SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant X Filed by a party other than the registrant
Check the appropriate box:
X Preliminary proxy statement
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)
N/A
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of filing fee (Check the appropriate box):
X No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
(1) Set forth the amount on which the filing fee is calculated and state
how it was determined.
1
<PAGE>
[Conseco, Inc. logo]
11825 North Pennsylvania Street
Carmel, Indiana 46032
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 13, 1997
Notice Is Hereby Given That the Annual Meeting of Shareholders of
Conseco, Inc. (the "Company"), will be held at the Ritz Charles, 12156 North
Meridian Street, Carmel, Indiana, at 11:00 a.m., local time, on May 13, 1997,
for the following purposes:
1. To approve an amendment to the Company's Articles of
Incorporation to increase the number of shares of common stock
authorized from 500,000,000 to 1,000,000,000;
2. To elect one director for a term ending in 1999 and three
directors for terms ending in 2000;
3. To approve the adoption of the 1997 Non-qualified Stock Option
Plan; and
4. To consider such other matters as may properly come before the
meeting.
Holders of record of outstanding shares of the common stock ("Common
Stock") and Preferred Redeemable Increased Dividend Equity Securities, 7%
PRIDES, Convertible Preferred Stock ("PRIDES") of the Company as of the close of
business on April 1, 1997, are entitled to notice of and to vote at the meeting.
Holders of Common Stock and PRIDES will vote together as a single class at the
meeting. Holders of Common Stock have one vote for each share held of record,
and holders of PRIDES have 4/5 of one vote for each share held of record.
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
Lawrence W. Inlow, Secretary
April 10, 1997
Carmel, Indiana
2
<PAGE>
PRELIMINARY COPY
[Conseco, Inc. 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 Ritz Charles, 12156 North Meridian Street, Carmel, Indiana on May
13, 1997, at 11:00 a.m., local time. It is expected that this Proxy Statement
will be mailed to the shareholders on or about April 10, 1997. 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 $11,000 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 proxy holders 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 shares of Conseco's common stock ("Common
Stock") and shares of Conseco's Preferred Redeemable Increased Dividend Equity
Securities, 7% PRIDES, Convertible Preferred Stock ("PRIDES" and, together with
the Common Stock, the "Conseco Voting Stock") as of the close of business on
April 1, 1997, will be entitled to vote at the meeting. On such record date,
Conseco had __________ shares of Common Stock and _________ shares of PRIDES
outstanding and entitled to vote. Holders of Common Stock and PRIDES will vote
together as a single class at the Annual Meeting. Each share of Common Stock
will be entitled to one vote with respect to each matter submitted to a vote at
the meeting. Each share of PRIDES will be entitled to 4/5 of 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 Conseco Voting Stock entitled to cast a
majority of the votes 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 will be elected as Directors of the Company. 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. Shares present which are properly
withheld as to voting, 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. Abstention from voting or broker non-votes will have no effect since
such actions do not represent votes cast by shareholders.
3
<PAGE>
SECURITIES OWNERSHIP
The following table sets forth information as of April 9, 1997
regarding ownership of 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 Directors individually, by the executive officers named
in the Summary Compensation Table on page 13 individually, and by all executive
officers and Directors of Conseco 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 amounts shown below for each of the Directors and
executive officers do not include (i) stock options which are not exercisable
within 60 days of April 9, 1997 providing for the right to purchase an aggregate
of 8,947,240 shares of Common Stock and (ii) an aggregate of 2,997,689 units
(each representing one share of Common Stock) under Conseco's Amended and
Restated Stock Bonus and Deferred Compensation Program (the "Deferred
Compensation Program") and the Conseco 1994 Stock and Incentive Plan (the "1994
Stock Plan"). See footnote (2) to the Summary Compensation Table and EXECUTIVE
COMPENSATION, RELATED PARTY TRANSACTIONS AND OTHER INFORMATION -- Compensation
of Directors. The executive officers and Directors do not own any shares of any
other class of equity securities of Conseco. All share and per-share information
in this Proxy Statement has been adjusted to reflect a two-for-one stock split
of the Common Stock effected February 11, 1997.
<TABLE>
<CAPTION>
Shares Owned and
Title of Nature of Ownership
Class Name and Address(1) Number Percent
----- ------------------- ------ -------
Five-Percent Owners:
<S> <C> <C> <C>
Common Stock Alex. Brown Investment Management 13,637,020(2) 7.4%
135 East Baltimore Street
Baltimore, Maryland 21202
PRIDES Highbridge Capital Corporation 235,614(3) 10.8
The Residence, Unit #2,
South Church Street
Grand Cayman, Cayman Islands,
British West Indies
Highbridge Capital Management, Inc.
767 Fifth Avenue
New York, New York 10153
Directors and Executive Officers:
Common Stock Ngaire E. Cuneo 1,239,384(4) *
Common Stock David R. Decatur, M.D. 42,710(5) *
Common Stock Rollin M. Dick 4,005,198(6) 2.2
Common Stock Donald F. Gongaware 3,958,338(7) 2.1
Common Stock M. Phil Hathaway 116,856(8) *
Common Stock Stephen C. Hilbert 8,488,722(9) 4.5
Common Stock Lawrence W. Inlow 3,372,042(10) 1.8
Common Stock James D. Massey 126,000(11) *
Common Stock Dennis E. Murray, Sr. 1,696,694(12) *
Common Stock John M. Mutz 1,300(13) *
Common Stock All executive officers and Directors
as a group (10 persons) 23,047,244(14) 12.0
</TABLE>
4
<PAGE>
(1) Address given for five-percent owners only.
(2) According to a Schedule 13G dated March 3, 1997, 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 with respect to
1,441,872 of such shares and sole dispositive power as to all of the
shares.
(3) According to a Schedule 13G dated February 7, 1997, filed with the
Securities and Exchange Commission, Highbridge Capital Corporation is
a broker/dealer registered under Section 15 of the Securities Exchange
Act of 1934. Highbridge Capital Management, Inc. is the trading
manager of Highbridge Capital Corporation. The Schedule 13G indicates
that Highbridge Capital Corporation and Highbridge Capital Management,
Inc. have shared voting and dispositive power with respect to such
shares.
(4) Of these shares, 964,248 are subject to options held by Ms. Cuneo which
are exercisable within 60 days and 10,000 are subject to a currently
exercisable warrant held by her.
(5) Of these shares, 2,000 are subject to options held by Dr. Decatur which
are exercisable within 60 days and 710 shares are held by a partnership
of which Dr.
Decatur is a general partner.
(6) Of these shares, 487,520 are owned by Mr. Dick's wife, 527,324
(including 20,000 subject to a currently exercisable warrant) are owned
by a charitable foundation as to which shares he shares voting and
investment power, 800,000 are owned by a limited partnership of which
Mr. Dick is the general partner, 1,355,552 are subject to options held
by Mr. Dick which are exercisable within 60 days, 225,200 are owned by
a trust as to which Mr. Dick's wife has sole voting and investment
power, 200,000 are owned by a trust as to which Mr. Dick shares voting
and investment power and 1,322 are attributable to Mr. Dick's account
under the ConsecoSave Plan, a 401(k) savings plan. Mr. Dick expressly
disclaims beneficial ownership of all shares owned by his wife, the
trust as to which she has sole voting and investment power, and the
charitable foundation.
(7) Of these shares, 62,000 are owned by Mr. Gongaware's wife, 75,600
(including 20,000 subject to a currently exercisable warrant) are owned
by a charitable foundation as to which he shares voting and investment
power, 280,000 are owned by a charitable trust as to which he shares
voting and investment power, 72,000 are owned by irrevocable trusts as
to which Mr. Gongaware's wife has sole voting and investment power,
126,000 are owned by a trust as to which Mr. Gongaware shares voting
and investment power, 1,315,552 are subject to options held by Mr.
