<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.
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(Name of Registrant as Specified in Its Charter)
Bowne of Chicago
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(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)
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(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
CONSECO, INC.
11825 NORTH PENNSYLVANIA STREET
CARMEL, INDIANA 46032
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 14, 1998
NOTICE IS HEREBY GIVEN THAT the Annual Meeting of Shareholders of Conseco,
Inc. (the "Company"), will be held at the Conseco Conference Center, 530 College
Drive, Carmel, Indiana, at 11:00 a.m., local time, on May 14, 1998, for the
following purposes:
1. To elect three directors for terms ending in 2001;
2. To approve the performance-based bonus provisions in the proposed
Employment Agreement between the Company and Stephen C. Hilbert;
3. To approve the Conseco Performance-Based Compensation Plan for Executive
Officers; 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 March 31, 1998, 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
JOHN J. SABL
John J. Sabl, Secretary
April 10, 1998
Carmel, Indiana
<PAGE> 3
CONSECO LOGO
CONSECO, INC.
11825 NORTH PENNSYLVANIA STREET
CARMEL, INDIANA 46032
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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
Conseco Conference Center, 530 College Drive, Carmel, Indiana on May 14, 1998,
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, 1998. 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 relating 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
March 31, 1998, will be entitled to vote at the meeting. On such record date,
Conseco had 186,691,453 shares of Common Stock and 1,895,250 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 three 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.
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<PAGE> 4
SECURITIES OWNERSHIP
The following table sets forth information as of April 9, 1998 regarding
ownership of Common Stock (excluding shares held by subsidiaries not entitled to
vote) by the only persons known to own beneficially more than 5 percent thereof,
by the Directors individually, by the executive officers named in the Summary
Compensation Table on page 14 individually, and by all Directors and executive
officers 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 Director or executive officer 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, 1998 providing for the right to purchase an aggregate
of 7,302,973 shares of Common Stock; and (ii) an aggregate of 2,715,240 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. Except as indicated below, the executive officers and Directors do
not own any shares of any other class of equity securities of Conseco.
<TABLE>
<CAPTION>
SHARES OWNED AND
NATURE OF OWNERSHIP
-----------------------
TITLE OF CLASS NAME AND ADDRESS(1) NUMBER PERCENT
- -------------- ------------------- ------ -------
<S> <C> <C> <C>
5-Percent Owners:
Common Stock Alex. Brown Investment Management........................ 11,315,380(2) 6.1%
One South Street
Baltimore, MD 21202
Common Stock Stephen C. Hilbert....................................... 10,313,816(3) 5.4
11825 N. Pennsylvania Street
Carmel, IN 46032
Directors and Executive Officers:
Common Stock James S. Adams........................................... 337,596(4) *
PRIDES *
1,000(5)
Common Stock Ngaire E. Cuneo.......................................... 1,833,882(6) *
Common Stock David R. Decatur, M.D.................................... 245,710(7) *
Common Stock Rollin M. Dick........................................... 4,655,033(8) 2.5
Common Stock Donald F. Gongaware...................................... 4,395,202(9) 2.3
Common Stock M. Phil Hathaway......................................... 138,793(10) *
Common Stock Stephen C. Hilbert....................................... 10,313,816(3) 5.4
Common Stock James D. Massey.......................................... 237,000(11) *
Common Stock Dennis E. Murray, Sr..................................... 2,268,796(12)
Common Stock John M. Mutz............................................. 22,300(13) *
Common Stock Directors and executive officers as a group (12 24,672,256(14) 12.8
persons).................................................
</TABLE>
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(1) Address given for 5-percent owners only.
(2) According to a Schedule 13G dated February 10, 1998, filed with the
Securities and Exchange Commission, the holder is a registered investment
advisor. The holder has indicated that it has sole voting power with
respect to 2,797,011 of such shares and sole dispositive power with respect
to 11,291,048 of such shares.
(3) Of these shares, 2,845,540 are subject to options held by Mr. Hilbert which
are exercisable within 60 days, 2,686,822 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, 675,000 (including
20,000 subject to a currently exercisable warrant) are held by a charitable
foundation as to which he shares voting and investment power and 15 shares
are attributable to his account under the ConsecoSave Plan, a 401(k)
savings plan. Mr. Hilbert expressly disclaims beneficial ownership of all
2
<PAGE> 5
shares owned by the trust as to which his wife has sole voting and
investment power and the charitable foundation.
(4) Of these shares, 118,920 are subject to options held by Mr. Adams which are
exercisable within 60 days and 8,888 are attributable to his account under
the ConsecoSave Plan.
(5) These shares are held by an estate of which Mr. Adams is the beneficiary.
(6) Of these shares, 100,000 are held by trusts for the benefit of Ms. Cuneo's
children, 755,607 are subject to options held by Ms. Cuneo which are
exercisable within 60 days, 10,000 are subject to a currently exercisable
warrant held by her and 290 are attributable to her account under the
ConsecoSave Plan.
(7) Of these shares, 5,000 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.
(8) Of these shares, 815,836 are owned by Mr. Dick's wife, 479,632 (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, 1,400,000 are owned by limited partnerships of which Mr. Dick is the
general partner, 987,200 are subject to options held by Mr. Dick which are
exercisable within 60 days, 175,000 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 1,421 are
attributable to Mr. Dick's account under the ConsecoSave 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.
(9) Of these shares, 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, 796,000 are owned by charitable trusts
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, 87,579 are owned by a trust as to which Mr. Gongaware
shares voting and investment power, 960,825 are subject to options held by
Mr. Gongaware which are exercisable within 60 days and 1,293 are
attributable to Mr. Gongaware's account under the ConsecoSave Plan. Mr.
Gongaware expressly disclaims beneficial ownership of all shares owned by
the trusts as to which his wife has sole voting and investment power and
the charitable foundation.
(10) Of these shares, 16,000 are owned by Mr. Hathaway's wife, and 33,000 are
subject to options held by Mr. Hathaway which are exercisable within 60
days.
(11) Of these shares, 33,000 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 33,000 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) Of these shares, 1,000 are subject to options held by Mr. Mutz and 1,300
shares are held by Mr. Mutz's wife. Mr. Mutz disclaims beneficial ownership
of the shares held by his wife.
(14) Includes 5,960,708 shares subject to outstanding stock options and warrants
which are exercisable within 60 days.
* Less than 1%.
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<PAGE> 6
ELECTION OF DIRECTORS
The Board of Directors consists of nine members, divided into three classes
containing three members each. Each of the three Directors to be elected at the
Annual Meeting has been nominated to serve a term of three years expiring in
2001. 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:
Stephen C. Hilbert, 52.................... 1979 Since 1979, Chairman of the Board and 2001
Chief Executive Officer, and since
1988 President, of Conseco. Also a
Director of Vail Resorts Inc.
Ngaire E. Cuneo, 47....................... 1994 Since 1992, Executive Vice President, 2001
Corporate Development of Conseco.
Also a Director of Duke Realty
Investments, Inc. and NAL Financial
Group Inc.
M. Phil Hathaway, 68(1)(2)................ 1984 Retired. Formerly, Treasurer of Cook 2001
Group, Inc. (medical equipment,
property and casualty insurance, and
real estate development operations).
Directors Whose Terms of Office will
Continue After the Meeting:
David R. Decatur, M.D., 59................ 1995 Since 1967, a physician practicing in 1999
Indianapolis, Indiana. Since 1991,
President and Chief Executive Officer
of Innovative Health Systems, Inc.
