spread with respect to a Stock
Appreciation Right may be payable either in cash, shares of Common Stock with a
Fair Market Value equal to the Spread or in a combination of cash and shares of
Common Stock. With respect to Stock Appreciation Rights that are subject to
Section 16 of the 1934 Act, however, the Committee shall, except as provided in
Section 13.03, retain sole discretion (i) to determine the form in which payment
of the Stock Appreciation Right will be made (i.e., cash, securities or any
combination thereof) or (ii) to approve an election by a Holder to receive cash
in full or partial settlement of Stock Appreciation Rights. Each Stock
Appreciation Rights Agreement shall provide that the Stock Appreciation Rights
may not be exercised earlier than six months from the date of grant and shall
specify the effect of termination of employment on the exercisability of the
Stock Appreciation Rights.
Section 8.02 Exercise Price. The exercise price of each Stock Appreciation
Right shall be determined by the Committee, but such exercise price (i) shall
not be less than the Fair Market Value of a share of Common Stock on the date
the Stock Appreciation Right is granted (or such greater exercise price as may
be required if such Stock Appreciation Right is granted in connection with an
Incentive Stock Option that must have an exercise price equal to 110% of the
Fair Market Value of the Common Stock on the date of grant pursuant to Article
VII, Section 7.03), and (ii) shall be subject to adjustment as provided in
Article XIII.
Section 8.03 Exercise Period. The term of each Stock Appreciation Right
shall be as specified by the Committee at the date of grant.
Section 8.04 Limitations on Exercise of Stock Appreciation Right. A Stock
Appreciation Right shall be exercisable in whole or in such installments and at
such times as determined by the Committee.
ARTICLE IX.
RESTRICTED STOCK AWARDS
Section 9.01 Restriction Period To Be Established by the Committee. At the
time a Restricted Stock Award is made, the Committee shall establish a period of
time (the "Restriction Period") applicable to such Award. Each Restricted Stock
Award may have a different Restriction Period, in the discretion of the
Committee. The Restriction Period applicable to a particular Restricted Stock
Award shall not be changed except as permitted by Article IX, Section 9.02, or
Article XIII.
Section 9.02 Other Terms and Conditions. Common Stock awarded pursuant to a
Restricted Stock Award shall be represented by a stock certificate registered in
the name of the Holder of such Restricted Stock Award. If provided for by the
Award Agreement, the Holder shall have the right to receive dividends during the
Restriction Period, to vote Common Stock subject thereto and to enjoy all other
shareholder rights, except that (i) the Holder shall not be entitled to delivery
of the stock certificate until the Restriction Period shall have expired, (ii)
the Company shall retain custody of the stock during the Restriction Period,
(iii) the Holder may not sell, transfer, pledge, exchange, hypothecate or
otherwise dispose of the stock during the Restriction Period, and (iv) a breach
of the terms and conditions established by the Committee pursuant to the
Restricted Stock Agreement, shall cause a forfeiture of the Restricted Stock
Award. At the time of such Award, the Committee may, in its sole discretion,
prescribe additional terms, conditions or restrictions relating
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to Restricted Stock Awards, including, but not limited to, rules pertaining to
the termination of employment or service as a Director (by retirement,
disability, death or otherwise) of a Holder prior to expiration of the
Restriction Period. Such additional terms, conditions or restrictions shall be
set forth in a Restricted Stock Agreement made in conjunction with the Award.
Such Restricted Stock Agreement may also include, without limitation, provisions
relating to (i) subject to the provisions hereof accelerating vesting on a
Change of Control, vesting of Awards, including a provision continuing such
vesting after a Holder has terminated employment with the Company provided such
employee remains an employee of any Company subsidiary or an affiliate of the
Company, (ii) tax matters (including provisions (x) covering any applicable
employee wage withholding requirements, (y) prohibiting an election by the
holder under Section 83(b) of the Code and (z) requiring additional "gross-up"
payments to Holders to meet any excise taxes or other additional income tax
liability imposed as a result of a Change of Control payment resulting from the
operation of the Plan or of such Restricted Stock Agreement), and (iii) any
other matters not inconsistent with the terms and provisions of this Plan that
the Committee shall in its sole discretion determine. The terms and conditions
of the respective Restricted Stock Agreements need not be identical.
