<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [ ]
Filed by a party other than the registrant [X]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
CONSECO, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Bowne of Chicago
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(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.:
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(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
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(1)Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE> 2
[CONSECO 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
/s/Lawrence W. Inlow
Lawrence W. Inlow, Secretary
April 10, 1997
Carmel, Indiana
<PAGE> 3
[CONSECO 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 183,193,029 shares of Common Stock and 2,177,500 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 for any purpose other than determining the presence of a quorum at
the Annual Meeting. As a result, abstentions from voting or broker non-votes
will have no effect on any matter submitted to the shareholders for a vote at
the Annual Meeting.
1
<PAGE> 4
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 15 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
NATURE OF OWNERSHIP
-----------------------
TITLE OF CLASS NAME AND ADDRESS(1) NUMBER PERCENT
- -------------- ------------------- ------ -------
<S> <C> <C> <C>
Five-Percent Owners:
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
and
Highbridge Capital Management, Inc.
767 Fifth Avenue
New York, New York 10153
Directors and Executive Officers:
Common Stock Ngaire E. Cuneo.......................................... 1,234,088(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......................................... 117,570(8) *
Common Stock Stephen C. Hilbert....................................... 8,404,562(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)................................................. 22,958,502(14) 11.9
</TABLE>
- ------------
(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.
2
<PAGE> 5
(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, 1,513,582 are owned by trusts as to which
he has voting and investment power, 60,000 are owned by a trust as to which
Mr. Hilbert's wife has sole 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 shares voting and investment power.
Mr. Hilbert expressly disclaims beneficial ownership of all shares owned by
the trust as to which his wife has sole voting and investment power and 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 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%.
3
<PAGE> 6
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 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 183,193,029 shares of Common
Stock, excluding treasury shares. In addition, 59,615,569 shares of Common Stock
were reserved for issuance as follows: 8,710,000 shares upon conversion of
outstanding PRIDES, 3,219,545 shares upon conversion of the Company's 6.5%
convertible subordinated debentures due 2005 (the "Convertible Debentures"),
31,453,502 shares upon exercise of options or warrants currently outstanding or
remaining to be granted under the Company's stock option plans, 3,084,917 shares
for issuance under other employee benefit plans and 13,145,605 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 to the Articles of Incorporation will be approved if the
number of votes for the amendment exceeds the number of votes against it. 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.
THE BOARD RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE AMENDMENT TO THE
ARTICLES OF INCORPORATION.
4
<PAGE> 7
TEXT OF AMENDMENT
If the shareholders approve the proposed amendment, the pertinent portion
of Section 1 of Article V of the Articles of Incorporation would be amended to
read as follows:
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)
5
<PAGE> 8
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 has 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
------------ -------- --------------------------------------- --------
<S> <C> <C> <C>
Nominees for Election as Directors:
John M. Mutz, 61.......................... 1997 President of PSI Energy, Inc. (electric 1999
utility) 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 2000
and 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 2000
President 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 2000
Ohio law firm of Murray & Murray Co.,
L.P.A. and its predecessor.
</TABLE>
6
<PAGE> 9
<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 1998
Chief 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, 1998
Corporate 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 1998
Group, 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.
</TABLE>
- ------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
7
<PAGE> 10
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 purposes of the 1997 Plan are: (i) 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; (ii) to
enhance the Company's ability to retain key personnel; and (iii) 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 1, 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 employees 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.
8
<PAGE> 11
As of April 1, 1997, there were: (i) 183,193,029 shares of Common Stock
outstanding; (ii) 12,629,545 shares issuable upon conversion or exercise of
outstanding PRIDES, Convertible Debentures and warrants; and (iii) outstanding
options to purchase 27,881,125 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 11,283,390 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 Stock Plan. As of the date of this Proxy Statement, 2,872,377 shares
remained available for grants and awards under the 1994 Stock Plan. Grants of
non-qualified options under the 1994 Stock 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: (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 as described below; plus (iii) 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 percent 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, the manner and
time of the option's exercise and the exercise price of the option. The exercise
price of an option may be less than the fair market value of Common Stock on the
date of grant; provided, however, that the exercise price of options granted to
the chief executive officer or the other four most highly compensated executive
officers of the Company shall be not less than the fair market value of the
Common Stock on the date of grant. 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 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); (iii) the
transferability of the Options to members of the immediate family of the holder
or others designated by the Committee; and (iv) 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 if such approval is required
under applicable law or stock exchange rule or in order for the 1997 Plan to
continue to comply with Section 162(m) of the Code. No amendment or termination
of the 1997 Plan shall, without
9
<PAGE> 12
the consent 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 Exchange 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 Securities and Exchange Commission ("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.
