================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number 1-9250
Conseco, Inc.
Indiana No. 35-1468632
---------------------- --------------------------------
State of Incorporation IRS Employer Identification No.
11825 N. Pennsylvania Street
Carmel, Indiana 46032 (317) 817-6100
- -------------------------------------- --------------
Address of principal executive offices Telephone
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [ X ] No [ ]
Shares of common stock outstanding as of July 30, 1999: 327,054,211
================================================================================
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
ASSETS
June 30, December 31,
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Investments:
Actively managed fixed maturities at fair value (amortized cost: 1999 - $23,336.8;
1998 - $21,848.3)........................................................................ $22,385.5 $21,827.3
Interest-only securities at fair value (amortized cost: 1999 - $1,518.6; 1998 - $1,313.6).. 1,429.9 1,305.4
Equity securities at fair value (cost: 1999 - $456.8; 1998 - $373.0)....................... 474.4 376.4
Mortgage loans............................................................................. 1,243.4 1,130.2
Policy loans............................................................................... 672.3 685.6
Other invested assets ..................................................................... 1,129.8 1,259.8
Short-term investments..................................................................... 1,136.5 1,704.7
Assets held in separate accounts........................................................... 1,180.0 899.4
--------- ---------
Total investments...................................................................... 29,651.8 29,188.8
Accrued investment income..................................................................... 456.6 383.8
Finance receivables........................................................................... 4,011.0 3,299.5
Cost of policies purchased.................................................................... 2,453.2 2,425.2
Cost of policies produced..................................................................... 1,775.5 1,453.9
Reinsurance receivables....................................................................... 966.0 734.8
Goodwill...................................................................................... 3,906.0 3,960.2
Cash held in segregated accounts for investors................................................ 895.3 843.7
Other assets.................................................................................. 1,417.1 1,310.0
--------- ---------
Total assets........................................................................... $45,532.5 $43,599.9
========= =========
</TABLE>
(continued on next page)
The accompanying notes are an integral part of the
consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, continued
(Dollars in millions)
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, December 31,
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Liabilities:
Liabilities for insurance and asset accumulation products:
Interest-sensitive products.............................................................. $17,379.4 $17,229.4
Traditional products..................................................................... 6,532.2 6,391.6
Claims payable and other policyholder funds.............................................. 1,408.8 1,491.5
Unearned premiums........................................................................ 378.2 376.6
Liabilities related to separate accounts................................................. 1,180.0 899.4
Liabilities related to deposit products.................................................. 938.2 541.7
Investor payables.......................................................................... 895.3 843.7
Other liabilities.......................................................................... 1,992.2 1,980.7
Income tax liabilities..................................................................... 18.8 197.1
Investment borrowings...................................................................... 1,349.3 956.2
Notes payable and commercial paper:
Corporate................................................................................ 2,899.6 2,932.2
Finance.................................................................................. 3,103.7 2,389.3
--------- ---------
Total liabilities.................................................................... 38,075.7 36,229.4
--------- ---------
Minority interest:
Company-obligated mandatorily redeemable preferred securities
of subsidiary trusts..................................................................... 2,100.2 2,096.9
Shareholders' equity:
Preferred stock............................................................................ - 105.5
Common stock and additional paid-in capital (no par value, 1,000,000,000 shares
authorized, shares issued and outstanding: 1999 - 326,730,615;
1998 - 315,843,609)...................................................................... 2,940.5 2,736.5
Accumulated other comprehensive loss (net of applicable deferred income taxes:
1999 - $(297.4); 1998 - $(16.3))......................................................... (547.3) (28.4)
Retained earnings.......................................................................... 2,963.4 2,460.0
--------- ---------
Total shareholders' equity........................................................... 5,356.6 5,273.6
--------- ---------
Total liabilities and shareholders' equity........................................... $45,532.5 $43,599.9
========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions except per share amounts)
(unaudited)
Three months ended Six months ended
June 30, June 30,
-------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income........................................... $1,020.0 $ 989.8 $2,027.4 $1,979.9
Net investment income............................................. 709.1 599.4 1,355.5 1,266.2
Gain on sale of finance receivables............................... 226.0 127.6 425.8 271.3
Net investment gains (losses)..................................... (22.9) 12.3 (21.9) 117.1
Fee revenue and other income...................................... 121.3 88.1 232.6 167.5
-------- --------- -------- --------
Total revenues................................................ 2,053.5 1,817.2 4,019.4 3,802.0
-------- -------- -------- --------
Benefits and expenses:
Insurance policy benefits......................................... 920.5 886.6 1,810.2 1,841.0
Interest expense.................................................. 125.5 108.9 236.1 215.3
Amortization...................................................... 153.2 147.7 304.6 351.2
Other operating costs and expenses................................ 347.2 309.8 653.9 609.7
Impairment charge................................................. - 549.4 - 549.4
Nonrecurring charges.............................................. - 148.0 - 148.0
-------- --------- -------- --------
Total benefits and expenses................................... 1,546.4 2,150.4 3,004.8 3,714.6
-------- --------- -------- --------
Income (loss) before income taxes, minority interest
and extraordinary charge ................................... 507.1 (333.2) 1,014.6 87.4
Income tax expense (benefit)......................................... 179.3 (64.3) 359.5 105.9
-------- --------- -------- --------
Income (loss) before minority interest and extraordinary
charge ..................................................... 327.8 (268.9) 655.1 (18.5)
Minority interest - distributions on Company-obligated mandatorily
redeemable preferred securities of subsidiary trusts, net of
income taxes...................................................... 30.3 18.8 60.5 38.2
-------- --------- -------- --------
Income (loss) before extraordinary charge .................... 297.5 (287.7) 594.6 (56.7)
Extraordinary charge on extinguishment of debt, net of income
taxes............................................................. - 13.9 - 30.3
-------- --------- -------- --------
Net income (loss)............................................. 297.5 (301.6) 594.6 (87.0)
Less preferred stock dividends....................................... - 2.2 .6 4.2
-------- --------- -------- --------
Net income (loss) applicable to common stock.................. $ 297.5 $ (303.8) $ 594.0 $ (91.2)
======== ========= ======== ========
Earnings (loss) per common share:
Basic:
Weighted average shares outstanding............................. 323,576,000 310,326,000 322,111,000 309,648,000
Net income (loss) before extraordinary charge................... $.92 $(.94) $1.84 $(.19)
Extraordinary charge............................................ - .04 - .10
---- ----- ----- -----
Net income (loss)............................................. $.92 $(.98) $1.84 $(.29)
==== ===== ===== =====
Diluted:
Weighted average shares outstanding............................. 331,201,000 310,326,000 331,155,000 309,648,000
Net income (loss) before extraordinary charge................... $.90 $(.94) $1.80 $(.19)
Extraordinary charge............................................ - .04 - .10
---- ----- ----- -----
Net income (loss)............................................. $.90 $(.98) $1.80 $(.29)
==== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in millions)
(unaudited)
Common stock Accumulated other
Preferred and additional comprehensive Retained
Total stock paid-in capital income (loss) earnings
----- ----- --------------- ------------- --------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1999............................. $5,273.6 $105.5 $2,736.5 $ (28.4) $2,460.0
Comprehensive income, net of tax:
Net income...................................... 594.6 594.6
Change in unrealized depreciation of
investments (net of applicable income tax
benefit of $281.1)............................ (518.9) - - (518.9) -
--------
Total comprehensive income.................. 75.7
Issuance of common shares......................... 163.5 - 163.5 - -
Tax benefit related to issuance of shares under
stock option plans.............................. 24.4 - 24.4 - -
Conversion of preferred stock into common
shares.......................................... - (105.5) 105.5 - -
Cost of shares acquired........................... (89.4) - (89.4) - -
Dividends on common stock......................... (90.6) - - - (90.6)
Dividends on preferred stock...................... (.6) - - - (.6)
--------- ------- -------- ------- --------
Balance, June 30, 1999............................... $5,356.6 $ - $2,940.5 $(547.3) $2,963.4
======== ====== ======== ======= ========
Balance, January 1, 1998............................. $5,213.9 $115.8 $2,619.8 $ 200.6 $2,277.7
Comprehensive loss, net of tax:
Net loss........................................ (87.0) - - - (87.0)
Change in unrealized appreciation of
investments (net of applicable income tax
benefit of $1.9).............................. (.3) - - (.3) -
---------
Total comprehensive loss.................... (87.3)
Conversion of preferred stock into common
shares.......................................... - (10.2) 10.2 - -
Conversion of convertible debentures into
common shares................................... 16.3 - 16.3 - -
Issuance of shares for stock options and for
employee benefit plans.......................... 118.1 - 118.1 - -
Tax benefit related to issuance of shares under
stock option plans.............................. 41.8 - 41.8 - -
Issuance of warrants in conjunction with
financing transaction........................... 7.7 - 7.7 - -
Cost of shares acquired........................... (271.2) - (152.7) - (118.5)
Dividends on common stock......................... (70.4) - - - (70.4)
Dividends on preferred stock...................... (4.2) - - - (4.2)
-------- ------ -------- -------- --------
Balance, June 30, 1998............................... $4,964.7 $105.6 $2,661.2 $ 200.3 $1,997.6
======== ====== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
(unaudited)
Six months ended
June 30,
------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................................................... $ 594.6 $ (87.0)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Gain on sale of finance receivables..................................................... (425.8) (271.3)
Points and origination fees received.................................................... 243.2 110.2
Interest-only securities investment income.............................................. (91.5) (59.8)
Cash received from interest-only securities............................................. 234.1 156.6
Servicing income........................................................................ (81.1) (67.0)
Cash received from servicing activities................................................. 86.1 78.2
Amortization and depreciation........................................................... 344.2 382.3
Income taxes............................................................................ 176.7 (184.6)
Insurance liabilities................................................................... 149.3 (7.4)
Accrual and amortization of investment income........................................... (96.7) (16.0)
Deferral of cost of policies produced and purchased..................................... (386.8) (405.8)
Nonrecurring and impairment charges..................................................... - 692.7
Minority interest....................................................................... 93.0 58.4
Extraordinary charge on extinguishment of debt.......................................... - 46.9
Net investment (gains) losses........................................................... 21.9 (117.1)
Other................................................................................... (34.6) 78.6
----------- ----------
Net cash provided by operating activities before settlement of prior year taxes....... 826.6 387.9
Payment of taxes in settlement of prior years........................................... (85.1) -
------------ ----------
Net cash provided by operating activities............................................. 741.5 387.9
----------- ----------
Cash flows from investing activities:
Sales of investments...................................................................... 8,620.5 15,704.9
Maturities and redemptions of investments................................................. 598.6 734.8
Purchases of investments.................................................................. (10,687.2) (16,254.3)
Cash received from the sale of finance receivables, net of expenses....................... 6,810.3 5,299.6
Principal payments received on finance receivables........................................ 3,960.3 2,598.9
Finance receivables originated............................................................ (11,790.3) (9,434.3)
Other..................................................................................... (76.5) (87.4)
------------ ----------
Net cash used by investing activities ................................................ (2,564.3) (1,437.8)
---------- ----------
Cash flows from financing activities:
Issuance of notes payable and commercial paper............................................ 9,077.4 7,712.9
Issuance of common shares................................................................. 101.5 103.0
Issuance of Company-obligated mandatorily redeemable preferred securities of
subsidiary trusts....................................................................... - 3.7
Payments on notes payable and commercial paper............................................ (8,438.0) (6,219.0)
Payments to repurchase equity securities.................................................. (29.5) (236.0)
Investment borrowings..................................................................... 393.1 (209.9)
Amounts received for investments in deposit products...................................... 1,746.4 1,292.6
Withdrawals from deposit products......................................................... (1,425.7) (1,410.5)
Distributions on Company-obligated mandatorily redeemable preferred securities of
subsidiary trusts and common and preferred stock dividends.............................. (170.6) (130.1)
---------- ----------
Net cash provided by financing activities............................................. 1,254.6 906.7
---------- ----------
Net decrease in short-term investments................................................ (568.2) (143.2)
Short-term investments, beginning of period.................................................. 1,704.7 1,154.7
---------- ----------
Short-term investments, end of period........................................................ $ 1,136.5 $ 1,011.5
========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
6
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
The following notes should be read together with the notes to the
consolidated financial statements included in the 1998 Form 10-K of Conseco,
Inc. ("we", "Conseco" or the "Company").
BASIS OF PRESENTATION
Our unaudited consolidated financial statements reflect all adjustments,
consisting only of normal recurring items, that are necessary to present fairly
Conseco's financial position and results of operations on a basis consistent
with that of our prior audited consolidated financial statements. As permitted
by rules and regulations of the Securities and Exchange Commission applicable to
quarterly reports on Form 10-Q, we have condensed or omitted certain information
and disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles ("GAAP"). We have also
reclassified certain amounts from the prior periods to conform to the 1999
presentation. Results for interim periods are not necessarily indicative of the
results that may be expected for a full year.
Conseco is a financial services holding company operating throughout the
United States. Our insurance subsidiaries develop, market and administer
supplemental health insurance, annuity, individual life insurance, individual
and group major medical insurance and other insurance products. Our finance
subsidiaries originate, purchase, sell and service consumer and commercial
finance loans. Conseco's operating strategy is to grow its business by focusing
its resources on the development and expansion of profitable products and strong
distribution channels, to seek to achieve superior investment returns through
active asset management and to control expenses.
When we prepare financial statements in conformity with GAAP, we are
required to make estimates and assumptions that significantly affect various
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reporting periods. For example, we use significant estimates
and assumptions in calculating values for the cost of policies produced, the
cost of policies purchased, interest-only securities, servicing rights,
goodwill, liabilities for insurance and deposit products, liabilities related to
litigation, guaranty fund assessment accruals, gain on sale of finance
receivables and deferred income taxes. If our future experience differs from
these estimates and assumptions, our financial statements could be materially
affected.
Consolidation issues. Our consolidated financial statements give
retroactive effect to the merger (the "Green Tree Merger") with Green Tree
Financial Corporation ("Green Tree") in a transaction accounted for as a pooling
of interests (see "Green Tree Merger"). The pooling of interests method of
accounting requires the restatement of all periods presented as if Conseco and
Green Tree had always been combined. The consolidated statement of shareholders'
equity therefore reflects the accounts of the Company as if the additional
shares of Conseco common stock issued in the merger had been outstanding during
all periods presented. We have eliminated intercompany transactions prior to the
merger and we have made certain reclassifications to Green Tree's financial
statements to conform to Conseco's presentation.
Our consolidated financial statements exclude the results of material
transactions between us and our consolidated affiliates, or among our
consolidated affiliates.
ADJUSTMENT TO ACTIVELY MANAGED FIXED MATURITY SECURITIES
We classify our fixed maturity securities into three categories: (i)
"actively managed" (which we carry at estimated fair value); (ii) "trading"
(which we carry at estimated fair value); and (iii) "held to maturity" (which we
carry at amortized cost). We held $71.2 million of trading securities at June
30, 1999, which we included in other invested assets. We held no fixed maturity
securities in the held to maturity category at June 30, 1999.
7
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
Net unrealized losses on actively managed fixed maturity investments
included in shareholders' equity were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
(Dollars in millions)
<S> <C> <C>
Unrealized losses on actively managed fixed maturity investments, net of
unrealized gains.................................................................... $(951.3) $(21.0)
Adjustments to cost of policies purchased and cost of policies produced................. 186.5 10.4
Deferred income tax benefit............................................................. 268.4 6.4
Other................................................................................... (2.0) (7.7)
------- ------
Net unrealized losses on actively managed fixed maturity investments............. $(498.4) $(11.9)
======= ======
</TABLE>
GREEN TREE MERGER
On June 30, 1998, we completed the Green Tree Merger. We issued a total of
128.7 million shares of Conseco common stock (including 5.0 million common
equivalent shares issued in exchange for Green Tree's outstanding options),
exchanging .9165 of a share of Conseco common stock for each share of Green Tree
common stock. The Green Tree Merger constituted a tax-free exchange and was
accounted for under the pooling of interests method. We restated all
prior-period consolidated financial statements to include Green Tree as though
it had always been a subsidiary of Conseco.
The results of operations for Conseco and Green Tree, separately and
combined, for periods prior to the merger were as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, 1998 June 30, 1998
----------------- ----------------
(Dollars in millions)
<S> <C> <C>
Revenues:
Conseco................................................................ $1,533.1 $3,232.1
Green Tree............................................................. 284.9 570.7
Elimination of intercompany revenues................................... (.8) (.8)
-------- --------
Combined............................................................. $1,817.2 $3,802.0
======== ========
Net income (loss):
Conseco................................................................ $ 123.6 (1) $ 274.7 (1)
Green Tree (including nonrecurring charges)............................ (422.4) (2) (358.9)(2)
Elimination of intercompany net income................................. (2.8) (2.8)
-------- --------
Combined............................................................. $ (301.6) $ (87.0)
======== ========
<FN>
- --------------------
(1) Includes nonrecurring charges of $40.0 million (net of income taxes)
related to the Green Tree Merger, including investment banking, accounting,
legal and regulatory fees and other costs.
(2) Includes: (i) an impairment charge of $355.8 million (net of income taxes)
to reduce the carrying value of the interest-only securities and servicing
rights; and (ii) nonrecurring charges of $108.0 million (net of income
taxes) related to the Green Tree Merger, including investment banking,
accounting, legal and regulatory fees and other costs.
</FN>
</TABLE>
8
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
FINANCE RECEIVABLES AND INTEREST-ONLY SECURITIES
Finance receivables, summarized by type, were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
(Dollars in millions)
<S> <C> <C>
Manufactured housing......................................................... $ 691.6 $ 798.8
Mortgage services............................................................ 963.0 603.5
Consumer/credit card......................................................... 731.3 587.3
Commercial................................................................... 1,680.1 1,352.9
-------- --------
4,066.0 3,342.5
Less allowance for doubtful accounts......................................... 55.0 43.0
-------- --------
Net finance receivables................................................. $4,011.0 $3,299.5
======== ========
</TABLE>
We pool and securitize substantially all of the finance receivables we
originate. In a typical securitization, we establish a special-purpose entity
for the limited purpose of purchasing the finance receivables. This
special-purpose entity issues and sells interest-bearing securities that
represent interests in the receivables, collateralized by the underlying pool of
finance receivables. We, in turn, receive the proceeds from the sale of the
securities, which are typically sold at the same amount as the principal balance
of the receivables sold. We retain a residual interest, which represents the
right to receive, over the life of the pool of receivables: (i) the excess of
the principal and interest received on the receivables transferred to the
special-purpose entity over the principal and interest paid to the holders of
other interests in the securitization; and (ii) servicing fees.
In some securitizations, we also retain certain lower-rated securities that
are senior in payment priority to the interest-only securities. Such retained
securities had a fair market value and amortized cost of $661.7 million and
$684.8 million, respectively, at June 30, 1999, and were classified as actively
managed fixed maturity securities.
During the first six months of 1999 and 1998, the Company sold $7.2 billion
and $5.4 billion, respectively, of finance receivables in various securitized
transactions and recognized gains of $425.8 million and $271.3 million,
respectively.
We record the interest-only security initially at a value representing an
allocated portion of the cost basis of the finance receivables sold. We adjust
this value to estimated fair value each quarter. We used the assumptions in the
table below to determine the initial value of the interest-only securities
related to new securitizations in the first six months of 1999. The difference
between estimated fair value and the security's book value is included in
unrealized depreciation of investments.
<TABLE>
<CAPTION>
Manufactured Home equity/ Consumer/
housing home improvement equipment Total
------- ---------------- --------- -----
(Dollars in millions)
<S> <C> <C> <C> <C>
Cumulative amounts:
Interest-only securities at fair value............$ 745.1 $ 487.8 $ 197.0 $ 1,429.9
Principal balance of sold finance receivables (a). 22,356.8 9,337.6 3,852.5 35,546.9
Related to securitizations completed in the quarter:
Weighted average stated customer interest rate
on finance receivables sold during the
quarter (a) (b)................................ 9.5% 11.5% 10.8%
Expected weighted average annual constant
prepayment rate as a percentage of principal
balance of finance receivables sold during the
quarter (a) (c)................................ 10.7% 28.1% 18.9%
Expected nondiscounted credit losses as a
percentage of principal balance of finance
receivables sold during the quarter (a) (c).... 8.8% 3.2% 1.7%
Weighted average discount rate used for
determining the gain on sale of finance
receivables sold during the quarter............ 15.0% 15.0% 15.0%
9
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
- --------------------
<FN>
(a) Excludes finance receivables sold in revolving-trust securitizations.
(b) The stated interest rate reflects reductions in rates due to collection
of points. Including such points, the effective yield on manufactured
housing finance receivables was approximately 10.4 percent in the first
six months of 1999.
(c) The valuation of interest-only securities is affected not only by the
projected level of prepayments of principal and net credit losses, but also
by the projected timing of such prepayments and net credit losses. Should
such timing differ materially from our projections, it could have a
material effect on the valuation of our interest-only securities.
</FN>
</TABLE>
We used a 14 percent weighted average interest rate to discount expected
cash flows of the interest-only securities in determining the fair value on the
balance sheet at June 30, 1999.
Credit quality was as follows:
<TABLE>
<CAPTION>
June 30,
---------------------
1999 1998
---- ----
<S> <C> <C>
60-days-and-over delinquencies as a percentage
of managed finance receivables at period end............................ 1.09% 1.03%
==== ====
Net credit losses incurred during the last twelve months as a percentage
of average managed finance receivables during the period................ 1.11% 1.09%
==== ====
Repossessed collateral inventory as a percentage of managed finance
receivables at period end............................................... 1.17% .92%
==== =====
</TABLE>
Activity in the interest-only securities account was as follows:
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------
1999 1998
---- ----
(Dollars in millions)
<S> <C> <C>
Balance, beginning of period................................................ $1,305.4 $1,398.7
Additions resulting from securitizations during the period............... 347.6 312.5
Investment income........................................................ 91.5 59.8
Cash received............................................................ (234.1) (156.6)
Impairment change to reduce carrying value............................... - (544.4)
Change in unrealized depreciation charged to shareholders' equity........ (80.5) (32.7)
-------- --------
Balance, end of period...................................................... $1,429.9 $1,037.3
======== ========
</TABLE>
10
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
EARNINGS PER SHARE
A reconciliation of income and shares used to calculate basic and diluted
earnings per share is as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------- ------------------
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in millions and shares in thousands)
<S> <C> <C> <C> <C>
Income:
Income (loss) before extraordinary charge............................. $297.5 $(287.7) $594.6 $(56.7)
Preferred stock dividends............................................. - 2.2 .6 4.2
------ ------- ------ ------
Income (loss) before extraordinary charge applicable to common
ownership for basic earnings per share............................ 297.5 (289.9) 594.0 (60.9)
Effect of dilutive securities:
Preferred stock dividends........................................... - - .6 -
------ ------- ------ ------
Income (loss) before extraordinary charge applicable to common ownership
and assumed conversions for diluted earnings per
share............................................................. $297.5 $(289.9) $594.6 $(60.9)
====== ======= ====== ======
Shares:
Weighted average shares outstanding for basic earnings per share...... 323,576 310,326 322,111 309,648
Effect of dilutive securities on weighted average shares:
Stock options....................................................... 2,552 - 3,100 -
Employee stock plans................................................ 2,031 - 2,018 -
Convertible securities.............................................. 3,042 - 3,926 -
------- ------- ------- -------
Dilutive potential common shares................................ 7,625 - 9,044 -
------- ------- ------- -------
Weighted average shares outstanding for diluted earnings
per share................................................. 331,201 310,326 331,155 309,648
======= ======= ======= =======
</TABLE>
There were no dilutive common stock equivalents during the 1998 periods
because of the net loss realized by the Company during such periods.
BUSINESS SEGMENTS
We manage our business operations through two segments: (i) finance;
and (ii) insurance and fee-based.
Finance. We provide a variety of finance products, including: consumer
loans for manufactured housing, home improvements, home equity and various
consumer products; private label credit card programs; and commercial loans such
as revolving credit agreements, asset-backed lending and equipment financing.
These products are marketed both direct to the borrower and through intermediary
channels such as dealers, vendors, contractors and retailers.
Insurance and fee-based. We provide supplemental health, annuity, life, and
individual and group major medical products to a broad spectrum of customers
through several distribution channels, including career agents, professional
independent producers and direct contact.
11
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
Segment operating information was as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Revenues:
Insurance and fee-based segment:
Insurance policy income............................................ $1,020.0 $ 989.8 $2,027.4 $1,979.9
Net investment income.............................................. 560.0 505.0 1,082.0 1,088.3
Fee and other revenue.............................................. 33.7 26.0 62.4 46.8
Net investment gains (losses)...................................... (22.9) 12.3 (21.9) 117.1
-------- -------- -------- --------
Total insurance and fee-based segment revenues................... 1,590.8 1,533.1 3,149.9 3,232.1
-------- -------- -------- --------
Finance segment:
Net investment income.............................................. 153.9 95.2 283.2 178.7
Gain on sale of finance receivables................................ 226.0 127.6 425.8 271.3
Fee revenue and other income....................................... 87.6 62.1 170.2 120.7
-------- -------- -------- --------
Total finance segment revenues................................... 467.5 284.9 879.2 570.7
-------- -------- -------- --------
Eliminations......................................................... (4.8) (.8) (9.7) (.8)
-------- -------- -------- --------
Total revenues................................................. 2,053.5 1,817.2 4,019.4 3,802.0
-------- -------- -------- --------
Expenses:
Insurance and fee-based segment:
Insurance policy benefits.......................................... 920.5 886.6 1,810.2 1,841.0
Amortization....................................................... 152.4 147.7 303.0 351.2
Interest expense................................................... 16.6 18.2 28.4 37.1
Other operating costs and expenses................................. 163.9 155.5 317.8 316.7
-------- -------- -------- --------
Total insurance and fee-based segment expenses................... 1,253.4 1,208.0 2,459.4 2,546.0
-------- -------- -------- --------
Finance segment:
Interest expense................................................... 69.6 55.2 126.2 103.7
Other operating costs and expenses................................. 172.5 150.6 322.4 285.5
Impairment charge.................................................. - 549.4 - 549.4
Nonrecurring charges............................................... - 148.0 - 148.0
--------- -------- -------- --------
Total finance segment expenses................................... 242.1 903.2 448.6 1,086.6
-------- -------- -------- --------
Not allocated to segments:
Interest expense................................................... 44.1 36.3 91.2 75.3
Other operating cost and expenses.................................. 11.6 3.7 15.3 7.5
-------- -------- -------- --------
Total expenses not allocated to segments......................... 55.7 40.0 106.5 82.8
-------- -------- -------- --------
Eliminations......................................................... (4.8) (.8) (9.7) (.8)
-------- -------- -------- --------
Total expenses................................................. 1,546.4 2,150.4 3,004.8 3,714.6
-------- -------- -------- --------
Income (loss) before income taxes, minority interest and extraordinary
charge:
Insurance operations............................................... 337.4 325.1 690.5 686.1
Finance operations................................................. 225.4 (618.3) 430.6 (515.9)
Corporate interest and other expenses.............................. (55.7) (40.0) (106.5) (82.8)
-------- -------- -------- --------
Income (loss) before income taxes, minority interest and
extraordinary charge......................................... $ 507.1 $ (333.2) $1,014.6 $ 87.4
======== ======== ======== ========
</TABLE>
12
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
FINANCIAL INSTRUMENTS
Our equity-indexed annuity products provide a guaranteed base rate of
return and a higher potential return linked to the performance of the Standard &
Poor's 500 Index ("S&P 500 Index"). We buy Standard & Poor's 500 Index Call
Options (the "S&P 500 Call Options") in an effort to hedge potential increases
to policyholder benefits resulting from increases in the S&P 500 Index to which
the product's return is linked. We include the cost of the S&P 500 Call Options
in the pricing of these products. The values of these options fluctuate in
relation to changes in policyholder account balances for these annuities. We
reflect changes in the value of these options in net investment income. During
the six months of 1999 and 1998, net investment income included $84.4 million
and $72.0 million, respectively, related to these changes. Such investment
income was substantially offset by increases to policyholder account balances.