Section 9.03 Payment for Restricted Stock. The Committee shall determine
the amount and form of any payment for Common Stock received pursuant to a
Restricted Stock Award, provided that in the absence of such a determination, a
Holder shall not be required to make any payment for Common Stock received
pursuant to a Restricted Stock Award, except to the extent otherwise required by
law.
Section 9.04 Agreements. At the time any Award is made under this Article
IX, the Company and the Holder shall enter into a Restricted Stock Agreement
setting forth each of the matters contemplated hereby and such other matters as
the Committee may determine to be appropriate. The terms and provisions of the
respective Restricted Stock Agreements need not be identical.
ARTICLE X.
PERFORMANCE AWARDS
Section 10.01 Performance Period. The Committee shall establish, with
respect to and at the time of each Performance Award, a performance period over
which the performance of the Holder shall be measured.
Section 10.02 Performance Awards. Each Performance Award shall have a
maximum value established by the Committee at the time of such Award.
Section 10.03 Performance Measures. A Performance Award shall be awarded to
an employee contingent upon future performance of the Company or any subsidiary,
division or department thereof by or in which he is employed (if applicable)
during the performance period. The Committee shall establish the performance
measures applicable to such performance prior to the beginning of the
performance period but subject to such later revisions as the Committee shall
deem appropriate to reflect significant, unforeseen events or changes.
Section 10.04 Awards Criteria. In determining the value of Performance
Awards, the Committee shall take into account an individual's responsibility
level, performance, potential, other Awards and such other considerations as it
deems appropriate.
Section 10.05 Payment. Following the end of the performance period, the
Holder of a Performance Award shall be entitled to receive payment of an amount,
not exceeding the maximum value of the Performance Award, based on the
achievement of the performance measures for such performance period, as
determined by the Committee. Payment of a Performance Award may be made in cash,
Common Stock or a combination thereof, as determined by the Committee. Payment
shall be made in a lump sum or in installments as prescribed by the Committee.
Any payment to be made in Common Stock shall be based on the Fair Market Value
of the Common Stock on the payment date.
Section 10.06 Termination of Employment. A Performance Award shall
terminate if the Holder does not remain continuously in the employ of the
Company or in service as a Director at all times during the applicable
performance period, except as may be determined by the Committee or as may
otherwise be provided in the Award at the time granted.
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Section 10.07 Agreements. At the time any Award is made under this Article
X, the Company and the Holder shall enter into a Performance Award Agreement
setting forth each of the matters contemplated hereby, and, in addition such
matters as are set forth in Article IX, Section 9.02, as the Committee may
determine to be appropriate. The terms and provisions of the respective
agreements need not be identical.
ARTICLE XI.
INCENTIVE AWARDS
Section 11.01 Incentive Awards. Incentive Awards are rights to receive
shares of Common Stock (or cash in an amount equal to the Fair Market Value
thereof), or rights to receive an amount equal to any appreciation in the Fair
Market Value of Common Stock (or portion thereof) over a specified period of
time, which vest over a period of time or upon the occurrence of an event
(including without limitation a Change of Control) as established by the
Committee, without payment of any amounts by the Holder thereof (except to the
extent otherwise required by law) or satisfaction of any performance criteria or
objectives. Each Incentive Award shall have a maximum value established by the
Committee at the time of such Award.
Section 11.02 Award Period. The Committee shall establish, with respect to
and at the time of each Incentive Award, a period over which or the event upon
which the Award shall vest with respect to the Holder.
Section 11.03 Awards Criteria. In determining the value of Incentive
Awards, the Committee shall take into account an individual's responsibility
level, performance, potential, other Awards and such other considerations as it
deems appropriate.