Gongaware which are exercisable within 60 days and 1,062 are
attributable to Mr. Gongaware's account under the ConsecoSave Plan. Mr.
Gongaware expressly disclaims beneficial ownership of all shares owned
by his wife, the trusts as to which she has sole voting and investment
power, and the charitable foundation.
(8) Of these shares, 16,000 are owned by Mr. Hathaway's wife, and 22,000
are subject to options held by Mr. Hathaway which are exercisable
within 60 days.
(9) Of these shares, 3,978,992 are subject to options held by Mr. Hilbert
which are exercisable within 60 days, 1,380,000 are owned by trusts as
to which he has voting and investment power and 280,000 (including
20,000 subject to a currently exercisable warrant) are held by a
charitable foundation as to which he has voting and investment power.
Mr. Hilbert expressly disclaims beneficial ownership of all shares
owned by the charitable foundation.
(10) Of these shares, 1,735,552 are subject to options held by Mr. Inlow
which are exercisable within 60 days, 400,000 are owned by trusts as to
which he has voting and investment power, 80,000 (including 20,000
subject to a currently exercisable warrant) are held by a charitable
foundation as to which he has voting and investment power and 1,158 are
attributable to Mr. Inlow's account under the
5
<PAGE>
ConsecoSave Plan. Mr. Inlow expressly disclaims beneficial ownership
of all shares owned by the charitable foundation.
(11) Of these shares, 22,000 are subject to options held by Mr. Massey which
are exercisable within 60 days.
(12) Of these shares, 796 are owned by Mr. Murray's wife, 1,184,000 are
owned by retirement plan trusts as to which Mr. Murray shares voting
and investment power, and 22,000 are subject to options held by Mr.
Murray which were exercisable within 60 days. Mr. Murray disclaims
beneficial ownership of the shares held by his wife.
(13) These shares are held by Mr. Mutz's wife, and he disclaims beneficial
ownership of such shares.
(14) Includes 9,507,896 shares subject to outstanding stock options and
warrants which are exercisable within 60 days.
*Less than 1%.
6
<PAGE>
AMENDMENT TO THE ARTICLES OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK
At a meeting held on February 18, 1997, the Company's Board of
Directors unanimously adopted a resolution approving, and submitting to a vote
of the shareholders, an amendment to Article V of the Company's Amended and
Restated Articles of Incorporation (the "Articles of Incorporation") which would
increase the Company's authorized shares of Common Stock from 500,000,000 to
1,000,000,000. If the amendment to Article V is approved by the shareholders,
the additional authorized shares of Common Stock would be available for general
corporate purposes, including acquisitions, raising additional capital, stock
dividends or stock splits. In 1996 and 1997, the Company issued or reserved for
issuance approximately 80.3 million shares of Common Stock in connection with
the acquisitions of Life Partners Group, Inc., American Travellers Corporation,
Transport Holdings Inc., Bankers Life Holding Corporation and Capitol American
Financial Corporation. The Company also issued 127.1 million shares of Common
Stock in April 1996 and February 1997 to effect two-for-one splits of the
outstanding shares. All share amounts in this Proxy Statement reflect such
splits.
On April 1, 1997, the Company had outstanding __________ shares of
Common Stock, excluding treasury shares. In addition, __________ shares of
Common Stock were reserved for issuance as follows: _________ shares upon
conversion of outstanding PRIDES, _________ shares upon conversion of the
Company's 6.5% convertible subordinated debentures due 2005 (the "Convertible
Debentures"), _________ shares upon exercise of options or warrants currently
outstanding or remaining to be granted under the Company's stock option plans,
_______ shares for issuance under other employee benefit plans and _______
shares in connection with the pending acquisition of Pioneer Financial Services,
Inc.
Currently, the Company has no specific plans, understandings or
arrangements for issuing any of the additional shares of Common Stock to be
authorized by the proposed amendment. If the proposed amendment is adopted by
the shareholders, the Board of Directors could authorize the issuance of any
authorized but unissued shares of Common Stock, including those authorized by
the amendment, on terms determined by it without further action by the
shareholders, unless the shares were issued in a transaction, such as certain
mergers or consolidations, requiring shareholder approval. All attributes of the
additional shares of Common Stock would be the same as those of existing shares
of authorized and unissued Common Stock. Under the Articles of Incorporation,
the shareholders of the Company have no preemptive rights to subscribe to or
purchase any shares of Common Stock, preferred stock, or other securities of the
Company. Shareholders should also note that issuance of additional shares of
capital stock may tend to affect the voting, dividend, liquidation and other
rights of the capital stock presently outstanding.
Required Vote
The amendment of the Company's Articles of Incorporation will be
approved if the number of votes for the amendment exceeds the number of votes
against it. The Board of Directors recommends a vote "FOR" approval of the
amendment. Space is provided in the enclosed proxy card for shareholders to vote
for or against approval of the amendment, or to abstain from voting. If the
shareholder does not indicate a choice with respect to this question, the
enclosed proxy card will be voted for approval of the amendment.
Text of Amendment
If the shareholders approve the proposed amendment, the pertinent
portion of Section 1 of Article V of the Company's Articles of Incorporation
would be amended to read as follows:
7
<PAGE>
ARTICLE V
Terms of Authorized Shares
SECTION 1. Designation. The authorized shares of the Corporation shall
be divided into two (2) classes as follows:
(a) 1,000,000,000 shares of Common Stock without par
value. The shares of Common Stock shall be identical with each other in
all respects.
(The remainder of Section 1 is unchanged)
8
<PAGE>
ELECTION OF DIRECTORS
The Board of Directors consists of nine members, divided into three
classes containing three members each. John M. Mutz was appointed by the Board
in February 1997 to fill the vacancy created by the resignation of Louis P.
Ferrero from the Board. Mr. Ferrero, the President of Conseco Global
Investments, Inc., agreed to leave the Board in order to restore a nonmanagement
majority among Board members. Mr. Mutz has been nominated to serve the remaining
two-year term expiring in 1999. Each of the other three Directors to be elected
at the Annual Meeting have been nominated to serve a term of three years
expiring in 2000. All Directors will serve until their successors are duly
elected and qualified.
Unless authority is specifically withheld, the shares of Conseco Voting
Stock 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 Board of Directors 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.
The following information regarding each person nominated for election
as a Director, and each person whose term will continue after the Annual
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
------------ ----- ----------------------------------- --------
Nominees for Election as Directors:
<S> <C> <C> <C>
John M. Mutz, 61 1997 President of PSI Energy, Inc. (electric utility) 1999
since 1993. From 1989 to 1993, President of Lilly
Endowment Inc. (charitable foundation). From 1980
to 1988, Lieutenant Governor of the State of
Indiana.
Rollin M. Dick, 65 1986 Since 1986, Executive Vice President and 2000
Chief Financial Officer of Conseco. Also a
Director of American Life Holding Company,
General Acceptance Corporation and
Brightpoint, Inc.
James D. Massey, 62(1)(2) 1994 Retired. From 1986 to June 1992 President 2000
and Deputy Chief Executive Officer of Merchants
National Corp. and Chairman, President and
Chief Executive Officer of Merchants National
Bank (banking).
Dennis E. Murray, Sr., 57(1)(2) 1994 Since 1964, partner or principal of the Ohio 2000
law firm of Murray & Murray Co., L.P.A. and
its predecessor.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Director Positions with Conseco, Principal Term
Name and Age Since Occupation and Business Experience Expiring
------------ ----- ----------------------------------- --------
Directors Whose Terms of Office
Will Continue After the Meeting:
<S> <C> <C> <C>
Stephen C. Hilbert, 51 1979 Since 1979, Chairman of the Board and Chief 1998
Executive Officer, and since 1988 President, of
Conseco. Also a Director of American Life Holding
Company and Vail Resorts Inc.