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
10
<PAGE> 13
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 April 1, 1997, as reported on the New York Stock Exchange,
was $39.00 per share.
REQUIRED VOTE
The 1997 Plan will be adopted if the number of votes for the adoption of
the 1997 Plan exceeds the number of votes against it. Space is provided in the
enclosed proxy card for shareholders to vote for or against the adoption of the
1997 Plan, or to abstain from voting. If the shareholder does not indicate a
choice with respect to this question, the enclosed proxy card will be voting for
approval of the adoption of the 1997 Plan.
THE BOARD RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE ADOPTION OF THE 1997
PLAN.
11
<PAGE> 14
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 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 the committee members
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 percent for such two-year
period the EVPs were entitled to a bonus for 1996 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
12
<PAGE> 15
compensation. 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.
13
<PAGE> 16
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.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG CONSECO, S&P 500 INDEX AND DOW JONES LIFE INSURANCE INDEX
<TABLE>
<CAPTION>
DJ LIFE
MEASUREMENT PERIOD INSURANCE S&P 500
(FISCAL YEAR COVERED) Conseco, Inc. 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
- -------------------------------------------------------------
Five-Year Average
Annual Total Return 33.4% 16.5% 15.2%
</TABLE>
14
<PAGE> 17
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
RESTRICTED SECURITIES UNDERLYING
STOCK OPTIONS/SARS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER(1) AWARDS(2) (IN SHARES)(3) COMPENSATION(4)
--------------------------- ---- -------- ----------- -------- ---------- --------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stephen C. Hilbert.............. 1996 $250,000 $13,576,436 $135,594 $2,345,556 819,240 $ 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 4,714,040 842,114 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 4,714,040 842,114 245,800 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 4,714,040 842,114 245,800 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 4,714,040 842,114 245,800 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).
<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.
15
<PAGE> 18
(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 INSURANCE GROUP LIFE CONSECOSAVE 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 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
Exchange 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 Exchange 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 Exchange 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
16
<PAGE> 19
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
Exchange 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.
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.
AGGREGATED OPTION EXERCISES IN 1996 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS (IN SHARES) AT IN-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.
17
<PAGE> 20
The following table sets forth certain information concerning options to
purchase Common Stock granted in 1996 to the five Named Officers.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS GRANTED PER SHARE GRANT DATE
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION PRESENT
NAME GRANTED 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 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
18
<PAGE> 21
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 Exchange 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 $25,446 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.
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.
19
<PAGE> 22
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 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
20
<PAGE> 23
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 6 and 7. 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 Exchange 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 SEC and the NYSE 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 Exchange 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 Exchange 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, one late filing by Donald F. Gongaware relating to one stock
option exercise and one late filing by Stephen C. Hilbert relating to a
charitable contribution.
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.
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.
21
<PAGE> 24
OTHER MATTERS
Management knows of no other matters which may be presented at the Annual
Meeting. If any other matters should properly come before the meeting, the
persons named in the enclosed form of proxy will vote in accordance with their
best judgment on such matters.
By Order of the Board of Directors
/s/ Lawrence W. Inlow
Lawrence W. Inlow, Secretary
April 10, 1997
22
<PAGE> 25
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"), may 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 common stock of the Company, to enhance the Company's
ability to retain key personnel and to attract outstanding prospective executive
employees.
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 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 of 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.
A-1
<PAGE> 26
(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.
(h) An "employee" means any person (including a Director) in an
employment relationship with the Company or any parent or subsidiary
corporation (as defined in Section 424 of the Code).
(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 April 1, 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-2
<PAGE> 27
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 are then
exchangeable 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.
A-3
<PAGE> 28
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.
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) for options granted to the
chief executive officer of the Company and the other four most highly
compensated executive officers of the Company, 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.
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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.
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 exercise 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, (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 of an Option
theretofore granted the Holder shall be entitled to purchase 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 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
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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.
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 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 if such approval is required under applicable law or stock exchange rule or
in order for the Plan to continue to comply with Section 162(m) of the Code.
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 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
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<PAGE> 31
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, to a partnership consisting only of
members of the Holder's immediate family or to a trust for the benefit of such
immediate family member or to such other persons or entities as the Compensation
Committee determines in its discretion, 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, to a partnership
consisting only of members 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.
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.
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<PAGE> 32
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. (the "Company"), 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:)
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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)
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PLEASE DATE, SIGN, AND RETURN THIS PROXY PROMPTLY