Section 11.04 Payment. Following the end of the vesting period for an
Incentive Award, the Holder of an Incentive Award shall be entitled to receive
payment of an amount, not exceeding the maximum value of the Incentive Award,
based on the then vested value of the Award. Payment of an Incentive Award may
be made in cash, Common Stock or a combination thereof as determined by the
Committee. Payment shall be made in a lump sum or in installments as prescribed
by the Committee in its sole discretion. Any payment to be made in Common Stock
shall be based on the Fair Market Value of the Common Stock on the payment date.
Cash dividend equivalents may be paid during or after the vesting period with
respect to an Incentive Award, as determined by the Committee.
Section 11.05 Termination of Employment. An Incentive Award shall terminate
if the Holder does not remain continuously in the employ of the Company or in
service as a Director at all times during the applicable vesting period, except
as may be otherwise determined by the Committee or as set forth in the Award at
the time of grant.
Section 11.06 Agreements. At the time any Award is made under this Article
XI, the Company and the Holder shall enter into an Incentive Award Agreement
setting forth each of the matters contemplated hereby and, in addition such
matters as are set forth in Article IX, Section 9.02 as the Committee may
determine to be appropriate. The terms and provisions of the respective
agreements need not be identical.
ARTICLE XII.
PERFORMANCE STOCK UNIT GRANTS
Section 12.01 Participant. As used in this Article XII, Participant shall
mean a non-employee Director or shall mean an executive officer of the Company
who has been designated by the Committee to participate in Awards made under
this Article XII. Each such Director and executive so designated shall remain a
Participant hereunder until all of the benefits to which he or she is entitled
are fully distributed.
Section 12.02 Annual Contribution Amount.
(a) Each year the Company shall calculate an amount (the "Annual
Contribution Amount") to be set aside for the Basic Annual Allocation and
the Additional Annual Allocation. The Annual Contribution Amount shall be
equal to 100% of the Company's consolidated net investment gains before tax
plus
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any carryover provided for in Section 12.2(b)(3). Beginning with the 1994
plan year, the initial carryover amount shall equal the consolidated net
investment gains before tax since January 1, 1989 less the amount of Basic
Annual Allocations and Additional Annual Allocations made under the
Company's Stock Bonus and Deferred Compensation Program since January 1,
1989.
The values of "consolidated net investment gains before tax",
"discretionary annual bonuses", and "total income before income tax" for
any year as they relate to this Plan shall be determined solely by the
Committee. Net investment gains shall include all gains and losses from
sales of securities, including without limitation those treated as gains
(losses) from sales of trading securities and from sales of investments in
affiliates. Net investment gains shall also include gains (losses)
recognized by the Company as a result of the issuance and sale by an
affiliate of its own capital stock.
(b) The Annual Contribution Amount shall be allocated as follows:
(1) First, to the Basic Annual Allocation in the amount determined
in Section 12.03.
(2) Second, to the extent there remains an unallocated portion of
the Annual Contribution Amount, to the Additional Annual Allocation in
the amount determined in Section 12.04.
(3) Third, the remainder, if any, of the Annual Contribution Amount
shall be carried over to the following year and added to the Annual
Contribution Amount, if any, otherwise calculated under Section
12.02(a). Such carryovers shall continue, as necessary, from year to
year until all remainders of annual Contribution Amounts are allocated
in accordance with Sections 12.02(b)(1) and 12.02(b)(2).
Section 12.03 Basic Annual Allocations. The Company shall allocate a
portion of the Annual Contribution Amount to each Participant for the fiscal
year. The amount so allocated, called the Basic Annual Allocation, shall for
each Participant be equal to
(a) the greater of:
(1) $15,000 per year, or
(2) ten percent (10%) of the Participant's Eligible Compensation
for such year; multiplied by
(b) a fraction (not to exceed one), the numerator of which is the
Annual Contribution Amount and the denominator of which is the sum of (a)
above for all Participants for such year.