The value of the S&P 500 Call Options was $165.1 million at June 30, 1999. We
classify such instruments as other invested assets. We defer the premiums paid
to purchase the S&P 500 Call Options and amortize them to investment income over
their terms. Such amortization was $43.4 million and $18.6 million during the
first six months of 1999 and 1998, respectively.
For investment purposes, we entered into various interest-rate swap
agreements having an aggregate notional principal amount of $2.0 billion at June
30, 1999. The agreements effectively exchange a fixed rate of interest on the
notional amount for a floating rate. The agreements mature in various years
through 2008 and have an average remaining life of 4.2 years (the average call
date is 2.2 years). We mark such agreements to market each quarter, with the
related gain (loss) classified as investment income in the consolidated
statement of operations. At June 30, 1999, our interest-rate swap agreements had
a fair value of $12.4 million.
If the counterparties of these financial instruments fail to meet their
obligations, Conseco may have to recognize a loss. Conseco limits its exposure
to such a loss by diversifying among several counterparties believed to be
strong and creditworthy. At June 30, 1999, all of the counterparties were rated
"A" or higher by Standard & Poor's Corporation.
In conjunction with certain sales of finance receivables, we provided
guarantees aggregating approximately $1.7 billion at June 30, 1999. We believe
the likelihood of a significant loss from such guarantees is remote.
REINSURANCE
The cost of reinsurance ceded totaled $232.7 million and $276.8 million in
the first six months of 1999 and 1998, respectively. We deducted this cost from
insurance policy income. Conseco is contingently liable for claims reinsured if
the assuming company is unable to pay. Reinsurance recoveries netted against
insurance policy benefits totaled $229.1 million and $238.0 million in the first
six months of 1999 and 1998, respectively.
13
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
CORPORATE NOTES PAYABLE AND COMMERCIAL PAPER
Corporate notes payable and commercial paper (together with interest rates
as of June 30, 1999) were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
(Dollars in millions)
<S> <C> <C>
Commercial paper (5.39%)............................................................ $ 763.0 $ 784.4
Bank credit facilities (5.39%)...................................................... 86.6 372.3
Notes payable (5.6%)............................................................... 400.0 400.0
6.4% notes due 2001................................................................. 550.0 550.0
6.4% notes due 2003................................................................. 250.0 250.0
6.5% convertible subordinated notes due 2003........................................ 86.0 86.0
6.8% senior notes due 2005.......................................................... 250.0 250.0
7.6% senior notes due 2001.......................................................... 275.0 -
7.875% notes due 2000............................................................... 150.0 150.0
8.125% senior notes due 2003........................................................ 63.5 63.5
10.5% senior notes due 2004......................................................... 24.5 24.5
Other............................................................................... 12.1 13.5
-------- --------
Total principal amount......................................................... 2,910.7 2,944.2
Less unamortized net discount....................................................... 11.1 12.0
-------- --------
Total.......................................................................... $2,899.6 $2,932.2
======== ========
</TABLE>
Our current bank credit facilities allow us to borrow up to $2.5 billion,
of which $1.5 billion may be borrowed until 2003 and $1.0 billion may be
borrowed until September 1999. Actual borrowings at June 30, 1999, totaled
$1,250.0 million (of which $1,163.4 million was used to finance the funding of
finance receivables and is classified as finance notes payable - See "Changes in
Finance Notes Payable"). The credit facility requires us to maintain various
financial ratios, as defined in the agreement, including: (i) a debt-to-total
capitalization ratio less than .45:1 (such ratio was .36:1 at June 30, 1999);
and (ii) an interest coverage ratio greater than 2.0:1 during the period October
1, 1998 through September 30, 1999, greater than 2.25:1 for the period October
1, 1999 through September 30, 2001 and greater than 2.50:1 thereafter (such
ratio was 4.89:1 for the period ended June 30, 1999). Our unsecured bank credit
facilities are used to support our commercial paper program.
In June 1999, the Company issued $275.0 million of senior notes. Such notes
are due June 21, 2001 and bear interest at 7.6 percent. The net proceeds were
used to reduce amounts outstanding under our bank credit facilities and
commercial paper program.
Borrowings under our commercial paper program averaged approximately
$1,069.2 million during the first six months of 1999, at a weighted average
interest rate of 5.14 percent.
14
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
CHANGES IN FINANCE NOTES PAYABLE
Notes payable (together with interest rates as of June 30, 1999) related to
our financing activities were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
(Dollars in millions)
<S> <C> <C>
Bank credit facilities (5.39%)...................................................... $1,163.4 $ 877.7
Master repurchase agreements due on various dates in 1999
and 2000 (6.35%)................................................................. 1,009.1 780.6
Credit facility collateralized by retained interests in securitizations
due 2000 (7.16%)................................................................. 500.0 300.0
10.25% senior subordinated notes due 2002........................................... 193.6 194.0
Medium term notes due October 1999 to April 2003 (6.58%)............................ 238.7 238.7
Other............................................................................... 3.2 3.2
-------- --------
Total principal amount........................................................... 3,108.0 2,394.2
Less unamortized net discount....................................................... 4.3 4.9
-------- --------
Total............................................................................ $3,103.7 $2,389.3
======== ========
</TABLE>
As of June 30, 1999, we had $5.0 billion of master repurchase agreement
capacity (of which $1,009.1 million was outstanding at June 30, 1999) with
various investment banking firms, subject to the availability of eligible
collateral. The agreements generally provide for one-year terms, which can be
extended each quarter by mutual agreement of the parties for an additional year,
based upon the financial performance of our finance segment.
CHANGES IN PREFERRED STOCK
In February 1999, we redeemed all $105.5 million (carrying value) of
outstanding shares of Preferred Redeemable Increased Dividend Equity Securities,
7% PRIDES Convertible Preferred Stock ("PRIDES") in exchange for 5.9 million
shares of Conseco common stock.
CHANGES IN COMMON STOCK
Changes in the number of shares of common stock outstanding were as follows
(shares in thousands):
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------
1999 1998
---- ----
<S> <C> <C>
Balance, beginning of period................................................................... 315,844 310,012
Stock options exercised..................................................................... 4,718 6,389
Stock warrants exercised.................................................................... - 862
Issuance of shares.......................................................................... 3,115 -
Common shares converted from convertible subordinated debentures............................ - 540
Common shares converted from PRIDES......................................................... 5,904 573
Common stock acquired under option exercise and repurchase programs......................... (2,900) (5,989)
Shares issued under employee benefit and compensation plans................................. 50 674
Shares returned by former executive due to recomputation of bonus........................... - (698)
------- -------
Balance, end of period......................................................................... 326,731 312,363
======= =======
</TABLE>
15
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
On June 30, 1999, we sold 3.1 million shares of our common stock to an
unaffiliated party (the "Buyer") at the then-current market value of $29.0625
per share. Proceeds from the sale of $89.4 million (net of issuance costs of
$1.1 million) were used to repay certain indebtedness of the Company.
Simultaneous with the issuance of the common stock, we entered into a forward
transaction with the Buyer to be settled at $29.0625 per share on or before
December 15, 1999, in a method of our choosing (i.e., we may select cash
settlement, transfer of net shares to or from the Buyer, or transfer of net cash
to or from the Buyer). In the interim, we will make payments to the Buyer
equivalent to a total fixed return of LIBOR plus 65 basis points for the length
of time the forward transaction is outstanding.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended, ("SFAS 133")
requires all derivative instruments to be recorded on the balance sheet at
estimated fair value. Changes in the fair value of derivative instruments are to
be recorded each period either in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, on the type of hedge transaction. We are required to
implement the provisions of SFAS 133 for the year 2001. We are currently
evaluating the impact of SFAS 133. At present, we believe it will not have a
material effect on either our consolidated financial position or our results of
operations.
LITIGATION
Green Tree has been served with various related lawsuits which were filed
in the United States District Court for the District of Minnesota. These
lawsuits were filed as purported class actions on behalf of persons or entities
who purchased common stock or options of Green Tree during the alleged class
periods that generally run from February 1995 to January 1998. One such action
did not include class action claims. In addition to Green Tree, certain current
and former officers and directors of Green Tree are named as defendants in one
or more of the lawsuits. Green Tree and other defendants have obtained an order
from the United States District Court for the District of Minnesota
consolidating the lawsuits seeking class action status into two actions: one
which pertains to a purported class of common stockholders and the other which
pertains to a purported class of stock option traders. Plaintiffs in the
lawsuits assert claims under Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934. In each case, plaintiffs allege that Green Tree and the other
defendants violated federal securities laws by, among other things, making false
and misleading statements about the current state and future prospects of Green
Tree (particularly with respect to prepayment assumptions and performance of
certain loan portfolios of Green Tree) which allegedly rendered Green Tree's
financial statements false and misleading. The Company believes that the
lawsuits are without merit and intends to defend such lawsuits vigorously. The
ultimate outcome of these lawsuits cannot be predicted with certainty. Green
Tree has filed motions, which are pending, to dismiss these lawsuits.
In addition, the Company and its subsidiaries are involved on an ongoing
basis in lawsuits related to their operations. Although the ultimate outcome of
certain of such matters cannot be predicted, such lawsuits currently pending
against the Company or its subsidiaries are not expected, individually or in the
aggregate, to have a material adverse effect on the Company's consolidated
financial condition, cash flows or results of operations.
16
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
The following disclosures supplement our consolidated statement of cash
flows:
<TABLE>
<CAPTION>
Six months ended
June 30,
-----------------
1999 1998
---- ----
(Dollars in millions)
<S> <C> <C>
Non-cash items not reflected in the consolidated statement of cash flows:
Issuance of common stock under stock option and employee benefit plans........................ $ 2.1 $ 3.3
Tax benefit related to the issuance of common stock under employee benefit plans.............. 24.4 41.8
Conversion of debt and preferred stock into common stock...................................... 105.5 26.5
Shares returned by former executive due to recomputation of bonus............................. - 23.4
Issuance of stock warrants in conjunction with financing transaction.......................... - 7.7
</TABLE>
17
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
In this section, we review Conseco's consolidated results of operations for
the three and six months ended June 30, 1999 and 1998, and significant changes
in our consolidated financial condition. Please read this discussion in
conjunction with the accompanying consolidated financial statements and notes.
Consolidated results and analysis
Our second quarter 1999 operating earnings were $316.3 million, or 96 cents
per diluted share, up 41 percent and 33 percent, respectively, over the second
quarter of 1998. Operating earnings during the first six months of 1999 were
$619.3 million, or $1.87 per diluted share, up 36 percent and 28 percent,
respectively, over the first six months of 1998. Operating earnings from the
insurance segment increased as a result of the growth and increased
profitability of the business in force. Operating earnings from the finance
segment increased primarily as a result of portfolio growth which increased
income from sales of receivables, interest, servicing and commissions.
Net income of $297.5 million in the second quarter of 1999, or 90 cents per
diluted share, included net investment losses (including related costs,
amortization and taxes) of $18.8 million, or 6 cents per share. The net loss of
$301.6 million in the second quarter of 1998, or 98 cents per diluted share,
included: (i) net investment losses of $8.6 million, or 3 cents per share; (ii)
nonrecurring and impairment charges of $503.8 million, or $1.63 per share,
related to the Green Tree Merger; and (iii) an extraordinary charge of $13.9
million, or 4 cents per share, related to the early retirement of debt. Net
income of $594.6 million in the first six months of 1999, or $1.80 per diluted
share, included net investment losses (including related costs, amortization and
taxes) of $24.7 million, or 8 cents per share. The net loss of $87.0 million in
the first six months of 1998, or 29 cents per diluted share, included: (i) net
investment losses of $8.6 million, or 2 cents per share; (ii) nonrecurring and
impairment charges of $503.8 million, or $1.63 per share, related to the Green
Tree Merger; and (iii) an extraordinary charge of $30.3 million, or 10 cents per
share, related to the early retirement of debt.
Total revenues in the second quarters of 1999 and 1998 included net
investment losses of $22.9 million and net investment gains of $12.3 million,
respectively. Excluding net investment gains (losses), total revenues were
$2,076.4 million in the second quarter of 1999, up 15 percent from $1,804.9
million in the second quarter of 1998. Total revenues in the first six months of
1999 and 1998 included net investment losses of $21.9 million and net investment
gains of $117.1 million, respectively. Excluding net investment gains (losses),
total revenues were $4,041.3 million in the first six months of 1999, up 9.7
percent from $3,684.9 million in the first six months of 1998.
18
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
Results of operations by segment for the three and six months ended
June 30, 1999 and 1998
The following tables and narratives summarize our results by segment.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Operating earnings:
Operating income of segments before income taxes and minority interest:
Insurance and fee-based operations............................... $366.4 $ 341.3 $ 728.5 $ 683.9
Finance operations............................................... 225.4 79.1 430.6 181.5
Corporate interest and other expenses............................ (55.7) (40.0) (106.5) (82.8)
------ ------- ------- -------
Operating income before income taxes and minority interest .... 536.1 380.4 1,052.6 782.6
Income taxes related to operating income............................. 189.5 136.9 372.8 288.7
------ ------- ------- -------
Operating income before minority interest...................... 346.6 243.5 679.8 493.9
Minority interest in consolidated subsidiaries....................... 30.3 18.8 60.5 38.2
------ ------- ------- -------
Operating earnings............................................. 316.3 224.7 619.3 455.7
Nonoperating items:
Net investment losses, net of tax and including other items.......... (18.8) (8.6) (24.7) (8.6)
Impairment charge, net of taxes...................................... - (355.8) - (355.8)
Nonrecurring charges, net of taxes................................... - (148.0) - (148.0)
------ ------- ------- -------
Income (loss) before extraordinary charge........................ 297.5 (287.7) 594.6 (56.7)
Extraordinary charge, net of taxes...................................... - 13.9 - 30.3
------ ------- ------- -------
Net income (loss)................................................ $297.5 $(301.6) $ 594.6 $ (87.0)
====== ======= ======= =======
</TABLE>
19
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
Insurance and fee-based operations
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Premiums and deposits collected:
Annuities ......................................................... $ 772.3 $ 581.5 $ 1,283.3 $ 1,050.1
Supplemental health.................................................. 520.6 485.9 1,042.3 990.1
Life................................................................. 224.5 216.3 466.1 457.4
Individual and group major medical................................... 206.9 219.9 416.0 446.5
Other................................................................ 32.6 33.7 66.6 66.3
Mutual funds......................................................... 82.8 25.0 165.0 35.4
Certificates of deposit.............................................. 299.0 - 420.0 -
--------- --------- --------- --------
Total premiums and deposits collected............................ $ 2,138.7 $ 1,562.3 $ 3,859.3 $ 3,045.8
========= ========= ========= =========
Average insurance liabilities:
Annuities:
Mortality based.................................................... $ 691.5 $ 679.7 $ 689.3 $ 686.1
Equity-linked...................................................... 1,581.1 804.3 1,485.8 697.6
Deposit based...................................................... 10,856.5 11,850.4 10,949.2 11,944.2
Separate accounts.................................................. 1,088.8 710.5 1,018.6 694.8
Health............................................................... 4,711.4 4,388.7 4,706.6 4,295.4
Life:
Interest sensitive................................................. 4,076.2 4,164.7 4,103.9 4,125.4
Non-interest sensitive............................................. 2,855.3 2,718.1 2,846.8 2,734.7
--------- --------- --------- ---------
Total average insurance liabilities, net of reinsurance ceded.... $25,860.8 $25,316.4 $25,800.2 $25,178.2
========= ========= ========= =========
Insurance policy income................................................. $ 1,020.0 $ 989.8 $ 2,027.4 $ 1,979.9
Net investment income:
General account invested assets...................................... 515.6 491.8 1,011.4 997.2
Equity-indexed products based on S&P 500 Index....................... 50.8 12.3 84.4 72.0
Amortization of cost of S&P 500 Call Options......................... (23.3) (10.9) (43.4) (18.6)
Separate account assets.............................................. 16.9 11.8 29.6 37.7
Fee revenue and other income............................................ 33.7 26.0 62.4 46.8
--------- --------- --------- ---------
Total revenues (a)............................................... 1,613.7 1,520.8 3,171.8 3,115.0
--------- --------- --------- ---------
Insurance policy benefits............................................... 681.0 681.4 1,350.6 1,361.8
Amounts added to policyholder account balances:
Annuity products other than those listed below....................... 173.4 182.2 347.5 370.6
Equity-indexed products based on S&P 500 Index....................... 49.2 11.2 82.5 70.9
Separate account liabilities......................................... 16.9 11.8 29.6 37.7
Amortization related to operations...................................... 146.3 119.2 286.9 236.3
Interest expense on investment borrowings............................... 16.6 18.2 28.4 37.1
Other operating costs and expenses...................................... 163.9 155.5 317.8 316.7
--------- --------- --------- ---------
Total benefits and expenses (a).................................. 1,247.3 1,179.5 2,443.3 2,431.1
--------- --------- ---------- ---------
Operating income before income taxes, minority interest and
extraordinary charge........................................... 366.4 341.3 728.5 683.9
Net investment gains (losses), including related costs and
amortization......................................................... (29.0) (16.2) (38.0) 2.2
--------- --------- --------- ---------
Income before income taxes, minority interest and
extraordinary charge........................................... $ 337.4 $ 325.1 $ 690.5 $ 686.1
========= ========= ========= =========
(continued)
20
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
Three months ended Six months ended
June 30, June 30,
------------------ -------------------
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in millions)
Ratios:
Investment income, net of interest credited on annuities and universal life
products less interest expense on investment borrowings, as a percentage of
insurance liabilities excluding liabilities related to separate accounts
and reinsurance
ceded (annualized)................................................ 4.74% 4.44% 4.61% 4.51%
Operating costs and expenses and amortization related to
operations as a percentage of average insurance
liabilities excluding liabilities related to separate accounts
and reinsurance ceded (annualized)................................ 5.01% 4.46% 4.88% 4.50%
Health loss ratios:
All health lines:
Insurance policy benefits......................................... $514.9 $507.5 $1,018.0 $1,022.2
Loss ratio........................................................ 67.53% 68.12% 66.82% 68.23%
Medicare Supplement:
Insurance policy benefits......................................... $162.4 $147.9 $321.6 $303.7
Loss ratio........................................................ 68.76% 67.51% 68.68% 68.77%
Long-Term Care:
Insurance policy benefits......................................... $119.6 $119.2 $235.0 $232.3
Loss ratio........................................................ 65.22% 68.00% 63.33% 67.09%
Specified Disease:
Insurance policy benefits......................................... $55.0 $54.3 $110.9 $100.0
Loss ratio........................................................ 58.28% 57.14% 58.30% 52.15%
Major Medical:
Insurance policy benefits......................................... $152.6 $160.3 $300.5 $335.5
Loss ratio........................................................ 71.30% 73.12% 71.46% 75.10%
Other:
Insurance policy benefits......................................... $25.3 $25.9 $49.9 $50.7
Loss ratio........................................................ 73.16% 70.92% 68.08% 70.59%
<FN>
- --------------------
(a) Revenues exclude net investment gains (losses); benefits and expenses
exclude amortization related to realized gains.
</FN>
</TABLE>
Premiums and deposits collected were $2.1 billion in the second quarter of
1999, up 37 percent over 1998. Excluding certificates of deposit, collections
were $1.8 billion, up 18 percent over 1998. Premiums and deposits collected in
the first six months of 1999 were $3.9 billion, up 27 percent over 1998.
Excluding certificates of deposit, collections in the first six months of 1999
were $3.4 billion, up 13 percent over 1998. See "Sales of Insurance and Deposit
Products" for further analysis.
Average insurance liabilities, net of reinsurance receivables, were $25.9
billion in the second quarter of 1999, up 2.2 percent over 1998. Average
insurance liabilities, net of reinsurance receivables, in the first six months
of 1999 were $25.8 billion, up 2.5 percent over 1998.
Insurance policy income is comprised of: (i) premiums earned on policies
which provide mortality or morbidity coverage; and (ii) fees and other charges
made against other policies. The increases in 1999 reflect higher sales of these
products. See "Sales of Insurance and Deposit Products" for further analysis.
21
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
Net investment income on general account invested assets (which excludes
income on separate account assets related to variable annuities and the income,
cost and change in the fair value of S&P 500 Call Options related to
equity-indexed products) was $515.6 million in the second quarter of 1999, up
4.8 percent from 1998 and was $1,011.4 million in the first six months of 1999,
up 1.4 percent from 1998. The average balance of general account invested assets
increased by 4 percent in the second quarter of 1999 to $26.9 billion compared
to the same period in 1998. The yield on these assets decreased by .1 percentage
point to 7.6 percent in 1999. The average balance of general account invested
assets increased by 4 percent in the first six months of 1999 to $26.8 billion
compared to the same period in 1998. The yield on these assets decreased by .1
percentage point to 7.5 percent during the first six months of 1999. The changes
in yield reflect the general decrease in investment interest rates over several
periods and fluctuations in income from limited partnerships and other
investments.
Net investment income related to equity-indexed products based on the S&P
500 Index is substantially offset by a corresponding charge to amounts added to
policyholder account balances for equity-indexed products. Such income and
related charge fluctuated based on the performance of the S&P 500 Index to which
the returns on such products are linked.
Amortization of cost of S&P 500 Call Options represents the premiums paid
to purchase S&P 500 Call Options related to our equity-linked products. We
amortize these amounts over the terms of the options. Such amortization has
increased because of the increase in our equity-linked product business, changes
in the participation rate of such business in the S&P 500 Index, and the cost of
the options.
Net investment income from separate account assets is offset by a
corresponding charge to amounts added to policyholder account balances for
variable annuity products. Such income and related charge fluctuated in
relationship to total separate account assets and the return earned on such
assets.
Insurance policy benefits in the second quarter of 1999 were comparable to
the same period in 1998. Insurance policy benefits decreased .8 percent in the
first six months of 1999 compared to the same period in 1998 as a result of
favorable claim experience.
Loss ratios for Medicare supplement products have been relatively stable
and within our expectations. Governmental regulations generally require us to
attain and maintain a loss ratio, after three years, of not less than 65
percent.
The loss ratios for long-term care products declined in 1999, reflecting
favorable claims experience, partially offset by the effects of the asset
accumulation phase of these products. The net cash flows from our long-term care
products generally result in the accumulation of amounts in the early policy
years of a policy (accounted for as reserve increases) which are paid out as
benefits in later policy years (accounted for as reserve decreases).
Accordingly, the loss ratio on these policies may increase during the asset
accumulation phase, but the increase in the change in reserve will be partially
offset by investment income earned on the assets accumulated.
The 1999 loss ratios for specified disease products were within our
expectations. The 1998 ratios benefited from favorable claim developments which
were not expected to continue.
The loss ratios for major medical products declined in 1999, reflecting
recent premium rate increases, claim management activities and favorable claim
developments.
The loss ratios on other products will fluctuate more than other lines due
to the smaller size of these blocks of business. The 1999 ratios have been
within our expectations.
Amounts added to policyholder account balances for annuity products
decreased by 4.8 percent in the second quarter of 1999 to $173.4 million and
decreased by 6.2 percent in the first six months of 1999 to $347.5 million,
primarily due to a smaller block of this type of annuity business in force, on
the average, in the first six months of 1999. The weighted average crediting
rate for these annuity liabilities was 4.6 percent in the first six months of
1999 and 1998.
Amortization related to operations increased primarily as a result of new
policies sold. This item includes amortization of: (i) the cost of policies
produced; (ii) the cost of policies purchased; and (iii) goodwill related to
this segment's business. It excludes amortization related to realized gains.
22
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
Interest expense on investment borrowings decreased primarily as a result
of decreased investment borrowing activities and lower average borrowing rates.
Investment borrowings averaged approximately $1,111.9 million during the first
six months of 1999 compared to $1,251.5 million during the same period of 1998.
Borrowing rates decreased 80 basis points to 5.1 percent during the first six
months of 1999.
Other operating costs and expenses were comparable to the prior periods.
Net investment gains (losses), including related costs and amortization,
fluctuate from period to period. Selling securities at a gain and reinvesting
the proceeds at lower yields may, absent other management action, tend to
decrease future investment yields. We believe, however, that the following
factors mitigate the adverse effect on net income: (i) we recognize additional
amortization of cost of policies purchased and cost of policies produced in
order to reflect reduced future yields (thereby reducing such amortization in
future periods); (ii) we can reduce interest rates credited to some products,
thereby diminishing the effect of the yield decrease on the investment spread;
and (iii) the investment portfolio grows as a result of reinvesting the
investment gains. Sales of fixed maturity investments resulted in additional
amortization of the cost of policies purchased and the cost of policies produced
of $6.1 million and $28.5 million in the second quarters of 1999 and 1998,
respectively, and $16.1 million and $114.9 million in the first six months of
1999 and 1998, respectively.
23
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
Finance operations
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Contract originations:
Manufactured housing................................................. $ 1,983.6 $ 1,673.9 $ 3,394.7 $ 2,878.1
Mortgage services.................................................... 1,931.7 1,252.5 3,369.3 2,290.7
Consumer/credit card................................................. 742.6 689.3 1,281.2 1,264.5
Commercial........................................................... 2,152.0 1,820.3 4,138.9 3,360.4
--------- --------- --------- ---------
Total ............................................................. $ 6,809.9 $ 5,436.0 $12,184.1 $ 9,793.7
========= ========= ========= =========
Sales of receivables:
Manufactured housing................................................. $ 1,681.1 $ 1,356.4 $ 3,481.1 $ 2,556.4
Home equity/home improvement......................................... 1,760.5 500.1 2,948.7 1,450.1
Consumer/equipment................................................... 770.7 403.5 770.7 903.5
Leases............................................................... 252.7 - 252.7 -
Commercial and retail revolving credit............................... 92.5 170.6 92.5 488.4
Retained bonds....................................................... (348.2) (14.3) (371.4) (14.3)
--------- --------- --------- ---------
Total ............................................................. $ 4,209.3 $ 2,416.3 $ 7,174.3 $ 5,384.1
========= ========= ========= =========
Managed receivables (average):
Manufactured housing................................................. $22,362.8 $18,995.7 $21,905.0 $18,634.8
Mortgage services.................................................... 9,725.0 5,961.9 9,205.3 5,582.5
Consumer/credit card................................................. 3,101.0 2,228.3 3,044.8 2,070.5
Commercial........................................................... 5,551.5 3,916.3 5,336.4 3,728.1
--------- --------- --------- ---------
Total ............................................................. $40,740.3 $31,102.2 $39,491.5 $30,015.9
========= ========= ========= =========
Net investment income:
Finance receivables and other........................................ $106.1 $ 68.8 $191.7 $ 118.9
Interest-only securities............................................. 47.8 26.4 91.5 59.8
Gain on sale of finance receivables..................................... 226.0 127.6 425.8 271.3
Fee revenue and other income............................................ 87.6 62.1 170.2 120.7
------ ------- ------ -------
Total revenues..................................................... 467.5 284.9 879.2 570.7
------ ------- ------ -------
Finance interest expense................................................ 69.6 55.2 126.2 103.7
Other operating costs and expenses...................................... 172.5 150.6 322.4 285.5
------ ------- ------ -------
Total expenses..................................................... 242.1 205.8 448.6 389.2
------ ------- ------ -------
Income before impairment and nonrecurring charges,
income taxes and extraordinary charge............................ 225.4 79.1 430.6 181.5
Impairment charge....................................................... - (549.4) - (549.4)
Nonrecurring charges.................................................... - (148.0) - (148.0)
------ ------- ------ -------
Income (loss) before income taxes and extraordinary charge......... $225.4 $(618.3) $430.6 $(515.9)
====== ======= ====== =======
</TABLE>
Contract originations in the second quarter of 1999 were $6.8 billion, up
25 percent over 1998. Contract originations in the first six months of 1999 were
$12.2 billion, up 24 percent over 1998.