(health and nutritional products).
Donald F. Gongaware, 62................... 1985 Retired. From 1985 to March 1998, 1999
Executive Vice President of Conseco.
John M. Mutz, 62(2)....................... 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, 66........................ 1986 Since 1986, Executive Vice President 2000
and Chief Financial Officer of
Conseco. Also a Director of General
Acceptance Corporation and
Brightpoint, Inc.
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
DIRECTOR POSITIONS WITH CONSECO, PRINCIPAL TERM
NAME AND AGE SINCE OCCUPATION AND BUSINESS EXPERIENCE EXPIRING
------------ -------- ---------------------------------- --------
<S> <C> <C> <C>
James D. Massey, 63(1)(2)................. 1994 Retired. Formerly, President and 2000
Deputy Chief Executive Officer of
Merchants National Corp. and
Chairman, President and Chief
Executive Officer of Merchants
National Bank (banking).
Dennis E. Murray, Sr., 58(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>
- ------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
PROPOSAL TO APPROVE THE PERFORMANCE-BASED BONUS PROVISIONS IN THE PROPOSED
EMPLOYMENT AGREEMENT WITH STEPHEN C. HILBERT
As indicated in the Report of the Compensation Committee contained herein,
the Compensation Committee determined that it would be in the best interests of
the Company to enter into a new employment agreement with Stephen C. Hilbert
(the "CEO") to be effective January 1, 1998 (the "New CEO Contract"). The New
CEO Contract is subject to shareholder approval of the performance-based bonus
provisions included in the new CEO Contract (the "CEO Bonus Provisions"). If the
shareholders do not approve the CEO Bonus Provisions, the existing Employment
Agreement between Conseco and Mr. Hilbert dated January 1, 1987, as amended (the
"1987 CEO Contract"), will remain in effect.
The following summary is qualified in its entirety by reference to the full
text of the CEO Bonus Provisions attached as Exhibit A to this Proxy Statement.
Under the 1987 CEO Contract, Mr. Hilbert is entitled to an annual bonus
equal to 3 percent of the net profits of the Company. (For purposes of such
contract, "net profits" means the consolidated pre-tax profits of the Company
and its subsidiaries from their normal operations, prior to adjustment for the
CEO's bonus and does not include income from sales and exchanges of assets other
than in the ordinary course of business or other extraordinary income items.)
The bonus under the 1987 CEO Contract cannot be reduced without the consent of
Mr. Hilbert. Under the proposed CEO Bonus Provisions, Mr. Hilbert would be
entitled to a minimum annual bonus equal to the lesser of: (i) the
Non-Discretionary Amount (as defined below) for such year; or (ii) 3 percent of
the Annual Net Profits (as defined below). Mr. Hilbert would be entitled to
receive a bonus for any year in excess of the minimum amount only if payment of
that additional bonus amount would not exceed 3 percent of the annual Net
Profits and would not reduce the Company's ROE (as defined in the CEO Bonus
Provisions) for such year to less than 15 percent. In addition, the Compensation
Committee would have the authority under the CEO Bonus Provisions to reduce the
bonus payable to Mr. Hilbert for any year but not below the minimum amount.
COMPUTATION OF BONUS
In order to calculate the bonus payable to the CEO under the CEO Bonus
Provisions, the maximum potential bonus for such year (the "Maximum Bonus")
would first be computed. The Maximum Bonus equals 3 percent of the annual Net
Profits (as defined below) for such year. The Maximum Bonus for a year shall be
payable, without reference to any other tests, to the extent it does not exceed
the Non-Discretionary Amount (as defined below) for such year. "Net Profits"
shall mean the Company's Income from Continuing Operations (as defined below),
as adjusted to add back or deduct, in each case to the extent such items were
deducted in the computation of Income from Continuing Operations, (x) income
taxes and (y) bonuses to the CEO and the executive officers of the Company.
"Income from Continuing Operations" shall mean the Company's income from
continuing operations, which shall exclude for this computation the effect (in
each
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case net of applicable tax) of: (i) extraordinary items; (ii) discontinued
operations; and (iii) the cumulative effects of changes in accounting
principles.
If the Maximum Bonus exceeds the Non-Discretionary Amount for such year, a
separate calculation would then be made to determine what portion, if any, of
the Maximum Bonus in excess of the Non-Discretionary Amount could be paid and
still permit the Company's ROE (as determined pursuant to paragraph (iii) of the
CEO Bonus Provisions, the "ROE") for such fiscal year to be at least 15 percent
(such amount exceeding the Non-Discretionary Amount and meeting such 15 percent
ROE test for such fiscal year being referred to as the "Additional Potential CEO
Bonus"). The Additional Potential CEO Bonus for such year would then be payable
to Mr. Hilbert, but the Compensation Committee would have the discretion to
reduce or eliminate the payment of the Additional Potential CEO Bonus for such
year.
Under the CEO Bonus Provisions, the Non-Discretionary Amount for each of
1998 and 1999 would be $13.5 million. The Base Amount shall be adjusted for 2000
and the last year of each consecutive three-year period that follows (each an
"Adjustment Year"), to be the arithmetic average of the sum of the Non-
Discretionary Amount and the Additional Potential CEO Bonus, in each case
regardless of the amount of bonus actually paid, for the two fiscal years
immediately preceding such Adjustment Year. The Non-Discretionary Amount as so
adjusted would remain the same with respect to the two fiscal years following
such Adjustment Year.
AMOUNTS PAYABLE
The amounts of any awards that may be payable to Mr. Hilbert under the
bonus provisions of the New CEO Contract for 1998 and subsequent years currently
cannot be determined. If the New CEO Contract had been in effect in 1997, the
maximum award payable (which could have been reduced in the discretion of the
Compensation Committee) to Mr. Hilbert would have been $28.3 million and the
minimum bonus payable would have been $13.5 million (assuming that the
Non-Discretionary Amount for 1997 would have been the same as the
Non-Discretionary Amount for 1998). Under the 1987 CEO Contract, the bonus
payable to Mr. Hilbert for 1997 was $27.4 million; such amount was reduced to
$15 million pursuant to an agreement between Mr. Hilbert and the Compensation
Committee. The Compensation Committee believes that the bonus amount it would
have paid to Mr. Hilbert if the CEO Bonus Provisions had been in effect for 1997
would have been the same as the $15 million cash bonus paid for 1997 under the
1987 CEO Contract. See Report of the Compensation Committee.
CERTAIN TAX ASPECTS
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), contains special limits on the federal income tax deductibility of
compensation paid to the Company's Chief Executive Officer and to each of the
other four most highly compensated executive officers if the compensation
exceeds $1 million in any one year. However, the Company can preserve the
deductibility of compensation in excess of $1 million if the compensation is
paid under a plan that has been approved by the shareholders and otherwise
qualifies as "performance-based" under Section 162(m). The CEO Bonus Provisions
have been designed to qualify as performance-based compensation under Section
162(m). Assuming shareholder approval, therefore, the Company believes that it
will be able to deduct compensation paid under the CEO Bonus Provisions. If the
shareholders do not approve the CEO Bonus Provisions, the Company would be
unable, beginning in 1998, to deduct bonus payments to Mr. Hilbert under the
1987 CEO Contract.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE
PERFORMANCE-BASED BONUS PROVISIONS IN THE PROPOSED EMPLOYMENT AGREEMENT BETWEEN
THE COMPANY AND STEPHEN C. HILBERT.