Section 12.04 Additional Annual Allocations. If, at the end of the fiscal
year, (i) the fully diluted earnings per share, reduced by the fully diluted
earnings per share reported as attributable to gains or losses from sale of
investments, on Company Common Stock for the year just completed exceeds one
hundred ten percent (110%) of the fully diluted earnings per share, reduced by
the fully diluted earnings per share reported as attributable to gains or losses
from sale of investments, on Company Common Stock for the previous fiscal year
and (ii) there remains an unallocated Annual Contribution Amount, the Company
shall credit an Additional Annual Allocation to each Participant. The aggregate
Additional Annual Allocation for all Participants shall equal the least of:
(1) The portion of the Annual Contribution Amount not allocated in
accordance with Section 12.03;
(2) 100% of the aggregate Basic Annual Allocations for all
Participants; or
(3) An amount equal to (i) the sum of two percent (2%) of each
Participant's Basic Annual Allocation, multiplied by (ii) the number of
tenths of a percentage point (rounded to the next lower tenth of a percent)
by which the fully diluted earnings per share, reduced by the fully diluted
earnings per share reported as attributable to gains and losses from the
sale of investments, on Company Common Stock for the fiscal year just
completed exceeds one hundred ten percent (110%) of the fully diluted
earnings per share, reduced by the fully diluted earnings per share
reported as attributable to gains and losses from the sale of investments,
on Company Common Stock for the previous fiscal year.
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<PAGE> 37
The Additional Annual Allocation for each Participant shall equal the
lesser of clause (2) or (3) above for that Participant multiplied by a fraction
(not to exceed one) the numerator of which is the amount in clause (1) above and
the denominator of which is the sum of the Additional Annual Allocations for all
Participants.
Section 12.05 Computation of Stock Units. On March 31 of each year
beginning March 31, 1995, the Basic Annual Allocation and the Additional Annual
Allocation, if any, for the preceding full fiscal year of each Participant on
that date, shall be converted to Stock Units pursuant to this Section and shall
be added to the Participant's Stock Unit Account. The number of Stock Units to
be added on each such date shall be the quotient obtained by dividing the sum of
such Basic Annual Allocation and Additional Annual Allocation, if any, by the
average daily closing price of the Company's Common Stock computed for such
fiscal year (the "Annual Average Stock Price") based on information reported by
the New York Stock Exchange or such other exchange or national market system
from which such information is available.
Section 12.06 Special Grant Upon Death or Disability. In the event of a
Participant's death or Total and Permanent Disability (i) while still in the
employ of the Company and (ii) prior to the attainment of age sixty-five (65),
the Company shall make an additional contribution to the Participant's Stock
Unit Account for the year in which such event occurred in an amount equal to one
hundred percent (100%) of his Eligible Compensation for the preceding fiscal
year divided by the Annual Average Stock Price for such preceding fiscal year.
Section 12.07 Vesting. Each annual amount awarded to a Participant under
this Article shall become fully vested and the Stock Units in his Stock Unit
Account attributable to such award shall become fully vested after a period of
continuous employment with the Company ending:
(a) Upon the fifth anniversary of the end of the fiscal year for which
such amount was awarded (for this purpose, accretions due to dividends,
distributions, or stock splits shall vest at the same time as the base
award to which such accretions relate);
(b) By reason of the Participant's attainment of age sixty (60);
(c) By reason of the Participant's Total and Permanent Disability;
(d) By reason of the Participant's death; or
(e) By reason of the occurrence of a Change of Control.
All awards not fully vested upon termination of employment shall be
forfeited, and the Company's obligation for benefits based on these awards shall
cease.