Ngaire E. Cuneo, 46 1994 Since 1992, Executive Vice President, Corporate 1998
Development of Conseco. From 1986 to 1992,
Senior Vice President and Corporate Officer of
General Electric Capital Corporation. Also a
Director of American Life Holding Company, Duke
Realty Investments, Inc. and NAL Financial Group
Inc.
M. Phil Hathaway, 67(1)(2) 1984 Retired. Formerly, Treasurer of Cook Group, 1998
Inc. (medical equipment, property and casualty
insurance, and real estate development operations).
David R. Decatur, M.D., 57(1)(2) 1995 Since 1967, a physician practicing in 1999
Indianapolis, Indiana. From 1988 to
1992, President and Chief Executive
Officer of Decatur Fitness Systems,
Inc. (health and nutritional products).
Since 1991, President and Chief
Executive Officer of Innovative
Health Systems, Inc. (health and
nutritional products).
Donald F. Gongaware, 61 1985 Since 1985, Executive Vice President of 1999
Conseco. Also a Director of American Life
Holding Company.
<FN>
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
</FN>
</TABLE>
10
<PAGE>
PROPOSAL TO ADOPT 1997 NON-QUALIFIED STOCK OPTION PLAN
Background. The Board of Directors has adopted, and the shareholders
are asked to approve, the Conseco, Inc. 1997 Non-qualified Stock Option Plan
(the "1997 Plan"). The purpose of the 1997 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 executive employees.
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 1997 Plan, in part,
to satisfy the requirement of OBRA with respect to the deductibility of this
compensation. The material terms consist of (i) the individuals eligible to
receive stock options, (ii) the business criteria on which awards under the 1997
Plan are based, and (iii) the maximum amount of stock options which may be
granted to an individual in any year under the 1997 Plan.
The summary of the 1997 Plan which appears below is qualified in its
entirety by reference to the full text of the 1997 Plan attached hereto as
Exhibit A.
Types of Awards. The 1997 Plan provides for the grant of non-qualified
stock options (options which are not "incentive stock options" under 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 as determined by the
Compensation Committee of the Board of Directors (the "Committee").
Term. The 1997 Plan was effective on April ___, 1997. The 1997 Plan
will remain in effect until all awards have been satisfied or expired. The 1997
Plan may be terminated by the Board of Directors, but any such termination will
not affect awards made prior to termination.
Administration. The 1997 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 under other employee benefit plans of the
Company, no member of the Committee shall be eligible to participate in the 1997
Plan or any other employee benefit plan while serving on the Committee. The
Board intends that each member of the Committee shall be a "Non-Employee
Director" 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. Subject to the terms of the 1997 Plan, the
Committee, consistent with the terms of the 1997 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 the conditions and restrictions, if
any, subject to which grants will be made and become payable under the 1997
Plan, (iii) to construe the 1997 Plan and to prescribe rules and regulations
with respect to the administration of the 1997 Plan and (iv) to make such other
determinations authorized under the 1997 Plan, as the Committee deems necessary
or appropriate. All decisions made by the Committee shall be final, conclusive,
and binding on all parties.
Eligibility. Only officers of the Company and its subsidiaries,
as designated by the Committee, are eligible to participate under the 1997 Plan.
Shares Subject to the 1997 Plan. The number of shares of Common Stock
for which non-qualified stock options may be granted under the 1997 Plan, when
added to all outstanding, unexpired options under the 1997 Plan and the
Company's other employee benefit plans, may not exceed 20 percent of the shares
of Common Stock outstanding on the date of grant. In determining the number of
shares outstanding on the date of grant, the Committee shall include the number
of shares then issuable under any outstanding securities of the Company (other
than options) which are then exchangeable for or convertible into Common Stock.
The shares of Common Stock issuable under the 1997 Plan may be authorized and
unissued shares or treasury shares.
11
<PAGE>
As of April 1, 1997, there were (i) _________ shares of Common Stock
outstanding, (ii) _________ shares issuable upon conversion or exercise of
outstanding PRIDES, Convertible Debentures and warrants, and (iii) outstanding
options to purchase _________ shares of Common Stock under the Company's
existing employee benefit plans. Therefore, as of April 1, 1997, Conseco would
have been permitted to grant options under the 1997 Plan to purchase an
aggregate of _________ shares of Common Stock. This number represents the amount
by which 20 percent of the sum of the shares outstanding plus shares issuable
upon conversion (items (i) and (ii) above) exceeds the number of outstanding
stock options. Non-qualified stock options may also be granted under the 1994
Plan. As of the date of this Proxy Statement, _________ shares remained
available for grants and awards under the 1994 Plan. Grants of non-qualified
options under the 1994 Plan are not subject to the 20 percent limitation
contained in the 1997 Plan.
Maximum Awards. The maximum number of shares of Common Stock that may
be subject to options granted under the 1997 Plan to an individual optionee
during any calendar year cannot exceed the sum (subject to adjustment in the
event of stock dividends, stock splits and certain other events) of (a)
1,000,000 plus (b) the number of shares (not to exceed 3,000,000) which may be
issued pursuant to an option granted under a Reload Program as described below,
plus (c) the number of options provided for in an employment contract that has
been approved by a vote of the shareholders. As an inducement to holders of
non-qualified stock options to exercise those options significantly before their
expiration date, the Committee may offer a Reload Program to such holders. Under
the Reload Program, new options may be granted for a number of shares equal to
(a) the sum of (i) the total exercise price of the prior options exercised in
the Reload Program plus (ii) the taxes incurred by the holder as a result of
such exercise (deemed to be 45% of the taxable income resulting from such
exercise) divided by (b) the exercise price per share of the newly granted
option.
Stock Options. The Committee may grant awards in the form of options to
purchase shares of 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. Each option will be a non-qualified 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.
Agreements. Each award under the 1997 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
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
1997 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 1997 Plan in any respect, except that the Board may not, without approval of
the shareholders of the Company, amend the 1997 Plan so as to (i) increase the
limitation on the number of shares of Common Stock which may be issued under the
1997 Plan or change the option exercise price; (ii) modify the requirements as
to eligibility for participation; or (iii) materially increase the benefits
accruing to participants under the 1997 Plan. No amendment or termination of the
1997 Plan shall, without the consent
12
<PAGE>
of the optionee or participant in the 1997 Plan, alter or impair the rights of
such person under any options theretofore granted under the 1997 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 1997 Plan), all
outstanding options 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 option, cash in an amount equal to the excess of
(i) the higher of (x) the Fair Market Value (as defined in the 1997 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 option. 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 1997 Plan if: (i) any person becomes the beneficial owner,
directly or indirectly, of securities of Conseco representing 25 percent or more
of the combined voting power of Conseco'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 Conseco 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: (i) 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 (ii) any such person
becomes, with the approval of the Board of Directors of Conseco, the beneficial
owner of securities of Conseco representing 25 percent or more but less than 50
percent of the combined voting power of Conseco'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 SEC 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 Conseco, 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 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, gain on the
shares used to pay the option price will be deferred until the substituted
shares received are later sold.
13
<PAGE>
Effect of Restrictions. Under general tax rules, if the shares received
on exercise of non-qualified options 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.
Section 162(m) 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 is limited to no more than $1,000,000 per year. However, Section 162(m)
of the Code provides an exception to the deductibility limitation. The 1997 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 granted under the 1997 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 1997 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 1997 Plan will be effective only upon
approval by the Company's shareholders and (c) the 1997 Plan limits the maximum
number of options that can be granted to any executive for any calendar year to
the sum (subject to adjustment for stock splits, etc.) of (i) 1,000,000, plus
(ii) the number of shares (not to exceed 3,000,000) which may be issued pursuant
to an option granted under a Reload Program, plus (iii) options provided for in
an employment contract that has been approved by a vote of the shareholders. Any
options 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.
Other Deductibility Limits. Awards under the 1997 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 25% excise tax on, and the Company will be denied
a deduction for, any "excess parachute payment."