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<PAGE> 9
PROPOSAL TO APPROVE PERFORMANCE-BASED COMPENSATION
PLAN FOR EXECUTIVE OFFICERS
The Compensation Committee has recommended the adoption of the Conseco
Performance-Based Compensation Plan for Executive Officers (the "Executive
Officer Plan") which provides for an incentive-based formula to determine the
amount of cash bonus compensation payable to the executive officers of the
Company other than the chief executive officer. See Report of the Compensation
Committee. If approved by the shareholders, the Executive Officer Plan will
supersede for years beginning with 1998 the Conseco Performance-Based
Compensation Bonus Plan for Executive Vice Presidents (the "EVP Plan") that was
adopted in 1994 and was approved by the shareholders at the 1994 annual meeting.
If the Executive Officer Plan is not approved by the shareholders, the EVP Plan
will remain in effect. The following summary is qualified in its entirety by
reference to the full text of the Executive Officer Plan which is attached as
Exhibit B to this Proxy Statement.
ELIGIBLE INDIVIDUALS
If approved by the shareholders, the Executive Officer Plan would be
effective beginning with calendar year 1998 and would cover all executive
officers of the Company, other than the chief executive officer (the "Executive
Officers"). As of the date of this Proxy Statement, the individuals covered by
the Executive Officer Plan would be James S. Adams, Ngaire E. Cuneo, Rollin M.
Dick, Thomas J. Kilian and John J. Sabl. Of those individuals, all but Mr. Adams
are currently covered by the EVP Plan.
COMPUTATION OF BONUS
The performance-based criteria contained in the Executive Officer Plan are
similar to those contained in the CEO Bonus Provisions of the New CEO Contract.
The Executive Officer Plan provides that the maximum bonus payable to one of the
Executive Officers cannot exceed one-third of the bonus paid to the chief
executive officer for such year.
In order to calculate the bonus payable to an Executive Officer, the
maximum potential bonus per officer for such year (the "Maximum Bonus") would
first be computed. The Maximum Bonus equals 1 percent of the annual Net Profits
(as defined below) for such year. "Net Profits" shall mean the Company's Income
from Continuing Operations (as defined below), as adjusted to add back or
deduct, in each case to the extent such items were deducted in the computation
of Income from Continuing Operations, (x) income taxes and (y) bonuses to the
chief executive officer and the Executive Officers. "Income from Continuing
Operations" shall mean the Company's income from continuing operations, which
shall exclude for this computation the effect (in each case net of applicable
tax) of: (i) extraordinary items; (ii) discontinued operations; and (iii) the
cumulative effects of changes in accounting principles.
A separate calculation would then be made to determine what portion, if
any, of the Maximum Bonus in excess of the Base Amount (as defined below) could
be paid per Executive Officer and still permit the Company's ROE (as determined
pursuant to paragraph 3 of the Executive Officer Plan, the "ROE") for such
fiscal year to be at least 15 percent (such amount exceeding the Base Amount and
meeting such 15 percent ROE test for such fiscal year being referred to as the
"Additional Potential Bonus"). The bonus payable to each Executive Officer for
such fiscal year would be 1 percent of the Net Profits for such fiscal year, but
only to the extent such bonus does not exceed the sum of the Base Amount and the
Additional Potential Bonus for such fiscal year; provided, that: (i) no
Executive Officer shall receive a bonus pursuant to the Executive Officer Plan
for a fiscal year in excess of the Base Amount to the extent such total bonus
would exceed one-third of the total bonus paid to the chief executive officer
for such fiscal year; and (ii) such bonus may be reduced as provided below.
Under the Executive Officer Plan, the Base Amount for each of 1998 and 1999
would be $4.5 million. The Base Amount shall be adjusted for 2000 and the last
year of each consecutive three-year period that follows (each an "Adjustment
Year"), to be the arithmetic average of the sum of the Base Amount and the
Additional Potential Bonus, in each case regardless of the amount of bonus
actually paid, for the two fiscal
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<PAGE> 10
years immediately preceding such Adjustment Year. The Base Amount as so adjusted
would remain the same with respect to the two fiscal years following such
Adjustment Year.
Upon the recommendation of Conseco's chief executive officer, the
Compensation Committee may reduce the amount of the bonus that would have been
payable under the Executive Officer Plan to any of the affected executives. Such
reduction shall be at the sole discretion of the Compensation Committee after
taking into account such subjective factors or other matters as it believes are
appropriate in the best interests of Conseco and its shareholders. The
respective bonus to each Executive Officer for the fiscal year, minus the
quarterly payments previously paid to such Executive Officer, would be paid as
soon as practicable after the Compensation Committee has certified that the
payment meets the Net Profits test.
The Compensation Committee will have the sole authority to administer the
Executive Officer Plan and make all decisions to interpret and apply its
provisions.
AMOUNTS PAYABLE UNDER THE EXECUTIVE OFFICER PLAN
The amounts of any awards that may be payable to Executive Officers under
the Executive Officer Plan for 1998 and subsequent years currently cannot be
determined. If the Executive Officer Plan had been in effect in 1997, the
maximum award payable to an individual Executive Officer (which could have been
reduced in the discretion of the Compensation Committee upon recommendation of
the CEO) would have been substantially the same as the maximum amount of
$9,434,000 payable to each EVP under the EVP Plan. The Compensation Committee
believes that the amount it would have awarded to each of the covered Executive
Officers would have been the same as the cash bonuses paid for 1997 under the
existing EVP Plan. See Report of the Compensation Committee.
CERTAIN TAX ASPECTS
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), contains special limits on the federal income tax deductibility of
compensation paid to the Company's Chief Executive Officer and to each of the
other four most highly compensated executive officers if the compensation
exceeds $1 million in any one year. However, the Company can preserve the
deductibility of compensation in excess of $1 million if the compensation is
paid under a plan that has been approved by the shareholders and otherwise
qualifies as "performance-based" under Section 162(m). The Executive Officer
Plan has been designed to qualify as performance-based compensation under
Section 162(m). Assuming shareholder approval, therefore, the Company believes
that it will be able to deduct compensation paid under the Executive Officer
Plan.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE CONSECO
PERFORMANCE-BASED COMPENSATION PLAN FOR EXECUTIVE OFFICERS.
8
<PAGE> 11
EXECUTIVE COMPENSATION, RELATED PARTY TRANSACTIONS
AND OTHER INFORMATION
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is authorized to set
the compensation of Conseco's officers and to act with respect to the
compensation, option and other benefit plans of the Company. The Compensation
Committee seeks to align the interests of senior executive management with the
interests of shareholders by providing for a substantial portion of the
compensation paid to such officers to be tied directly to the financial results
of the Company and the performance of the Company's Common Stock. The
Compensation Committee administers the 1994 Stock Plan, the 1997 Plan, the
Deferred Compensation Program and other incentive plans and will administer the
Executive Officer Plan, if the adoption of such plan is approved by the
shareholders. The Compensation Committee is currently composed of three
independent, non-employee members of the Board.