24
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
Manufactured housing contract originations increased by $309.7 million, or
19 percent, in the second quarter of 1999 and by $516.6 million, or 18 percent,
during the first six months of 1999. The 1999 increase was due to a 5.4 percent
increase in the average contract size and a 12 percent increase in the number of
contracts originated.
Mortgage services contract originations increased by $679.2 million, or 54
percent, in the second quarter of 1999 and by $1,078.6 million, or 47 percent,
during the first six months of 1999. The increase reflects growth in both home
equity and home improvement business. We have continued to expand these
origination networks.
Consumer/credit card contract originations increased by $53.3 million, or
7.7 percent, in the second quarter of 1999 and by $16.7 million, or 1.3 percent,
during the first six months of 1999 because we focused on originating more
profitable business in 1999.
Commercial originations increased by $331.7 million, or 18 percent, in the
second quarter of 1999 and by $778.5 million, or 23 percent, during the first
six months of 1999, reflecting higher production in all areas of commercial
financing.
Sales of receivables occur when we sell through securitizations the finance
receivables that we originate. The amount of receivables we sell in a particular
period depends on many factors, including: (i) the volume of recent
originations; (ii) market conditions; and (iii) the availability and cost of
alternative financing. The total finance receivables sold in the second quarter
of 1999 increased by 74 percent from the second quarter of 1998. The total
finance receivables sold in the first six months of 1999 increased by 33 percent
over the same period in 1998. We held $4.0 billion of finance receivables at
June 30, 1999, an increase of $.5 billion over June 30, 1998, primarily as a
result of an increase in originations.
Managed receivables include finance receivables we sell through
securitizations as well as the finance receivables and related interests we
retain. The average managed receivables increased to $40.7 billion in the second
quarter of 1999, up 31 percent over 1998, and to $39.5 billion in the first six
months of 1999, up 32 percent over the same period in 1998.
Net investment income on finance receivables and other consists of: (i)
interest earned on unsold finance receivables; and (ii) interest income on
short-term and other investments. Such income increased by 54 percent, to $106.1
million, in the second quarter of 1999 and increased by 61 percent, to $191.7
million, in the first six months of 1999. The increase is consistent with the
increase in average finance receivables during the 1999 periods. The weighted
average yields earned on finance receivables and other investments were 10.2
percent and 10.6 percent during the second quarters of 1999 and 1998,
respectively, and such weighted average yields were 9.9 percent and 10.3 percent
during the first six months of 1999 and 1998, respectively.
Net investment income on interest-only securities is the accretion
recognized on the interest-only securities we retain after we sell finance
receivables. Such income increased by 81 percent, to $47.8 million, in the
second quarter of 1999 and by 53 percent, to $91.5 million, in the first six
months of 1999. The increase is consistent with the change in the average
balance of interest-only securities and the increase in the discount rate
assumption we use to value our interest-only securities. The weighted average
yields earned on interest-only securities were 13.4 percent and 8.7 percent
during the first six months of 1999 and 1998, respectively.
Gain on sale of finance receivables is the difference between the proceeds
from the sale of receivables (net of related transaction costs) and the
allocated carrying amount of the receivables sold. We determine the allocated
carrying amount by allocating the original amount of the receivables between the
portion sold and any retained interests (securities classified as fixed
maturities, interest-only securities and servicing rights), based on their
relative fair values at the time of sale. Assumptions used in calculating the
estimated fair value of such retained interests are subject to volatility that
could materially affect operating results. Prepayment rates may vary from
expected rates as a result of competition, obligor mobility, general and
regional economic conditions and changes in interest rates. In addition, actual
losses incurred as a result of loan defaults may vary from projected
performance.
Our gain on sale of finance receivables increased by 77 percent, to $226.0
million, in the second quarter of 1999 and by 57 percent, to $425.8 million, in
the first six months of 1999. The gain recognized at the time of the sale
fluctuates when changes occur in: (i) the amount of loans sold; (ii) market
conditions (such as the market interest rates available on securities sold in
our securitizations); (iii) the amount and type of interest we retain in the
receivables sold; and (iv) assumptions used to calculate the gain. The gain
recognized in the first quarter of 1998 was reduced by $47 million for an
interest-only security valuation adjustment. In response to higher prepayment
rates and higher market yields on publicly traded securities similar to
25
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
our interest-only securities, we increased the assumed prepayment and discount
rates used to calculate the gain on sale of finance receivables for sales
completed after June 30, 1998. Late in the second quarter of 1999, the general
level of interest rates increased, causing us to incur higher interest costs on
securitizations completed at that time. Accordingly, the amount of gain (before
valuation adjustments) as a percentage of closed-end loans sold decreased to 5.5
percent in the second quarter of 1999 from 5.7 percent in the second quarter of
1998 and decreased to 6.0 percent in the first six months of 1999 compared to
6.5 percent in the first six months of 1998.
In recent periods, the Company has emphasized the inclusion of points and
origination fees in finance receivables originated, which increases the amount
of cash received when such receivables are sold in securitizations. Points and
origination fees collected upon the securitization of finance receivables
increased to $132.7 million (or 59 percent of the gain on sale recognized) in
the second quarter of 1999 compared to $57.2 million (or 45 percent of the gain
on sale recognized) in the second quarter of 1998; and increased to $243.2
million (or 57 percent of the gain on sale recognized) in the first six months
of 1999 compared to $110.2 million (or 41 percent of the gain on sale
recognized) in the comparable period of 1998.
In recent periods, conditions in the credit markets have resulted in
less-attractive pricing of certain lower rated securities. As a result, we have
chosen to hold, rather than sell, certain securities having corporate guarantee
provisions. We recognize no gain on the sale of the securities we hold, but we
recognize greater interest income, net of related interest expense, over the
term we hold them. At June 30, 1999, we held $661.7 million of such securities
which are classified as actively managed fixed maturities.
See "Liquidity for Finance Operations" and "Pro Forma Data Assuming
Portfolio Lending" for a discussion of our continuing active consideration
of the use of alternative methods of financing which could eliminate or affect
the gain on sale recognized in future periods.
Fee revenue and other income includes servicing income, commissions earned
on insurance policies written in conjunction with the financing transactions and
other income from late fees. Such income increased by 41 percent, to $87.6
million, in the second quarter of 1999 and by 41 percent, to $170.2 million, in
the first six months of 1999. Our servicing portfolio (on which we earn
servicing income) and our net written insurance premiums both grew along with
managed receivables.
Finance interest expense increased by 26 percent, to $69.6 million, in the
second quarter of 1999 and by 22 percent, to $126.2 million, in the first six
months of 1999. Our borrowings increased to fund the increase in our average
inventory of finance receivables generated by increases in our loan
originations, commercial revolving credit and lease portfolio financings and
securities held from our securitizations. These increases were offset somewhat
by a decrease in our average borrowing rate to 6.2 percent in the second quarter
of 1999 from 7.8 percent in the second quarter of 1998. Our average borrowing
rate during the first six months of 1999 was 6.3 percent compared to 7.8 percent
during the first six months of 1998.
Other operating costs and expenses include the costs associated with
servicing our managed receivables and non-deferrable costs related to
originating new loans. Such expense increased by 15 percent, to $172.5 million,
in the second quarter of 1999 and by 13 percent, to $322.4 million, in the first
six months of 1999 reflecting: (i) the growth in our servicing portfolio; and
(ii) the increased volume of contracts originated.
Other components of income before income taxes, minority interest and
extraordinary charge:
Corporate interest and other expenses were $55.7 million in the second
quarter of 1999 and $40.0 million in the second quarter of 1998. Such expenses
were $106.5 million in the first six months of 1999 and $82.8 million in the
first six months of 1998. Interest expense was $44.1 million in the second
quarter of 1999, $36.3 million in the second quarter of 1998, $91.2 million in
the first six months of 1999 and $75.3 million in the first six months of 1998.
Such expense fluctuates in relationship to the average debt outstanding and the
average interest rate thereon.
SALES OF INSURANCE AND DEPOSIT PRODUCTS
In accordance with GAAP, insurance policy income shown in our consolidated
statement of operations consists of premiums received for policies that have
life contingencies or morbidity features. For annuity and universal life
contracts without such features, premiums collected are not reported as
revenues, but as deposits to insurance liabilities. We recognize revenues for
these products over time in the form of investment income and surrender or other
charges.
26
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
Total premiums and deposits collected were as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Premiums collected by our insurance subsidiaries:
Annuities:
Equity-indexed (first-year)........................................ $ 250.6 $ 221.7 $ 438.0 $ 373.7
Equity-indexed (renewal)........................................... 10.8 4.1 27.3 9.4
-------- -------- -------- --------
Subtotal - equity-indexed annuities.............................. 261.4 225.8 465.3 383.1
-------- -------- -------- --------
Other fixed (first-year)........................................... 346.7 241.7 517.4 474.4
Other fixed (renewal).............................................. 18.7 20.8 34.5 40.0
-------- -------- -------- --------
Subtotal - other fixed annuities................................. 365.4 262.5 551.9 514.4
-------- -------- -------- --------
Variable (first-year).............................................. 128.1 68.3 219.5 113.2
Variable (renewal)................................................. 17.4 24.9 46.6 39.4
-------- -------- -------- --------
Subtotal - variable annuities.................................... 145.5 93.2 266.1 152.6
-------- -------- -------- --------
Total annuities.................................................. 772.3 581.5 1,283.3 1,050.1
-------- -------- -------- --------
Supplemental health:
Medicare supplement (first-year)................................... 26.7 26.4 54.3 54.0
Medicare supplement (renewal)...................................... 198.6 184.5 403.9 382.4
-------- -------- -------- --------
Subtotal - Medicare supplement................................... 225.3 210.9 458.2 436.4
-------- -------- -------- --------
Long-term care (first-year)........................................ 29.8 30.3 59.2 59.9
Long-term care (renewal)........................................... 171.1 147.5 334.4 296.0
-------- -------- -------- --------
Subtotal - long-term care........................................ 200.9 177.8 393.6 355.9
-------- -------- -------- --------
Specified disease (first-year)..................................... 10.0 10.3 19.4 21.2
Specified disease (renewal)........................................ 84.4 86.9 171.1 176.6
-------- -------- -------- --------
Subtotal - specified disease..................................... 94.4 97.2 190.5 197.8
-------- -------- -------- --------
Total supplemental health........................................ 520.6 485.9 1,042.3 990.1
-------- -------- -------- --------
Life insurance:
First-year......................................................... 42.7 36.7 79.9 79.2
Renewal............................................................ 181.8 179.6 386.2 378.2
-------- -------- -------- --------
Total life insurance............................................. 224.5 216.3 466.1 457.4
-------- -------- -------- --------
Individual and group major medical:
Individual (first-year)............................................ 23.2 24.4 45.3 52.4
Individual (renewal)............................................... 54.8 55.3 114.2 111.9
-------- -------- -------- --------
Subtotal - individual............................................ 78.0 79.7 159.5 164.3
-------- -------- -------- --------
Group (first-year)................................................. 13.1 15.3 22.3 32.5
Group (renewal).................................................... 115.8 124.9 234.2 249.7
-------- -------- -------- --------
Subtotal - group................................................. 128.9 140.2 256.5 282.2
-------- -------- -------- --------
Total major medical.............................................. 206.9 219.9 416.0 446.5
-------- -------- -------- --------
Other health:
Other (first-year)................................................. 6.4 2.6 11.6 6.4
Other (renewal).................................................... 26.2 31.1 55.0 59.9
-------- -------- -------- --------
Total - other.................................................... 32.6 33.7 66.6 66.3
-------- -------- -------- --------
Total first-year premiums............................................ 877.3 677.7 1,466.9 1,266.9
Total renewal premiums............................................... 879.6 859.6 1,807.4 1,743.5
-------- -------- -------- --------
Total premiums collected by our insurance subsidiaries........... 1,756.9 1,537.3 3,274.3 3,010.4
-------- -------- -------- --------
Deposits collected by our other subsidiaries:
Mutual funds......................................................... 82.8 25.0 165.0 35.4
Certificates of deposit.............................................. 299.0 - 420.0 -
-------- -------- -------- --------
Total premiums and deposits collected............................ $2,138.7 $1,562.3 $3,859.3 $3,045.8
======== ======== ======== ========
</TABLE>
27
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
Annuities include equity-indexed annuities, other fixed annuities and
variable annuities sold through both career agents and professional independent
producers.
We introduced our first equity-indexed annuity product in 1996. The
accumulation value of these annuities is credited with interest at an annual
guaranteed minimum rate of 3 percent (or, including the effect of applicable
sales loads, a 1.7 percent compound average interest rate over the term of the
contracts). These annuities provide for higher returns based on a percentage of
the change in the S&P 500 Index during each year of their term. We purchase S&P
500 Call Options in an effort to hedge increases to policyholder benefits
resulting from increases in the S&P 500 Index. Total collected premiums for this
product were $261.4 million in the second quarter of 1999 compared with $225.8
million in the second quarter of 1998 and were $465.3 million in the first six
months of 1999 compared with $383.1 million in the first six months of 1998.
Other fixed rate annuity products include single-premium deferred annuities
("SPDAs"), flexible-premium deferred annuities ("FPDAs") and single-premium
immediate annuities ("SPIAs"), which are credited with a guaranteed rate. SPDA
and FPDA policies typically have an interest rate that is guaranteed for the
first policy year, after which we have the discretionary ability to change the
crediting rate to any rate not below a guaranteed rate. The interest rate
credited on SPIAs is based on market conditions existing when a policy is issued
and remains unchanged over the life of the SPIA. Annuity premiums on these
products increased by 39 percent, to $365.4 million, in the second quarter of
1999 and by 7 percent, to $551.9 million, in the first six months of 1999. Fixed
annuity collections in the second quarter of 1999 included $160.8 million of
business reinsured from other insurers. We intend to seek other reinsurance
opportunities in future quarters, although the timing of such transactions is
not predictable.
Variable annuities offer contract holders the ability to direct premiums
into specific investment portfolios; rates of return are based on the
performance of the portfolio. Such annuities have become increasingly popular
recently as a result of the desire of investors to invest in common stocks. Our
profits on variable annuities come from the fees charged to contract holders.
Variable annuity collected premiums increased by 56 percent, to $145.5 million,
in the second quarter of 1999 and increased by 74 percent, to $266.1 million in
the first six months of 1999.
Supplemental health products include Medicare supplement, long-term care
and specified disease insurance products distributed through a career agency
force and professional independent producers. Our profits on supplemental health
policies depend on the overall level of sales, persistency of in-force business,
investment yields, claim experience and expense management.
Collected premiums on Medicare supplement policies increased by 6.8 percent
to $225.3 million, in the second quarter of 1999 and by 5.0 percent, to $458.2
million, in the first six months of 1999. Sales of Medicare supplement policies
in recent periods have been affected by: (i) steps taken to improve
profitability by increasing premium rates and changing our commission structure
and underwriting criteria; (ii) increased competition from alternative
providers, including HMOs; and (iii) reduced production in Massachusetts due to
our decision to cease writing new business in that state (as announced in the
third quarter of 1997).
Premiums collected on long-term care policies increased by 13 percent, to
$200.9 million, in the second quarter of 1999 and by 11 percent to $393.6
million, in the first six months of 1999, due to increases in premium rates.
Premiums collected on specified disease policies decreased by 2.9 percent
to $94.4 million in the second quarter of 1999 and by 3.7 percent, to $190.5
million, in the first six months of 1999.
Life products are sold through career agents, professional independent
producers and direct response distribution channels. Life premiums collected
increased by 3.8 percent to $224.5 million in the second quarter of 1999 and by
1.9 percent, to $466.1 million, in the first six months of 1999.
Individual and group major medical products include major medical health
insurance products sold to individuals and groups. Group premiums decreased by
8.1 percent, to $128.9 million, in the second quarter of 1999 and by 9.1
percent, to $256.5 million, in the first six months of 1999. Individual health
premiums decreased to $78.0 million in the second quarter of 1999 compared with
$79.7 million in the second quarter of 1998 and decreased to $159.5 million in
the first six months of 1999 compared with $164.3 million in the first six
months of 1998. Our efforts to secure rate increases and write only
28
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
profitable major medical business have improved the profitability of these
products, although total premiums collected have decreased as expected.
Other health products include various health insurance products that are
not currently being actively marketed. Premiums collected in the second quarter
of 1999 were $32.6 million, down 3.3 percent over the second quarter of 1998 and
were $66.6 million in the first six months of 1999, slightly higher than the
comparable period in 1998. Since we no longer actively market these products, we
expect collected premiums to decrease in future years. Our in-force "other
health" business continues to be profitable.
Mutual fund sales have been very strong in 1999, reflecting our expanded
distribution. Such sales nearly doubled total mutual fund sales for all of 1998.
Certificates of deposit were introduced in the fourth quarter of 1998.
Sales in the first six months of 1999 were $420.0 million.
PRO FORMA DATA ASSUMING PORTFOLIO LENDING
In this section, we present our estimate of our operating earnings (income
before extraordinary charge and net investment gains (losses) (less that portion
of amortization of cost of policies purchased and cost of policies produced and
income taxes relating to such gains (losses))) on a portfolio basis; that is, as
if we had accounted for the securitizations of our finance receivables as
financing transactions, rather than as sales, throughout the Company's history.
Accordingly, the pro forma data exclude gain on sale of finance receivables,
servicing revenues and interest income on interest-only securities. The pro
forma data do reflect, over the life of the loans, the spread between: (i) the
interest earned on the loans included in the securitization pools; and (ii) the
sum of the interest paid to the holders of the debt securities pursuant to the
securitizations and credit losses in the portfolio. This section is intended to
assist you in analyzing our operating results. It is not intended to, and does
not, represent the results of the Company's operations prepared in accordance
with GAAP. This presentation assumes that the Company had been a portfolio
lender since its inception. The Company continues to consider actively a
change to lend predominantly on a portfolio basis. If we were to make this
change at any point in time, our actual earnings would initially be
substantially lower than the pro forma earnings presented here. See "Finance
Operations - Gain on Sale of Finance Receivables" and "Liquidity for Finance
Operations".
29
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
(Amounts in millions except
per share amounts)
<S> <C> <C> <C> <C>
PRO FORMA OPERATING EARNINGS DATA Margin on interest spread products:
Finance income....................................................... $1,080.3 $ 835.7 $ 2,093.1 $ 1,604.2
Investment income from insurance product investments................. 560.0 505.0 1,082.0 1,088.3
Provision for credit losses.......................................... (139.7) (98.9) (262.7) (182.3)
Finance and investment borrowing interest expense.................... (699.0) (543.0) (1,351.4) (1,051.4)
Amounts added to annuity and financial product account balances...... (239.5) (205.2) (459.6) (479.2)
-------- ------- ---------- ---------
Net interest margin.............................................. 562.1 493.6 1,101.4 979.6
-------- ------- --------- ---------
Margin on morbidity and mortality products:
Insurance policy income.............................................. 992.5 958.3 1,975.8 1,929.4
Insurance policy benefits............................................ (681.0) (681.4) (1,350.6) (1,361.8)
-------- ------- --------- ---------
Net mortality and morbidity...................................... 311.5 276.9 625.2 567.6
-------- ------- --------- ---------
Other revenues:
Fee revenue and other................................................ 79.5 54.3 151.5 100.5
Policy surrender fees................................................ 27.5 31.5 51.6 50.5
-------- ------- --------- ---------
Total other revenues............................................. 107.0 85.8 203.1 151.0
-------- ------- --------- ---------
Corporate interest expense.............................................. 44.2 36.3 91.2 75.3
Amortization............................................................ 146.3 119.2 286.9 236.3
Other operating costs and expenses...................................... 314.6 263.9 584.1 528.8
-------- ------- --------- ---------
Total costs and expenses......................................... 505.1 419.4 962.2 840.4
-------- ------- --------- ---------
Pro forma operating earnings before income taxes and
minority interest.............................................. 475.5 436.9 967.5 857.8
Income tax expense...................................................... 166.4 158.4 340.4 317.3
-------- ------- --------- ---------
Pro forma operating earnings before minority interest............ 309.1 278.5 627.1 540.5
Minority interest....................................................... 30.3 18.8 60.5 38.2
-------- ------- --------- ---------
Pro forma operating earnings..................................... $ 278.8 $ 259.7 $ 566.6 $ 502.3
======== ======= ========= =========
Reconciliation of reported operating earnings per diluted share to
pro forma operating earnings per share:
Reported operating earnings per share.............................. $ .96 $ .72 $ 1.87 $ 1.47
Pro-forma adjustments:
Finance income................................................. 1.86 1.45 3.65 2.85
Interest-only interest income.................................. (.09) (.05) (.17) (.11)
Provision for credit losses.................................... (.26) (.19) (.49) (.35)
Amortization of net deferred costs............................. (.04) (.02) (.09) (.04)
Interest expense............................................... (1.15) (.89) (2.24) (1.72)
Eliminate gain-on-sale......................................... (.42) (.24) (.80) (.51)
Eliminate servicing income..................................... (.08) (.06) (.15) (.13)
Deferral of net origination costs.............................. .06 .09 .13 .15
Effect of using basic equivalent shares for reported
earnings per share and diluted for pro forma amount.......... - (.04) - (.08)
------ ----- ------ ------
Pro forma operating income per share............................... $ .84 $ .77 $ 1.71 $ 1.53
====== ===== ====== ======
</TABLE>
30
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
LIQUIDITY AND CAPITAL RESOURCES
Changes in our consolidated balance sheet between December 31, 1998 and
June 30, 1999, reflect: (i) operating results; (ii) origination and sale of
finance receivables; (iii) changes in the fair value of actively managed fixed
maturity securities and interest-only securities; and (iv) various financing
transactions. Financing transactions (described in the notes to the consolidated
financial statements) include: (i) the issuance and repurchase of common stock;
and (ii) the issuance and repayment of notes payable and commercial paper.
In accordance with GAAP, we record our actively managed fixed maturity
investments and interest-only securities at estimated fair value. At June 30,
1999, because of the recent increases in interest rates and related decrease in
values of interest-bearing securities, we decreased the carrying value of such
investments by $1,040.0 million as a result of this fair value adjustment. The
fair value adjustment resulted in a $29.2 million decrease in carrying
value at year-end 1998.
Total capital shown below excludes notes payable of the finance segment
used to fund finance receivables. Such capital, before the fair value adjustment
recorded in accumulated other comprehensive loss, increased $572.6 million, or
5.5 percent, to $10.9 billion.
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
(Dollars in millions)
<S> <C> <C>
Total capital, excluding accumulated other comprehensive loss:
Corporate notes payable and commercial paper........................... $ 2,899.6 $ 2,932.2
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts..................................... 2,100.2 2,096.9
Shareholders' equity:
Preferred stock..................................................... - 105.5
Common stock and additional paid-in capital......................... 2,940.5 2,736.5
Retained earnings................................................... 2,963.4 2,460.0
--------- ---------
Total shareholders' equity, excluding accumulated
other comprehensive loss....................................... 5,903.9 5,302.0
--------- ---------
Total capital, excluding accumulated other comprehensive loss.... 10,903.7 10,331.1
Accumulated other comprehensive loss....................................... (547.3) (28.4)
--------- ---------
Total capital.................................................... $10,356.4 $10,302.7
========= =========
</TABLE>
Corporate notes payable and commercial paper decreased during the first six
months of 1999 primarily due to payments we made on our bank credit facilities
and commercial paper, partially offset by the issuance of $275.0 million of
senior notes due in 2001.
Shareholders' equity, excluding accumulated other comprehensive loss,
increased by $601.9 million in the first six months of 1999, to $5.9 billion.
Significant components of the increase included: (i) net income of $594.6
million; (ii) the issuance of $163.5 million of common stock; and (iii) the tax
benefit of $24.4 million related to the issuance of shares under stock option
plans. These increases were partially offset by: (i) repurchases of $89.4
million of common stock; and (ii) $91.2 million of common and preferred stock
dividends. The accumulated other comprehensive loss increased by $518.9 million,
principally related to the decreasing fair value of our insurance companies'
investment portfolio as interest rates rose.
Book value per common share outstanding increased to $16.39 at June 30,
1999, from $16.37 at December 31, 1998, primarily due to the factors discussed
in the previous paragraph. Excluding accumulated other comprehensive loss, book
value per common share outstanding increased to $18.07 at June 30, 1999, from
$16.46 at December 31, 1998.
31
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
Dividends declared on common stock for the six months ended June 30, 1999,
were 28 cents per share. In July 1999, Conseco's Board of Directors increased
the quarterly cash dividend on the Company's common stock to 15 cents per share
from 14 cents per share, effective with the dividend payment to be made October
1, 1999.
The following table summarizes certain financial ratios as of and for the
six months ended June 30, 1999, and as of and for the year ended December 31,
1998:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Book value per common share:
As reported............................................................................... $16.39 $16.37
Excluding accumulated other comprehensive loss (a)........................................ 18.07 16.46
Ratio of earnings to fixed charges:
As reported............................................................................... 5.16X 3.30X
Excluding interest expense on debt related to finance
receivables and other investments (b)................................................... 11.92X 6.79X
Ratio of operating earnings to fixed charges (c):
As reported............................................................................... 5.32X 4.89X
Excluding interest expense on debt related to finance
receivables and other investments (b)................................................... 12.33X 10.81X
Ratio of earnings to fixed charges, preferred dividends and distributions on
Company-obligated mandatorily redeemable preferred securities of subsidiary
trusts:
As reported............................................................................. 3.73X 2.47X
Excluding interest expense on debt related to finance
receivables and other investments (b)................................................. 5.93X 3.68X
Ratio of operating earnings to fixed charges, preferred dividends and
distributions on Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts (c):
As reported............................................................................. 3.84X 3.66X
Excluding interest expense on debt related to finance
receivables and other investments (b)................................................. 6.13X 5.86X
Rating agency ratios (a) (d) (e) (f):
Debt to total capital..................................................................... 24% 26%
Debt and Company-obligated mandatorily redeemable preferred securities
of subsidiary trusts to total capital (g)............................................... 39% 42%
<FN>
(a) Excludes accumulated other comprehensive loss.
(b) We include these ratios to assist you in analyzing the impact of interest
expense on debt related to finance receivables and other investments (which
is generally offset by interest earned on finance receivables and other
investments financed by such debt). Such ratios are not intended to, and do
not, represent the following ratios prepared in accordance with GAAP: the
ratio of earnings to fixed charges; and the ratio of earnings to fixed
charges, preferred dividends and distributions on Company-obligated
mandatorily redeemable preferred securities of subsidiary trusts.
(c) Such ratios exclude the following items from earnings: (i) net investment
gains (losses) (less that portion of amortization of cost of policies
purchased and cost of policies produced relating to such gains (losses));
(ii) impairment charges; and (iii) nonrecurring charges. Such ratios are
not intended to, and do not, represent the following ratios prepared in
accordance with GAAP: the ratio of earnings to fixed charges; and the ratio
of earnings to fixed charges, preferred dividends and distributions on
Company-obligated mandatorily redeemable preferred securities of subsidiary
trusts.
32
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
(d) Excludes debt of finance segment used to fund finance receivables and
investment borrowings of the insurance segment.
(e) These ratios are calculated in a manner discussed with rating agencies.
(f) Corporate debt is reduced by cash and investments held by non-life companies
other than finance companies.
(g) Assumes the purchase of common shares pursuant to stock purchase contracts
related to certain Company-obligated mandatorily redeemable preferred
securities (the FELINE PRIDES) has occurred and the preferred securities
have been redeemed.