Section 12.08 Adjustments for Cash Distributions. Whenever the Company
shall pay a cash dividend or other cash distribution during any quarter to the
holders of its Common Stock, the Company shall credit to each Participant's
Stock Unit Account an amount equal to the quotient of (i) the product of (a) the
amount of the dividend distribution paid per share of Company Common Stock, and
(b) the number of Stock Units in the Participant's Stock Unit Account at the
beginning of the quarter divided by (ii) the Fair Market Value of the Common
Stock on the date such dividend or cash distribution is paid.
Section 12.09 Distribution of Stock Units. At the time of vesting, unless
otherwise deferred pursuant to a deferred compensation plan of or agreement with
the Company, Stock Units shall be distributed to Participants by the issuance of
Common Stock in an amount equivalent to the number of Stock Units which are
fully vested.
ARTICLE XIII.
RECAPITALIZATION OR REORGANIZATION
Section 13.01 The shares with respect to which Awards may be granted are
shares of Common Stock as presently constituted, but if, and whenever, prior to
the expiration or distribution to the Holder of an Award theretofore granted,
the Company shall effect a subdivision or consolidation of shares of Common
Stock or the
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<PAGE> 38
payment of a stock dividend on Common Stock without receipt of consideration by
the Company, the number of shares of Common Stock with respect to which such
Award may thereafter be exercised or satisfied, as applicable, (i) in the event
of an increase in the number of outstanding shares shall be proportionately
increased, and the purchase price per share shall be proportionately reduced,
and (ii) in the event of a reduction in the number of outstanding shares shall
be proportionately reduced, and the purchase price per share shall be
proportionately increased.
Section 13.02 If the Company recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise or satisfaction, as applicable, of an
Award theretofore granted the Holder shall be entitled to (or entitled to
purchase, if applicable) under such Award, in lieu of the number of shares of
Common Stock then covered by such Award, the number and class of shares of stock
and securities to which the Holder would have been entitled pursuant to the
terms of the recapitalization if, immediately prior to such recapitalization,
the Holder had been the holder of record of the number of shares of Common Stock
then covered by such Award.
Section 13.03 In the event of a Change of Control, all outstanding Awards
shall immediately vest and become exercisable or satisfiable, as applicable. The
Committee, in its discretion, may determine that upon the occurrence of a Change
of Control, each Award outstanding hereunder shall terminate within a specified
number of days after notice to the Holder, and such Holder shall receive, with
respect to each share of Common Stock subject to such Award, cash in an amount
equal to the excess of (i) the higher of (x) the Fair Market Value of such share
of Common Stock immediately prior to the occurrence of such Change of Control or
(y) the value of the consideration to be received in connection with such Change
of Control for one share of Common Stock over (ii) the exercise price per share,
if applicable, of Common Stock set forth in such Award. The provisions contained
in the preceding sentence shall be inapplicable to an Award granted within six
(6) months before the occurrence of a Change of Control if the Holder of such
Award is subject to the reporting requirements of Section 16(a) of the 1934 Act.
If the consideration offered to shareholders of the Company in any transaction
described in this paragraph consists of anything other than cash, the Committee
shall determine the fair cash equivalent of the portion of the consideration
offered which is other than cash. The provisions contained in this paragraph
shall not terminate any rights of the Holder to further payments pursuant to any
other agreement with the Company following a Change of Control.
Section 13.04 In the event of changes in the outstanding Common Stock by
reason of recapitalization, reorganizations, mergers, consolidations,
combinations, exchanges or other relevant changes in capitalization occurring
after the date of the grant of any Award and not otherwise provided for by this
Article XIII, any outstanding Awards and any agreements evidencing such Awards
shall be subject to adjustment by the Committee at its discretion as to the
number and price of shares of Common Stock or other consideration subject to
such Awards. In the event of any such change in the outstanding Common Stock,
the aggregate number of shares available under the Plan may be appropriately
adjusted by the Committee, whose determination shall be conclusive.