CEO Compensation
1987 CEO Contract. The compensation of the Company's chief executive
officer currently is established by the terms of the 1987 CEO Contract. Under
the 1987 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 (3 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 1997, such consolidated pre-tax net profits were $914.9
million, resulting in a bonus payable to the CEO under the CEO Contract of
$27,447,357. Mr. Hilbert suggested to the Compensation Committee that he would
be willing to accept a reduction in the amount of his bonus for 1997 to $15
million. Such reduction was made pursuant to an agreement between the
Compensation Committee and Mr. Hilbert.
Proposed New CEO Contract. The Compensation Committee and Mr. Hilbert had
decided to review his performance-based compensation prior to the 1998 annual
meeting of shareholders because, under Section 162(m) of the Code, the bonus
compensation paid to Mr. Hilbert under the 1987 CEO Contract would not be
deductible for federal income tax purposes for 1998 and subsequent years without
shareholder approval. In January 1998, Mr. Hilbert submitted to the Compensation
Committee a proposal to modify his existing compensation arrangements. The
proposal included: (i) a change in the calculation of his bonus (including the
grant of authority to the Compensation Committee to reduce the amount of bonus
paid below 3 percent of the net pre-tax profits of the Company); (ii) an
increase in the base salary from $250,000 per year to $1 million per year; (iii)
a change in the severance payments payable to Mr. Hilbert upon termination of
employment; and (iv) a special stock option grant.
The Compensation Committee held several meetings to discuss the terms of a
proposed new employment agreement with Mr. Hilbert. In discussing proposed
changes, the Compensation Committee considered: (i) past and projected growth in
the earnings of the Company and amounts payable under the bonus provisions of
the 1987 CEO Contract; (ii) the desirability of adding a return on equity test
to the calculation of a portion of the bonus; (iii) the advisability of
providing the Compensation Committee with the authority to reduce the CEO's
compensation from the levels that might be payable under a strictly numerical
formula such as the bonus formula in the 1987 CEO Contract; (iv) the desire to
provide for deductibility for federal income tax purposes of the amounts payable
to the CEO under any performance-based compensation arrangement; (v) the terms
of employment agreements with the other executive officers of the Company; (vi)
the fact that the CEO had not received a stock option grant (other than reload
grants) since 1995; and (vii) the past and expected future contributions of the
CEO to the Company. These factors were considered subjectively by the
Compensation Committee and no particular weight was assigned to any individual
factor.
Based on the foregoing, the Compensation Committee approved a new
Employment Agreement between the Company and Mr. Hilbert (the "New CEO
Contract"). The New CEO Contract will be effective beginning with calendar year
1998 if the shareholders approve the CEO Bonus Provisions included in the New
CEO Contract. If the shareholders do not approve such provisions, the 1987 CEO
Contract would remain in effect and the Company would be unable to deduct for
1998 and subsequent years the compensation in excess
9
<PAGE> 12
of $1 million paid to the CEO. See -- Proposal to Approve the Performance-Based
Provisions in the Proposed Employment Agreement with Stephen C. Hilbert. The
principal provisions of the 1987 CEO Contract and the proposed New CEO Contract
are as follows:
Term. Each employment agreement provides for a term of five years, which is
automatically renewed each year for successive five year periods unless either
party notifies the other of its intention not to renew.
Salary. The 1987 CEO Contract provides for an annual salary of $250,000.
The New CEO Contract provides for an annual salary of $1 million, which would be
the first increase in the CEO's salary in more than 10 years.
Bonus. Under the 1987 CEO Contract, the CEO is entitled to 3 percent of net
profits (as defined in such contract) and neither the Compensation Committee nor
the Board of Directors has the authority to reduce the CEO's bonus below such
amount. The proposed New CEO Contract would continue to calculate a maximum
bonus based on 3 percent of Net Profits (as defined). The CEO Bonus Provisions
include an additional test which provides that bonus payments to the CEO in
excess of the Non-Discretionary Amount could be paid only if the Company's ROE
after such payment would be at least 15 percent. The Compensation Committee
would have the authority and discretion under the CEO Bonus Provisions to reduce
the CEO's bonus but not below the Non-Discretionary Amount ($13.5 million for
1998) (assuming such amount is at least equal to 3 percent of Net Profits). See
Proposal to Approve the Performance-Based Bonus Provisions in the Proposed
Employment Agreement with Stephen C. Hilbert.
Option Grant. The New CEO Contract provides for the CEO to receive a grant
of an option to purchase 1.5 million shares at the fair market value of the
Common Stock on the date of shareholder approval of the CEO Bonus Provisions.
Such option would vest 50 percent at the end of three years, 25 percent at the
end of four years and 25 percent at the end of five years. The 1987 CEO Contract
did not contain a stock option grant, but Mr. Hilbert did receive a stock option
grant in January 1987 for 650,000 shares (such number having been adjusted for
stock splits).
Severance Payments. The New CEO Contract would provide for the CEO to
receive, upon termination of his employment by the Company, an amount equal to
five years' salary plus five times the Non-Discretionary Amount. The 1987 CEO
Contract provides for the payment of five years' salary in the event of such
termination. In such circumstances the CEO would be entitled, under the New CEO
Contract, to a full gross-up to cover additional taxes resulting from such
severance payments, based on the combined federal and state tax rates then in
effect. The 1987 CEO Contract provides for a gross-up to cover additional taxes
based on an assumed 40 percent combined tax rate.
Compensation of Other Executive Officers
Conseco's Executive Vice Presidents ("EVPs"), are employed under employment
agreements which provide for a base salary 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 "EVP Plan") under which cash bonuses for the EVPs are determined
by a formula in compliance with Section 162(m) of the Code. The EVP Plan was
approved by the shareholders at the 1994 annual meeting.
The EVP 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 EVP Plan or to
the CEO under the 1987 CEO Contract). Under the EVP Plan, each of the EVPs was
entitled to receive for 1997 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
three years ending December 31, 1996 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 three-year
period, each EVP was entitled to a bonus for 1997 equal to 1 percent of the
consolidated pre-tax net profits of Conseco. The consolidated pre-tax net
profits of Conseco for 1997 were $943.4 million (before deduction of bonuses
payable to the EVPs and CEO), resulting in a maximum bonus payable to each EVP
of $9,434,000 for 1997. The Compensation Committee has the sole discretion,
taking into account such subjective factors or other matters as the committee
members believe are
10
<PAGE> 13
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. For 1997, the CEO recommended a decrease in the
bonuses from the maximum amount payable under the EVP Plan to $3,816,000 for
each of Messrs. Dick and Gongaware and $2,612,000 for Ms. Cuneo. The
Compensation Committee determined that such bonuses were in the best interests
of the Company and its shareholders and were appropriate based on the results of
the Company's operations during 1997 and the responsibilities which each officer
assumed during 1997.
The Compensation Committee also recommended the adoption of the Executive
Officer Plan to supersede the EVP Plan. The EVP Plan had been designed when the
Company had a more leveraged capital structure and the continued calculation of
bonuses based on the ROE Ratio was deemed to be inappropriate in light of the
expanded equity base and reduced leverage of the Company. The calculation of
bonuses under Executive Officer Plan was designed to be consistent with the
proposed CEO Bonus Provisions and to allow participation by executive officers
who do not carry an executive vice president title. See Proposal to Approve
Performance-Based Compensation Plan for Executive Officers.