</FN>
</TABLE>
Consistent with discussions with rating agencies, the Company targeted the
following rating agency ratios (described above): (i) the ratio of corporate
debt to total capital to be at or below 25 percent; and (ii) the ratio of
corporate debt and Company-obligated mandatorily redeemable preferred securities
of subsidiary trusts to total capital to be at or below 40 percent.
Conseco achieved these targeted ratios at June 30, 1999.
We continually review our capital structure, including the need and
desirability of modifying our existing debt and equity.
Liquidity for insurance and fee-based operations
Our insurance operating companies generally receive adequate cash flow from
premium collections and investment income to meet their obligations. Life
insurance and annuity liabilities are generally long-term in nature.
Policyholders may, however, withdraw funds or surrender their policies, subject
to surrender and withdrawal penalty provisions. We seek to balance the duration
of our invested assets with the estimated duration of benefit payments arising
from contract liabilities.
We believe that the diversity of the investment portfolio of our life
insurance subsidiaries and the concentration of investments in high-quality,
liquid securities should provide sufficient liquidity to meet foreseeable cash
requirements.
Liquidity for finance operations
Our finance operations require continued access to the capital markets for
the warehousing and sale of finance receivables. To satisfy these needs, we use
a variety of capital resources.
The most important liquidity source for our finance operations has been our
ability to sell finance receivables in the secondary markets through loan
securitizations. Under certain securitized sales structures, we have provided a
variety of credit enhancements, which generally take the form of corporate
guarantees, but have also included bank letters of credit, surety bonds, cash
deposits and over-collateralization or other equivalent collateral. When
choosing the appropriate structure for a securitized loan sale, we analyze the
cash flows unique to each transaction, as well as its marketability and
projected economic value. The structure of each securitized sale depends, to a
great extent, on conditions in the fixed-income markets at the time of sale, as
well as on cost considerations and the availability and effectiveness of the
various enhancement methods.
During the third and fourth quarters of 1998, liquidity in the credit
markets became extremely limited for many issuers. We believe the liquidity in
this market improved in early 1999. This market is very large and fills a need
for many investors and therefore we believe it is unlikely to disappear. We have
been able to sell finance receivables even under the tough market conditions
which existed during the latter half of 1998, however the gains recognized on
such sales were lower. In addition, we have access to bank credit, master
repurchase agreements and securitization lines that would enable us to continue
production of loans for some time, even if the asset-backed markets were
temporarily not available.
Late in the second quarter of 1999, the general level of interest rates
increased, causing us to incur higher interest costs on securitizations
completed at that time. Accordingly, the amount of gain as a percentage of loans
sold decreased to 5.5 percent in the second quarter of 1999 from 5.7 percent in
the second quarter of 1998. The general level of interest rates has continued to
increase in the third quarter of 1999 and spreads in the markets where we sell
finance receivables have become less favorable. We have increased interest rates
on our lending products as we strive to maintain our targeted spread in the
current interest rate environment.
33
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
In some recent securitizations, we elected to hold certain lower-rated
securities rather than sell them at prevalent market prices. We may choose to
retain additional securities from future securitizations. We believe there are
adequate sources of liquidity to continue to hold a reasonable quantity of such
securities while still maintaining current levels of loan originations. Holding
these securities results in reduced gains from the sale of finance receivables
and comparable increases in the interest income spread we earn while the
securities are held. In addition, volatility in the asset-backed securities
markets may cause a reduction in the profits we realize on the finance
receivables we sell. Several competing lenders have announced in recent periods
that they are no longer lending in product lines that provide the majority of
our new loans. Brokers who previously expected to sell completed loans to such
lenders have solicited bids from us and others to purchase these loans.
Moreover, we and other lenders have increased the interest rates charged on new
loans in recent periods. We are unable to estimate the effect, if any, of these
events on the amount of new loans we originate, or the level of profitability of
that business.
We believe that we might obtain more value over time from our finance
receivables by financing them so that they remain on our balance sheet and we
record interest spreads over the life of the loans rather than as gain on sale
at the time of securitization. This might occur by holding the receivables
directly, by holding all or a portion of the securities issued in our
securitizations, or by using alternative or modified methods of financing
(including securitizations). We are studying the effect such potential
strategies could have on our capital structure, liquidity, access to capital
markets, credit ratings, reported earnings and earnings per share. See
"Finance Operations - Gain on Sale on Finance Receivables" and "Pro Forma
Data Assuming Portfolio Lending".
The cash we received from the special-purpose securitization entities in
the first six months of 1999 in the form of servicing fees and payments on the
residual interest securities increased to $320.2 million from $234.8 million in
the first six months of 1998. This growth is the result of our growing servicing
portfolio. The interest we received from unsold loans also increased during 1999
as a result of the increase in outstanding finance receivables.
At June 30, 1999, we had $5.0 billion in master repurchase agreements
(subject to the availability of eligible collateral) with various investment
banking firms for the purpose of financing our consumer and commercial finance
loan production. These agreements generally provide for annual terms which are
extended each quarter by mutual agreement of the parties for an additional
annual term based upon receipt of updated quarterly financial information. At
June 30, 1999, we had $1.0 billion borrowed under the repurchase agreements.
Liquidity of Conseco (parent company)
The parent company is a legal entity, separate and distinct from its
subsidiaries, and has no business operations. The parent company uses cash for:
(i) principal and interest payments on debt; (ii) dividends on common
securities; (iii) payments to subsidiary trusts to be used for distributions on
the Company-obligated mandatorily redeemable preferred securities of subsidiary
trusts; (iv) holding company administrative expenses; (v) income taxes; and (vi)
investments in subsidiaries. The primary sources of cash to meet these
obligations are payments from our subsidiaries, including the statutorily
permitted payments from our life insurance subsidiaries in the form of: (i) fees
for services provided; (ii) tax sharing payments; (iii) dividend payments; and
(iv) surplus debenture interest and principal payments. The parent company may
also obtain cash by: (i) issuing debt or equity securities; (ii) borrowing
additional amounts under its revolving credit agreement, as described in the
notes to the consolidated financial statements; or (iii) selling all or a
portion of its subsidiaries. These sources have historically provided adequate
cash flow to fund the needs of the parent company's: (i) normal operations; (ii)
internal expansion, acquisitions and investment opportunities; and (iii) the
retirement of debt and equity.
On July 23, 1999, we called for redemption all $86 million principal amount
of the 6.5 percent convertible subordinated notes. The notes (if not previously
converted) will be redeemed on August 23, 1999 at 103.3 percent of the principal
amount.
34
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
INVESTMENTS
At June 30, 1999, the amortized cost and estimated fair value of fixed
maturity securities (all of which were actively managed) were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
(Dollars in millions)
<S> <C> <C> <C> <C>
Investment grade:
Corporate securities................................................ $13,000.3 $ 48.8 $ 599.7 $12,449.4
United States Treasury securities and obligations of
United States government corporations and agencies................ 347.8 5.5 3.4 349.9
States and political subdivisions................................... 141.0 .3 6.2 135.1
Debt securities issued by foreign governments....................... 172.7 1.2 14.6 159.3
Mortgage-backed securities ......................................... 7,479.1 26.3 211.5 7,293.9
Below-investment grade (primarily corporate securities)................ 2,195.9 19.9 217.9 1,997.9
--------- ------ -------- ---------
Total actively managed fixed maturities........................... $23,336.8 $102.0 $1,053.3 $22,385.5
========= ====== ======== =========
</TABLE>
During the first six months of 1999 and 1998, we recorded $1.2 million and
$1.5 million, respectively, of writedowns of fixed maturity and equity
securities as a result of changes in conditions which caused us to conclude that
a decline in fair value of the investments was other than temporary. At June 30,
1999, fixed maturity securities in default as to the payment of principal or
interest had an aggregate amortized cost of $74.2 million and a carrying value
of $52.4 million.
Sales of invested assets (primarily fixed maturity securities) during the
first six months of 1999 generated proceeds of $8.6 billion, and net investment
losses of $20.7 million.
At June 30, 1999, fixed maturity investments included $7.3 billion of
mortgage-backed securities (or 33 percent of all fixed maturity securities). The
yield characteristics of mortgage-backed securities differ from those of
traditional fixed-income securities. Interest and principal payments occur more
frequently, often monthly. Mortgage-backed securities are subject to risks
associated with variable prepayments. Prepayment rates are influenced by a
number of factors that cannot be predicted with certainty, including: the
relative sensitivity of the underlying mortgages backing the assets to changes
in interest rates; a variety of economic, geographic and other factors; and the
repayment priority of the securities in the overall securitization structures.
In general, prepayments on the underlying mortgage loans and the securities
backed by these loans increase when prevailing interest rates decline
significantly relative to the interest rates on such loans. The yields on
mortgage-backed securities purchased at a discount to par will increase when the
underlying mortgages prepay faster than expected. The yields on mortgage-backed
securities purchased at a premium will decrease when they prepay faster than
expected. When interest rates decline, the proceeds from the prepayment of
mortgage-backed securities are likely to be reinvested at lower rates than we
were earning on the prepaid securities. When interest rates increase,
prepayments on mortgage-backed securities decrease as fewer underlying mortgages
are refinanced. When this occurs, the average maturity and duration of the
mortgage-backed securities increase, which decreases the yield on
mortgage-backed securities purchased at a discount, because the discount is
realized as income at a slower rate and increases the yield on those purchased
at a premium as a result of a decrease in the annual amortization of the
premium.
35
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
The following table sets forth the par value, amortized cost and estimated
fair value of mortgage-backed securities, summarized by interest rates on the
underlying collateral at June 30, 1999:
<TABLE>
<CAPTION>
Par Amortized Estimated
value cost fair value
----- ---- ----------
(Dollars in millions)
<S> <C> <C> <C>
Below 7 percent .................................................................. $4,650.6 $4,631.0 $4,476.9
7 percent - 8 percent............................................................... 1,662.9 1,651.8 1,639.4
8 percent - 9 percent............................................................... 322.2 320.7 323.8
9 percent and above................................................................. 868.6 875.6 853.8
-------- -------- --------
Total mortgage-backed securities............................................. $7,504.3 $7,479.1 $7,293.9
======== ======== ========
</TABLE>
The amortized cost and estimated fair value of mortgage-backed securities
at June 30, 1999, summarized by type of security, were as follows:
<TABLE>
<CAPTION>
Estimated fair value
-----------------------
Percent
Amortized of fixed
Type cost Amount maturities
- ---- ---- ------ ----------
(Dollars in millions)
<S> <C> <C> <C>
Pass-throughs and sequential and targeted amortization classes............ $3,957.9 $3,888.1 18%
Planned amortization classes and accretion-directed bonds................. 1,934.4 1,862.7 8
Subordinated classes ..................................................... 1,555.1 1,510.2 7
Other..................................................................... 31.7 32.9 -
-------- -------- --
$7,479.1 $7,293.9 33%
======== ======== ==
</TABLE>
Pass-throughs and sequential and targeted amortization classes have similar
prepayment variability. Pass-throughs historically provide the best liquidity in
the mortgage-backed securities market and provide the best price/performance
ratio in a highly volatile interest rate environment. This type of security is
also frequently used as collateral in the dollar-roll market. Sequential classes
pay in a strict sequence; all principal payments received by the collateralized
mortgage obligations ("CMOs") are paid to the sequential tranches in order of
priority. Targeted amortization classes provide a modest amount of prepayment
protection when prepayments on the underlying collateral increase from those
assumed at pricing. Thus, they offer slightly better call protection than
sequential classes or pass-throughs.
Planned amortization classes and accretion-directed bonds are some of the
most stable and liquid instruments in the mortgage-backed securities market.
Planned amortization class bonds adhere to a fixed schedule of principal
payments as long as the underlying mortgage collateral experiences prepayments
within a certain range. Changes in prepayment rates are first absorbed by
support classes. This insulates the planned amortization classes from the
consequences of both faster prepayments (average life shortening) and slower
prepayments (average life extension).
Subordinated CMO classes have both prepayment and credit risk. The
subordinated classes are used to enhance the credit quality of the senior
securities, and as such, rating agencies require that this support not
deteriorate due to the prepayment of the subordinated securities. The credit
risk of subordinated classes is derived from the negative leverage of owning a
small percentage of the underlying mortgage loan collateral while bearing a
majority of the risk of loss due to propertyowner defaults.
At June 30, 1999, the mortgage loan balance was primarily comprised of
commercial loans. Less than 1 percent of the mortgage loan balance was
noncurrent (loans which are two or more scheduled payments past due) at June 30,
1999.
At June 30, 1999, we held $71.2 million of trading securities; we included
them in other invested assets. Other invested assets also included $533.8
million of investments held in a trust for the benefit of the purchasers of
certain investment products of our investment management subsidiary. Such
invested assets are largely offset by the liability account, "liabilities
related to deposit products," the value of which fluctuates in relationship to
changes in the values of the investments. Because we hold
36
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
the residual interests in the cash flows from the trust and actively manage its
investments, we are required to include the accounts of the trust in our
consolidated financial statements.
Our investment borrowings averaged approximately $1,111.9 million during
the first six months of 1999, compared with approximately $1,251.5 million
during the same period of 1998 and were collateralized by investment securities
with fair values approximately equal to the loan value. The weighted average
interest rates on such borrowings were 5.1 percent and 5.9 percent during the
first six months of 1999 and 1998, respectively.
STATUTORY INFORMATION
Statutory accounting practices prescribed or permitted for the Company's
insurance subsidiaries by regulatory authorities differ from generally accepted
accounting principles. The Company's life insurance subsidiaries reported the
following amounts to regulatory agencies at June 30, 1999, after appropriate
eliminations of intercompany accounts among such subsidiaries (dollars in
millions):
<TABLE>
<S> <C>
Statutory capital and surplus .................................. $1,833.7
Asset valuation reserve ("AVR")................................. 365.6
Interest maintenance reserve ("IMR")............................ 566.9
Portion of surplus debenture carried as a liability ............ 33.4
--------
Total........................................................ $2,799.6
========
</TABLE>
The ratio of such consolidated statutory account balances to consolidated
statutory liabilities (excluding AVR, IMR, the portion of surplus debentures
carried as a liability, liabilities from separate account business and
short-term collateralized borrowings) was 11.7 percent at June 30, 1999, and
11.8 percent at December 31, 1998.
The statutory capital and surplus of the insurance subsidiaries included
surplus debentures issued to the parent holding companies totaling $1,370.7
million. Payments of interest and principal on such debentures are generally
subject to the approval of the insurance department of the subsidiary's state of
domicile. During the first six months of 1999, our life insurance subsidiaries
made $62.1 million of scheduled principal payments on surplus debentures.
State insurance laws generally restrict the ability of insurance companies
to pay dividends or make other distributions. Net assets of the Company's wholly
owned life insurance subsidiaries, determined in accordance with GAAP,
aggregated approximately $8.2 billion at June 30, 1999. After deducting $137.6
million and $99.8 million of fees and interest paid to Conseco or non-life
insurance subsidiaries in the first six months of 1999 and 1998, respectively,
the remaining statutory operating earnings of our life insurance subsidiaries
were $141.0 million and $109.5 million in the first six months of 1999 and
1998, respectively. During the first six months of 1999, our life insurance
subsidiaries paid ordinary dividends of $36.0 million to the parent holding
companies. During the remainder of 1999, the life insurance subsidiaries may
pay additional dividends of $166.5 million without the permission of state
regulatory authorities.
YEAR-2000 MATTERS
Many computer programs were originally designed to identify each year using
two digits. If not corrected, these computer programs could cause system
failures or miscalculations in the year 2000, with possible adverse effects on
our operations. In 1996, we initiated a comprehensive corporate-wide program
designed to ensure that our computer programs function properly in the year
2000. A number of our employees (including several officers), as well as
external consultants and contract programmers, are working on various year-2000
projects. Under the program, we are analyzing our application systems, operating
systems, hardware, networks, electronic data interfaces and infrastructure
devices (such as facsimile machines and telephone systems). We also have been
working with vendors and other external business relations to help avoid
year-2000 problems related to the software or services they provide to us.
Our year-2000 projects are currently on schedule. We are conducting each
year-2000 project in three phases: (i) an audit and assessment phase, designed
to identify year-2000 issues; (ii) a modification phase, designed to correct
year-2000 issues;
37
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
and (iii) a testing phase, designed to test the modifications after they have
been installed. We have completed the audit and assessment phase for all
critical systems. The modification phase of our program is complete for our
insurance subsidiaries and substantially complete for our finance subsidiaries.
We expect the testing phase of our program to be completed by the end of the
third quarter of 1999. We believe that we have provided for sufficient time in
order to complete any additional modifications, if necessary, before December
31, 1999.
For some of our year-2000 issues, we are working to complete the previously
planned conversions of older systems to the more modern, year-2000-ready systems
already used in other areas of the Company. In other cases, we are purchasing
new, more modern systems; these costs are being capitalized as assets and
amortized over their expected useful lives. In the remaining cases, we are
modifying existing systems; these costs are being charged to operating expense.
We currently estimate that the total expense of our year-2000 projects will
be approximately $73 million. This expense is not material to Conseco's
financial position and we are funding it through our operating cash flows.
Approximately 85 percent of this expense was incurred in periods through June
30, 1999. This expense related primarily to modifying existing software systems.
The impact of year-2000 issues will depend not only on the corrective
actions we take, but also on the way in which year- 2000 issues are addressed by
governmental agencies, businesses and other third parties: (i) that provide
capital, services, utilities or data to the Company; (ii) that receive services
or data from the Company; or (iii) whose financial condition or operating
capability is important to the Company. We are in the process of identifying and
updating assessments of potential year-2000 risks associated with our external
business relationships, such as third-party administrators, utilities and
financial institutions. These procedures are necessarily limited to matters over
which we are able to reasonably exercise control. We have been informed by our
key financial institutions and utilities that they will be year-2000 ready at
year-end 1999.
We are also assessing what contingency plans will be needed if any of our
critical systems or those of external business relationships are not year-2000
ready at year-end 1999. We do not currently anticipate such a situation, but we
will continue to evolve contingency plans as new information becomes available.
Our year-2000 projects are the highest priority for our information
technology employees and others within the Company. We continue to work on other
systems projects while our year-2000 projects are being completed; in many
cases, we have accelerated system upgrades when the new systems address
year-2000 issues.
The failure to correct a material year-2000 problem could result in an
interruption in, or failure of, a number of normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the year-2000 problem, including the uncertainty of the
preparedness of our external business relationships, we are not able to
currently determine whether the consequences of year-2000 failures will have a
material impact on the Company's results of operations, liquidity and financial
condition. However, we believe our year-2000 readiness efforts will minimize the
likelihood of a material adverse impact.
FORWARD-LOOKING STATEMENTS
All statements, trend analyses and other information contained in this
report and elsewhere (such as in filings by Conseco with the Securities and
Exchange Commission, press releases, presentations by Conseco or its management
or oral statements) relative to markets for Conseco's products and trends in
Conseco's operations or financial results, as well as other statements including
words such as "anticipate," "believe," "plan," "estimate," "expect," "intend,"
"should," "could," "goal," "target," and other similar expressions, constitute
forward-looking statements under the Private Securities Litigation Reform Act of
1995. These forward-looking statements are subject to known and unknown risks,
uncertainties and other factors which may cause actual results to be materially
different from those contemplated by the forward-looking statements. Such
factors include, among other things: (i) general economic conditions and other
factors, including prevailing interest rate levels, stock and credit market
performance and health care inflation, which may affect (among other things)
Conseco's ability to sell its products, its ability to make loans and access
capital resources and the costs associated therewith, the market value of
Conseco's investments, the lapse rate and profitability of policies, and the
level of defaults and prepayments of loans made by Conseco; (ii) Conseco's
ability to achieve anticipated synergies and levels of operational efficiencies;
(iii) customer response to new products, distribution channels and marketing
initiatives; (iv) mortality, morbidity, usage of health care services and other
factors which may affect the profitability of Conseco's insurance products; (v)
changes in the Federal income tax laws and regulations which
38
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
may affect the relative tax advantages of some of Conseco's products; (vi)
increasing competition in the sale of insurance and annuities and in the finance
business; (vii) regulatory changes or actions, including those relating to
regulation of financial services affecting (among other things) bank sales and
underwriting of insurance products, regulation of the sale, underwriting and
pricing of insurance products, and health care regulation affecting health
insurance products; (viii) the ability of Conseco and its vendors and other
external parties to achieve Year 2000 readiness for significant systems and
operations on a timely basis; (ix) the availability and terms of future
acquisitions; and (x) the risk factors or uncertainties listed from time to time
in Conseco's filings with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our market risks, and the way we manage them, are summarized in
management's discussion and analysis of financial condition and results of
operations as of December 31, 1998, included in the Company's Form 10-K for the
year ended December 31, 1998. There have been no material changes in the first
six months of 1999 to such risks or our management of such risks.
39
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Green Tree has been served with various related lawsuits which were filed
in the United States District Court for the District of Minnesota. These
lawsuits were filed as purported class actions on behalf of persons or entities
who purchased common stock or options of Green Tree during the alleged class
periods that generally run from February 1995 to January 1998. One such action
did not include class action claims. In addition to Green Tree, certain current
and former officers and directors of Green Tree are named as defendants in one
or more of the lawsuits. Green Tree and other defendants have obtained an order
from the United States District Court for the District of Minnesota
consolidating the lawsuits seeking class action status into two actions: one
which pertains to a purported class of common stockholders and the other which
pertains to a purported class of stock option traders. Plaintiffs in the
lawsuits assert claims under Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934. In each case, plaintiffs allege that Green Tree and the other
defendants violated federal securities laws by, among other things, making false
and misleading statements about the current state and future prospects of Green
Tree (particularly with respect to prepayment assumptions and performance of
certain loan portfolios of Green Tree) which allegedly rendered Green Tree's
financial statements false and misleading. The Company believes that the
lawsuits are without merit and intends to defend such lawsuits vigorously. The
ultimate outcome of these lawsuits cannot be predicted with certainty. Green
Tree has filed motions, which are pending, to dismiss these lawsuits.
In addition, the Company and its subsidiaries are involved on an ongoing
basis in lawsuits related to its operations. Although the ultimate outcome of
certain of such matters cannot be predicted, such lawsuits currently pending
against the Company or its subsidiaries are not expected, individually or in the
aggregate, to have a material adverse effect on the Company's consolidated
financial condition, cash flows or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's annual meeting on May 26, 1999, the shareholders
elected David R. Decatur, Donald F. Gongaware, John M. Mutz and Robert S.
Nickoloff to serve as directors for terms ending in 2002. The results of the
voting were as follows (there were no broker non-votes):
<TABLE>
<CAPTION>
David R. Donald F. John M. Robert S.
Decatur Gongaware Mutz Nickoloff
------- --------- ---- ---------
<S> <C> <C> <C> <C>
For 301,539,289 301,474,411 301,572,270 301,564,803
Withheld 2,388,937 2,453,815 2,355,956 2,363,423
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits.
1.1 Purchase Agreement dated June 29, 1999 between the
Registrant and Warburg Dillon Read LLC
1.2 ISDA Master Agreement dated as of April 21, 1999 between
the Registrant and UBS AG, London Branch, with attached
schedule and confirmation
10.1.2 Employment Agreement amended and restated as of May 26,
1999, between the Registrant and Stephen C. Hilbert
10.1.3 Employment Agreement amended and restated as of May 26,
1999, between the Registrant and Rollin M. Dick
10.1.10 Employment Agreement amended and restated as of May 26,
1999, between the Registrant and Ngaire E. Cuneo
10.1.11 Employment Agreement amended and restated as of May 26,
1999, between the Registrant and John J. Sabl
10.1.12 Employment Agreement amended and restated as of May 26,
1999, between the Registrant and Thomas J. Kilian
40
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
10.1.13 Employment Agreement as of July 28, 1999, between the
Registrant and James S. Adams
10.1.14 Employment Agreement as of July 28, 1999, between the
Registrant and Maxwell E. Bublitz
12.1 Computation of Ratio of Earnings to Fixed Charges,
Preferred Dividends and Distributions on Company-
obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts
27.0 Financial Data Schedule
b) Reports on Form 8-K - None.
41
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
--------------------
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONSECO, INC.
Dated: August 13, 1999 By: /s/ ROLLIN M. DICK
------------------
Rollin M. Dick
Executive Vice President and
Chief Financial Officer
(authorized officer and principal
financial officer)
42
Exhibit 1.1
PURCHASE AGREEMENT
June 29, 1999
Warburg Dillon Read LLC
677 Washington Boulevard
Stamford, Connecticut 06901
UBS AG, London Branch
c/o Warburg Dillon Read LLC
677 Washington Boulevard
Stamford, Connecticut 06901
Ladies and Gentlemen:
Conseco, Inc., an Indiana corporation (the "Company"), desires to make
arrangements with Warburg Dillon Read LLC (the "Purchaser"), pursuant to which
the Purchaser will purchase from the Company shares of Common Stock, in
accordance with Section 1(a), below. The Company understands that the Purchaser
intends to transfer any Purchased Shares (as defined in Section 1(a)) to UBS AG,
London Branch, the indirect parent of the Purchaser (the "Selling Stockholder").
The Company has prepared for filing with the Securities and Exchange
Commission (the "Commission") a registration statement for the registration of
3,115,000 shares of its Common Stock, including the Purchased Shares (as defined
in Section 1(a)) and up to 467,000 in the aggregate, of Payment Shares (as
defined in Section 1(b)) and Make-whole Shares (as defined in Section 1(b)),
under the Securities Act of 1933, as amended (the "1933 Act"), and the offering
thereof from time to time by the Purchaser, as agent for the Selling
Stockholder, in accordance with Rule 415 of the rules and regulations of the
Commission under the 1933 Act (the "1933 Act Regulations"). The Company will
file such amendments and post-effective amendments thereto as may be required
prior to any sale of the Purchased Shares by or on behalf of the Selling
Stockholder. Such registration statement, as so amended at the time it is
declared effective by the Commission, is referred to herein as the "Registration
Statement." The final prospectus, in the form in which it is filed with the
Commission under Rule 424 or (if no such filing is required) first furnished to
the Purchaser and the Selling Stockholder by the Company for use in connection
with the offering of the Purchased Shares, and all applicable amendments or
supplements thereto, are collectively
1
<PAGE>
referred to herein as the "Prospectus." A "Preliminary Prospectus" shall mean
any preliminary prospectus included in the Registration Statement prior to the
time the Registration Statement was declared effective.
All references to the "Registration Statement," the "Prospectus" or any
"Preliminary Prospectus" shall be deemed to include all documents incorporated
therein by reference pursuant to the Securities Exchange Act of 1934, as amended
(the "1934 Act"), which were filed with the Commission under the 1934 Act on or
before the date that the Registration Statement is declared effective or the
issue date of the Prospectus or Preliminary Prospectus, as the case may be, and
all references in this Agreement to financial statements and schedules and other
information which is "contained," "included," "stated" or "described" in the
Registration Statement, the Prospectus, or any Preliminary Prospectus (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Registration Statement, the Prospectus, or any Preliminary
Prospectus, as the case may be. Any reference herein to the terms "amend,"
"amendment," or "supplement" shall be deemed to refer to and include the filing
of any document under the 1934 Act after the date on which the Registration
Statement is declared effective or the issue date of the Prospectus, as the case
may be, that is deemed incorporated therein by reference. If the Company files a
registration statement with the Commission pursuant to Section 462(b) of the
1933 Act Regulations (a "Rule 462(b) Registration Statement"), then after such
filing, all references to the Registration Statement shall also be deemed to
include the Rule 462(b) Registration Statement. For purposes of this Agreement,
all references to the Registration Statement, the Prospectus, any Preliminary
Prospectus, or any amendment or supplement to any of the foregoing shall be
deemed to include the copy filed with the Commission pursuant to its Electronic
Data Gathering, Analysis and Retrieval system ("EDGAR").