Section 13.05 The existence of the Plan and the Awards granted hereunder
shall not affect in any way the right or power of the Board or the shareholders
of the Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of debt or
equity securities ahead of or affecting Common Stock or the rights thereof, the
dissolution or liquidation of the Company or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
Section 13.06 Any adjustment provided for in Sections 13.01, 13.02, 13.03
and 13.04 above shall be subject to any required shareholder action.
Section 13.07 Except as hereinbefore expressly provided, the issuance by
the Company of shares of stock of any class or securities convertible into
shares of stock of any class, for cash, property, labor or services, upon direct
sale, upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares of obligations of the Company convertible into such shares
or other securities, and in any case whether or not for fair value, shall not
affect, and no adjustment by reason thereof shall be made with respect to the
number of shares of Common Stock subject to Awards theretofore granted or the
purchase price per share, if applicable.
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<PAGE> 39
ARTICLE XIV.
AMENDMENT AND TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect
to any shares for which Awards have not theretofore been granted. The Board
shall have the right to alter or amend the Plan or any part thereof from time to
time; provided that no change in any Award theretofore granted may be made which
would impair the rights of the Holder without the consent of the Holder (unless
such change is required in order to cause the benefits under the Plan to qualify
as performance-based compensation within the meaning of Section 162(m) of the
Code and applicable interpretive authority thereunder), and provided, further,
that the Board may not, without approval of the shareholders, amend the Plan:
(a) to increase the maximum number of shares which may be issued on
exercise or surrender of an Award, except as provided in Article XIII;
(b) to change the Option price;
(c) to change the class of individuals eligible to receive Awards or
materially increase the benefits accruing to employees and Directors under
the Plan;
(d) to extend the maximum period during which Awards may be granted
under the Plan;
(e) to modify materially the requirements as to eligibility for
participation in the Plan; or
(f) to decrease any authority granted to the Committee hereunder in
contravention of Rule 16b-3.
ARTICLE XV.
MISCELLANEOUS
Section 15.01 No Right To An Award. Neither the adoption of the Plan by the
Company nor any action of the Board or the Committee shall be deemed to give an
employee any right to be granted an Award to purchase Common Stock, a right to a
Stock Appreciation Right, a Restricted Stock Award, a Performance Award, an
Incentive Award or Stock Units or any of the rights hereunder except as may be
evidenced by an Award or by an Award Agreement duly executed on behalf of the
Company, and then only to the extent and on the terms and conditions expressly
set forth therein. The Plan shall be unfunded. The Company shall not be required
to establish any special or separate fund or to make any other segregation of
funds or assets to assure the payment of any Award.
Section 15.02 No Employment Rights Conferred. Nothing contained in the Plan
shall (i) confer upon any employee any right with respect to continuation of
employment with the Company or any subsidiary or (ii) interfere in any way with
the right of the Company or any subsidiary to terminate his or her employment
(or service as a Director, in accordance with applicable corporate law) at any
time.
Section 15.03 Other Laws; Withholding. The Company shall not be obligated
to issue any Common Stock pursuant to any Award granted under the Plan at any
time when the shares covered by such Award have not been registered under the
Securities Act of 1933 and such other state and federal laws, rules or
regulations as the Company or the Committee deems applicable and, in the opinion
of legal counsel for the Company, there is no exemption from the registration
requirements of such laws, rules or regulations available for the issuance and
sale of such shares. No fractional shares of Common Stock shall be delivered,
nor shall any cash in lieu of fractional shares be paid. The Company shall have
the right to deduct in cash (whether under this Plan or otherwise) in connection
with all Awards any taxes required by law to be withheld and to require any
payments required to enable it to satisfy its withholding obligations. In the
case of any Award satisfied in the form of Common Stock, no shares shall be
issued unless and until arrangements satisfactory to the Company shall have been
made to satisfy any withholding tax obligations applicable with respect to such
Award. Subject to such terms and conditions as the Committee may impose, the
Company shall have the right to retain, or the Committee may, subject to such
terms and conditions as it may establish from time to time, permit Holders to
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<PAGE> 40
elect to tender Common Stock (including Common Stock issuable in respect of an
Award) to satisfy, in whole or in part, the amount required to be withheld.