Stock Options
The Compensation Committee views the grant of stock options to be the
Company's key long-term incentive reward program for the Company's officers,
including the Named Officers. The Committee believes that because options are
granted with an exercise price equal to the market value of the Common Stock on
the date of grant, they are an effective incentive for officers to create value
for the Company's shareholders and are an excellent means of rewarding
executives who are in a position to contribute to the Company's long-term growth
and profitability. Options have been granted annually to the Company's officers
below the EVP level, based on a formula which relates the value of the options
granted to a percentage of the recipient's annual cash compensation. 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 May 1997, the Board of Directors approved an option exercise reload
program under which the CEO and the EVPs exercised outstanding vested stock
options to purchase 9,073,644 shares of Common Stock. The options exercised
would otherwise have remained exercisable until the years 1998 through 2006. As
a result of the exercise, the Company will be able to realize a tax deduction of
approximately $241.9 million, equal to the aggregate tax gain recognized by the
executives as a result of the exercise plus Company payroll taxes. No cash was
either received or paid by the participants in the program; participants paid
for the exercised options by tendering 3,033,575 previously owned shares and
Conseco withheld 2,757,525 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 3,282,544 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
1997 to the CEO or the Named Officers, except for an option granted to James S.
Adams to purchase 6,000 shares.
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.
11
<PAGE> 14
Stock Units
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 earnings per share
(reduced by the 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
M. Phil Hathaway
Dennis E. Murray, Sr.
12
<PAGE> 15
PERFORMANCE GRAPH
The Performance Graph compares Conseco's cumulative total shareholder
return on its Common Stock for a five-year period (December 31, 1992 to December
31, 1997) 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, 1992 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 and that all dividends were reinvested. Conseco has been included in the
S&P 500 Index since January 15, 1997 and in the Dow Jones Life Insurance Index
since July 1, 1996.
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>
1992 100 100 100
1993 120 100 110
1994 94 90 112
1995 137 125 153
1996 281 165 189
1997 403 244 252
</TABLE>
<TABLE>
<CAPTION>
FIVE-YEAR
AVERAGE ANNUAL
TOTAL RETURN
<S> <C>
CONSECO, INC. 32%
DJ LIFE INSURANCE INDEX 20%
S&P 500 INDEX 20%
</TABLE>
13
<PAGE> 16
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 1997
(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.............. 1997 $250,000 $15,000,000 $163,240 $4,156,373 2,561,792 $ 4,297
Chairman of the Board, 1996 250,000 13,576,436 135,594 2,345,556 819,240 3,498
President and 1995 250,000 7,416,286 152,751 2,355,190 1,000,000 3,174
Chief Executive Officer
Ngaire E. Cuneo................. 1997 250,000 2,612,000 780,035 621,859 4,983
Executive Vice President, 1996 250,000 4,714,040 842,114 48,080 1,129
Corporate Development 1995 250,000 2,564,186 864,557 400,000 959
Rollin M. Dick.................. 1997 250,000 3,816,000 1,108,184 853,452 20,669
Executive Vice President 1996 250,000 4,714,040 842,114 245,800 19,825
and Chief Financial Officer 1995 250,000 2,564,186 864,557 400,000 15,167
Donald F. Gongaware(5).......... 1997 250,000 3,816,000 1,108,184 827,077 12,741
Executive Vice President 1996 250,000 4,714,040 842,114 245,800 12,357
and Chief Operations Officer 1995 250,000 2,564,186 864,557 400,000 10,097
James S. Adams(6)............... 1997 160,000 600,000 -- 6,000 3,789
Senior Vice President,
Chief Accounting Officer
and Treasurer
</TABLE>
- ------------
(1) Amounts for all years include $116,470 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 1997, 1996 or 1995 which is required
to be listed under SEC rules concerning executive officer and director
compensation disclosure.
(2) The amounts shown for 1997 in this column represent the value of units (each
unit represents one share of Common Stock) awarded for 1997 under the 1994
Stock Plan based on the market value of the Common Stock at March 31, 1998,
the date of award. The amounts shown for 1996 in this column represent the
value of stock units 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 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 March 31, 1998 as if
outstanding on December 31, 1997, the aggregate value of such stock units as
of December 31, 1997 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 12/31/97 UNITS
------------- --------- ------
<S> <C> <C> <C>
Stephen C. Hilbert..................................... 1,759,596 $79,563,961 1,218,972
Ngaire E. Cuneo........................................ 181,018 8,135,634 9,022
Rollin M. Dick......................................... 261,534 11,826,567 261,534
Donald F. Gongaware.................................... 496,432 22,448,655 496,432
James S. Adams......................................... -- -- --
</TABLE>
Stock units previously awarded to Mr. Hilbert and Ms. Cuneo will vest in the
next three years conditioned upon continued employment with Conseco as
follows:
<TABLE>
<CAPTION>
12/31/98 12/31/99 12/31/00
-------- -------- --------
<S> <C> <C> <C>
Stephen C. Hilbert......................................... 191,034 77,078 130,166
Ngaire E. Cuneo............................................ 63,958 21,819 47,782
</TABLE>
(3) No stock appreciation rights have been granted.
14
<PAGE> 17
(4) For 1997, 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............................ $ 3,420 $ 288 $ 589
Ngaire E. Cuneo............................... 1,020 174 3,789
Rollin M. Dick................................ 15,620 1,260 3,789
Donald F. Gongaware........................... 8,250 702 3,789
James S. Adams................................ -- -- 3,789
</TABLE>
(5) Mr. Gongaware retired on March 31, 1998.
(6) No 1995 or 1996 compensation information is reported for Mr. Adams because
he was not an executive officer in those years.
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
Mr. Hilbert currently 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 three 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. See Report of the
Compensation Committee for a discussion of the terms of the proposed New CEO
Contract, which will supersede Mr. Hilbert's current employment agreement if
shareholders approve the CEO Bonus Provisions. 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 Mr. Dick 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 1997 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
15
<PAGE> 18
in control is the same as that disclosed below for the options granted in 1997.
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
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 1997 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, 1997.
AGGREGATED OPTION EXERCISES IN 1997 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, 1997 DECEMBER 31, 1997(2)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen C. Hilbert..... 3,941,492 $99,866,626 2,599,292 4,528,248 $15,896,351 $138,106,073
Ngaire E. Cuneo........ 976,748 27,041,147 632,209 589,398 4,592,286 17,284,927
Rollin M. Dick......... 1,318,052 33,633,316 890,952 1,378,248 6,089,335 42,097,448
Donald F. Gongaware.... 1,278,052 32,648,316 864,577 1,258,248 5,936,822 38,448,548
James S. Adams......... 20,040 744,997 114,120 492,400 3,694,680 11,785,903
</TABLE>
- ------------
(1) The value realized equals the aggregate amount of the excess of the fair
market value on the dates of exercise over the relevant exercise prices,
which in each case were equal to the market values on the dates the options
were originally granted.
(2) The value is calculated based on the aggregate amount of the excess of
$45.22 (the average of the high and low sale prices of the Common Stock as
reported by the New York Stock Exchange ("NYSE") for the last business day
of 1997) over the relevant exercise prices.