No grants have been made under the 1997 Plan. The closing sales price
of the Common Stock on March 20, 1997, as reported on the New York Stock
Exchange, was $37.625 per share.
14
<PAGE>
EXECUTIVE COMPENSATION, RELATED PARTY TRANSACTIONS
AND OTHER INFORMATION
Report of the Compensation Committee on Executive Compensation
The Compensation Committee of the Board of Directors reviews and
approves compensation plans in which Conseco's officers and directors are
entitled to participate, the terms of employment contracts with Conseco's senior
executive officers and the annual cash bonuses paid to Conseco's executive vice
presidents. The Compensation Committee also administers the 1994 Stock Plan, the
1997 Plan, Deferred Compensation Program and other incentive plans. The
Compensation Committee is currently composed of 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 (three percent)
of the Company's consolidated pre-tax net profits for the year (before deduction
of the bonus payable to the CEO under the CEO Contract). For 1996, such
consolidated pre-tax net profits were $452.5 million, resulting in a bonus to
the CEO of $13,576,436.
Conseco'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. In 1994, the Compensation
Committee adopted the Performance-Based Compensation Bonus Plan for Executive
Vice Presidents (the "Bonus Plan") under which cash bonuses for the EVPs are
determined by a formula in compliance with Section 162(m) of the Internal
Revenue Code. The Bonus Plan was approved by the shareholders at the 1994 Annual
Meeting of Shareholders. The Compensation Committee has the sole discretion,
taking into account such subjective factors or other matters as they believe are
appropriate in the best interests of Conseco and its shareholders, to decrease
the bonus otherwise payable to an EVP under the Bonus Plan, if the CEO
recommends such a decrease.
The Bonus Plan provides for annual performance-based cash bonuses
determined based upon a percentage of Conseco'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). Under the Bonus Plan, each of the
EVPs was entitled to receive for 1996 a performance-based cash bonus equal to
one percent of the consolidated pre-tax net profits of Conseco. Such percentage
was determined based upon the average return on equity ("ROE") of Conseco for
the two years ending December 31, 1995 compared to the average ROE of all
publicly-held life and health insurance companies for the same period (the "ROE
Ratio"). Because the ROE Ratio was greater than 200% for such two-year period
the EVPs were entitled to a bonus equal to one percent of the consolidated
pre-tax net profits of Conseco. The Compensation Committee adopted the one
percent level for 1996 bonuses as provided for by the formula in the Bonus Plan
based upon its subjective belief that providing significant awards to the EVPs
for Conseco's level of pre-tax net profits would provide appropriate incentives
to the EVPs to contribute to the performance of Conseco. The consolidated
pre-tax net profits of Conseco for 1996 were $471.4 million (before deduction of
bonuses payable to the EVPs and CEO), resulting in a bonus to each EVP of
$4,714,040 for 1996. Pursuant to the Bonus Plan, the bonuses for 1997 will be up
to one percent of the consolidated pre-tax net profits of the Company depending
upon the ROE Ratio for the three years ending December 31, 1996 and subject to
downward adjustment by the Compensation Committee as described above.
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 Common Stock on
the date of grant, they are an effective incentive for officers to create value
for the Company's 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.
15
<PAGE>
Options have been granted periodically 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. 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.
In March 1996, the Board of Directors approved an option exercise
Reload Program under which the CEO and the EVPs exercised outstanding vested
stock options to purchase 3,111,584 shares of Common Stock. The options
exercised would otherwise have remained exercisable until the years 2000 through
2002. As a result of the exercise, the Company will be able to realize a tax
deduction of approximately $45 million, equal to the aggregate tax gain
recognized by the executives as a result of the exercise. No cash was either
received or paid by the participants in the program; participants paid for the
exercised options by tendering approximately 320,000 previously owned shares and
Conseco withheld approximately 1,284,000 shares from the exercise proceeds to
cover federal and state taxes owed by the executives as a result of the exercise
transaction. As part of the inducement to exercise the options, the Compensation
Committee also granted new options at the current market price to the CEO and
the EVPs equal to the number of shares surrendered and withheld for taxes.
Net of withheld shares, the participants received 1,508,000 shares of
Common Stock in the program. As a result of the program, the number of shares
owned by executives increased and the dilution attributable to stock options
decreased. The program also made it possible for the executives to avoid having
to sell a large number of shares in the open market to pay the tax obligations
generated by the option exercise, thereby eliminating a potentially adverse
effect on the market price of the Common Stock. No other options were granted in
1996 to the CEO or the EVPs.
The Compensation Committee believes options previously granted provided
appropriate incentives to the CEO and the EVPs to make significant contributions
to increases in the market capitalization of Conseco. The Compensation Committee
desired to continue such incentives.
The CEO, EVPs and outside Directors are eligible to receive annual
stock unit awards under the 1994 Stock Plan. The total amount awarded by Conseco
in any year, together with all prior stock unit awards under the 1994 Stock Plan
and all similar awards under the Deferred Compensation Program since January 1,
1989, may not exceed Conseco's consolidated total net gains from the sale of
investments since January 1, 1989. Conseco'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 percent of his or her salary
and bonus compensation for such year, unless Conseco's fully diluted earnings
per share (reduced by the fully diluted earnings per share attributable to gains
or losses from the sale of investments) for such year exceed 110 percent of such
earnings per share for the preceding year, in which case the amount awarded may
not exceed the greater of $30,000 or 20 percent of the participant's salary, fee
and bonus compensation for the year. The awards are converted each year to units
representing shares of Common Stock by dividing the amount of the awards by the
average market price per share for the Common Stock for the year. Each award
becomes vested only if the participant remains employed with Conseco for five
years after the award or dies, becomes disabled or attains age 60 while so
employed, or upon a change of control of Conseco. See -- Employment Contracts
and Change-In-Control Arrangements for the definition of change of control.
COMPENSATION COMMITTEE
James D. Massey, Chairman
David R. Decatur, M.D.
M. Phil Hathaway
Dennis E. Murray, Sr.
16
<PAGE>
Performance Graph
The Performance Graph compares Conseco's cumulative total shareholder
return on its Common Stock for a five-year period (December 31, 1991 to December
31, 1996) with the cumulative total return of the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500 Index") and the Dow Jones Life
Insurance Index. The comparison for each of the periods assumes that $100 was
invested on December 31, 1991 in each of the Common Stock, the stocks included
in the S&P 500 Index and the stocks included in the Dow Jones Life Insurance
Index. Conseco has been included in the S & P 500 Index since January 15, 1997.
<TABLE>
<CAPTION>
Comparison of Five-Year Cumulative Total Return
Among Conseco, S&P 500 Index and Dow Jones Life Insurance Index
[Performance Graph]
Measurement DJ Life S & P 500
Period Conseco, Inc. Insurance Index Index
------ ------------- --------------- -----
<S> <C> <C> <C>
1991 100 100 100
1992 151 131 108
1993 181 130 118
1994 142 117 120
1995 207 163 165
1996 423 215 203
</TABLE>
<TABLE>
<CAPTION>
Five-Year
Average
Annual
Total
1991 1992 1993 1994 1995 1996 Return
---- ---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Conseco, Inc. 100 151 181 142 207 423 33.4%
DJ Life Insurance Index 100 131 130 117 163 215 16.5%
S & P 500 Index 100 108 118 120 165 203 15.2%
</TABLE>
17
<PAGE>
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 Conseco, and the
other four most highly compensated executive officers of Conseco in 1996
(collectively, the "Named Officers").