The Company, the Purchaser and the Selling Stockholder hereby agree as
follows:
1. Agreement to Sell and Purchase.
(a) On the basis of the representations and warranties and subject to
the terms and conditions set forth in this Agreement, the Purchaser shall
purchase from the Company, and the Company shall sell to the Purchaser,
3,115,000 shares of Common Stock (the "Purchased Shares") at a purchase price
per share of $29-1/16 (the "Purchase Price"). The Company understands and
acknowledges that the Purchaser intends to transfer the Purchased Shares to the
Selling Stockholder immediately following the Closing (as defined in Section
1(d)).
(b) Concurrently with the execution and delivery of this Agreement, the
Company and the Selling Stockholder have entered into a forward equity
confirmation providing for the purchase, by the Company, at the Purchase Price
per share, of a number of shares of Common Stock equal to the number of
Purchased Shares (the "Forward Purchase Agreement"). The Company may issue
additional shares of Common Stock to the Selling Stockholder under the Forward
Purchase Agreement, on the terms and conditions specified therein, including
Payment Shares (as defined in the Forward Purchase Agreement) and Make-whole
Shares (as defined in the Forward Purchase Agreement). The Purchased Shares,
Payment Shares and Make-whole Shares are collectively referred to in this
Agreement as the "Shares").
2
<PAGE>
(c) As compensation to the Purchaser for its advisory services in
structuring the transaction, the Company shall pay the Purchaser a fee of
$905,000 (the "Advisory Fee").
(d) The closing of the purchase and sale of the Purchased Shares (the
"Closing") shall take place on the third business day following the date of this
Agreement (the "Closing Date") at 10:00 a.m., New York City time, at the offices
of Schiff Hardin & Waite, 6600 Sears Tower, Chicago, Illinois 60606. The
Purchaser shall pay the Purchase Price per share for the Purchased Shares to, or
at the direction of the Company, by federal funds wire transfer against delivery
of the Purchased Shares to the Purchaser through the facilities of The
Depository Trust Company, and the Company shall pay the Purchaser the Advisory
Fee, by federal funds wire transfer or as an offset against the aggregate
Purchase Price per share for the Purchased Shares.
(e) The Company shall not pay or give, directly or indirectly, any
commission or other remuneration to the Purchaser or any other person or entity
for soliciting, within the meaning of Section 3(a)(9) of the 1933 Act,
conversions of the 6-1/2% Convertible Subordinated Notes due 2003 of Pioneer
Financial Services, Inc., a wholly-owned subsidiary of the Company (the
"Notes"), into Common Stock, and the Purchaser shall not solicit, within the
meaning of that Section, any such conversions.
(f) The Selling Stockholder may sell the Shares at any time or from
time to time pursuant to the Registration Statement, provided that the
effectiveness of the Registration Statement has not been suspended pursuant to
Section 3(f), or an available exemption under the 1933 Act. All such sales shall
be made through the Purchaser.
(g) The Company shall have the right to direct the Selling Stockholder
to sell, from time to time, such number of Purchased Shares as may be held by
the Selling Stockholder at the time of such notice by giving verbal notice,
followed by written confirmation thereof, to the Selling Stockholder directing
such sale (a "Direction to Sell") in connection and concurrent with notice to
the Selling Stockholder of early termination of all or a portion of the Forward
Purchase Agreement. A Direction to Sell may be given on any day that is a
trading day on the New York Stock Exchange, Inc. (the "NYSE") other than a day
on which trading on the NYSE is scheduled to close prior to its regular weekday
closing time (an "Exchange Business Day"); provided, however, that no Direction
to Sell may be given within ten Exchange Business Days prior to the Termination
Date (as defined in the Forward Purchase Agreement) in the event that the
Company has given notice to the Selling Stockholder of its election to settle
the Forward Purchase Agreement on a net share basis on the Termination Date.
Each Direction to Sell shall specify the number of, and date or dates on which
such number of, Purchased Shares are to be sold. Each date specified for such
sale must be an Exchange Business Day; provided, however, that if any date
specified for such sale is the same Exchange Business Day on which the Direction
to Sell is delivered to the Selling Stockholder, such Direction to Sell must be
delivered to the Selling Stockholder no later than 9:30 a.m., New York City
time, on such Exchange Business Day, unless otherwise agreed upon by the Selling
Stockholder. Upon receipt of a Direction to Sell that complies with this Section
1(g) and subject to the receipt, by the Selling Stockholder, of any deliveries
required under Section 6(b), the Selling Stockholder shall direct the Purchaser
to, and the Purchaser shall use, commercially reasonable efforts to sell
Purchased Shares in accordance with the Direction to Sell; provided, however,
that the Purchaser shall not be obligated to sell more Purchased Shares than
required to produce net proceeds equal to the Total Forward Price (as defined in
the Forward Purchase Agreement) at the time that such Direction to Sell is
received by the Purchaser.
3
<PAGE>
2. Representations and Warranties of the Company.
(a) The Company represents and warrants to the Purchaser and the
Selling Stockholder on and as of the date hereof, the Closing Date, each date
that the Company delivers a Direction to Sell or Make-whole Shares to the
Selling Stockholder, and each date that the Company files a Material Amendment
or Supplement to the Registration Statement (as defined in Section 6(c)) (each,
a "Representation Date") as follows :
(i) The Company meets the requirements for use of Form S-3
under the 1933 Act. The Company has prepared and filed the Registration
Statement with the Commission and, as of the Closing Date, the
Registration Statement (including any Rule 462(b) Registration
Statement) will have become effective under the 1933 Act; as of the
Closing Date and each Representation Date following the Closing Date,
no stop order suspending the effectiveness of the Registration
Statement (including any Rule 462(b) Registration Statement) will have
been issued under the 1933 Act and no proceedings for that purpose will
have been instituted or will be pending or, to the knowledge of the
Company, contemplated by the Commission, and any request on the part of
the Commission for additional information will have been complied with;
at the respective times that the Registration Statement, any Rule
462(b) Registration Statement, and any post-effective amendment thereto
(including the filing of the Company's most recent Annual Report on
Form 10-K with the Commission (the "Annual Report on Form 10-K"))
become effective and at each subsequent Representation Date, the
Registration Statement (including any Rule 462(b) Registration
Statement) and any amendments thereto comply and will comply in all
material respects with the requirements of the 1933 Act and the 1933
Act Regulations and do not and will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
each Preliminary Prospectus and Prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied or
will comply when so filed in all material respects with the 1933 Act;
each Preliminary Prospectus and the Prospectus delivered to the
Purchaser for use in connection with the offering of the Shares are or
will be identical to any electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T; and neither the Prospectus nor any
amendment or supplement thereto includes or will include an untrue
statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this subsection
shall not apply to statements in or omissions from the Registration
Statement or the Prospectus made in reliance upon and in conformity
with information furnished to the Company in writing by the Purchaser
or the Selling Stockholder expressly for use in the Registration
Statement or the Prospectus.
(ii) The documents incorporated or deemed to be incorporated
by reference in the Registration Statement or the Prospectus, at the
time they were or hereafter are filed with the Commission, complied and
will comply in all material respects with the requirements of the 1934
Act and the rules and regulations of the Commission under the 1934 Act
(the "1934 Act Regulations").
4
<PAGE>
(iii) PricewaterhouseCoopers LLP and KPMG Peat Marwick LLP,
which certified the financial statements and supporting schedules of
the Company and Green Tree Financial Corporation ("Green Tree"),
respectively, included or incorporated by reference in the Registration
Statement and the Prospectus, each are independent public accountants
as required by the 1933 Act and the 1933 Act Regulations with respect
to the Company and Green Tree, respectively.
(iv) The financial statements of the Company included or
incorporated by reference in the Registration Statement and the
Prospectus, together with the related schedules and notes, present
fairly the financial position of the Company and its subsidiaries as of
the dates indicated and the results of their operations for the periods
specified. Except as otherwise stated therein, said financial
statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout the
periods involved. The supporting schedules, if any, included or
incorporated by reference in the Registration Statement and the
Prospectus present fairly the information required to be stated
therein. Any selected financial data and summary financial information
included in the Prospectus present fairly the information shown therein
and have been compiled on a basis consistent with that of the audited
financial statements included in the Registration Statement and the
Prospectus. Any pro forma financial statements and the related notes
thereto included in the Registration Statement and the Prospectus
present fairly the information shown therein, have been prepared in
accordance with the Commission's rules and guidelines with respect to
pro forma financial statements and have been properly compiled on the
bases described therein, and the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are appropriate
to give effect to the transactions and circumstances referred to
therein.
(v) The statutory financial statements of each of the
Company's insurance subsidiaries, from which certain ratios and other
statistical data contained in the Registration Statement from time to
time have been derived, have for each relevant period been prepared in
accordance with accounting practices prescribed or permitted by the
National Association of Insurance Commissioners, and with respect to
each insurance subsidiary, the appropriate insurance department of the
state of domicile of such insurance subsidiary, and such accounting
practices have been applied on a consistent basis throughout the
periods involved, except as disclosed therein.
(vi) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as
otherwise stated therein, (A) there has been no material adverse change
and no development which could reasonably be expected to result in a
material adverse change in the condition, financial or otherwise, or in
the earnings, business affairs or business prospects of the Company and
its subsidiaries, considered as one enterprise, whether or not arising
in the ordinary course of business (a "Material Adverse Effect"), (B)
there have been no transactions entered into by the Company or any of
its subsidiaries, other than those arising in the ordinary course of
business, which are material with respect to the Company and its
subsidiaries, considered as one enterprise, or (C) except for regular
dividends on the Common Stock or on the preferred stock of the Company
in amounts per share that are consistent with past practice (which
includes periodic dividend increases) or the applicable charter
document or supplement thereto,
5
<PAGE>
respectively, there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital
stock.
(vii) The Company has been duly incorporated, is validly
existing as a corporation and its status is active under the laws of
the State of Indiana, with corporate power and authority to own, lease
and operate its properties and to conduct its business as presently
conducted and as described in the Prospectus and to enter into and
perform its obligations under, or as contemplated under, this Agreement
and the Forward Purchase Agreement. The Company is qualified as a
foreign corporation to transact business and is in good standing in
each jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of
business, except where the failure to so qualify or be in good standing
would not have a Material Adverse Effect.
(viii) Each significant subsidiary (as such term is defined in
Rule 1-02 of Regulation S-X promulgated under the 1933 Act) (each, a
"Significant Subsidiary") of the Company is set forth on Schedule A
hereto and has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own, lease and
operate its properties and to conduct its business as presently
conducted and as described in the Prospectus, and is qualified as a
foreign corporation to transact business and is in good standing in
each jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of
business, except where the failure to so qualify or be in good standing
would not have a Material Adverse Effect. Except as otherwise stated in
the Registration Statement and the Prospectus, all of the issued and
outstanding shares of capital stock of each Significant Subsidiary of
the Company have been duly authorized and validly issued, are fully
paid and non-assessable and all such shares are owned by the Company,
directly or through its subsidiaries, free and clear of any material
security interest, mortgage, pledge, lien, encumbrance, claim or
equity.
(ix) The Company and its subsidiaries possess such permits,
licenses, approvals, consents and other authorizations issued by the
appropriate federal, state, local or foreign regulatory agencies or
bodies (including, without limitation, insurance licenses from the
insurance departments of the various states where the subsidiaries
write insurance business (the "Insurance Licenses")) that are material
to the Company and its subsidiaries taken as a whole and are necessary
to conduct the business now conducted by them; the Company and its
subsidiaries are in compliance with the terms and conditions of all
such Insurance Licenses, except where the failure to comply would not,
singly or in the aggregate, result in a Material Adverse Effect; all of
such Insurance Licenses are valid and in full force and effect, except
where the invalidity of such Insurance Licenses or the failure of such
Insurance Licenses to be in full force and effect would not result in a
Material Adverse Effect; and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Insurance Licenses which, singly
or in the aggregate, may reasonably be expected to result in a Material
Adverse Effect.
(x) All of the issued and outstanding shares of capital
stock of the Company have been duly authorized and are validly issued,
fully paid and non-assessable; and none of the outstanding shares of
capital stock of the Company were issued in violation of
6
<PAGE>
preemptive or other similar rights of any securityholder of the
Company; each of the Purchased Shares, when issued and delivered in
accordance with the provisions of this Agreement, and the Payment
Shares and Make-whole Shares, when issued and delivered in accordance
with the provisions of the Forward Purchase Agreement, will be duly
authorized, validly issued and fully paid and non-assessable and will
conform in all material respects to the description thereof contained
in the Prospectus; and the issuance of the Shares will not be subject
to preemptive or other similar rights.
(xi) Neither the Company nor any of its Significant
Subsidiaries is in violation of its charter or by-laws. None of the
Company or any of its Significant Subsidiaries is in default in the
performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, note, lease,
loan or credit agreement or any other agreement or instrument (the
"Agreements and Instruments") to which the Company or any of its
Significant Subsidiaries is a party or by which any of them may be
bound, or to which any of the property or assets of the Company or any
of its Significant Subsidiaries is subject, or in violation of any
applicable law, rule or regulation or any judgment, order or decree of
any government, governmental instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any of its Significant
Subsidiaries or any of their respective properties or assets, which
violation or default would, singly or in the aggregate, have a Material
Adverse Effect or materially and adversely affect the Company's
performance of its obligations under this Agreement or the Forward
Purchase Agreement.
(xii) The offer of the Shares as contemplated herein and in
the Prospectus, the execution, delivery and performance of this
Agreement and the Forward Purchase Agreement, and the consummation of
the transactions contemplated herein, therein and in the Registration
Statement (including the issuance and sale of the Shares and the use of
proceeds from the sale of the Purchased Shares as described in the
Prospectus under the caption "Use of Proceeds") and compliance by the
Company with its obligations hereunder and thereunder do not and will
not, whether with or without the giving of notice or passage of time or
both, conflict with or constitute a breach of any of the terms or
provisions of, or constitute a default or Repayment Event (as defined
below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
subsidiary pursuant to, the Agreements and Instruments (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that
would not result in a Material Adverse Effect or materially and
adversely affect the Company's performance of its obligations under
this Agreement or the Forward Purchase Agreement), nor will such action
result in any violation of any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government,
governmental instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any of its Significant Subsidiaries,
or any of their assets, properties or operations (except for such
violations that would not result in a Material Adverse Effect or
materially and adversely affect the Company's performance of its
obligations under this Agreement or the Forward Purchase Agreement),
nor will such action result in any violation of the provisions of the
charter or by-laws of the Company or any Significant Subsidiary. As
used herein, a "Repayment Event" means any event or condition which
gives the holder of any note, debenture or other evidence of
indebtedness of the Company or any Significant Subsidiary (or any
person acting on such holder's behalf) the
7
<PAGE>
right to require the repurchase, redemption or repayment of all or a
portion of such indebtedness by the Company or any Significant
Subsidiary.
(xiii) There is no action, suit, proceeding, inquiry or
investigation before or by any court or governmental agency or body,
domestic or foreign (including, without limitation, any proceeding to
revoke or deny renewal of any Insurance Licenses), now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company or any of its Significant Subsidiaries which is required to be
disclosed in the Registration Statement and the Prospectus (other than
as stated therein), or which might be reasonably expected to result in
a Material Adverse Effect or to materially and adversely affect the
Company's performance of its obligations under this Agreement or the
Forward Purchase Agreement. The aggregation of all pending legal or
governmental proceedings to which the Company or any of its
subsidiaries is a party or of which any of their respective properties
or assets is the subject which are not described in the Registration
Statement or the Prospectus, including ordinary routine litigation
incidental to the business of the Company or any of its subsidiaries,
could not be reasonably expected to result in a Material Adverse
Effect; and there are no contracts or documents of the Company or any
of its subsidiaries which are required to be filed as exhibits to the
Registration Statement, or to be incorporated by reference therein, by
the 1933 Act, the 1933 Act Regulations, the 1934 Act or the 1934 Act
Regulations, which have not been so filed or incorporated by reference.
(xiv) No authorization, approval, consent, order, registration
or qualification of or with any court or governmental authority or
agency (including, without limitation, any insurance regulatory agency
or body) is required in connection with the issuance and sale of the
Shares hereunder or under the Forward Purchase Agreement, or the
consummation by the Company of any other transactions contemplated
hereby, except such as have been obtained and made under the federal
securities laws or state insurance laws and such as may be required
under state or foreign securities or Blue Sky laws.
(xv) There are no holders of securities of the Company with
currently exercisable registration rights to have any securities
registered as part of the Registration Statement or included in the
offering contemplated by this Agreement.
(xvi) This Agreement and the Forward Purchase Agreement have
been duly authorized, executed and delivered by the Company and
constitute valid and legally binding agreements of the Company,
enforceable against the Company in accordance with their terms except
to the extent that enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally or by general principles of equity
(regardless of whether enforcement is considered in a proceeding at law
or in equity) (the "Bankruptcy Exceptions") or that enforcement of the
indemnification and contribution provisions of this Agreement may be
subject to public policy limitations.
(xvii) The Company is in compliance with the provisions of
that certain Florida act relating to disclosure of doing business in
Cuba, codified as Section 517.075 of the Florida statutes, and the
rules and regulations thereunder or is exempt therefrom.
8
<PAGE>
(xviii) Neither the Company nor any of its Significant
Subsidiaries is, or upon the issuance and sale of the Shares as herein
contemplated and the application of the net proceeds therefrom as
described in the Prospectus will be, an "investment company" or an
entity "controlled" by an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended (the "1940
Act").
(xix) None of the Company, its Significant Subsidiaries or any
of their respective directors, officers or controlling persons, has
taken, directly or indirectly, any action resulting in a violation of
Regulation M under the 1934 Act, or designed to cause or result in, or
that has constituted or that reasonably might be expected to
constitute, the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Common
Stock, in each case in violation of applicable law.
(b) Any certificate signed by an officer of the Company and delivered
to the Purchaser or the Selling Stockholder or to counsel for the Purchaser or
the Selling Stockholder pursuant to the provisions of this Agreement or the
Forward Purchase Agreement shall be deemed a representation and warranty by the
Company to the Purchaser or the Selling Stockholder, as applicable, as to the
matters covered thereby.
3. Certain Covenants of the Company, the Purchaser and the Selling
Stockholder. The Company, the Purchaser, and the Selling Stockholder agree as
follows:
(a) The Company and the Purchaser shall use commercially reasonable
efforts to have the Registration Statement declared effective on or before the
Closing Date and shall make any required filing of the Prospectus pursuant to
Rule 424(b) in the manner and within the time period required by Rule 424(b).
(b) The Company shall not mail or cause to be mailed a notice of
redemption of $85,965,000 principal amount of Notes to holders of record of the
Notes sooner than the second business day following the date of this Agreement.
(c) The Company shall use reasonable commercial efforts to have the
Purchased Shares and up to 467,000, in the aggregate, of Payment Shares and
Make-whole Shares listed, subject to official notice of issuance, on the NYSE on
or before the Closing Date.
(d) The Company shall furnish to the Purchaser and the Selling
Stockholder two signed copies of the Registration Statement, as initially filed
with the Commission, and of all amendments thereto, including all exhibits
thereto and all documents incorporated by reference therein.
(e) Subject to Section 3(f), the Company shall maintain the
effectiveness of the Registration Statement from the Closing Date until ten
Exchange Business Days following the settlement of the Company's obligations, if
any, under the Forward Purchase Agreement or such earlier date upon which the
Purchaser, as agent for the Selling Stockholder, has notified the Company that
all of the Shares (including the Payment Shares and Make-whole Shares, if any)
have been sold by the Purchaser on behalf of the Selling Stockholder (the
"Effective Period"). During the Effective Period, the Company shall:
9
<PAGE>
(i) file all documents required to be filed by the Company
with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of
the 1934 Act within the time periods required by the 1934 Act and the
1934 Act Regulations;
(ii) advise the Purchaser and the Selling Stockholder
promptly after the Company receives notice thereof, of the issuance by
the Commission of any stop order or of any order preventing or
suspending the use of any Prospectus, or the suspension of the
qualification of the Shares for offering or sale in any jurisdiction,
of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amendment or
supplementation of the Registration Statement or Prospectus or for
additional information; and in the event of the issuance of any such
stop order by the Commission or of any such order preventing or
suspending the use of any such prospectus or suspending any such
qualification, promptly use commercially reasonable efforts to obtain
its withdrawal;
(iii) subject to Section 3(e)(iv) and 3(f), prepare and file
such amendment or amendments to the Registration Statement and the
Prospectus as may be necessary to comply with the requirements of
Section 10(a)(3) of the 1933 Act;
(iv) furnish the Purchaser and the Selling Stockholder with a
copy of any proposed amendment or supplement to the Registration
Statement or Prospectus (other than any document proposed to be filed
by the Company pursuant to Section 13, 14 or 15(d)of the 1934 Act) a
reasonable amount of time before the proposed filing of such amendment
or supplement with the Commission and with such other information as
the Purchaser or Selling Stockholder may from time to time reasonably
request concerning the Company and its subsidiaries;
(v) advise the Purchaser and the Selling Stockholder
promptly after the Company receives notice thereof of the time when any
amendment to the Registration Statement has been filed or becomes
effective or any supplement to the Prospectus or any amended Prospectus
has been filed with the Commission;
(vi) furnish such information as may be required and
otherwise to cooperate in qualifying the Shares for offering and sale
under the securities or blue sky laws of such states as the Purchaser,
as agent for the Selling Stockholder, may designate and maintain such
qualifications in effect so long as required for the distribution of
the Shares; provided that the Company shall not be required to qualify
as a foreign corporation in any jurisdiction in which it is not so
qualified or subject itself to taxation in respect of doing business in
any jurisdiction in which it is not otherwise so subject or to consent
to the service of process under the laws of any such state (except
service of process with respect to the offering and sale of the
Shares); and promptly advise the Purchaser, as agent for the Selling
Stockholder, of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Shares for sale
in any jurisdiction or the initiation or threatening of any proceeding
for such purpose;
(vii) make available to the Purchaser, as agent for the
Selling Stockholder, as soon as practicable after the Closing Date, and
thereafter from time to time furnish to the
10
<PAGE>
Purchaser, as many copies of the Prospectus (or of the Prospectus as
amended or supplemented if the Company shall have made any amendments
or supplements thereto after the effective date of the Registration
Statement) as the Purchaser may reasonably request for the purposes
contemplated by the 1933 Act; and
(viii) furnish, as soon as practicable after the Closing Date,
and thereafter from time to time to the NYSE such number of copies of
the Prospectus (or of the Prospectus as amended or supplemented if the
Company shall have made any amendments or supplements thereto after the
effective date of the Registration Statement) as may be requested by
the NYSE under Rule 153 of the 1933 Act Regulations.
(f) The Company shall provide prompt notice, confirmed in writing, to
the Purchaser and the Selling Stockholder of (i) the discovery of any
information or the happening of any event known to the Company which, in the
judgment of the Company, would require the making of any change in the
Prospectus then being used, or in the information incorporated therein by
reference, so that the Prospectus would not include an untrue statement of
material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they are made, not
misleading, (ii) the Company's determination, for any reason, that it is
necessary to amend or supplement the Prospectus, or (iii) the Company's
election, for any business reason that the Company reasonably deems sufficient,
to delay filing an amendment or amendment to the Registration Statement or
Prospectus that it would otherwise be required to file under Section 3(e)(iii).
Upon the receipt of such notice, the Purchaser shall immediately discontinue
disposition of the Shares pursuant to the Registration Statement on behalf of
the Selling Stockholder until such time as the Purchaser and the Selling
Stockholder shall have received from the Company an amended or supplemented
Prospectus or, if appropriate, written notice from the Company that dispositions
of Shares may be resumed without amendment or supplementation of the
Registration Statement or Prospectus. The Company shall not have the right to
deliver to the Selling Stockholder a Direction to Sell or to elect net share
settlement or elect to deliver Make-whole Shares in payment of the Make-whole
Amount (as defined in the Forward Purchase Agreement) under the Forward Purchase
Agreement until such time as the Company shall have filed with the Commission
such amendment or supplement to the Registration Statement or Prospectus as may
be required and shall have delivered an amended or supplemented Prospectus to
the Purchaser and Selling Stockholder or shall have provided, if appropriate,
written notice to the Purchaser and Selling Stockholder that dispositions of
Shares may be resumed without amendment or supplementation of the Registration
Statement or Prospectus.
(g) The Purchaser and the Selling Stockholder shall each provide prompt
notice, confirmed in writing, to the Company of the discovery of any information
or the happening of any event known to the Purchaser or the Selling Stockholder,
respectively, which would require the making of any change in the information
furnished to the Company by the Purchaser or the Selling Stockholder,
respectively, for use in the Prospectus then being used so that such information
would not include an untrue statement of a material fact or omit to state a
material fact necessary to make the statements included in such information, in
the light of the circumstances in which they are made, not misleading.
(h) The Purchaser shall inform the Company of its intent to sell any of
the Purchased Shares on behalf of the Selling Stockholder, other than pursuant
to a Direction to Sell, sufficiently
11
<PAGE>
in advance of such sale to enable the Company to verify that the Prospectus then
being used will meet the requirements of the 1933 Act at the time of the
intended sales and to amend such Prospectus if it will not meet those
requirements.
(i) The Company shall apply the net proceeds from the sale of the
Purchased Shares in the manner set forth under the caption "Use of Proceeds" in
the Prospectus.
(j) The Company shall timely file such reports pursuant to the 1934 Act
as are necessary in order to make generally available to its security holders as
soon as practicable earnings statements of the Company satisfying the provisions
of Section 11(a) of the 1933 Act.
(k) The Company, if necessary or appropriate, shall file a registration
statement pursuant to Rule 462(b) under the 1933 Act to the extent necessary to
register the offering and sale of all Payment Shares and Make-whole Shares
issued under the Forward Purchase Agreement.
(l) The Company shall pay all costs, expenses, fees and taxes in
connection with (i) the preparation and filing of the Registration Statement,
any Preliminary Prospectus, the Prospectus, and any amendments or supplements
thereto, and the printing and furnishing of copies of each thereof to the
Purchaser and the Selling Stockholder (including costs of mailing and shipment),
(ii) the registration, issue, sale and delivery of the Shares to the Purchaser,
(iii) the producing and/or printing of this Agreement, any powers of attorney
and any closing documents (including compilations thereof) and the reproduction
and/or printing and furnishing of copies of each thereof to the Purchaser and
the Selling Stockholder (including costs of mailing and shipment), (iv) the
qualification of the Shares for offering and sale under state securities laws,
(v) the listing of the Shares on the NYSE, and (vi) the performance of the
Company's other obligations hereunder.
4. Conditions to the Obligations of the Purchaser to Purchase the
Purchased Shares.
The obligations of the Purchaser to purchase and pay for the Purchased
Shares shall be subject to the accuracy, as of the date of this Agreement and
the Closing Date, of the representations and warranties of the Company contained
herein and in the certificates of any officer of the Company or any of its
subsidiaries pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder, and to the following additional
conditions:
(a) The Registration Statement (including any Rule 462(b) Registration
Statement) shall have become effective not later than 10:00 a.m., New York City
time, on the Closing Date, no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued under the 1933
Act or proceedings therefor instituted or threatened by the Commission, and any
request on the part of the Commission for additional information shall have been
complied with to the satisfaction of counsel to the Purchaser. If the filing of
a Prospectus, or any supplement thereto, is required pursuant to Rule 424(b),
such Prospectus shall have been filed within the manner and within the time
period required by the 1933 Act and the 1933 Act Regulations.
(b) The Shares shall have been approved for listing on the NYSE,
subject to official notice of issuance.
12
<PAGE>
(c) The Purchaser shall have received the favorable opinion of John J.
Sabl, Executive Vice President, General Counsel and Secretary of the Company,
dated the Closing Date, in form and substance satisfactory to counsel for the
Purchaser, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation under the laws of the State of Indiana.