16
<PAGE> 19
The following table sets forth certain information concerning options to
purchase Common Stock granted in 1997 to the five Named Officers.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS GRANTED PER SHARE GRANT DATE
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION PRESENT
NAME GRANTED 1997 PRICE(1) DATE VALUE(2)
---- --------- --------------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Stephen C. Hilbert.......... 2,410,136(3) 35.6% $39.44 5/18/07 $21,572,465
151,656(3) 2.2 40.19 6/07/07 1,369,465
Ngaire E. Cuneo............. 537,176(3) 7.9 39.44 5/18/07 4,808,115
57,533(3) .8 40.19 6/07/07 519,527
27,150(3) .4 48.38 10/12/07 291,546
Rollin M. Dick.............. 797,076(3) 11.8 39.44 5/18/07 7,134,408
56,376(3) .8 40.19 6/07/07 509,080
Donald F. Gongaware......... 770,701(3) 11.4 39.44 5/18/07 6,898,333
56,376(3) .8 40.19 6/07/07 509,080
James S. Adams.............. 3,872(4) .1 43.00 12/18/07 36,130
628(5) * 43.00 12/18/04 5,860
1,500(6) * 43.00 12/18/05 13,997
</TABLE>
- ------------
* Less than .1 percent
(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 percent volatility (which was the implied volatility of the Common Stock
at the date of grant); a 6.5 percent 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 May 2001); a .9 percent dividend yield (which was the
approximate dividend yield on the date of grant); and a four-year average
life for the options (which was the approximate average life of all
previously issued options). A discount of 25 percent 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 reload program. See -- Report of the Compensation Committee
on Executive Compensation.
(4) The options reported are non-qualified stock options, of which 3,000 vest
three years from the date of the grant and 872 vest four years from the date
of grant.
(5) The options reported are incentive stock options which vest four years from
the date of grant.
(6) The options reported are incentive stock options which vest five years from
the date of grant.
The options granted to the Named Officers in 1997 were under the Conseco
1997 Non-Qualified Stock Option Plan (the "1997 Plan") except for the incentive
stock options received by Mr. Adams which were granted under the 1994 Stock
Plan. All outstanding options under the 1994 Stock Plan and the 1997 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,
17
<PAGE> 20
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 and the 1997
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 and 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 Securities Exchange Act of 1934, as amended (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) such
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 $50,000, 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 1997, 724 stock units were awarded
under the 1994 Stock Plan to each of Dr. Decatur and Messrs. Hathaway, Massey,
Murray and Mutz. The Common Stock represented by the stock unit awards for 1997
had a market value of $40,883 on March 31, 1998 (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.
18
<PAGE> 21
Dr. Decatur and Messrs. Hathaway, Massey, Murray and Mutz each received such a
grant in 1997. 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
1997. Mr. Massey serves as the Chairman of the Compensation Committee. Each of
the members of the Compensation Committee is a participant in the Director,
Executive and Senior Officer Stock Purchase Plan. See -- Certain Relationships
and Related Transactions.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 1996, Conseco adopted a Director, Executive and Senior Officer
Stock Purchase Plan (the "Purchase Plan") to encourage direct, long-term
ownership of Conseco stock by Directors, executive officers and certain senior
officers. Under the original Purchase Plan, up to 4 million shares of Common
Stock could be purchased in open market or negotiated transactions with
independent parties. In February 1997, the Purchase Plan was expanded to permit
the purchase of an additional 4 million shares. 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 39 Directors and officers of Conseco
and its subsidiaries elected to participate in the Purchase Plan and purchased
all 8 million shares of Common Stock offered under the Purchase Plan. At
December 31, 1997, the bank loans guaranteed by Conseco totaled $247.4 million
and the loans provided by Conseco totaled $9.3 million. The Common Stock which
collateralizes the bank loans had a fair value of $453.0 million on March 31,
1998. As of December 31, 1997, 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, $3,269,352; Ms. Cuneo, $657,183; Mr. Dick, $1,860,944; Mr.
Gongaware, $853,728; Dr. Decatur, $224,905; Mr. Hathaway, $6,857; Mr. Adams,
$112,468; Mr. Massey, $251,720; Mr. Murray, $1,262,017; and Mr. Mutz, $15,347.
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, 1997, the interest rate on such loans was 6.5%.
As of December 31, 1997, 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, $81,644,353; Ms. Cuneo, $21,489,945; Mr. Dick, $42,657,845; Mr.
Gongaware, $16,998,753; Dr. Decatur, $9,494,248; Mr. Hathaway, $433,005; Mr.
Adams, $4,747,181; Mr. Massey, $6,414,846; Mr. Murray, $35,570,179; and Mr.
Mutz, $866,035.
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 1997, the Board of Directors held 10 meetings. All Directors
attended at least 75 percent of the aggregate meetings of the Board and the
committees on which they served.
19
<PAGE> 22
The Board has a Compensation Committee which met or took action by written
consent on seven occasions during 1997. The Compensation Committee is authorized
to set the compensation of the Company's officers and to act with respect to the
compensation, option and other benefit plans of the Company. The Board also has
an Audit Committee, which held three meetings in 1997. The Audit Committee has
general oversight responsibility with respect to Conseco's accounting and
financial reporting activities, including meeting with Conseco's independent
auditors and its chief financial and accounting officers 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 4 and 5. In addition, the Audit Committee
oversees compliance programs of Conseco and its subsidiaries where such
oversight is delegated by the Board of Directors or specified by contract. See
Election of Directors.
The Board of Directors does not have a nominating committee. Conseco's
Bylaws provide that nominations for the election of directors may be made by the
Board of Directors or a committee appointed by the Board of Directors or by any
shareholder entitled to vote in the election of directors generally. The Bylaws
specify the timing and content of the written notice that must be provided by
any shareholder wishing to make a nomination for the election of a director. 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 1997 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, 1997, except for one late report by Donald F. Gongaware to report two
changes in the form of his beneficial ownership.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P. served as the independent accountants to audit the
financial statements of Conseco for 1997 and have been selected by the Board of
Directors to serve as such for 1998. 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 1999 Annual Meeting must be
received by Conseco by December 10, 1998. Such proposals must meet the
requirements set forth in the rules and regulations of the SEC in order to be
eligible for inclusion in the proxy statement for the 1999 Annual Meeting. In
addition, the Company's Bylaws establish advance notice procedures as to: (i)
business to be brought before an annual meeting of shareholders other than by or
at the direction of the Board of Directors; and (ii) the nomination, other than
by the Board of Directors or a committee appointed by the Board of Directors, of
candidates for election as directors. Any shareholder who wishes to submit a
proposal to be acted upon at the 1999 Annual Meeting or who wishes to nominate a
candidate for election as director should obtain a copy of these Bylaw
provisions and may do so by
20
<PAGE> 23
written request addressed to the Secretary of Conseco at 11825 North
Pennsylvania Street, Carmel, Indiana 46032.
ANNUAL REPORT
Conseco's Annual Report for 1997 is being mailed to the shareholders with
this Proxy Statement, but is not part of the proxy solicitation material.
OTHER MATTERS
Management knows of no other matters which may be presented at the Annual
Meeting. If any other matters should properly come before the meeting, the
persons named in the enclosed form of proxy will vote in accordance with their
best judgment on such matters.