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation Awards
------------------- Number of
Securities
Underlying
Restricted Options/ All Other
Stock SARs Compen-
Name and Principal Position Year Salary Bonus Other(1) Awards(2) (in shares)(3) sation(4)
--------------------------- ---- ------ ----- -------- --------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Stephen C. Hilbert 1996 $250,000 $13,576,436 $135,594 $ 819,240 $3,498
Chairman of the Board, 1995 250,000 7,416,286 152,751 2,355,190 1,000,000 3,174
President and 1994 250,000 9,481,116 166,649 768,371 5,688,000 4,134
Chief Executive Officer
Ngaire E. Cuneo 1996 250,000 4,714,040 48,080 1,129
Executive Vice President, 1995 250,000 2,564,186 864,557 400,000 959
Corporate Development 1994 250,000 2,504,608 217,506 600,000 752
Rollin M. Dick 1996 250,000 4,714,040 245,800 23,700
Executive Vice President and 1995 250,000 2,564,186 864,557 400,000 15,167
Chief Financial Officer 1994 250,000 2,504,608 217,506 1,688,000 11,057
Donald F. Gongaware 1996 250,000 4,714,040 245,800 17,357
Executive Vice President and 1995 250,000 2,564,186 864,557 400,000 10,097
Chief Operations Officer 1994 250,000 2,504,608 217,506 1,528,000 9,170
Lawrence W. Inlow 1996 250,000 4,714,040 245,800 11,149
Executive Vice President and 1995 250,000 2,564,186 864,557 400,000 5,269
General Counsel 1994 250,000 2,504,608 217,506 1,288,000 4,332
</TABLE>
(1) Amounts for 1996, 1995 and 1994 include $116,470, $116,470 and
$120,429, respectively, of 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 1996, 1995 or 1994
which is required to be listed under SEC rules concerning executive
officer and director compensation disclosure.
(2) The amounts shown for 1996 in this column represent the value of units
(each unit represents one share of Common Stock) awarded for 1996 under
the 1994 Stock Plan based on the market value of the Common Stock at
March 31, 1997, the date of award. The amounts shown for 1995 in this
column represent the value of stock units awarded for 1995 under the
1994 Stock Plan based on the market value of the Common Stock at March
31, 1996, the date of award. The amounts shown for 1994 in this column
represent the value of stock units awarded for 1994 under the 1994
Stock Plan based on the market value of the Common Stock at March 31,
1995, the date of the award. Dividends are paid on the stock units.
Units awarded to Messrs. Dick and Gongaware vest immediately pursuant
to the terms of the 1994 Stock Plan. The table below shows the
aggregate holdings of stock units at April 10, 1997 as if outstanding
on December 31, 1996, the aggregate value of such stock units as of
December 31, 1996 for each Named Officer and the number of such stock
units vested (although in each case the distribution of the
Common Stock represented by such units has been deferred at the
election of the Named Officer).
18
<PAGE>
<TABLE>
<CAPTION>
Aggregate
Units in Aggregate
Participant's Value at Vested
Account 12/31/96 Units
------- -------- ----
<S> <C> <C> <C>
Stephen C. Hilbert 1,684,110 $53,207,350 1,013,555
Ngaire E. Cuneo 166,544 5,261,750 --
Rollin M. Dick 241,248 7,621,929 241,248
Donald F. Gongaware 476,146 15,043,238 476,146
Lawrence W. Inlow 414,168 13,085,120 226,479
</TABLE>
Stock units previously awarded to Messrs. Hilbert and Inlow and Ms.
Cuneo will vest in the next three years conditioned upon continued
employment with Conseco as follows:
<TABLE>
<CAPTION>
12/31/97 12/31/98 12/31/99
-------- -------- --------
<S> <C> <C> <C>
Stephen C. Hilbert 205,418 191,034 77,078
Ngaire E. Cuneo 9,022 63,958 21,819
Lawrence W. Inlow 40,902 53,222 21,819
</TABLE>
(3) No stock appreciation rights have been granted.
(4) For 1996, the amounts reported in this column represent amounts paid
for the Named Officers for group and individual life insurance premiums
and the employer contribution under the ConsecoSave Plan. The table
below shows such amounts for each Named Officer.
<TABLE>
<CAPTION>
Life ConsecoSave
Insurance Group Life Plan
Premiums Insurance Contribution
-------- --------- ------------
<S> <C> <C> <C>
Stephen C. Hilbert $3,210 $ 288 $ --
Ngaire E. Cuneo 955 174 --
Rollin M. Dick 12,940 1,260 9,500
Donald F. Gongaware 7,155 702 9,500
Lawrence W. Inlow 1,475 174 9,500
</TABLE>
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 percent 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 Conseco, Conseco made a
$1,900,000 interest-free loan to Mr. Hilbert. See -- Certain Relationships and
Related Transactions.
Conseco has employment agreements with Messrs. Dick, Gongaware and
Inlow and Ms. Cuneo for terms ending December 31, 2001. 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 Conseco (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 Conseco purchase all Common Stock and all
19
<PAGE>
options to purchase Common Stock, without deduction of the applicable exercise
prices, held by such person at a price per share equal to the highest market
price in the preceding six months.
As defined in the employment agreement for Mr. Hilbert, "change in
control" means a change in 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. A "change in control" shall be deemed to have occurred if
and when: (i) any person is or becomes a beneficial owner, directly or
indirectly, of securities of Conseco representing 25 percent or more of the
combined voting power of Conseco's then outstanding securities; or (ii)
individuals who were members of the Board of Directors immediately prior to a
meeting of the shareholders of Conseco involving a contest for the election of
directors shall not constitute a majority of the Board of Directors following
such election. The employment agreements for the remaining Named Officers
contain the same "change in control" definition except no change in control
shall have occurred pursuant to: (i) a Rule 13e-3 transaction under the 1934
Act; or (ii) any person becoming, with the approval of the Board of Directors of
Conseco, the beneficial owner of 25 percent or more but less than 50 percent of
the combined voting power of Conseco's then outstanding securities entitled to
vote with respect to the election of Conseco's Board of Directors and such
person's ownership is for investment purposes.
See the discussion under the table headed Option Grants in 1996
concerning change-in-control provisions related to stock options. The stock
units disclosed in footnote (2) to the Summary Compensation Table must be paid
out following a change in control. For stock units under the 1994 Stock Plan,
the definition of change in control is the same as that disclosed below for the
options granted in 1996. For stock units awarded under the Deferred Compensation
Program, a change in control will be deemed to have occurred if: (i) any
"person," including a "group" as determined in accordance with Section 13(d)(3)
of the 1934 Act, is or becomes the beneficial owner, directly or indirectly, of
securities of Conseco representing 30 percent or more of the combined voting
power of Conseco's then outstanding securities; (ii) as a result of, or in
connection with, any tender offer or exchange offer, merger or other business
combination, sale of assets or contested election, or any combination of the
foregoing transactions (a "Transaction"), the persons who were directors of
Conseco before the Transaction shall cease to constitute a majority of the Board
of Directors of Conseco or any successor to Conseco; (iii) Conseco is merged or
consolidated with another corporation and, as a result of the merger or
consolidation, less than 70 percent of the outstanding voting securities of the
surviving or resulting corporation shall then be owned, in the aggregate, by the
former stockholders of Conseco, other than (a) affiliates within the meaning of
the 1934 Act or (b) any party to the merger or consolidation; (iv) a tender
offer or exchange offer is made and consummated for the ownership of securities
of Conseco representing 30 percent or more of the combined voting power of
Conseco's then outstanding voting securities; or (v) Conseco transfers
substantially all of its assets to another corporation which is not a
wholly-owned subsidiary of Conseco.
20
<PAGE>
Stock Options
The following table sets forth certain information concerning the
exercise in 1996 of options to purchase Common Stock by the five Named Officers
and the unexercised options to purchase Common Stock held by such individuals at
December 31, 1996.