Section 15.04 No Restriction on Corporate Action. Nothing contained in the
Plan shall be construed to prevent the Company or any subsidiary from taking any
corporate action which is deemed by the Company or such subsidiary to be
appropriate or in its best interest, whether or not such action would have an
adverse effect on the Plan or any Award made under the Plan. No employee,
beneficiary or other person shall have any claim against the Company or any
subsidiary as a result of any such action.
Section 15.05 Restrictions on Transfer. An Award shall not be transferable
except (i) by will or the laws of descent and distribution, or (ii) by gift to
any member of the Holder's immediate family or to a trust for the benefit of
such immediate family member, if permitted in the applicable Award Agreement. An
award may be exercisable during the lifetime of the Holder only by such Holder
or the Holder's guardian or legal representative unless it has been transferred
to a member of the Holder's immediate family or to a trust for the benefit of
such immediate family member, in which case it shall be exercisable only by such
transferee. For the purpose of this provision, a Holder's "immediate family"
shall mean the Holder's spouse, children and grandchildren. Notwithstanding any
such transfer, the Holder will continue to be subject to the withholding
requirements provided for in Section 15.03 hereof.
Section 15.06 Rule 16b-3. It is intended that the Plan and any grant of an
Award made to a person subject to Section 16 of the 1934 Act meet all of the
requirements of Rule 16b-3. If any provision of the Plan or any such Award would
disqualify the Plan or such Award under, or would otherwise not comply with,
Rule 16b-3, such provision or Award shall be construed or deemed amended to
conform to Rule 16b-3.
Section 15.07 Section 162(m). It is intended that the Plan comply fully
with and meet all the requirements of Section 162(m) of the Code so that Options
and Stock Appreciation Rights granted hereunder with an exercise price not less
than Fair Market Value of a share of Common Stock on the date of grant shall
constitute "performance-based" compensation within the meaning of such section.
If any provision of the Plan would disqualify the Plan or would not otherwise
permit the Plan to comply with Section 162(m) as so intended, such provision
shall be construed or deemed amended to conform to the requirements or
provisions of Section 162(m); provided that no such construction or amendment
shall have an adverse effect on the economic value to a Holder of any Award
previously granted hereunder.
Section 15.08 Governing Law. This Plan shall be construed in accordance
with the laws of the State of Indiana.
A-14
<PAGE> 41
EXHIBIT B
CONSECO PERFORMANCE-BASED COMPENSATION BONUS PLAN
FOR EXECUTIVE VICE PRESIDENTS
Each of the Executive Vice Presidents shall receive annually a
performance-based cash bonus. The bonus shall be determined by multiplying the
applicable percentages (defined below) times the Company's consolidated pre-tax
net profits for the year before taking into account cash bonuses payable to the
Company's Chief Executive Officer and Executive Vice Presidents. Such percentage
is to be based on the following table.
<TABLE>
<S> <C>
If the ratio of the average return on Then the current year's performance-based
equity ("ROE")(1) of Conseco to the bonus for each such executive shall be the sum
average ROE of all publicly-held life and of the following percentages multiplied times
health insurance companies is at least the the designated portion of the consolidated
following percentage pre-tax profits of the current year
- ------------------------------------------ ----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NON-RECURRING REMAINING
PORTION(2) PORTION
------------- ---------
<S> <C> <C>
Less than 100% 0.0% 0.0%
100% 1.0% .1%
120% 1.0% .2%
140% 1.0% .4%
160% 1.0% .6%
180% 1.0% .8%
200% 1.0% 1.0%
</TABLE>
Upon the recommendation of Conseco's Chief Executive Officer, the
Compensation Committee may reduce the amount of the bonus that would have been
payable under the preceding formula to any of the affected executives. Such
reduction shall be at the sole discretion of the Compensation Committee after
taking into account such subjective factors or other matters as they believe are
appropriate in the best interests of Conseco and its shareholders. The
cumulative accrued amount of each bonus shall be calculated as of the end of
each fiscal quarter of the Company's fiscal year based on the year-to-date
financial results, and such accrued bonus, minus accrued bonus payments made for
previous quarters of the same fiscal year, shall be paid to the executive as
soon as practicable, provided, however, that the Compensation Committee shall
have the discretion to reduce or limit the portion of accrued bonus payable to
any executive at the end of any fiscal quarter. If the quarterly payments for
any fiscal year exceed the bonus payable for the entire year, the amount of such
excess shall be repaid to the Company by the executive.