By Order of the Board of Directors
JOHN J. SABL
Secretary
April 10, 1998
21
<PAGE> 24
EXHIBIT A
PERFORMANCE-BASED BONUS PROVISIONS IN THE PROPOSED
EMPLOYMENT AGREEMENT WITH STEPHEN C. HILBERT
In addition to base salary, Stephen C. Hilbert ("Executive") shall be
entitled to receive annually a bonus to be calculated and paid for each fiscal
year as follows:
(i) First, the maximum potential bonus to Executive for such year (the
"Maximum Bonus") shall be computed. The Maximum Bonus for a fiscal year shall be
equal to three percent (3%) of the annual Net Profits (as defined below) for
such fiscal year of the Company. The bonus shall be calculated from the books
and records of the Company which shall be kept in accordance with generally
accepted accounting principles applied by the Company in the preparation of its
financial statements. The Maximum Bonus for a fiscal year shall be payable,
without reference to any other tests, to the extent it does not exceed the
Non-Discretionary Amount (as determined pursuant to clause (v) below, the
"Non-Discretionary Amount") applicable to such year. "Net Profits" shall mean
the Company's Income from Continuing Operations (as defined below), as adjusted
to add back or deduct, in each case to the extent such items were deducted or
added in the computation of Income from Continuing Operations, (x) income taxes
and (y) bonuses to Executive and the Company's Executive Officers. "Income from
Continuing Operations" shall mean the Company's income from continuing
operations, which shall exclude for this computation the effect (in each cash
net of applicable tax) of (i) extraordinary items, (ii) discontinued operations
and (iii) the cumulative effects of changes in accounting principles. "Executive
Officers" shall mean all of the Company's executive vice presidents and its
other officers, except Executive, designated as "executive officers" by the
Company's Board of Directors.
(ii) If the Maximum Bonus exceeds the Non-Discretionary Amount for such
fiscal year a separate calculation shall be made to determine what portion, if
any, of the Maximum Bonus in excess of the Non-Discretionary Amount could be
paid and still permit the Company's ROE (as determined pursuant to clause (iii)
below, the "ROE") for such fiscal year to be at least 15% (such amount exceeding
the Non-Discretionary Amount and meeting such 15% ROE test for such fiscal year
being referred to as the "Additional Potential Bonus"). The Additional Potential
Bonus for a fiscal year would then be payable to Executive for such fiscal year
subject to the discretion of the Compensation Committee to reduce or eliminate
(in whole or in part) the payment of the Additional Potential Bonus for such
year in its discretion.
(iii) The ROE for a fiscal year shall be determined by dividing (x) the
Company's Income from Continuing Operations for such fiscal year, reduced by any
dividends accrued with respect to such fiscal year on the Company's preferred
stock, to the extent that such dividends were not deducted in the computation of
Income from Continuing Operations (it being understood that any amounts paid to
induce the conversion of preferred stock are not to be considered dividends on
preferred stock), by (y) the arithmetic average of the Company's Average Common
Equity (as defined below) for the four quarters of such fiscal year. The
"Average Common Equity" of the Company for a quarter shall mean the arithmetic
average of the common shareholders equity of the Company shown on its financial
statements (adjusted to exclude unrealized appreciation or depreciation of fixed
maturity securities net of any applicable expenses and deferred income taxes, as
so adjusted "Common Shareholders Equity") as of the end of such fiscal quarter
(as adjusted as provided below, the "Quarter End Equity") and the end of the
preceding quarter (the "Quarter Start Equity"); provided, that if one or more
Significant Events (as defined below) has occurred during the fiscal quarter as
to which Average Common Equity is being determined, then the impact of each such
Significant Event on the Quarter End Equity shall be reduced by a fraction, the
numerator of which shall be the number of days in such quarter elapsed before
said Significant Event occurred (it being understood that with respect to a
Significant Event which includes a series of transactions which closed or were
otherwise consummated over a period of time, the Company shall select a
reasonable midpoint for purposes of this calculation) and the denominator of
which shall be the total number of days in such quarter, and the Quarter End
Equity shall be computed taking into account such reductions. "Significant
Event" with respect to a quarter shall mean any event (such as a share issuance,
share repurchase, conversion, acquisition, disposition, merger, consolidation or
change in accounting principles) the effect of which event, or series of related
events, is to cause the
A-1
<PAGE> 25
Quarter End Equity to change by at least 10% of the Quarter Start Equity from
what it would otherwise have been absent such event or series of related events.
(iv) The Company agrees to give notice to the Compensation Committee as
promptly as practicable after the end of each fiscal year of the respective
amounts of Maximum Bonus, Additional Potential Bonus and Non-Discretionary
Amount for such fiscal year. The Compensation Committee shall then have fifteen
(15) days from the date such notice is sent by the Company to determine the
extent, if any, to which the Additional Potential Bonus with respect to such
fiscal year shall be reduced or eliminated. The Company shall give notice to
Executive not later than five (5) days after the expiration of such 15-day
period of the bonus in excess of the Non-Discretionary Amount to be paid for
such fiscal year.
(v) The Non-Discretionary Amount for each of 1998 and 1999 shall be $13.5
million. The Non-Discretionary Amount shall be adjusted for 2000 and the last
year of each consecutive three-year period that follows (each an "Adjustment
Year") to be the arithmetic average of the sum of the Non-Discretionary Amount
and the Additional Potential Bonus, in each case regardless of the amount of
bonus actually paid, for the two fiscal years immediately preceding such
Adjustment Year. The Non-Discretionary Amount as so adjusted shall remain the
same with respect to the two fiscal years following such Adjustment Year.
(vi) The cumulative accrued amount of the bonus shall be calculated as of
the end of each of the first three quarters of the Company's fiscal year based
on the year-to-date Net Profits, and such accrued bonus, minus accrued bonus
payments made for previous quarters of the same fiscal year, shall be paid to
Executive as soon as practicable after the Compensation Committee has certified
that the payment to be made meets this Net Profits test, but in no event more
than forty-five (45) days after the end of the quarter; provided, that the
cumulative maximum bonus payable with respect to the (i) first quarter shall not
exceed 25% of the Non-Discretionary Amount, (ii) first two quarters shall not
exceed 50% of the Non-Discretionary Amount and (iii) first three quarters shall
not exceed 75% of the Non-Discretionary Amount for such fiscal year. The
aggregate bonus for the fiscal year, minus the quarterly accrued payments made
for the year, shall be paid to Executive as soon as practicable after the
Compensation Committee has certified that the payment to be made meets this Net
Profits test, but in no event more than ninety (90) days, after the fiscal year
end. If the quarterly payments for the first three quarters of any fiscal year
exceed the aggregate bonus payable for the entire year, the amount of such
excess shall be repaid to the Company by Executive.
A-2
<PAGE> 26
EXHIBIT B
CONSECO PERFORMANCE-BASED COMPENSATION PLAN FOR EXECUTIVE OFFICERS
Conseco, Inc. ("Conseco" or the "Company") hereby establishes this
Performance-Based Compensation Plan for Executive Officers (the "Plan"). This
Plan shall become effective upon the approval hereof by the shareholders of
Conseco and shall thereupon replace the Company's existing Performance-Based
Compensation Plan for Executive Vice Presidents.
Each of Conseco's Executive Officers ("Executive Officers" being its
Executive Vice Presidents and its other officers, other than its Chief Executive
Officer (the "CEO"), designated as "executive officers" by Conseco's Board of
Directors) shall receive a bonus with respect to each fiscal year determined as
set forth below.