<TABLE>
<CAPTION>
Aggregated Option Exercises in 1996 and Year-End Option Values
Number of Securities
Underlying UnexercisedValue of Unexercised
Options (in shares) atIn-the-Money Options at
Number of December 31, 1996 December 31, 1996(2)
Shares Acquired Value ----------------- --------------------
Name on Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen C. Hilbert 1,600,000 $23,450,000 2,310,740 6,196,500 $41,092,299 $104,767,766
Ngaire E. Cuneo 71,584 706,892 717,996 858,500 14,012,593 15,162,891
Rollin M. Dick 480,000 7,035,000 837,300 1,896,500 15,072,534 32,158,391
Donald F. Gongaware 480,000 7,035,000 1,017,300 1,736,500 20,621,597 29,473,391
Lawrence W. Inlow 480,000 7,035,000 1,317,300 1,496,500 29,892,534 25,445,891
</TABLE>
(1) The value realized equals the aggregate amount of the excess of the
fair market value on the date of exercise of $16.22 (the average of the
high and low sale prices of the Common Stock as reported by the New
York Stock Exchange ("NYSE") for the exercise date) over the relevant
exercise prices which ranged from $1.56 to $6.34 per share, the
market values on the dates the options were originally granted. The
options exercised were granted from 1990 to 1992.
(2) The value is calculated based on the aggregate amount of the excess of
$31.59 (the average of the high and low sale prices of the Common Stock
as reported by the NYSE for the last business day of 1996) over the
relevant exercise prices.
21
<PAGE>
The following table sets forth certain information concerning options
to purchase Common Stock granted in 1996 to the five Named Officers.
<TABLE>
<CAPTION>
Option Grants in 1996
Individual Grants
- ---------------------------------------------------------------------------------------------------------
% of Total
Options
Number of Granted to Per Share Grant Date
Options Employees Exercise Expiration Present
Name Granted in 1996 Price(1) Date Value(2)
---- ------- ------- -------- ---- --------
<S> <C> <C> <C> <C> <C>
Stephen C. Hilbert 819,240(3) 20.9% $ 16.22 3/12/06 $3,400,993
Ngaire E. Cuneo 48,080(3) 1.2 16.22 3/12/06 199,599
Rollin M. Dick 245,800(3) 6.3 16.22 3/12/06 1,020,414
Donald F. Gongaware 245,800(3) 6.3 16.22 3/12/06 1,020,414
Lawrence W. Inlow 245,800(3) 6.3 16.22 3/12/06 1,020,414
</TABLE>
(1) Exercise price is the average of the high and low sales prices as
reported by the NYSE for the date of grant.
(2) 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: 28% volatility (which was the implied volatility of the
Common Stock at the date of grant); a 6.0% 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 September 2000); a .2% dividend yield
(which was the dividend yield on the date of grant); and a four and
one-half year average life for the options (which was the approximate
average life of all previously issued options). 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. Conseco's use of this model does not constitute an
acknowledgment that the resulting values are accurate or reasonable.
The actual gain executives will realize on the options will depend on
the future price of Common Stock and cannot be accurately forecasted by
application of an option pricing model.
(3) The options reported are non-qualified stock options which vested six
months after the date of grant. The options were granted as part of the
Company's option exercise program. See -- Report of the Compensation
Committee on Executive Compensation.
The options granted in 1996 were under the 1994 Stock Plan. All
outstanding options under the 1994 Stock Plan immediately vest and become
exercisable or satisfiable upon the occurrence of a Change of Control. The
Compensation Committee, in its discretion, may determine that upon the
occurrence of such a transaction, each option 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
option, cash in an amount equal to the excess of: (i) the higher of (x) the Fair
Market Value (as defined in the 1994 Stock Plan) of such shares 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
option. If the consideration offered to shareholders of Conseco in any
transaction described in this paragraph consists of anything other than cash,
the Compensation 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 Conseco and such holder following a Change of Control. A
"Change of Control" of Conseco is deemed to occur under the 1994 Stock Plan if:
(i) any person, becomes the beneficial owner, directly or indirectly, of
securities of
22
<PAGE>
Conseco representing 25 percent or more of the combined voting power of
Conseco'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 Conseco 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: (i) 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 (ii) any such person becomes, with the
approval of the Board of Directors of Conseco, the beneficial owner of
securities of Conseco representing 25 percent or more but less than 50 percent
of the combined voting power of Conseco'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 SEC 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
Conseco, nor in connection with or as a participant in any transaction having
such purpose or effect," or words of comparable meaning and import.
In the event of a Control Termination of the employment agreement of a
Named Officer (see -- Employment Contracts and Change-in-Control Arrangements)
each Named Officer may elect, within 60 days after such Control Termination, to
receive a lump sum payment from Conseco in return for surrender by the Named
Officer of all or any portion of the options then outstanding held by the Named
Officer to purchase shares of Common Stock ("Unexercised Options"). Unexercised
Options include all outstanding options whether or not then exercisable. For
each Unexercised Option to purchase one share of Common Stock, Conseco must pay
to the Named Officer an amount equal to the highest per share fair market value
of Common Stock on any day during the period beginning six months prior to the
date of the Named Officer's election pursuant to his or her employment
agreement. To compensate the Named Officer for loss of the potential future
speculative value of the Unexercised Options, no deduction may be made for the
exercise price per share for each Unexercised Option from the amount to be
received by the Named Officer.
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. Directors are eligible to participate in and receive annual awards of
up to $30,000 under the 1994 Stock Plan. For 1996, 714 stock units were awarded
under the 1994 Stock Plan to each of Dr. Decatur and Messrs. Hathaway, Massey
and Murray. The Common Stock represented by the stock unit awards for 1996 had a
market value of $______ on March 31, 1997 (the date of award). Such stock unit
awards vest (assuming the Director continues in office) upon the earlier of: (i)
the Director attaining the age of 60; (ii) the total and permanent disability of
the Director; (iii) the death of the Director; (iv) the occurrence of a Change
of Control (as defined in the second preceding paragraph); or (v) the fifth
anniversary of the end of the fiscal year for which the award was made. The 1994
Stock Plan also provides for an annual grant to each non-employee director of
options to purchase 5,000 shares of Common Stock on the date of the annual
meeting of shareholders at a price equal to the market price of Common Stock on
the date of grant. Dr. Decatur and Messrs. Hathaway, Massey and Murray each
received such a grant in 1996. The options vest 20 percent per year on each of
the first five anniversary dates of grant, subject to acceleration upon a Change
of Control.
23
<PAGE>
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
The current members of the Compensation Committee are Messrs. Hathaway,
Massey and Murray, each of whom served on the Compensation Committee throughout
1996, and Dr. Decatur, who was appointed to the Compensation Committee in May
1996. Mr. Massey serves as the Chairman of the Compensation Committee. Messrs.
Massey and Murray and Dr. Decatur are participants in the Director, Executive
and Senior Officer Stock Purchase Plan. See -- Certain Relationships and Related
Transactions.
Mr. Murray was a limited partner of Conseco Capital Partners II, L.P.
("Partnership II"), as was each Named Officer. In September 1996, each of them
received distributions from Partnership II in connection with Conseco's purchase
of American Life Holdings, Inc. ("ALH"). See -- Certain Relationships and
Related Transactions.
Certain Relationships and Related Transactions
In April 1996, Conseco adopted a Director, Executive and Senior Officer
Stock Purchase Plan to encourage direct, long-term ownership of Conseco stock by
Directors, executive officers and certain senior officers. Under the Plan, up to
4 million shares of Common Stock could be purchased in open market or negotiated
transactions with independent parties. Participants could elect to purchase up
to 50 percent of their participation in the form of PRIDES. Purchases were
financed by personal loans to the participants from a bank. Such loans were
collateralized by the Conseco stock purchased. Conseco guaranteed the loans, but
has recourse to the participants if it incurs a loss under the guarantee. In
addition, Conseco has agreed to provide loans to the participants for the
interest payments under the bank loans. A total of 22 Directors and officers of
Conseco elected to participate in the Plan and purchased all 4 million shares of
Common Stock offered under the Plan. At December 31, 1996, the bank loans
guaranteed by Conseco totaled $83.4 million and the loans provided by Conseco
totaled $2.2 million. The Common Stock which collateralizes the bank loans had a
fair value of $144.5 million on February 6, 1997. On February 18, 1997, the Plan
was expanded to permit the purchase of an additional 4 million shares. Under the
expanded Plan, Conseco may guarantee up to $250 million of bank loans (including
the current $83.4 million) to be made to participants. As of December 31, 1996,
the outstanding principal balances of the interest-payment loans provided by
Conseco to the Directors and the Named Officers (or to trusts or limited
partnerships established by them) were as follows: Mr. Hilbert, $752,847; Ms.