The Compensation Committee shall have the sole authority to administer the
Plan and make all decisions to interpret and apply its provisions. Written
interpretations not inconsistent with the terms hereof may be issued from time
to time by the Compensation Committee as guidance for interpreting and applying
the Plan's provisions.
- ------------
(1) Average ROE for Conseco and for all companies is to be calculated for the
five years prior to the current year as reported by Firemark Insurance
Perspectives or comparable independent publication. No year prior to 1994
shall be included in computing such average ROE; therefore, until five years
have been completed after 1993, the ratio of the average ROE for Conseco to
the average ROE for all companies shall be computed as follows:
- For 1994 and 1995, the ratio shall be deemed to be 200%
- For 1996, 1997 and 1998, the ratio shall be computed using results for
two, three or four years, respectively, commencing with the results of the
year 1994.
(2) For purposes of this calculation, the non-recurring portion includes the
total of gains from sale of subsidiaries or affiliates; sale of investments
made or monitored by the Conseco Private Capital Group; 20% carried interest
earned on acquisition partnership investments; and acquisition, arrangement
and investment banking fees earned from acquisition partnerships.
<PAGE> 42
CONSECO, INC
11825 North Pennsylvania Street, Carmel, IN 46032
PROXY FOR 1994 ANNUAL MEETING OF SHAREHOLDERS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Each person signing this card on the reverse side hereby appoints as proxies
Rollin M. Dick, Donald F. Gongaware and Stephen C. Hilbert, or any of them,
with full power of substitution, to vote all shares of common stock which such
person is entitled to vote at the Annual Meeting of Shareholders of Conseco,
Inc., to be held at the Hotel Crescent Court, 400 Crescent Court, Dallas,
Texas, at 10:30 a.m. local time on June 7, 1994, and any adjournments thereof.
The proxies are hereby authorized to vote as follows:
1. Election of Ngaire E. Cuneo as a Director for a two-year term expiring in
1996, and the election of Rollin M. Dick, James D. Massey and Dennis E.
Murray, Sr., as Directors for three-year terms expiring in 1997.
/ / FOR (except as shown on the line) / / WITHHELD (as to all nominees)
(To withhold authority to vote for single nominee, write that nominee's
name on this line:)
- --------------------------------------------------------------------------------
2. Approval of the Conseco, Inc. 1994 Stock and Incentive Plan.
/ / FOR / / AGAINST / / ABSTAIN
3. Approval of the Conseco, Inc. Performance-Based Compensation Bonus Plan for
Executive Vice Presidents.
/ / FOR / / AGAINST / / ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting.
(PLEASE DATE AND SIGN ON REVERSE SIDE)
THE SHARES REPRESENTED BY THIS PROXY, UNLESS OTHERWISE SPECIFIED, SHALL BE
VOTED FOR ITEMS 1, 2 AND 3.
Please sign below exactly as your name
appears on the label. When signing as
attorney, corporate officer or
fiduciary, please give full title as
such. The undersigned hereby
acknowledges receipt of the Notice of
the Annual Meeting and Proxy Statement
dated April 29, 1994.
Dated
----------------------------------
Signature(s)
---------------------------
---------------------------------------
PLEASE DATE, SIGN, AND RETURN THIS PROXY PROMPTLY.