1. First, the maximum potential bonus per Executive Officer for such year
(the "Maximum Bonus") shall be computed. The Maximum Bonus for a fiscal year
shall be equal to one percent (1%) of the annual Net Profits (as defined below)
for fiscal year of the Company. The bonus shall be calculated from the books and
records of the Company which shall be kept in accordance with generally accepted
accounting principles applied by the Company in the preparation of its financial
statements. "Net Profits" shall mean the Company's Income from Continuing
Operations (as defined below), as adjusted to add back or deduct, in each case
to the extent such items were deducted in the computation of Income from
Continuing Operations, (x) income taxes and (y) bonuses to the CEO and the
Executive Officers. "Income from Continuing Operations" shall mean the Company's
income from continuing operations, which shall exclude for this computation the
effect (in each case of net applicable tax) of (i) extraordinary items, (ii)
discontinued operations and (iii) the cumulative effects of changes in
accounting principles.
2. A separate calculation shall be made to determine what portion, if any,
of the Maximum Bonus in excess of the Base Amount (as defined below) could be
paid per Executive Officer and still permit the Company's ROE (as determined
pursuant to clause (iii) below, the "ROE") for such fiscal year to be at least
15% (such amount exceeding the Base Amount and meeting such 15% ROE test for
such fiscal year being referred to as the "Additional Potential Bonus"). The
bonus payable to each Executive Officer for such fiscal year shall be 1% of the
Net Profits for such fiscal year, but only to the extent such bonus does not
exceed the sum of the Base Amount and the Additional Potential Bonus for such
fiscal year; provided, that (i) no Executive Officer shall receive a bonus
pursuant to this Plan for a fiscal year in excess of the Base Amount to the
extent such total bonus would exceed one-third of the total bonus paid to the
CEO for such fiscal year and (ii) such bonus may be reduced as provided in Item
5 below.
3. The ROE for a fiscal year shall be determined by dividing (x) the
Company's Income from Continuing Operations for such fiscal year, reduced by any
dividends accrued with respect to such fiscal year on the Company's preferred
stock, to the extent that such dividends were not deducted in the computation of
Income from Continuing Operations (it being understood that any amounts paid to
induce the conversion of preferred stock are not to be considered dividends on
preferred stock), by (y) the arithmetic average of the Company's Average Common
Equity (as defined below) for the four quarters of such fiscal year. The
"Average Common Equity" of the Company for a quarter shall mean the arithmetic
average of the common shareholders equity of the Company shown on its financial
statements (adjusted to exclude unrealized appreciation or depreciation of fixed
maturity securities net of any applicable expenses and deferred income taxes, as
so adjusted "Common Shareholders Equity") as of the end of such fiscal quarter
(as adjusted as provided below, the "Quarter End Equity") and the end of the
preceding quarter (the "Quarter Start Equity") provided, that if one or more
Significant Events (as defined below) has occurred during the fiscal quarter as
to which Average Common Equity is being determined, then the impact of each such
Significant Events on the Quarter End Equity shall be reduced by a fraction, the
numerator of which shall be the number of days in such quarter elapsed before
said Significant Event occurred (it being understood that with respect to a
Significant Event which includes a series of transactions which closed or were
otherwise consummated over a period of time, the Company shall select a
reasonable midpoint for purposes of this calculation) and the denominator of
which shall be the total number of days in such quarter, and the Quarter End
Equity shall be
B-1
<PAGE> 27
computed taking into account such reductions. "Significant Event" with respect
to a quarter shall mean any event (such as a share issuance, share repurchase,
conversion, acquisition, disposition, merger, consolidation or change in
accounting principles) the effect of which event, or series of related events,
is to cause the Quarter End Equity to change by at least 10% of the Quarter
Start Equity from what it would otherwise have been absent such event or series
of related events.
4. The Base Amount for each of 1998 and 1999 shall be $4.5 million. The
Base Amount shall be adjusted for 2000 and the last year of each consecutive
three-year period that follows (each an "Adjustment Year"), to be the arithmetic
average of the sum of the Base Amount and the Additional Potential Bonus, in
each case regardless of the amount of bonus actually paid, for the two fiscal
years immediately preceding such Adjustment Year. The Base Amount as so adjusted
shall remain the same with respect to the two fiscal years following such
Adjustment Year.
5. Upon the recommendation of Conseco's CEO, the Compensation Committee of
the Company's Board of Directors (the "Compensation Committee") may reduce the
amount of the bonus that would have been payable under the Plan to any of the
affected executives. Such reduction shall be at the sole discretion of the
Compensation Committee after taking into account such subjective factors or
other matters as it believes are appropriate in the best interests of Conseco
and its shareholders. The respective bonus to each Executive Officer for the
fiscal year, minus the quarterly payments to such Executive Officer described
below shall be paid as soon as practicable after the Compensation Committee has
certified that the payment meets the Net Profits test specified in the Plan.
6. The cumulative accrued amount of each bonus shall be calculated as of
the end of each fiscal quarter of the Company's fiscal year based on the
year-to-date financial results. An amount not in excess of such accrued bonus,
minus accrued bonus payments made for previous quarters of the same fiscal year,
shall be paid to the respective Executive Officer as soon as practicable after
the Compensation Committee has certified that the payment to be made meets the
Net Profits test specified in the Plan, provided that (i) the cumulative maximum
bonus payable with respect to the first quarter shall not exceed 25% of the Base
Amount, first two quarters shall not exceed 50% of the Base Amount and first
three quarters shall not exceed 75% of the Base Amount for such fiscal year, and
(ii) upon the recommendation of Conseco's CEO, the Compensation Committee of the
Company's Board of Directors (the "Compensation Committee") may reduce the
amount of the bonus that would have been payable for any quarter to any of the
affected Executive Officers (such reduction being at the sole discretion of the
Compensation Committee after taking into account such subjective factors or
other matters as it believes are appropriate in the best interests of Conseco
and its shareholders). If the quarterly payments for any fiscal year exceed the
bonus payable for the entire year, the amount of such excess shall be repaid to
the Company by the Executive Officer.
7. The Compensation Committee shall have the sole authority to administer
the Plan and make all decisions to interpret and apply its provisions. Written
interpretations not inconsistent with the terms hereof may be issued from time
to time by the Compensation Committee as guidance for interpreting and applying
the Plan's provisions.
B-2
<PAGE> 28
PROXY CONSECO, INC.
PROXY FOR 1998 ANNUAL MEETING OF SHAREHOLDERS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Each person signing this card on the reverse side hereby appoints as
proxies Rollin M. Dick, Donald F. Gongaware and Ngaire E. Cuneo, or any of
them, with full power of substitution, to vote all shares of common stock and
shares of Preferred Redeemable Increased Dividend Equity Securities, 7%
PRIDES, Convertible Preferred Stock which such person is entitled to vote at
the Annual Meeting of Shareholders of Conseco, Inc., to be held at the Conseco
Conference, 530 College Drive, Carmel, Indiana, at 11:00 a.m. local time on
May 14, 1998, and any adjournments thereof.
The proxies are hereby authorized to vote as follows:
1. Election of Stephen C. Hilbert, Ngaire E. Cuneo and M. Phil Hathaway as
Directors for three-year terms expiring in 2001.
[ ] FOR (except as shown on 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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2. Approval of the performance-based bonus provision in a proposed Employment
Agreement between Conseco, Inc. and Stephen C. Hilbert.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of the Conseco Performance-Based Compensation Plan for Executive
Officers.
[ ] 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)
<PAGE> 29
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, 1998.
Dated:____________________, 1998.
_________________________________
Signature(s)
PLEASE DATE, SIGN, AND RETURN THIS PROXY PROMPTLY