Cuneo, $114,076; Mr. Dick, $456,269; Mr. Gongaware, $228,134; Dr. Decatur,
$23,745; Mr. Inlow, $229,498; Mr. Massey, $57,600; and Mr. Murray, $261,469.
Such loans bear interest at the variable rate per annum equal to the lowest
interest rate per annum being paid by Conseco under its most senior borrowing
facility , and as of December 31, 1996, the interest rate on such loans was
5.865%. As of December 31, 1996, the outstanding principal balances of the bank
loans to the Directors and Named Officers (or to trusts or limited partnerships
established by them) which are guaranteed by Conseco were as follows: Mr.
Hilbert, $27,516,975; Ms. Cuneo, $4,169,300; Mr. Dick, $16,676,840; Mr.
Gongaware, $8,338,418; Dr. Decatur, $833,913; Mr. Inlow, $8,338,703; Mr. Massey,
$2,084,677; and Mr. Murray, $9,589,174.
In January 1994, the Named Officers and Mr. Murray made personal
commitments to invest as limited partners in Partnership II. Partnership II
completed the acquisition of ALH in September 1994. In connection with the
purchase of shares of ALH common stock by the Company on September 30, 1996, the
Named Officers and Mr. Murray received distributions from Partnership II in the
following approximate amounts: Mr. Hilbert, $5,097,318; Mr. Murray, $1,461,230
(including amounts as to which Mr. Murray disclaims beneficial ownership); Mr.
Dick, $1,359,285; Mr. Gongaware, $1,359,285; Mr. Inlow, $1,359,285; and Ms.
Cuneo, $679,642. On September 30, 1996, a charitable foundation of which Mr.
Dick is a trustee also sold to the Company 23,582 shares of ALH common stock for
$542,386, and on August 30, 1996, the same charitable foundation sold to the
Company 565 shares of ALH 1994 Series Preferred Stock for $632,737.
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 was evidenced by a secured promissory note. Such note was
replaced with an unsecured promissory note dated May 13, 1996 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
24
<PAGE>
the Company. The Company accepted the new note because of Mr. Hilbert's
increased net worth since February 1988. The note includes a covenant not to
compete which continues in effect until maturity or until the note is paid in
full, if earlier.
BOARD MEETINGS AND COMMITTEES
During 1996, the Board of Directors held eight meetings. All Directors
attended at least 75 percent of the aggregate meetings of the Board and the
committees on which they served.
The Board has a Compensation Committee which met or took action by
written consent on four occasions during 1996. The Compensation Committee
reviews and approves compensation plans in which officers and directors are
entitled to participate, the terms of employment contracts with senior executive
officers and the annual cash bonuses paid to executive vice presidents. The
Compensation Committee also administers the 1994 Stock Plan and Conseco's other
incentive plans. The Board also has an Audit Committee, which held two meetings
in 1996. The Audit Committee oversees Conseco's accounting and financial
reporting activities, including meeting with Conseco'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
on pages 8 and 9. 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.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires Conseco's Directors and executive officers, and each person who is the
beneficial owner of more than 10 percent of any class of Conseco'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 Conseco.
Specific due dates for these reports have been established by the SEC, and
Conseco is required to disclose in this Proxy Statement any failure by such
persons to file such reports for fiscal year 1996 by the prescribed dates.
Officers, Directors and greater than ten percent beneficial owners are required
by SEC regulations to furnish Conseco with copies of all reports filed with the
SEC pursuant to Section 16(a) of the 1934 Act. To Conseco's knowledge, based
solely on review of the copies of reports furnished to Conseco and written
representations that no other reports were required, all filings required
pursuant to Section 16(a) of the 1934 Act applicable to Conseco's officers,
Directors and greater than 10 percent beneficial owners were made for the year
ended December 31, 1996, except for two late filings by Ngaire E. Cuneo relating
to two transactions and one late filing by Donald F. Gongaware relating to one
stock option exercise.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P. served as the independent accountants to audit
the financial statements of Conseco for 1996 and have been selected by the Board
of Directors to serve as such for 1997. Representatives of Coopers & Lybrand
L.L.P. 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 1998 Annual Meeting must be
received by Conseco by December 10, 1997.
25
<PAGE>
ANNUAL REPORT
Conseco's Annual Report for 1996 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
Lawrence W. Inlow, Secretary
April 10, 1997
G:\LEGAL\PROXIES\PROXY97.CNC
26
<PAGE>
EXHIBIT A
CONSECO, INC.
1997 NON-QUALIFIED STOCK OPTION PLAN
ARTICLE I.
Purpose
The purpose of the CONSECO, INC. 1997 NON-QUALIFIED STOCK OPTION 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 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. 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.
ARTICLE II.
Definitions
The following definitions shall be applicable throughout the Plan
unless specifically modified by any paragraph:
(a) "Board" means the Board of Directors of the Company.
(b) 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
A-1
<PAGE>
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 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.
(c) "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.
(d) "Compensation Committee" means not less than two members of the
Board who are selected by the Board as provided in Article IV, Section 4.01.
(e) "Common Stock" means the common stock, no par value
per share, of the Company.
(f) "Company" means Conseco, Inc., an Indiana
corporation, and any successor thereto.
(g) "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.
(h) An "employee" means any person (including a Director) in an
employment relationship with the Company or any parent
A-2
<PAGE>
or subsidiary corporation (as defined in Section 424 of the Code).
(i) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(j) "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
Compensation Committee in such manner as it deems appropriate.
(k) "Holder" means an employee who has been granted an Option.
(l) "Option" means an Option granted under Article VII of the Plan and
includes only Options to purchase Common Stock which do not constitute Incentive
Stock Options under Section 422 of the Code.
(m) "Option Agreement" means a written agreement between the Company
and a Holder with respect to an Option.
(n) "Plan" means Conseco, Inc. 1997 Non-Qualified Stock Option Plan, as
amended from time to time.
(o) "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.
ARTICLE III.
Effective Date and Duration of the Plan
The Plan shall be effective as of February 18, 1997, the date of its
adoption by the Board, provided the Plan is approved by the shareholders of the
Company within twelve months thereafter. The Plan shall remain in effect until
all Options granted under the Plan have been satisfied or expired or until the
Plan is terminated in accordance with Article IX.
A-3
<PAGE>
ARTICLE IV.
Administration
Section 4.01 Composition of Compensation Committee. The Plan shall be
administered by a committee which shall be (i) appointed by the Board; and (ii)
constituted solely of "outside directors," within the meaning of Section 162(m)
of the Code and applicable interpretive authority thereunder.
Section 4.02 Powers. Subject to the provisions of the Plan, the
Compensation Committee shall have sole authority, in its discretion, to
determine which employees shall receive an Option, the time or times when such
Option shall be made, and the number of shares of Common Stock which may be
issued under each Option. In making such determinations the Compensation
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 Compensation Committee in its
discretion shall deem relevant.
Section 4.03 Additional Powers. The Compensation 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 Compensation 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, to determine the terms, restrictions
and provisions of each Award, and to make all other determinations necessary or
advisable for administering the Plan. The Compensation Committee may correct any
defect or supply any omission or reconcile any inconsistency in any agreement
relating to an Option in the manner and to the extent it shall deem expedient to
carry it into effect. The determinations of the Compensation Committee on the
matters referred to in this Article IV shall be conclusive.