(ii) The Company has corporate power and authority to own,
lease, and operate its properties and to conduct its business as
described in the Prospectus.
(iii) The Company is qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which
such qualification is required, except where the failure to so qualify
or be in good standing would not result in a Material Adverse Effect.
(iv) All of the issued and outstanding shares of capital
stock of the Company have been duly authorized and are validly issued,
fully paid and non-assessable; none of the outstanding shares of
capital stock of the Company were issued in violation of preemptive or
other similar rights of any securityholder of the Company.
(v) Each Significant Subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has the corporate power
and authority to own, lease and operate its properties and to conduct
its business as described in the Prospectus, and is qualified as a
foreign corporation to transact business and is in good standing in
each jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of
business, except where the failure to so qualify or be in good standing
would not have a Material Adverse Effect; all of the issued and
outstanding capital stock of each Significant Subsidiary has been duly
authorized and validly issued, is fully paid and nonassessable, and,
except as set forth in the Prospectus, all such shares are owned by the
Company, directly or through its subsidiaries, free and clear of any
material security interest, mortgage, pledge, lien, encumbrance, claim
or equity.
(vi) All legally required proceedings in connection with the
authorization and valid issuance of the Shares in accordance with this
Agreement and the Forward Purchase Agreement and the sale of the Shares
in accordance with this Agreement and the Prospectus (other than the
filing of post-issuance reports, the non-filing of which would not
render the Shares invalid) have been taken, and all legally required
orders, consents or other authorizations or approvals of any other
public boards or bodies (including, without limitation, any insurance
regulatory agency or body) in connection with the authorization and
valid issuance of the Shares in accordance with this Agreement and the
Forward Purchase Agreement and the sale of the Shares in accordance
with this Agreement and the Prospectus (other than in connection with
or in compliance with the provisions of the securities or Blue Sky laws
of any jurisdictions, as to which no opinion need be expressed) have
been obtained and are in full force and effect.
(vii) The Registration Statement is effective under the 1933
Act; any required filing of the Prospectus pursuant to Rule 424(b) has
been made in the manner and within the time
13
<PAGE>
period required by Rule 424(b); and, to the knowledge of counsel, no
stop order suspending the effectiveness of the Registration Statement
has been issued under the 1933 Act, and no proceedings therefor have
been initiated or threatened by the Commission.
(viii) The Registration Statement, as of its effective date,
and the Prospectus and each amendment or supplement thereto, as of its
issue date (in each case, other than the financial statements and the
notes thereto, the financial schedules, and any other financial data
included or incorporated by reference therein, as to which such counsel
need express no opinion) complied as to form in all material respects
with the requirements of the 1933 Act and the 1933 Act Regulations.
(ix) Each of the documents incorporated by reference in the
Registration Statement or Prospectus, at the time they were filed or
last amended (other than the financial statements and the notes
thereto, the financial schedules, and any other financial data included
or incorporated by reference therein, as to which such counsel need
express no opinion) complied as to form in all material respects with
the requirements of the 1934 Act and the 1934 Act Regulations, as
applicable.
(x) The Common Stock, including the Shares, conforms in all
material respects to the description thereof contained in the
Prospectus and the Registration Statement.
(xi) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and legally binding
obligation of the Company, enforceable against the Company in
accordance with its terms, except to the extent that enforcement
thereof may be limited by the Bankruptcy Exceptions and that
enforcement of the indemnification and contribution provisions thereof
may be subject to public policy limitations.
(xii) The Forward Purchase Agreement has been duly authorized,
executed and delivered by the Company and constitutes a valid and
legally binding obligation of the Company, enforceable against the
Company in accordance with its terms, except to the extent that
enforcement thereof may be limited by the Bankruptcy Exceptions; the
Forward Purchase Agreement conforms in all material respects to the
description thereof contained in the Prospectus.
(xiii) The issuance and sale of the Purchased Shares, in
accordance with the provisions of this Agreement, and the issuance and
sale of the Payment Shares and Make- whole Shares, in accordance with
the provisions of the Forward Purchase Agreement, have been duly
authorized by the Company, and the Purchased Shares, when issued and
delivered in accordance with the provisions of this Agreement, and the
Payment Shares and Make-whole Shares, if and when issued in accordance
with the provisions of the Forward Purchase Agreement, will be validly
issued and fully paid and non-assessable and will conform in all
material respects to the description thereof contained in the
Prospectus; the issuance of the Shares is not subject to preemptive or
other similar rights; the Purchased Shares and up to 467,000 in the
aggregate, of Payment Shares and Make- whole Shares have been approved
for listing on the NYSE, upon official notice of issuance.
14
<PAGE>
(xiv) The offer of the Shares as contemplated herein and in
the Prospectus, the execution, delivery and performance of this
Agreement and the Forward Purchase Agreement, and the consummation of
the transactions contemplated herein, therein and in the Registration
Statement (including the issuance and sale of the Shares and the use of
the proceeds from the sale of the Purchased Shares as described in the
Prospectus under the caption "Use of Proceeds") and compliance by the
Company with its obligations hereunder and thereunder have been
authorized by all necessary corporate action and do not and will not,
whether with or without the giving of notice or passage of time or
both, conflict with or constitute a breach of any of the terms or
provisions of, or constitute a default or Repayment Event under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any Significant
Subsidiary pursuant to, the Agreements and Instruments (except for such
conflicts, breaches, defaults, or liens, charges or encumbrances that
would not result in a Material Adverse Effect or materially and
adversely affect the Company's performance of its obligations under
this Agreement or the Forward Purchase Agreement) nor will such action
result in any violation of any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any Significant Subsidiary or any of
their assets, properties, or operations (except for such violations
that would not result in a Material Adverse Effect or materially and
adversely affect the Company's performance of its obligations under
this Agreement or the Forward Purchase Agreement), nor will such action
result in any violation of the provisions of the charter or by-laws of
the Company or any Significant Subsidiary.
(xv) To such counsel's knowledge, there are no statutes
required to be described or incorporated by reference in the
Registration Statement which are not described or incorporated by
reference, and there are no legal or governmental proceedings pending
or, to such counsel's knowledge, threatened which are required to be
disclosed or incorporated by reference in the Registration Statement,
other than those disclosed or incorporated by reference therein.
(xvi) To such counsel's knowledge, there are no contracts,
indentures, mortgages, agreements, notes, leases or other instruments
required to be described or referred to or incorporated by reference in
the Registration Statement or to be filed as exhibits thereto other
than those described or referred to or incorporated by reference
therein or filed as exhibits thereto; the descriptions thereof or
references thereto are true and correct in all material respects.
(xvii) To such counsel's knowledge, neither the Company nor
any of its Significant Subsidiaries is in violation of its charter or
by-laws and no default by the Company or any of its Significant
Subsidiaries exists in the due performance or observance of any
material obligation, agreement, covenant or condition contained in any
Agreement and Instrument that is described or referred to in the
Registration Statement or the Prospectus or filed or incorporated by
reference as an exhibit to the Registration Statement.
(xviii) No authorization, approval, consent, registration or
qualification of or with any court or governmental authority or agency
(including, without limitation, any insurance regulatory agency or
body) is required for the issuance and sale of the Shares by the
15
<PAGE>
Company to the Purchaser or the performance by the Company of its
obligations under this Agreement and the Forward Purchase Agreement,
except such as has been obtained and made under the federal securities
laws or such as may be required under state or foreign securities or
Blue Sky laws.
(xix) The Company and its subsidiaries possess such permits,
licenses, approvals, consents and other authorizations issued by the
appropriate federal, state, local or foreign regulatory agencies or
bodies (including, without limitation, the Insurance Licenses) that are
material to the Company and its subsidiaries taken as a whole and are
necessary to conduct the business now conducted by them; the Company
and its subsidiaries are in compliance with the terms and conditions of
all such Insurance Licenses, except where the failure to so comply
would not, singly or in the aggregate, result in a Material Adverse
Effect; all of the Insurance Licenses are valid and in full force and
effect, except where the invalidity of such Insurance Licenses or the
failure of such Insurance Licenses to be in full force and effect would
not result in a Material Adverse Effect or materially and adversely
affect the Company's performance of its obligations under this
Agreement or the Forward Purchase Agreement; and neither the Company
nor any of its subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such Insurance
Licenses which, singly or in the aggregate, may reasonably be expected
to result in a Material Adverse Effect or to materially and adversely
affect the Company's performance of its obligations under this
Agreement or the Forward Purchase Agreement.
(xx) Neither the Company nor any of its subsidiaries is, and
upon the consummation of the transactions contemplated in this
Agreement and the Forward Purchase Agreement and the application of the
net proceeds from the Shares as described in the Prospectus will be, an
"investment company" or an entity "controlled" by an "investment
company," as such terms are defined in the 1940 Act.
Moreover, such counsel shall confirm that nothing has come to such
counsel's attention that causes such counsel to believe that the Registration
Statement (except for financial statements and the notes thereto, the financial
schedules and any other financial data included or incorporated by reference
therein as to which such counsel need express no opinion), at the time it became
effective or at the Representation Date, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or that the
Prospectus (except for financial statements and the notes thereto, the financial
schedules and any other financial data included or incorporated by reference
therein as to which such counsel need express no opinion), on the date of issue
or the Representation Date, included or includes an untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
(d) On the Closing Date, the Purchaser shall have received from Schiff
Hardin & Waite, counsel for the Purchaser, such opinion or opinions, dated the
date hereof, with respect to the issuance and sale of the Shares, the
Registration Statement, the Prospectus (together with any supplement thereto)
and other related matters as the Purchaser may reasonably require.
16
<PAGE>
(e) On the Closing Date, the Purchaser shall have received a
certificate of the President or a Vice-President of the Company and of the Chief
Financial Officer or Chief Accounting Officer of the Company, dated the Closing
Date, to the effect that:
(i) The Registration Statement has been declared effective,
and no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
initiated or, to the knowledge of such officers, threatened by the
Commission;
(ii) the representations and warranties of the Company in
Section 1 of this Agreement are true and correct as though expressly
made at and as of the Closing Date;
(iii) the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied at or
prior to the Closing Date; and
(iv) since the date of the most recent financial statements
included in the Prospectus (exclusive of any supplement thereto), there
has been no material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects
of the Company and its subsidiaries considered as one enterprise,
whether or not in the ordinary course of business, except as set forth
in the Prospectus (exclusive of any supplement thereto).
(f) On the Closing Date, PricewaterhouseCoopers LLP shall have
furnished to the Purchaser a letter, dated the Closing Date, in form and
substance satisfactory to the Purchaser, to the effect set forth in Exhibit A.
(g) Since the execution of this Agreement or, if earlier, the dates as
of which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement thereto), no
material adverse change shall have occurred in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries, considered as one enterprise, whether or not in
the ordinary course of business.
(h) Counsel for the Purchaser shall have been furnished with such
documents and opinions as they may require for the purpose of enabling them to
pass upon the issuance and sale of the Shares under this Agreement and the
Forward Purchase Agreement, as herein and therein contemplated, and related
proceedings, or in order to evidence the accuracy of any of the representations
or warranties, or the fulfillment of any of the conditions herein contained; and
all proceedings taken by the Company in connection with the issuance and sale of
the Shares under this Agreement and the Forward Purchase Agreement as herein and
therein contemplated shall be satisfactory in form and substance to the
Purchaser and counsel for the Purchaser.
5. Reimbursement of Purchaser's Expenses. The Company shall reimburse
the Purchaser and the Selling Stockholder for all reasonable out-of-pocket
expenses (including reasonable fees and disbursements of counsel in connection
with the transactions contemplated by this Agreement), up to a maximum
reimbursement of $150,000 in the aggregate for all such out-of-pocket expenses
incurred by the Purchaser and the Selling Stockholder in connection with the
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proposed purchase and sale of the Shares. Such reimbursement shall be made, from
time to time, within 20 days of the Company's receipt of a written invoice from
the Purchaser and the Selling Stockholder itemizing such expenses.
6. Additional Covenants of the Company.
The Company further covenants and agrees with the Purchaser and the
Selling Stockholder as follows:
(a) Each delivery by the Company of a Direction to Sell to the
Purchaser or of Make- whole Shares to the Selling Stockholder shall be deemed to
be an affirmation that the representations and warranties of the Company
contained in Section 1 of this Agreement and in any officers' certificate
delivered to the Purchaser or the Selling Stockholder pursuant hereto are true
and correct at the time of such delivery, and an undertaking that such
representations and warranties will be true and correct at the date of sale
specified in the Direction to Sell, as though made at and as of each such time
(it being understood that such representations and warranties shall relate to
the Registration Statement and Prospectus as amended and supplemented to each
such time).
(b) Each time that (i) the Company shall file a Material Amendment or
Supplement to the Registration Statement or the Prospectus (as defined in
Section 6(c)), (ii) the Purchaser or the Selling Stockholder shall so require as
a condition to the sale of Purchased Shares pursuant to a Direction to Sell, or
(iii) the Selling Stockholder shall so require as a condition to the acceptance
by the Selling Stockholder of Make-whole Shares under the Forward Purchase
Agreement in payment of the Make-whole Amount (as defined in the Forward
Purchase Agreement), the Company shall furnish or cause to be furnished to the
Purchaser and/or the Selling Stockholder, as applicable, the following:
(i) a certificate, dated the date of filing with the
Commission or the date of effectiveness of such amendment or
supplement, as applicable, or the date of delivery of a Direction to
Sell or of Make-whole Shares, as the case may be, in form and substance
reasonably satisfactory to the Purchaser and/or the Selling
Stockholder, as applicable, to the effect that the representations
contained in Section 1 of this Agreement and in the certificate
referred to in Section 4(e) hereof are true and correct at the time of
the filing or effectiveness of such amendment or supplement, as
applicable, or of the delivery of the Direction to Sell or of
Make-whole Shares, as the case may be, as though made at and as of such
time (except that such representations and warranties shall be deemed
to relate to the Registration Statement and the Prospectus as amended
and supplemented to such time) or, in lieu of such certificate, a
certificate of the same tenor as the certificate referred to Section
4(e) hereof, modified as necessary to relate to the Registration
Statement and the Prospectus as amended and supplemented to the time of
delivery of such certificate;
(ii) the written opinion of John J. Sabl, Executive Vice
President, General Counsel and Secretary of the Company, or other
counsel satisfactory to the Purchaser and/or the Selling Stockholder,
as the case may be, dated the date of filing with the Commission or the
date of effectiveness of such amendment or supplement, as applicable,
or the date of delivery of a Direction to Sell or of Make-whole Shares,
as the case may be,
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in form and substance satisfactory to the Purchaser and/or the Selling
Stockholder, as applicable, of the same tenor as the opinion referred
to in Section 4(c) hereof, but modified as necessary to relate to the
Registration Statement and the Prospectus as amended and supplemented
to the time of delivery of such opinion or, in lieu of such opinion,
counsel last furnishing such opinion to the Purchaser and/or the
Selling Stockholder shall furnish the Purchaser and/or the Selling
Stockholder, as applicable, with a letter substantially to the effect
that the Purchaser and/or the Selling Stockholder, as applicable, may
rely on such last opinion to the same extent as though it were dated
the date of such letter authorizing reliance (except that statements in
such last opinion shall be deemed to relate to the Registration
Statement and the Prospectus as amended and supplemented to the time of
delivery of such letter authorizing reliance); and
(iii) a letter, dated the date of filing with the Commission
or the date of effectiveness of such amendment or supplement, as
applicable, or the date of such delivery of a Direction to Sell or of
Make-whole Shares, as the case may be, of PricewaterhouseCoopers LLP to
the same tenor as the letter referred to in Section 4(f) hereof, but
modified to relate to the Registration Statement and Prospectus as
amended and supplemented to the date of such letter.
(c) A "Material Amendment or Supplement to the Registration Statement
or the Prospectus" shall mean, during the Effective Period, (i) any amendment to
the Registration Statement filed by the Company under the 1933 Act, (ii) each
Annual Report on Form 10-K or Quarterly Report on Form 10-Q filed by the
Company, (iii) any Current Report on Form 8-K which contains financial
information required to be set forth in or incorporated by reference into the
Prospectus pursuant to Item 11 of Form S-3 under the Securities Act, and (iv)
any Current Report on Form 8-K , upon the reasonable request of the Purchaser
and the Selling Stockholder. The Company shall deliver the documents provided
for in Section 6(b) upon the date of filing of any Material Amendment or
Supplement to the Registration Statement or Prospectus or such other date
mutually agreed upon by the Company, the Purchaser and the Selling Stockholder.
(d) In the event that the Purchaser or the Selling Stockholder elects
to exercise its right to require delivery of the documents provided for in
Section 6(b) as a condition to the sale of Purchased Shares pursuant to a
Direction to Sell or that the Selling Stockholder elects to exercise its right
to require delivery of such documents as a condition to its acceptance of
Make-whole Shares in payment of the Make-whole Amount, the Purchaser or the
Selling Stockholder, as applicable, shall provide written notice of its intent
to require delivery of such documents within 24 hours of receipt of a Direction
to Sell or of receipt by the Selling Stockholder of notice from the Company of
its election to pay the Make-whole Amount in Make-whole Shares. Neither the
Selling Stockholder nor the Purchaser shall have any obligation to sell
Purchased Shares pursuant to a Direction to Sell and the Selling Stockholder
shall have no obligation to accept Payment Shares or Make-whole Shares in
payment of the Make-whole Amount until such time as the Company has complied
with the provisions of Section 6(b).
7. Termination by the Purchaser.
(a) The Purchaser may terminate this Agreement in its absolute
discretion at any time prior to the purchase of the Purchased Shares, if (i)
since the time of execution of this Agreement,
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there has been any material adverse change, financial or otherwise (other than
as disclosed in the Registration Statement and Prospectus), in the operations,
business, condition or prospects of the Company and its subsidiaries, considered
as one enterprise, (ii) at the time of such termination, (x) trading in
securities on the NYSE, the American Stock Exchange or the Nasdaq National
Market shall have been suspended or limitations or minimum prices shall have
been established on any such exchange or market, (y) a banking moratorium shall
have been declared either by the United States or New York State authorities, or
(z) the United States shall have declared war in accordance with its
constitutional processes or there shall have occurred any material outbreak or
escalation of hostilities or other national or international calamity or crisis
of such magnitude in its effect on the financial markets of the United States
as, in the Purchaser's judgment, to make it impracticable to market the Shares
in the manner contemplated by this Agreement, or (iii) the Common Stock shall
have ceased to be registered under the 1934 Act or listed on the NYSE, or the
Commission, the NYSE or the Company shall have initiated proceedings for such
deregistration or delisting.
(b) If the Purchaser elects to terminate this Agreement as provided in
this Section 7, the Purchaser shall notify the Company promptly of such
termination. Such termination shall be effective upon the Company's receipt of
such notice. Upon such termination, the Purchaser shall not be under any
obligation or liability to the Company under this Agreement, and Company shall
not be under any obligation or liability under this Agreement (except to the
extent provided in Sections 3(l) and 5).
8. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Purchaser and
each person, if any, who controls the Purchaser within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act, as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto) or the omission or
alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue statement of a
material fact included in any Preliminary Prospectus or the Prospectus
(or any amendment or supplement thereto), or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever arising out of or based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission, provided, that (subject to Section 8(f) below) any such
settlement is effected with the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by the
Purchaser), reasonably incurred in investigating,
20
<PAGE>
preparing or defending against any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or any claim whatsoever arising out of or based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or
(ii) above; provided, however, that the foregoing indemnity agreement
shall not apply to any loss, liability, claim, damage or expense to the
extent arising out of or based upon any untrue statement or omission or
alleged untrue statement or omission (A) made in reliance upon and in
conformity with written information furnished to the Company by the
Purchaser expressly for use in the Registration Statement (or any
amendment thereto), or any Preliminary Prospectus or the Prospectus (or
any amendment or supplement thereto), or (B) made in any Preliminary
Prospectus and corrected in the Prospectus, as supplemented, where the
person asserting any such loss, liability, claim, damage or expense
purchased the Shares that are the subject thereof, and it shall have
been established (i) that there was not sent or given, at or prior to
the written confirmation of such sale, a copy of the Prospectus
(excluding documents incorporated by reference) in any case where such
delivery is required by the 1933 Act and (ii) the Company shall have
previously furnished copies thereof in sufficient quantities to the
Purchaser.
(b) The Purchaser agrees to indemnify and hold harmless the Company,
its directors, each of its officers who signed the Registration Statement, and
each person, if any, who controls the Company within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act against any and all loss,
liability, claim, damage and expense described in the indemnity contained in
Section 8(a), as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), or any Preliminary Prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by the Purchaser
expressly for use in the Registration Statement (or any amendment thereto) or
such preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).
(c) The Company agrees to indemnify and hold harmless the Selling
Stockholder and each person, if any, who controls the Selling Stockholder within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, as
follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto) or the omission or
alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue statement of a
material fact included in any Preliminary Prospectus or the Prospectus
(or any amendment or supplement thereto), or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever arising out of or based upon any such untrue
21
<PAGE>
statement or omission, or any such alleged untrue statement or
omission, provided, that (subject to Section 8(f) below) any such
settlement is effected with the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by the Selling
Stockholder), reasonably incurred in investigating, preparing or
defending against any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever arising out of or based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the
extent that any such expense is not paid under (i) or (ii) above;
provided, however, that the foregoing indemnity agreement shall not
apply to any loss, liability, claim, damage or expense to the extent
arising out of or based upon any untrue statement or omission or
alleged untrue statement or omission (A) made in reliance upon and in
conformity with written information furnished to the Company by the
Selling Stockholder expressly for use in the Registration Statement (or
any amendment thereto), or any Preliminary Prospectus or the Prospectus
(or any amendment or supplement thereto), or (B) made in any
Preliminary Prospectus and corrected in the Prospectus, where the
person asserting any such loss, liability, claim, damage or expense
purchased the Shares that are the subject thereof, and it shall have
been established (i) that there was not sent or given, at or prior to
the written confirmation of such sale, a copy of the Prospectus
(excluding documents incorporated by reference) in any case where such
delivery is required by the 1933 Act and (ii) the Company shall have
previously furnished copies thereof in sufficient quantities to the
Selling Stockholder or the Purchaser, as agent for the Selling
Stockholder.
(d) The Selling Stockholder agrees to indemnify and hold harmless the
Company, its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all
loss, liability, claim, damage and expense described in the indemnity contained
in Section 8(c), as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), or any Preliminary Prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by the Selling
Stockholder expressly for use in the Registration Statement (or any amendment
thereto) or such preliminary prospectus or the Prospectus (or any amendment or
supplement thereto).
(e) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
hereunder to the extent it is not materially prejudiced as a result thereof and
in any event shall not relieve it from any liability which it may have otherwise
than on account of this indemnity agreement. In the case of parties indemnified
pursuant to Section 6(a) of this Section, counsel to the indemnified parties
shall be selected by the Purchaser, in the case of parties indemnified pursuant
to Section 6(c) of this Section, counsel to the indemnified parties shall be
selected by the Selling Stockholder, and in the case of parties indemnified
pursuant to Section 6(b) and Section 6(d) of this Section, counsel to the
indemnified parties shall be selected by the Company; provided, however, that in
the event that the Company is obligated to indemnify parties
22
<PAGE>
pursuant to both Section 6(a) and Section 6(c) in connection with any one action
or separate but similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances, one and the same counsel (in
addition to any local counsel) to such indemnified parties shall be selected by
the Selling Stockholder. An indemnifying party may participate at its own
expense in the defense of any such action; provided, however, that counsel to
the indemnifying party shall not (except with the consent of the indemnified
party) also be counsel to the indemnified party. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification or contribution could
be sought under this Section 8 or Section 9 (whether or not the indemnified
parties are actual or potential parties thereto), unless such settlement,
compromise or consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such litigation, investigation,
proceeding or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act by or on behalf of any indemnified
party.
(f) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 6(a)(ii) and Section 6(c)(ii)
effected without its written consent if (i) such settlement is entered into more
than 45 days after receipt by such indemnifying party of the aforesaid request,
(ii) such indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior to the date of such settlement.
Notwithstanding the immediately preceding sentence, if at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, an indemnifying party shall
not be liable for any settlement of the nature contemplated by Section 6(a)(ii)
or Section 6(c)(ii) effected without its consent if such indemnifying party (i)
reimburses such indemnified party in accordance with such request to the extent
it considers such request to be reasonable and (ii) provides written notice to
the indemnified party substantiating the unpaid balance as unreasonable, in each
case prior to the date of such settlement.
9. Contribution.
(a) If the indemnification provided for in Section 8 is for any reason
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, liabilities, claims, damages or expenses referred to therein,
then each indemnifying party shall contribute to the aggregate amount of such
losses, liabilities, claims, damages and expenses incurred by such indemnified
party, as incurred, (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company, the Purchaser, and the Selling
Stockholder from the offering of the Purchased Shares pursuant to this Agreement
or (ii) if the allocation provided by clause (i) is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company, the Purchaser, and the Selling Stockholder in connection with the
statements or omissions which resulted in such
23
<PAGE>
losses, liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by Company, the Purchaser, and the
Selling Stockholder in connection with the offering of the Shares pursuant to
this Agreement shall be deemed to be in the same respective proportions as (i)
the total proceeds from the sale to the Purchaser of the Purchased Shares (less
the Advisory Fee, the Commission (as defined in the Forward Purchase Agreement),
and the aggregate Floating Amounts (as defined in the Forward Purchase
Agreement) received by the Selling Stockholder less the Selling Stockholder's
cost of funding the Total Forward Price (as defined in the Forward Purchase
Agreement), but before deducting expenses) received by the Company, (ii) the
Advisory Fee and the Commission received by the Purchaser, and (iii) the
aggregate Floating Amounts (as defined in the Forward Purchase Agreement)
received by the Selling Stockholder less the Selling Stockholder's cost of
funding the Total Forward Price (as defined in the Forward Purchase Agreement).
The relative fault of the Company, the Purchaser, and the Selling
Stockholder shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company, the Purchaser or the Selling Stockholder and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company, the Purchaser and the Selling Stockholder agree that it
would not be just and equitable if contribution pursuant to this Section 9 were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above in this
Section 9. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section
9 shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 9, each person, if any, who controls the
Purchaser or Selling Stockholder within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act shall have the same rights to contribution as
the Purchaser or the Selling Stockholder, respectively, and each director of the
Company, each officer of the Company who signed the Registration Statement, and
each person, if any, who controls the Company within the meaning of section 15
of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as the Company.
10. Notices. All notices hereunder shall be in writing and delivered by
hand, overnight courier, mail or facsimile, and (i) if to the Purchaser, shall
be sufficient in all respects if delivered to Warburg Dillon Read LLC, 677
Washington Boulevard Stamford, Connecticut 06901, Attention: Equity Risk
Management Department, Facsimile No. 203-719-7031, with a copy at that same
address to the attention of Legal & External Affairs, Facsimile No.
203-719-6097, (ii) if to the Selling
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Stockholder, shall be sufficient in all respects if delivered to UBS AG, London
Branch, c/o Warburg Dillon Read LLC, 677 Washington Boulevard Stamford,
Connecticut 06901, Attention: Equity Risk Management Department, Facsimile No.
203-719-7031, with a copy at that same address to the attention of Legal &
External Affairs, Facsimile No. 203-719-6097, and (iii) if to the Company, shall
be sufficient in all respects if delivered or sent to the Company at the offices
of the Company at 11825 N. Pennsylvania Street, Carmel, Indiana 46032,
Attention: John J. Sabl, Executive Vice President, General Counsel and
Secretary, Facsimile No. 317-817-6327.
11. Governing Law; Construction. This Agreement and any claim,
counterclaim or dispute of any kind or nature whatsoever arising out of or in
any way relating to this Agreement ("Claim"), directly or indirectly, shall be
governed by, and construed in accordance with, the laws of the State of New
York, other than rules governing choice of applicable law. The Section headings
in this Agreement have been inserted as a matter of convenience of reference and
are not a part of this Agreement.