ARTICLE V.
Grant of Options;
Shares Subject to the Plan
Section 5.01 Stock Option Limits. The Compensation Committee may from
time to time grant Options 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 VIII, the aggregate number of shares of Common
Stock for which Options may be granted under the Plan, when added to all
outstanding, unexpired options under the Company's other employee benefit plans,
shall not exceed 20% of the shares of Common Stock outstanding on the date of
grant. In determining the number of shares outstanding on the date of grant, the
Compensation Committee shall include the number of shares then issuable under
any outstanding securities of the Company (other than options) which
A-4
<PAGE>
are then exchangable for or convertible into Common Stock. Notwithstanding any
provision in the Plan to the contrary, the maximum number of shares of Common
Stock that may be subject to Options under Article VII hereof granted to any one
individual during any calendar year is: the sum (subject to adjustment in the
same manner as provided in Article VIII with respect to shares of Common Stock
subject to Options then outstanding) of (a) 1,000,000 plus (b) the number of
shares (not to exceed 3,000,000) issued under a Reload Program as described
below, plus (c) the number of options provided for in an employment contract
that has been approved by a vote of the shareholders. As an inducement to
holders of non-qualified stock options to exercise those options significantly
before their expiration date, the Compensation Committee may offer a Reload
Program to such holders. Under the Reload Program, new Options may be granted
for a number of shares equal to (a) the sum of (i) the total exercise price of
the prior options exercised in the Reload Program plus (ii) the taxes incurred
by the holder as a result of such exercise (deemed to be 45% of the taxable
income resulting from such exercise) divided by (b) the exercise price per share
of the newly granted Option. 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 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 interpretive authority
thereunder, any shares subject to Options that are canceled or repriced.
Section 5.02 Stock Offered. The stock to be offered pursuant to the
grant of an Option may be authorized but unissued Common Stock or Common Stock
previously issued and outstanding and reacquired by the Company.
ARTICLE VI.
Eligibility
Options may be granted only to persons who, at the time of grant, are
employees. Options 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.
ARTICLE VII.
Stock Options
Section 7.01 Option Period. The term of each Option shall be as
specified by the Compensation 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 Compensation Committee.
A-5
<PAGE>
Section 7.03 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 Compensation Committee from time to time
shall approve. 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 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
Compensation Committee shall in its sole discretion determine. The terms and
conditions of the respective Option Agreements need not be identical.
Section 7.04 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 Compensation 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 VIII.
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 Compensation
Committee.
Section 7.05 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.
A-6
<PAGE>
Section 7.06 Options in Substitution for Stock Options Granted by Other
Corporations. Options 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.
ARTICLE VIII.
Recapitalization or Reorganization
Section 8.01 Stock Dividends, etc. The shares with respect to which
Options 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
Option theretofore granted, the Company shall effect a subdivision or
consolidation of shares of Common Stock or the 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 Option 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 8.02 Recapitalizations. If the Company recapitalizes or
otherwise changes its capital structure, thereafter upon any exercise or
satisfaction, as applicable, of an Option theretofore granted the Holder shall
be entitled to (or entitled to purchase, if applicable) under such Option, in
lieu of the number of shares of Common Stock then covered by such Option, 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 Option.
Section 8.03 Change of Control. In the event of a Change of Control,
all outstanding Options shall immediately vest and become exercisable or
satisfiable, as applicable. The Compensation Committee, in its discretion, may
determine that upon the occurrence of a Change of Control, each Option
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 Option, 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
A-7
<PAGE>
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 Option. The provisions contained in the preceding
sentence shall be inapplicable to an Option granted within six (6) months before
the occurrence of a Change of Control if the Holder of such Option is subject to
the reporting requirements of Section 16(a) of the 1934 Act and such disposition
is not exempt under Rule 16b-3 but shall be applicable to such Option after the
expiration of six (6) months from the date of grant. If the consideration
offered to shareholders of the Company in any transaction described in this
paragraph consists of anything other than cash, the Compensation 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 8.04 Other Adjustments. 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 Option and not
otherwise provided for by this Article VIII, any outstanding Options and any
agreements evidencing such Options shall be subject to adjustment by the
Compensation Committee at its discretion as to the number and price of shares of
Common Stock or other consideration subject to such Options. 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 Compensation
Committee, whose determination shall be conclusive.
Section 8.05 Impact of Plan. The existence of the Plan and the Options
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 8.06 Shareholder Action. Any adjustment provided for in
Sections 8.01, 8.02, 8.03 and 8.04 above shall be subject to any required
shareholder action.
Section 8.07 Other. 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
A-8
<PAGE>
shall be made with respect to the number of shares of Common Stock subject to
Options theretofore granted or the purchase price per share.
ARTICLE IX.
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 Options 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 Option 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 for which Options may be
granted, except as provided in Article VIII;
(b) to change the Option price;
(c) to change the class of individuals eligible to receive Options or
materially increase the benefits accruing to employees and Directors under the
Plan;
(d) to extend the maximum period during which Options may
be granted under the Plan; or
(e) to modify materially the requirements as to eligibility for
participation in the Plan.
ARTICLE X.
Miscellaneous
Section 10.01 No Right To An Option. Neither the adoption of the Plan
by the Company nor any action of the Board or the Compensation Committee shall
be deemed to give an employee any right to be granted an Option to purchase
Common Stock except as may be evidenced by an Option or by an Option 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
Option.
Section 10.02 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
A-9
<PAGE>
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 10.03 Other Laws; Withholding. The Company shall not be
obligated to issue any Common Stock pursuant to any Option 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 Compensation 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 Options 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 Option 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 Option. Subject to such terms and conditions as the Compensation
Committee may impose, the Company shall have the right to retain, or the
Compensation Committee may, subject to such terms and conditions as it may
establish from time to time, permit Holders to elect to tender Common Stock
(including Common Stock issuable in respect of an Option) to satisfy, in whole
or in part, the amount required to be withheld.
Section 10.04 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 Option granted 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 10.05 Restrictions on Transfer. An Option 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 Option
Agreement. An option 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 10.03 hereof.
G:\LEGAL\PLAN\STOC-OPT.NEW
A-10
<PAGE>
Section 10.06 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
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 Option previously granted hereunder.
Section 10.07 Governing Law. This Plan shall be construed in
accordance with the laws of the State of Indiana.
A-11
<PAGE>
CONSECO, INC.
11825 NORTH PENNSYLVANIA STREET, CARMEL, IN 46032
PROXY FOR 1997 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
Ngaire E. Cuneo, Donald F. Gongaware and Stephen C. Hilbert, or any of them,
with full power of substitution, to vote all shares of common stock and shares
of Preferred Redeemable Increased Dividend Equity Securities, 7% PRIDES,
Convertible Preferred Stock which such person is entitled to vote at the Annual
Meeting of Shareholders of Conseco, Inc., to be held at the Ritz Charles, 12156
North Meridian Street, Carmel, Indiana, at 11:00 a.m. local time on May 13,
1997, and any adjournments thereof.
The proxies are hereby authorized to vote as follows:
1. Approval of an amendment to the Company's Articles of Incorporation to
increase the number of shares of authorized common stock from
500,000,000 to 1,000,000,000.
/ / FOR / / AGAINST / / ABSTAIN
2. Election of John M. Mutz as a Director for a two-year term expiring in
1999 and election of Rollin M. Dick, James D. Massey and Dennis E.
Murray, Sr. as Directors for three-year terms expiring in 2000.
/ / 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:)
________________________________________________________________________________
3. Approval of the adoption of the 1997 Non-qualified Stock Option Plan.
/ / 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 THROUGH 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 10, 1997.
Dated______________________
Signature(s)_______________
___________________________
___________________________
PLEASE DATE, SIGN, AND RETURN THIS PROXY PROMPTLY