12. Parties in Interest. The Agreement herein set forth has been and is
made solely for the benefit of the Purchaser, the Selling Stockholder and the
Company and to the extent provided in Section 8 and Section 9 hereof the
controlling persons, directors and officers referred to in such sections, and
their respective successors, assigns, heirs, personal representatives and
executors and administrators. No other person, partnership, association or
corporation (including a purchaser, as such purchaser, from the Selling
Stockholder or the Purchaser (other than the Selling Stockholder)) shall acquire
or have any right under or by virtue of this Agreement.
13. Counterparts. This Agreement may be signed by the parties in one or
more counterparts, which together shall constitute one and the same agreement
among the parties.
14. Successors and Assigns. This Agreement shall be binding upon the
Purchaser, the Selling Stockholder and the Company and their successors and
assigns and any successor or assign of any substantial portion of the Company's,
the Purchaser's and the Selling Stockholder's respective businesses and/or
assets.
15. Relationship between the Purchaser and the Selling Stockholder.
Warburg Dillon Read LLC, an indirect, wholly owned subsidiary of UBS AG, is not
a bank and is separate from any affiliated bank, including the London Branch of
UBS AG or any U.S. branch or agency of UBS AG. Because Warburg Dillon Read LLC
is a separately incorporated entity, it is solely responsible for its own
contractual obligations and commitments, including obligations with respect to
sales and purchases of securities. Purchased Shares offered and sold by the
Purchaser, as agent for the Selling Stockholder, are not deposits, are not
insured by the Federal Deposit Insurance Corporation, are not guaranteed by the
Selling Stockholder or any other branch or agency of UBS AG, and are not
otherwise an obligation or responsibility of a branch or agency of UBS AG.
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If the foregoing correctly sets forth the understanding among the
Company, the Purchaser and the Selling Stockholder, please so indicate in the
space provided below for the purpose, whereupon this letter and your acceptance
shall constitute a binding agreement between the Company, the Purchaser and the
Selling Stockholder.
Very truly yours,
CONSECO, INC.
By: /S/ ROLLIN M. DICK
----------------------------------
Name: Rollin M. Dick
Title: Executive Vice President
and Chief Financial Officer
Accepted and agreed to as of the
date first above written:
WARBURG DILLON READ LLC
By: /S/ CHRISTOPHER POHLE
----------------------------
Name: Christopher Pohle
Title: Managing Director
By: /S/ DAVID WEINER
----------------------------
Name: David Weiner
Title: Director
UBS AG, LONDON BRANCH
By: /S/ SARAH EDMONSTON
----------------------------
Name: Sarah Edmonston
Title: Associate Director
By: /S/ VICTORIA HARKNESS SOTGUI
----------------------------
Name: Victoria Harkness Sotgui
Title: Associate Director
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SCHEDULE A
Significant Subsidiaries of
Conseco, Inc.
CIHC, Incorporated
Jefferson National Life Insurance Company of Texas
Bankers Life and Casualty Company
Conseco Senior Health Insurance Company
Conseco Annuity Assurance Company
Conseco Life Insurance Company
Pioneer Financial Services, Inc.
Pioneer Life Insurance Company
Capitol American Financial Corporation
Conseco Health Insurance Company
Green Tree Financial Corporation
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Exhibit A
Form of Accountant's Letter
pursuant to Section 4(f)
The comfort letter shall have been prepared in accordance with
Statement on Auditing Standards No. 72 and shall be to the effect that:
(i) the accountants furnishing such letter are independent
certified public accountants with respect to the Company within the
meaning of the 1933 Act and the 1933 Act Regulations;
(ii) in their opinion, the audited consolidated financial
statements and financial statement schedules included or incorporated
by reference in the Registration Statement and the Prospectus comply as
to form in all material respects with the applicable accounting
requirements of the 1933 Act and the 1933 Act Regulations and the 1934
Act and the 1934 Act Regulations;
(iii) on the basis of (A) the performance of procedures
specified by the American Institute of Public Accountants for a review
of interim financial information as described in Statement on Auditing
Standards No. 71, Interim Financial Information, on the unaudited
consolidated financial statements of the Company and its subsidiaries
included in the Company's quarterly reports on Form 10-Q as of dates
subsequent to the date of the most recent audited consolidated
financial statements incorporated by reference in the Registration
Statement and Prospectus, (B) a reading of the latest available
unaudited financial statements of the Company, (C) a reading of the
minutes of the meetings of the stockholders, board of directors and
appropriate committees of the Company and its subsidiaries, and (D)
inquiries of certain officials of the Company who have responsibility
for financial and accounting matters of the Company and its
subsidiaries (it being understood that the foregoing procedures do not
constitute an audit made in accordance with generally applicable
accounting principles and would not necessarily reveal matters of
significance with respect to the comments made in such letter), nothing
came to their attention which caused them to believe that:
(1) any material modifications should be made to the
unaudited consolidated financial statements included in the
Form 10-Qs and incorporated by reference in the Registration
Statement and the Prospectus for them to be in conformity with
generally accepted accounting principles, or
(2) the unaudited consolidated financial statements
included in the Form 10-Qs and incorporated by reference in
the Registration Statement and the Prospectus do not comply as
to form in all material respects with the applicable
accounting requirements of the 1934 Act and the 1934 Act
Regulations, as they apply to Form 10-Q; or
(3) as of the date of the latest available unaudited
financial statements and as of a specified date not more than
five business days prior to the date of the
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letter, there were any increases in the consolidated long-term
debt of the Company or decreases in consolidated assets or
stockholders' equity of the Company, in each case as compared
with the amounts shown in the most recent consolidated balance
sheet of the Company incorporated by reference in the
Registration Statement and the Prospectus, or for the period
from the date of such balance sheet to the date of the most
recent available financial statements and such specified date,
there were any decreases, as compared with the corresponding
periods in the preceding year, in consolidated revenues
excluding realized gains, net income, earnings applicable to
common stock or net income per diluted common share, except in
all instances for changes, increases or decreases that the
Registration Statement and Prospectus disclose have occurred
or may occur or (solely in the case of the letter delivered at
the Closing) except for such exceptions enumerated in such
letter as shall have been agreed to by the Purchaser and the
Company.
(iv) In the event that pro forma financial statements are
included or incorporated by reference in the Registration Statement and
the Prospectus, on the basis of (A) a reading of the pro forma
financial statements, (B) the performance of procedures specified by
the American Institute of Public Accountants for a review of interim
financial information as described in Statement on Auditing Standards
No. 71, Interim Financial Information, on the financial statements to
which the pro forma adjustments were applied, (C) inquiries of certain
officials of the Company and the acquired company who have
responsibility for financial and accounting matters, and (D) the
proving of the arithmetic accuracy of the application of the pro forma
adjustments to the historical amounts in the pro forma financial
statements, nothing came to their attention that led them to believe
that the pro forma financial statements included or incorporated by
reference in the Registration Statement and the Prospectus do not
comply in all material respects with the applicable requirements of
Rule 11-02 of Regulation S-X or that the pro forma adjustments have not
been properly applied to the historical amounts in the compilation of
those statements.
29
Exhibit 1.2
(MULTICURRENCY-CROSS BORDER)
ISDA-Registered Trademark-
International Swap Dealers Association, Inc.
MASTER AGREEMENT
dated as of April 21, 1999
UBS AG and Conseco, Inc. have entered and/or anticipate entering into one or
more transactions (each a "Transaction") that are or will be governed by this
Master Agreement, which includes the schedule (the "Schedule"), and the
documents and other confirming evidence (each a "Confirmation") exchanged
between the parties confirming those Transactions.
Accordingly, the parties agree as follows:-
1. INTERPRETATION
(a) DEFINITIONS. The terms defined in Section 14 and in the Schedule will
have the meanings therein specified for the purpose of
this Master Agreement.
(b) INCONSISTENCY. In the event of any inconsistency between the provisions
of the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement (including the Schedule), such
Confirmation will prevail for the purposes of the relevant Transaction.
(c) SINGLE AGREEMENT. All Transactions are entered into in reliance on the
fact that this Master Agreement and all Confirmation form a single agreement
between the parties (collectively referred to as this "Agreement"), and the
parties would not otherwise enter into any Transactions.
2. OBLIGATIONS
(a) GENERAL CONDITIONS.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of
this Agreement.
(ii) Payments under this Agreement will be made on the due date for
value on that date in the place of the account specified in the
relevant Confirmation or otherwise pursuant to this Agreement, in
freely transferable funds and in the manner customary for payments
in the required currency. Where settlement is by delivery (that
is, other than by payment), such delivery will be made for receipt
on the due date in the manner customary for the relevant
obligation unless otherwise specified in the relevant Confirmation
or elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to
(1) the condition precedent that no Event of Default or Potential
Event of Default with respect to the other party has occurred and
is continuing, (2) the condition precedent that no Early
Termination Date in respect of the relevant Transaction has
occurred or been effectively designated and (3) each other
applicable condition precedent specified in this Agreement.
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(b) CHANGE OF ACCOUNT. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change.
(c) NETTING. If on any date amounts would otherwise be payable:-
(i) in the same currency; and
(ii) in respect of the same Transaction.
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate
amount would have been payable to pay to the other party the excess of the
larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount
will be determined in respect of all amounts payable on the same date in the
same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction. The election may be made
in the Schedule or a Confirmation by specifying that subparagraph (ii) above
will not apply to the Transactions identified as being subject to the election,
together with the starting date (in which case subparagraph (ii) above will not,
or will cease to, apply to such Transactions from such date). This election may
be made separately for different groups of Transactions and will apply
separately to each pairing of Offices through which the parties make and receive
payments or deliveries.
(d) DEDUCTION OR WITHHOLDING FOR TAX.
(i) GROSS-UP. All payments under this Agreement will be made without
any deduction or withholding for or on account of any Tax unless
such deduction or withholding is required by any applicable law,
as modified by the practice of any relevant governmental revenue
authority, then in effect. If a party is so required to deduct or
withhold, then that party ("X") will:-
(1) promptly notify the other ("Y") of such requirement;
(2) pay to the relevant authorities the full amount required to
be deducted or withheld (including the full amount required to be
deducted or withheld from any additional amount paid by X to Y
under this Section 2(d)) promptly upon the earlier of determining
that such deduction or withholding is required or receiving notice
that such amount has been assessed against Y;
(3) promptly forward to Y an official receipt (or a certified
copy), or other documentation reasonably acceptable to Y,
evidencing such payment to such authorities; and
(4) if such Tax is an Indemnifiable Tax, pay to Y, in addition to
the payment to which Y is otherwise entitled under this Agreement,
such additional amount as is necessary to ensure that the net
amount actually received by Y (free and clear of Indemnifiable
Taxes, whether assessed against X or Y) will equal the full amount
Y would have received had no such deduction or withholding been
required. However, X will not be required to pay any additional
amount to Y to the extent that it would not be required to be paid
but for:-
(A) the failure by Y to comply with or perform any agreement
contained in Section 4(a)(i), 4(a)(iii) or 4(d); or
(B) the failure of a representation made by Y pursuant to
Section 3(f) to be accurate and true unless such failure
would not have occurred but for (I) any action taken by a
taxing authority, or brought in a court of competent
jurisdiction, on or after the date on which a Transaction is
entered into (regardless of whether such action is taken or
brought with respect to a party to this Agreement) or (II) a
Change in Tax Law.
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(ii) LIABILITY. If:-
(1) X is required by any applicable law, as modified by the
practice of any relevant governmental revenue authority, to make
any deduction or withholding in respect of which X would not be
required to pay an additional amount to Y under Section
2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed directly
against X,
then, except to the extent Y has satisfied or then satisfies the
liability resulting from such Tax, Y will promptly pay to X the amount of
such liability (including any related liability for interest, but
including any related liability for penalties only if Y has failed to
comply with or perform any agreement contained in Section 4(a)(i),
4(a)(iii) or 4(d)).
(e) DEFAULT INTEREST; OTHER AMOUNTS. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant Transaction,
a party that defaults in the performance of any payment obligation will, to the
extent permitted by law and subject to Section 6(c), be required to pay interest
(before as well as after judgment) on the overdue amount to the other party on
demand in the same currency as such overdue amount, for the period from (and
including) the original due date for payment to (but excluding) the date of
actual payment, at the Default Rate. Such interest will be calculated on the
basis of daily compounding and the actual number of days elapsed. If, prior to
the occurrence or effective designation of an Early Termination Date in respect
of the relevant Transaction, a party defaults in the performance of any
obligation required to be settled by delivery, it will compensate the other
party on demand if and to the extent provided for in the relevant Confirmation
or elsewhere in this Agreement.
3. REPRESENTATIONS
Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered into
and, in the case of the representations in Section 3(f), at all times until the
termination of this Agreement) that:-
(a) BASIC REPRESENTATIONS.
(i) STATUS. It is duly organised and validly existing under the laws
of the jurisdiction of its organisation or incorporation and, if relevant
under such laws, in good standing;
(ii) POWERS. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to
deliver this Agreement and any other documentation relating to this
Agreement that it is required by this Agreement to deliver and to perform
its obligations under this Agreement and any obligations it has under any
Credit Support Document to which it is a party and has taken all
necessary action to authorise such execution, delivery and performance;
(iii) NO VIOLATION OR CONFLICT. Such execution, delivery and performance
performance do not violate or conflict with any law applicable to it, any
provision of its constitutional documents, any order or judgment of any
court or other agency of government applicable to it or any of its assets
or any contractual restriction binding on or affecting it or any of its
assets;
(iv) CONSENTS. All governmental and other consents that are required
to have been obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party have been obtained and are in
full force and effect and all conditions of any such consents have been
complied with; and
(v) OBLIGATIONS BINDING. Its obligations under this Agreement and any
Credit Support Document to which it is a party constitute its legal,
valid and binding obligations, enforceable in accordance with their
respective terms (subject to applicable bankruptcy, reorganisation,
insolvency, moratorium or similar laws affecting creditors' rights
generally and subject, as to enforceability, to equitable principles of
general application (regardless of whether enforcement is sought in a
proceeding in equity or at law)).
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<PAGE>
(b) ABSENCE OF CERTAIN EVENTS. No Event of Default or Potential Event of
Default or, to its knowledge, Termination Event with respect to it has occurred
and is continuing and no such event or circumstance would occur as a result of
its entering into or performing its obligations under this Agreement or any
Credit Support Document to which it is a party.
(c) ABSENCE OF LITIGATION. There is not pending or, to its knowledge,
threatened against it or any of its Affiliates any action, suit or proceeding at
law or in equity or before any court, tribunal, governmental body, agency or
official or any arbitrator that is likely to affect the legality, validity or
enforceability against it of this Agreement or any Credit Support Document to
which it is a party or its ability to perform its obligations under this
Agreement or such Credit Support Document.
(d) ACCURACY OF SPECIFIED INFORMATION. All applicable information that is
furnished in writing by or on behalf of it to the other parry and is identified
for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
(e) PAYER TAX REPRESENTATION. Each representation specified in the Schedule
as being made by it for the purpose of this Section 3(e) is accurate and true.
(f) PAYEE TAX REPRESENTATIONS. Each representation specified in the Schedule
as being made by it for the purpose of this Section 3(f) is accurate and true.
4. AGREEMENTS
Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:-
(a) FURNISH SPECIFIED INFORMATION. It will deliver to the other party or, in
certain cases under subparagraph (iii) below, to such government or taxing
authority as the other party reasonably directs:-
(i) any forms, documents or certificates relating to taxation
specified in the Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any Confirmation;
and
(iii) upon reasonable demand by such other party, any form or document
that may be required or reasonably requested in writing in order to allow
such other party or its Credit Support Provider to make a payment under
this Agreement or any applicable Credit Support Document without any
deduction or withholding for or on account of any Tax or with such
deduction or withholding at a reduced rate (so long as the completion,
execution or submission of such form or document would not materially
prejudice the legal or commercial position of the party in receipt of
such demand), with any such form or document to be accurate and completed
in a manner reasonably satisfactory to such other party and to be
executed and to be delivered with any reasonably required certification,
in each case by the date specified in the Schedule or such Confirmation or, if
none is specified, as soon as reasonably practicable.
(b) MAINTAIN AUTHORISATIONS. It will use all reasonable efforts to maintain
in full force and effect all consents of any governmental or other authority
that are required to be obtained by it with respect to this Agreement or any
Credit Support Document to which it is a party and will use all reasonable
efforts to obtain any that may become necessary in the future.
(c) COMPLY WITH LAWS. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its bligations under this
Agreement or any Credit Support Document to which it is a party.
(d) TAX AGREEMENT. It will give notice of any failure of a representation
made by it under Section 3(f) to be accurate and true promptly upon learning of
such failure.
(e) PAYMENT OF STAMP TAX. Subject to Section 11, it will pay any Stamp Tax
levied or imposed upon it or in respect of its execution or performance of this
Agreement by a jurisdiction in which it is incorporated,
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<PAGE>
organized, managed and controlled, or considered to have its seat, or in which a
branch or office through which it is acting for the purpose of this Agreement is
located ("Stamp Tax Jurisdiction") and will indemnify the other party against
any Stamp Tax levied or imposed upon the other party or in respect of the other
party's execution or performance of this Agreement by any such Stamp Tax
Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the
other party.
5. EVENTS OF DEFAULT AND TERMINATION EVENTS
(a) EVENTS OF DEFAULT. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any of the following events constitutes an event of
default (an "Event of Default") with respect to such party:-
(i) FAILURE TO PAY OR DELIVER. Failure by the party to make, when
due, any payment under this Agreement or delivery under Section 2(a)(i)
or 2(e) required to be made by it if such failure is not remedied on or
before the third Local Business Day after notice of such failure is given
to the party;
(ii) BREACH OF AGREEMENT. Failure by the party to comply with or
perform any agreement or obligation (other than an obligation to make any
payment under this Agreement or delivery under Section 2(a)(i) or 2(e) or
to give notice of a Termination Event or any agreement or obligation
under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied with or
performed by the party in accordance with this Agreement if such failure
is not remedied on or before the thirtieth day after notice of such
failure is given to the party;
(iii) CREDIT SUPPORT DEFAULT.
(1) Failure by the party or any Credit Support Provider of such
party to comply with or perform any agreement or obligation to be
complied with or performed by it in accordance with any Credit
Support Document if such failure is continuing after any
applicable grace period has elapsed;
(2) the expiration or termination of such Credit Support Document
or the failing or ceasing of such Credit Support Document to be in
full force and effect for the purpose of this Agreement (in either
case other than in accordance with its terms) prior to the
satisfaction of all obligations of such party under each
Transaction to which such Credit Support Document relates without
the written consent of the other party; or
(3) the party or such Credit Support Provider disaffirms,
disclaims, repudiates or rejects, in whole or in part, or
challenges the validity of, such Credit Support Document;
(iv) MISREPRESENTATION. A representation (other than a representation
under Section 3(e) or (f)) made or repeated or deemed to have been made
or repeated by the party or any Credit Support Provider of such party in
this Agreement or any Credit Support Document proves to have been
incorrect or misleading in any material respect when made or repeated or
deemed to have been made or repeated.
(v) DEFAULT UNDER SPECIFIED TRANSACTION. The party, any Credit Support
Provider of such party or any applicable Specified Entity of such party
(1) defaults under a Specified Transaction and, after giving effect to
any applicable notice requirement or grace period, there occurs a
liquidation of, an acceleration of obligations under, or an early
termination of, that Specified Transaction, (2) defaults, after giving
effect to any applicable notice requirement or grace period, in making
any payment or delivery due on the last payment, delivery or exchange
date of, or any payment on early termination of, a Specified Transaction
(or such default continues for at least three Local Business Days if
there is no applicable notice requirement or grace period) or (3)
disaffirms, disclaims, repudiates or rejects, in whole or in part, a
Specified Transaction (or such action is taken by any person or entity
appointed or empowered to operate it or act on its behalf);
(vi) CROSS DEFAULT. If "Cross Default" is specified in the Schedule as
applying to the party, the occurrence or existence of (1) a default,
event of default or other similar condition or event (however
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described) in respect of such party, any Credit Support Provider of such
party or any applicable Specified Entity of such party under one or more
agreements or instruments relating to Specified Indebtedness of any of
them (individually or collectively) in an aggregate amount of not less
than the applicable Threshold Amount (as specified in the Schedule)which
has resulted in such Specified Indebtedness becoming, or becoming capable
at such time of being declared, due and payable under such agreements or
instruments, before it would otherwise have been due and payable or (2) a
default by such party, such Credit Support Provider or such Specified
Entity (individually or collectively) in making one or more payments on
the due date thereof in an aggregate amount of not less than the
applicable Specified Amount under such agreements or instruments (after
giving effect to any applicable notice requirement or grace period);
(vii) BANKRUPTCY. The party, any Credit Support Provider of such party
or any applicable Specified Entity of such party:-
(1) is dissolved (other than pursuant to a consolidation,
amalgamation or merger); (2) becomes insolvent or is unable to pay
its debts or fails or admits in writing its inability generally to
pay its debts as they become due; (3) makes a general assignment,
arrangement or composition with or for the benefit of its
creditors; (4) institutes or has instituted against it a
proceeding seeking a judgment of insolvency or bankruptcy or any
other relief under any bankruptcy or insolvency law or other
similar law affecting creditors' rights, or a petition is
presented for its winding-up or liquidation, and, in the case of
any such proceeding or petition instituted or presented against
it, such proceeding or petition (A) results in a judgment of
insolvency or bankruptcy or the entry of an order for relief or
the making of an order for its winding-up or liquidation or (B) is
not dismissed, discharged, stayed or restrained in each case
within 30 days of the institution or presentation thereof; (5) has
a resolution passed for its winding-up, official management or
liquidation (other than pursuant to a consolidation, amalgamation
or merger); (6) seeks or becomes subject to the appointment of an
administrator, provisional liquidator, conservator, receiver,
trustee, custodian or other similar official for it or for all or
substantially all its assets; (7) has a secured party take
possession of all or substantially all its assets or has a
distress, execution, attachment, sequestration or other legal
process levied, enforced or sued on or against all or
substantially all its assets and such secured party maintains
possession, or any such process is not dismissed, discharged,
staved or restrained, in each case within 30 days thereafter; (8)
causes or is subject to any event with respect to it which, under
the applicable laws of any jurisdiction, has an analogous effect
to any of the events specified in clauses (1) to (7) (inclusive);
or (9) takes any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the foregoing
acts; or
(viii) MERGER WITHOUT ASSUMPTION. The party or any Credit Support
Provider of such party consolidates or amalgamates with, or merges with
or into, or transfers all or substantially all its assets to, another
entity and, at the time of such consolidation, amalgamation, merger or
transfer:-
(1) the resulting, surviving or transferee entity fails to assume
all the obligations of such party or such Credit Support Provider
under this Agreement or any Credit Support Document to which it or
its predecessor was a party by operation of law or pursuant to an
agreement reasonably satisfactory to the other party to this
Agreement; or
(2) the benefits of any Credit Support Document fail to extend
without the consent of the other party) to the performance by such
resulting, surviving or transferee entity of its obligations under
this Agreement.
(b) TERMINATION EVENTS. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any event specified below constitutes an Illegality if
the event is specified in (i) below, a Tax Event if the event is specified in
(ii) below or a Tax Event Upon Merger if the event is specified in (iii) below,
and, if specified to be applicable, a Credit Event
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Upon Merger if the event is specified pursuant to (iv) below or an Additional
Termination Event if the event is specified pursuant to (v) below:-
(i) ILLEGALITY. Due to the adoption of, or any change in, any
applicable law after the date on which a Transaction is entered into, or
due to the promulgation of, or any change in, the interpretation by any
court, tribunal or regulatory authority with competent jurisdiction of
any applicable law after such date, it becomes unlawful (other than as a
result of a breach by the party of Section 4(b)) for such party (which
will be the Affected Party):-
(1) to perform any absolute or contingent obligation to make a
payment or delivery or to receive a payment or delivery in respect
of such Transaction or to comply with any other material provision
of this Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party
to perform, any contingent or other obligation which the party (or
such Credit Support Provider) has under any Credit Support
Document relating to such Transaction;
(ii) TAX EVENT. Due to (x) any action taken by a tax authority, or
brought in a court of competent jurisdiction, on or after the date on
which a Transaction is entered into (regardless of whether such action is
taken or brought with respect to a party to this Agreement) or (y) a
Change in Tax Law, the party (which will be the Affected Party) will, or
there is a substantial likelihood that it will, on the next succeeding
Scheduled Payment Date (1) be required to pay to the other party an
additional amount in respect of an Indemnifiable Tax under Section
2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or
6(e)) or (2) receive a payment from which an amount is required to be
deducted or withheld for or on account of a Tax (except in respect of
interest under Section 2(e), 6(d)(ii) or 6(e)) and no additional amount
is required to be paid in respect of such Tax under Section 2(d)(i)(4)
(other than by reason of Section 2(d)(i)(4)(A) or (B));
(iii) TAX EVENT UPON MERGER. The party (the "Burdened Party") on the
next succeeding Scheduled Payment Date will either (1) be required to pay
an additional amount in respect of an Indemnifiable Tax under Section
2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or
6(e)) or (2) receive a payment from which an amount has been deducted or
withheld for or on account of any Indemnifiable Tax in respect of which
the other party is not required to pay an additional amount (other than
by reason of Section 2(d)(i)(4)(A) or (B)), in either case as a result of
a party consolidating or amalgamating with, or merging with or into, or
transferring all or substantially all its assets to, another entity
(which will be the Affected Party) where such action does not constitute
an event described in Section 5(a)(viii);
(iv) CREDIT EVENT UPON MERGER. If "Credit Event Upon Merge" is
specified in the Schedule as applying to the party, such party ("X"), any
Credit Support Provider of X or any applicable Specified Entity of X
consolidates or amalgamates with, or merges with or into, or transfers
all or substantially all its assets to, another entity and such action
does not constitute an event described in Section 5(a)(viii) but the
creditworthiness of the resulting, surviving or transferee entity is
materially weaker than that of X, such Credit Support Provider or such
Specified Entity, as the case my be, immediately prior to such action
(and, in such event, X or its successor or transferee, as appropriate,
will be the Affected Party); or
(v) ADDITIONAL TERMINATION EVENT. If any "Additional Termination
Event" is specified in the Schedule or any Confirmation as applying, the
occurrence of such event (and, in such event, the Affected Party or
Affected Parties shall be as specified for such Additional Termination
Event in the Schedule or such Confirmation).
(c) EVENT OF DEFAULT AND ILLEGALITY. If an event or circumstance which would
otherwise constitute or give rise to an Event of Default also constitutes an
Illegality, it will be treated is an Illegality and will not constitute an Event
of Default.
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6. EARLY TERMINATION
(a) RIGHT TO TERMINATE FOLLOWING EVENT OF DEFAULT. If at any time an Event
of Default with respect to a party (the "Defaulting Party") has occurred and is
then continuing, the other party (the "Non-defaulting Party") may, by not more
than 20 days notice to the Defaulting Party specifying the relevant Event of
Default, designate a day not earlier than the day such notice is effective as an
Early Termination Date in respect of all outstanding Transactions. If, however,
"Automatic Early Termination" is specified in the Schedule as applying to a
party, then an Early Termination Date in respect of all outstanding Transactions
will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(l), (3), (5), (6) or, to the
extent analogous thereto, (8), and as of the time immediately preceding the
institution of the relevant proceeding or the presentation of the relevant
petition upon the occurrence with respect to such party of an Event of Default
specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b) RIGHT TO TERMINATE FOLLOWING TERMINATION EVENT.
(i) NOTICE. If a Termination Event occurs, an Affected Party will,
promptly upon becoming aware of it, notify the other party, specifying
the nature of that Termination Event and each Affected Transaction and
will also give such other information about that Termination Event as the
other party may reasonably require.
(ii) TRANSFER TO AVOID TERMINATION EVENT. If either an Illegality under
Section 5(b)(i)(1) or a Tax Event occurs and there is only one Affected
Party, or if a Tax Event Upon Merger occurs and the Burdened Party is the
Affected Party, the Affected Party will, as a condition to its right to
designate an Early Termination Date under Section 6(b)(iv), use all
reasonable efforts (which will not require such party to incur a loss,
excluding immaterial, incidental expenses) to transfer within 20 days
after it gives notice under Section 6(b)(i) all its rights and
obligations under this Agreement in respect of the Affected Transactions
to another of its Offices or Affiliates so that such Termination Event
ceases to exist.
If the Affected Party is not able to make such a transfer it will give
notice to the other party to that effect within such 20 day period,
whereupon the other party may effect such a transfer within 30 days after
the notice is given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be Subject
to and conditional upon the prior written consent of the other party,
which consent will not be withheld if such other party's policies in
effect at such time would permit it to enter into transactions with the
transferee on the terms proposed.
(iii) TWO AFFECTED PARTIES. If an Illegality under Section 5(b)(i)(1)
or a Tax Event occurs and there are two Affected Parties, each party will
use all reasonable efforts to reach agreement within 30 days after notice
thereof is given under Section 6(b)(i) on action to avoid that
Termination Event.
(iv) RIGHT TO TERMINATE. If:-
(1) a transfer under Section 6(b)(ii) or an agreement under
Section 6(b)(iii), as the case may be, has not been effected with
respect to all Affected Transactions within 30 days after an
Affected Party gives notice under Section 6(b)(i); or
(2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon
Merger or an Additional Termination Event occurs, or a Tax Event
Upon Merger occurs and the Burdened Party is not the Affected
Party,
either party in the case of an Illegality, the Burdened Party in the case
of a Tax Event Upon Merger, any Affected Party in the case of a Tax Event
or an Additional Termination Event if there is more than one Affected
Party, or the party which is not the Affected Party in the case of a
Credit Event Upon Merger or an Additional Termination Event if there is
only one Affected Party may, by not more than 20 days notice to the other
party and provided that the relevant Termination Event is then
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continuing, designate a day not earlier than the day such notice is
effective as an Early Termination Date in respect of all Affected
Transactions.
(c) EFFECT OF DESIGNATION.
(i) If notice designating an Early Termination Date is given under
Section 6(a) or (b), the Early Termination Date will occur on the date so
designated, whether or not the relevant Event of Default or Termination
Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early
Termination Date, no further payments or deliveries under Section 2(a)(i)
or 2(e) in respect of the Terminated Transactions will be required to be
made, but without prejudice to the other provisions of this Agreement.
The amount, if any, payable in respect of an Early Termination Date shall
be determined pursuant to Section 6(e).
(d) CALCULATIONS.
(i) STATEMENT. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and will
provide to the other party a statement (1) showing, in reasonable detail,
such calculations (including all relevant quotations and specifying any
amount payable under Section 6(e)) and (2) giving details of the relevant
account to which any amount payable to it is to be paid. In the absence
of written confirmation from the source of a quotation obtained in
determining a Market Quotation, the records of the party obtaining such
quotation will be conclusive evidence of the existence and accuracy of
such quotation.
(ii) PAYMENT DATE. An amount calculated as being due in respect of any
Early Termination Date under Section 6(e) will be payable on the day that
notice of the amount payable is effective (in the case of an Early
Termination Date which is designated or occurs as a result of an Event,
of Default) and on the day which is two Local Business Days after the day
on which notice of the amount payable is effective (in the case of an
Early Termination Date which is designated as a result of a Termination
Event). Such amount will be paid together with (to the extent permitted
under applicable law) interest thereon (before as well as after judgment)
in the Termination Currency, from (and including) the relevant Early
Termination Date to (but excluding) the date such amount is paid, at the
Applicable Rate. Such interest will be calculated on the basis of daily
compounding and the actual number of days elapsed.
(e) PAYMENTS ON EARLY TERMINATION. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment method,
either the "First Method" or the "Second Method". If the parties fail to
designate a payment measure or payment method in the Schedule, it will be deemed
that "Market Quotation" or the "Second Method", as the case may be, shall apply.
The amount, if any, payable in respect of an Early Termination Date and
determined pursuant to this Section will be subject to any Set-off.
(i) EVENTS OF DEFAULT. If the Early Termination Date results from an
Event of Default:-
(1) First Method and Market Quotation. If the First Method and
Market Quotation apply, the Defaulting Party will pay to the
Non-defaulting Party the excess, if a positive number, of (A) the
sum of the Settlement Amount (determined by the Non-defaulting
Party) in respect of the Terminated Transactions and the
Termination Currency Equivalent of the Unpaid Amounts owing to the
Non-defaulting Party over (B) the Termination Currency Equivalent
of the Unpaid Amounts owing to the Defaulting Party.
(2) First Method and Loss. If the First Method and Loss apply, the
Defaulting Party will pay to the Non-defaulting Party, if a
positive number, the Non-defaulting Party's Loss in respect of
this Agreement.
(3) Second Method and Market Quotation. If the Second Method and
Market Quotation apply, an amount will be payable equal to (A) the
sum of the Settlement Amount (determined by the
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Non-defaulting Party) in respect of the Terminated Transactions
and the Termination Currency Equivalent of the Unpaid Amounts
owing to the Non-defaulting Party less (B) the Termination
Currency Equivalent of the Unpaid Amounts owing to the Defaulting
Party. If that amount is a positive number, the Defaulting Party
will pay it to the Non-defaulting Party; if it is a negative
number, the Non-defaulting Party will pay the absolute value of
that amount to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss apply,
an amount will be payable equal to the Non-defaulting Party's Loss
in respect of this Agreement. If that amount is a positive number,
the Defaulting Party will pay it to the Non-defaulting Party; if
it is a negative number, the Non-defaulting Party will pay the
absolute value of that amount to the Defaulting Party.
(ii) TERMINATION EVENTS. If the Early Termination Date results from a
Termination Event:-
(1) ONE AFFECTED PARTY. If there is one Affected Party, the
amount payable will be determined in accordance with Section
6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4), if
Loss applies, except that, in either case, references to the
Defaulting Party and to the Non-defaulting Party will be deemed to
be references to the Affected Party and the party which is not the
Affected Party, respectively, and, if Loss applies and fewer than
all the Transactions are being terminated, Loss shall be
calculated in respect of all Terminated Transactions.
(2) TWO AFFECTED PARTIES. If there are two Affected Parties:-
(A) if Market Quotation applies, each party will determine a
Settlement Amount in respect of the Terminated Transactions,
and an amount will be payable equal to (I) the sum of (a)
one-half of the difference between the Settlement Amount of
the party with the higher Settlement Amount ("X") and the
Settlement Amount of the party with the lower Settlement
Amount ("Y") and (b) the Termination Currency Equivalent of
the Unpaid Amounts owing to X less (II) the Termination
Currency Equivalent of the Unpaid Amounts owing to Y; and
(B) if Loss applies, each party will determine its Loss in
respect of this Agreement (or, if fewer than all the
Transactions are being terminated, in respect of all
Terminated Transactions) and an amount will be payable equal
to one-half of the difference between the Loss of the party
with the higher Loss ("X") and the Loss of the party with the
lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X; if
it is a negative number, X will pay the absolute value of that
amount to Y.
(iii) ADJUSTMENT FOR BANKRUPTCY. In circumstances where an Early
Termination Date occurs because "Automatic Early Termination" applies in
respect of a party, the amount determined under this Section 6(e) will be
subject to such adjustments as are appropriate and permitted by law to
reflect any payments or deliveries made by one party to the other under
this Agreement (and retained by such other party) during the period from
the relevant Early Termination Date to the date for payment determined
under Section 6(d)(ii).
(iv) PRE-ESTIMATE. The parties agree that if Market Quotation applies
an amount recoverable under this Section 6(e) is a reasonable
pre-estimate of loss and not a penalty. Such amount is payable for the
loss of bargain and the loss of protection against future risks and
except as otherwise provided in this Agreement neither party will be
entitled to recover any additional damages as a consequence of such
losses.
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7. TRANSFER
Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of the
other party, except that:-
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of all
or substantially all its assets to, another entity (but without prejudice to any
other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in
any amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be void.
8. CONTRACTUAL CURRENCY
(a) PAYMENT IN THE CONTRACTUAL CURRENCY. Each payment under this Agreement
will be made in the relevant currency specified in this Agreement for that
payment (the "Contractual Currency"). To the extent permitted by applicable law,
any obligation to make payments under this Agreement in the Contractual Currency
will not be discharged or satisfied by any tender in any currency other than the
Contractual Currency, except to the extent such tender results in the actual
receipt by the party to which payment is owed, acting in a reasonable manner and
in good faith in converting the currency so tendered into the Contractual
Currency, of the full amount in the Contractual Currency of all amounts payable
in respect of this Agreement. If for any reason the amount in the Contractual
Currency so received falls short of the amount in the Contractual Currency
payable in respect of this Agreement, the party required to make the payment
will, to the extent permitted by applicable law, immediately pay such additional
amount in the Contractual Currency as may be necessary to compensate for the
shortfall. If for any reason the amount in the Contractual Currency so received
exceeds the amount in the Contractual Currency payable in respect of this
Agreement, the party receiving the payment will refund promptly the amount of
such excess.
(b) JUDGMENTS. To the extent permitted by applicable law, if any judgment or
order expressed in a currency other than the Contractual Currency is rendered
(i) for the payment of any amount owing in respect of this Agreement, (ii) for
the payment of any amount relating to any early termination in respect of this
Agreement or (iii) in respect of a judgment or order of another court for the
payment of any amount described in (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is
entitled pursuant to the judgment or order, will be entitled to receive
immediately from the other party the amount of any shortfall of the Contractual
Currency received by such party as a consequence of sums paid in such other
currency and will refund promptly to the other party any excess of the
Contractual Currency received by such party as a consequence of sums paid in
such other currency if such shortfall or such excess arises or results from any
variation between the rate of exchange at which the Contractual Currency is
converted into the currency of the judgment or order for the purposes of such
judgment or order and the rate of exchange at which such party is able, acting
in a reasonable manner and in good faith in converting the currency received
into the Contractual Currency, to purchase the Contractual Currency with the
amount of the currency of the judgment or order actually received by such party.
The term "rate of exchange" includes, without limitation, any premiums and costs
of exchange payable in connection with the purchase of or conversion into the
Contractual Currency.
(c) SEPARATE INDEMNITIES. To the extent permitted by applicable law, these
indemnities constitute separate and independent obligations from the other
obligations in this Agreement, will be enforceable as separate and independent
causes of action, will apply notwithstanding any indulgence granted by the party
to which any payment is owed and will not be affected by judgment being obtained
or claim or proof being made for any other sums payable in respect of this
Agreement.
(d) EVIDENCE OF LOSS. For the purpose of this Section 8, it will be
sufficient for a party to demonstrate that it would have suffered a loss had an
actual exchange or purchase been made.
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9. MISCELLANEOUS
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.
(b) AMENDMENTS. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by an
exchange of telexes or electronic messages on an electronic messaging system.
(c) SURVIVAL OF OBLIGATIONS. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.
(d) REMEDIES CUMULATIVE. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) COUNTERPARTS AND CONFIRMATIONS.
(i) This Agreement (and each amendment, modification and waiver in
respect of it) may be executed and delivered in counterparts (including
by facsimile transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of each
Transaction from the moment they agree to those terms (whether orally or
otherwise). A Confirmation shall be entered into as soon as practicable
and may be executed and delivered in counterparts (including by facsimile
transmission) or be created by an exchange of telexes or by an exchange
of electronic messages on an electronic messaging system, which in each
case will be sufficient for all purposes to evidence a binding supplement
to this Agreement. The parties will specify therein or through another
effective means that any such counterpart, telex or electronic message
constitutes a Confirmation.
(f) NO WAIVER OF RIGHTS. A failure or delay in exercising any right, power
or privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any other right, power or privilege.
(g) HEADINGS. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
10. OFFICES; MULTIBRANCH PARTIES
(a) If Section 10(a) is specified in the Schedule as applying, each party
that enters into a Transaction through an Office other than its head or home
office represents to the other party that, notwithstanding the place of booking
office or jurisdiction of incorporation or organisation of such party, the
obligations of such party are the same as if it had entered into the Transaction
through its head or home office. This representation will be deemed to be
repeated by such party on each date on which a Transaction is entered into.
(b) Neither party may change the Office through which it makes and receives
payments or deliveries for the purpose of a Transaction without the prior
written consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a Transaction
will be specified in the relevant Confirmation.
11. EXPENSES
A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees and
Stamp Tax, incurred by such other party by reason of the enforcement and
protection of its rights under this Agreement or any Credit Support Document
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to which the Defaulting Party is a party or by reason of the early termination
of any Transaction, including, but not limited to, costs of collection.
12. NOTICES
(a) EFFECTIVENESS. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:-
(i) if in writing and delivered in person or by courier, on the date
it is delivered;
(ii) if sent by telex, on the date the recipient's answerback is
received;
(iii) if sent by facsimile transmission, on the date that transmission
is received by a responsible employee of the recipient in legible form
(it being agreed that the burden of proving receipt will be on the sender
and will not be met by a transmission report generated by the sender's
facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or
the equivalent (return receipt requested), on the date that mail is
delivered or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that
electronic message is received,
unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given and
effective on the first following day that is a Local Business Day.
(b) CHANGE OF ADDRESSES. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.
13. GOVERNING LAW AND JURISDICTION
(a) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) JURISDICTION. With respect to any suit, action or proceedings relating
tothis Agreement ("Proceedings"), each party irrevocably:-
(i) submits to the jurisdiction of the English courts, if this Agreement
is expressed to be governed by English law, or to the non-exclusive
jurisdiction of the courts of the State of New York and the United States
District Court located in the Borough of Manhattan in New York City, if
this Agreement is expressed to be governed by the laws of the State of
New York; and
(ii) waives any objection which it may have at any time to the laying of
venue of any Proceedings brought in any such court, waives any claim that
such Proceedings have been brought in an inconvenient forum, and further
waives the right to object, with respect to such Proceedings, that such
court does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section 1(3) of the Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or
re-enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.
(c) SERVICE OF PROCESS. Each party irrevocably appoints the Process Agent
(if any) specified opposite its name in the Schedule to receive, for it and on
its behalf, service of process in any Proceedings. If for any
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reason any party's Process Agent is unable to act as such, such party will
promptly notify the other party and within 30 days appoint a substitute process
agent acceptable to the other party. The parties irrevocably consent to service
of process given in the manner provided for notices in Section 12. Nothing in
this Agreement will affect the right of either party to serve process in any
other manner permitted by law.
(d) WAIVER OF IMMUNITIES. Each party irrevocably waives, to the fullest
extent permitted by applicable law, with respect to itself and its revenues and
assets (irrespective of their use or intended use), all immunity on the grounds
of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court, (iii) relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.
14. DEFINITIONS
As used in this Agreement:-
"ADDITIONAL TERMINATION EVENT" has the meaning specified in Section 5(b).
"AFFECTED PARTY" has the meaning specified in Section 5(b).
"AFFECTED TRANSACTIONS" means (a) with respect to any Termination Event
consisting of an Illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and (b) with
respect to any other Termination Event, all Transactions.
"AFFILIATE" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.
"APPLICABLE RATE" means:-
(a) in respect of obligations payable or deliverable (or which would have
been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of
either party from and after the date (determined in accordance with Section
6(d)(ii)) on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which
would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the
Non-default Rate; and
(d) in all other cases, the Termination Rate.
"BURDENED PARTY" has the meaning specified in Section 5(b).
"CHANGE IN TAX LAW" means the enactment, promulgation, execution or ratification
of, or any change in or amendment to any law (or in the application or official
interpretation of any law) that occurs on or after the date on which the
relevant Transaction is entered into.
"CONSENT" includes a consent, approval, action, authorisation, exemption,
notice, filing, registration or exchange control consent.
"CREDIT EVENT UPON MERGER" has the meaning specified in Section 5(b).
"CREDIT SUPPORT DOCUMENT" means any agreement or instrument that is specified as
such in this Agreement.
"CREDIT SUPPORT PROVIDER" has the meaning specified in the Schedule.
"DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus l% per annum.
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"DEFAULTING PARTY" has the meaning specified in Section 6(a).
"EARLY TERMINATION DATE" means the date determined in accordance with Section
6(a) or 6(b)(iv).
"EVENT OF DEFAULT" has the meaning specified in Section 5(a) and, if applicable,
in the Schedule.
"ILLEGALITY" has the meaning specified in Section 5(b).
"INDEMNIFIABLE TAX" means any Tax other than a Tax that would not be imposed in
respect of a payment under this Agreement but for a present or former connection
between the jurisdiction of the government or taxation authority imposing such
Tax and the recipient of such payment or a person related to such recipient
(including, without limitation, a connection arising from such recipient or
related person being or having been a citizen or resident of such jurisdiction,
or being or having been organised, present or engaged in a trade or business in
such jurisdiction, or having or having had a permanent establishment or fixed
place of business in such jurisdiction, but excluding a connection arising
solely from such recipient or related person having executed, delivered,
performed its obligations or received a payment under, or enforced, this
Agreement or a Credit Support Document).
"LAW" includes any treaty, law, rule or regulation (as modified, in the case of
tax matters, by the practice of any relevant governmental revenue authority) and
"LAWFUL" and "UNLAWFUL" will be construed accordingly.
"LOCAL BUSINESS DAY" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located and. if
different. in the principal financial centre, if any, of the currency of such
payment, (c) in relation to any notice or other communication, including notice
contemplated under Section 5(a)(i), in the city specified in the address for
notice provided by the recipient and, in the case of a notice contemplated by
Section 2(b), in the place where the relevant new account is to be located and
(d) in relation to Section 5(a)(v)(2), in the relevant locations for performance
with respect to such Specified Transaction.
"LOSS" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to be its
total losses and costs (or gain, in which case expressed as a negative number)
in connection with this Agreement or that Terminated Transaction or group of
Terminated Transactions, as the case may be, including any loss of bargain, cost
of funding or, at the election of such party but without duplication, loss or
cost incurred as a result of its terminating, liquidating, obtaining or
reestablishing any hedge or related trading position (or any gain resulting from
any of them). Loss includes losses and costs (or gains) in respect of any
payment or delivery required to have been made (assuming satisfaction of each
applicable condition precedent) on or before the relevant Early Termination Date
and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3)
or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and
out-of-pocket expenses referred to under Section 11. A party will determine its
Loss as of the relevant Early Termination Date, or, if that is not reasonably
practicable, as of the earliest date thereafter as is reasonably practicable. A
party may (but need not) determine its Loss by reference to quotations of
relevant rates or prices from one or more leading dealers in the relevant
markets.
"MARKET QUOTATION" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an amount,
if any, that would be paid to such party (expressed as a negative number) or by
such party (expressed as a positive number) in consideration of an agreement
between such party (taking into account any existing Credit Support Document
with respect to the obligations of such party) and the quoting Reference
Market-maker to enter into a transaction (the "Replacement Transaction") that
would have the effect of preserving for such party the economic equivalent of
any payment or delivery (whether the underlying obligation was absolute or
contingent and assuming the satisfaction of each applicable condition precedent)
by the parties under Section 2(a)(i) in respect of such Terminated Transaction
or group of Terminated Transactions that would, but for the occurrence of the
relevant Early Termination Date, have
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been required after that date. For this purpose, Unpaid Amounts in respect of
the Terminated Transaction or group of Terminated Transactions are to be
excluded but, without limitation, any payment or delivery that would, but for
the relevant Early Termination Date, have been required (assuming satisfaction
of each applicable condition precedent) after that Early Termination Date is to
be included. The Replacement Transaction would be subject to such documentation
as such party and the Reference Market-maker may, in good faith, agree. The
party making the determination (or its agent) will request each Reference
Market-maker to provide its quotation to the extent reasonably practicable as of
the same day and time (with regard to different time zones) on or as soon as
reasonably practicable after the relevant Early Termination Date. The day and
time as of which those quotations are to be obtained will be selected in good
faith by the party obliged to make a determination under Section 6(e), and, if
each party is so obliged, after consultation with the other. If more than three
quotations are provided, the Market Quotation will be the arithmetic mean of the
quotations, without regard to the quotations having the highest and lowest
values. If exactly three such quotations are provided, the Market Quotation will
be the quotation remaining after disregarding the highest and lowest quotations.
For this purpose, if more than one quotation has the same highest value or
lowest value, then one of such quotations shall be disregarded. If fewer than
three quotations are provided, it will be deemed that the Market Quotation in
respect of such Terminated Transaction or group of Terminated Transactions
cannot be determined.
"NON-DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it) if
it were to fund the relevant amount.
"NON-DEFAULTING PARTY" has the meaning specified in Section 6(a).
"OFFICE" means a branch or office of a party, which may be such party's head or
home office.
"POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default.
"REFERENCE MARKET-MAKERS" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria that
such party applies generally at the time in deciding whether to offer or to make
an extension of credit and (b) to the extent practicable, from among such
dealers having an office in the same city.
"RELEVANT JURISDICTION" means, with respect to a party, the jurisdictions (a) in
which the party is incorporated, organised, managed and controlled or considered
to have its seat, (b) where an Office through which the party is acting for
purposes of this Agreement is located, (c) in which the party executes this
Agreement and (d) in relation to any payment, from or through which such payment
is made.
"SCHEDULED PAYMENT DATE" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.
"SET-OFF" means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under this Agreement,
another contract, applicable law or otherwise) that is exercised by, or imposed
on, such payer.
"SETTLEMENT AMOUNT" means, with respect to a party and any Early Termination
Date, the sum of:-
(a) the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation is determined; and
(b) such party's Loss (whether positive or negative and without reference to
any Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.
"SPECIFIED ENTITY" has the meaning specified in the Schedule.
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<PAGE>
"SPECIFIED INDEBTEDNESS" means, subject to the Schedule, any obligation (whether
present or future, contingent or otherwise, as principal or surety or otherwise)
in respect of borrowed money.
"SPECIFIED TRANSACTION" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable Specified Entity of such party) and the other party to
this Agreement (of any Credit Support Provider of such other parry or any
applicable Specified Entity of such other party) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions), (b) any combination of
these transactions and (c) any other transaction identified as a Specified
Transaction in this Agreement or the relevant confirmation.
"STAMP TAX" means any stamp, registration, documentation or similar tax.
"TAX" means any present or future tax, levy, impost, duty, charge, assessment or
fee of any nature (including interest, penalties and additions thereto) that is
imposed by any government or other taxing authority in respect of any payment
under this Agreement other than a stamp, registration, documentation or similar
tax.
"TAX EVENT" has the meaning specified in Section 5(b).
"TAX EVENT UPON MERGER" has the meaning specified in Section 5(b).
"TERMINATED TRANSACTIONS" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination Date (or, if "Automatic Early Termination" applies, immediately
before that Early Termination Date).
"TERMINATION CURRENCY" has the meaning specified in the Schedule.
"TERMINATION CURRENCY EQUIVALENT" means, in respect of any amount denominated in
the Termination Currency, such Termination Currency amount and, in respect of
any amount denominated in currency other than the Termination Currency (the
"Other Currency"), the amount in the Termination Currency determined by the
party making the relevant determination as being required to purchase such
amount of such Other Currency as at the relevant Early Termination Date, or, if
the relevant Market Quotation or Loss (as the case may be), is determined as of
a later date, that later date, with the Termination Currency at the rate equal
to the spot exchange rate of the foreign exchange agent (selected as provided
below) for the purchase of such Other Currency with the Termination Currency at
or about 11:00 a.m. (in the city in which such foreign exchange agent is
located) on such date as would be customary for the determination of such a rate
for the purchase of such Other Currency for value on the relevant Early
Termination Date or that later date. The foreign exchange agent will, if only
one party is obliged to make a determination under Section 6(e), be selected in
good faith by that party and otherwise will be agreed by the parties.
"TERMINATION EVENT" means an Illegality, a Tax Event or a Tax Event Upon Merger
or, if specified to be applicable, a Credit Event Upon Merger or an Additional
Termination Event.
"TERMINATION RATE" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.
"UNPAID AMOUNTS" owing to any party means, with respect to an Early Termination
Date the aggregate of (a) in respect of all Terminated Transactions, the amounts
that became payable (or that would have become payable but for Section
2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early
Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under Section
2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be
settled by delivery to, such party on or prior to such Early Termination Date
and which has not been so settled as at such Early Termination Date an amount
equal to the fair market
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<PAGE>
value of that which was (or would have been) required to be delivered as of the
originally scheduled date for delivery, in each case together with (to the
extent permitted under applicable law) interest, in the currency of such
amounts, from (and including) the date such amounts or obligations were or would
have been required to have been paid or performed to (but excluding) such Early
Termination Date, at the Applicable Rate. Such amounts of interest will be
calculated on the basis of daily compounding and the actual number of days
elapsed. The fair market value of any obligation referred to in clause (b) above
shall be reasonably determined by the party obliged to make the determination
under Section 6(e) or, if each party is so obliged, it shall be the average of
the Termination Currency Equivalents of the fair market values reasonably
determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.
UBS AG CONSECO, INC.
- ----------------------------------- ------------------------------------------
(Name of Party) (Name of Party)
By: /s/ MARTIN WEBER By: /s/ JAMES S. ADAMS
------------------------------- ------------------------------------
Name: Martin Weber Name: James S. Adams
Title: Legal Counsel Title: Senior Vice President,
Date: April 21, 1999 Chief Accounting Officer
and Treasurer
Date: April 21, 1999
By: /s/ DANIELA BEN SABER
-------------------------------
Name: Daniela Ben Saber
Title: Associate Director
Date: April 21, 1999
<PAGE>
SCHEDULE
to the Master Agreement
dated as of April 21, 1999
between
UBS AG, a bank organized and CONSECO, Inc. a corporation
under the laws of Switzerland organized under the laws of the
State of Indiana
("Party A") ("Party B")
Part 1
Termination Provisions
In this Agreement:
(a) "Specified Entity" means in relation to Party A for the purpose of:
Section 5(a)(v), Any Affiliate of Party A
Section 5(a)(vi), NONE
Section 5(a)(vii), NONE
Section 5(b)(iv), NONE
and in relation to Party B for the purpose of:
Section 5(a)(v), NONE
Section 5(a)(vi), NONE
Section 5(a)(vii), NONE
Section 5(b)(iv), NONE
(b) "Specified Transaction" will have the meaning specified in Section 14
of this Agreement and shall also include any Additional Specified Transactions.
As used herein, Additional Specified Transaction means repurchase agreements,
reverse repurchase agreements, securities lending agreements, forward contracts,
precious metals transactions, letters of credit reimbursement obligations and
indebtedness for borrowed money (whether or not evidenced by a note or similar
instrument) now existing or hereafter entered into between a party to this
Agreement (or any Credit Support Provider of such party or any applicable
Specified Entity of such party) and the other party to this Agreement (or any
Credit Support Provider of such other party or any applicable Specified Entity
of such other party),
(c) The "Cross Default" provisions of Section 5(a)(vi) f this Agreement,
as modified below, will apply to Party A and to Party B. Section 5(a)(vi) of
this Agreement is hereby amended by the addition of the following at the end
thereof:
"provided, however, that notwithstanding the foregoing, an Event of
Default shall not occur under either (1) or (2) above if, as demonstrated to the
reasonable satisfaction of the other party, (a) the event or condition referred
to in (1) or the failure to pay referred to in (2) is a failure to pay caused by
an error or omission of an administrative or operational nature; and (b) funds
were available to such party to enable it to make the relevant payment when due;
and (c) such relevant
1
<PAGE>
payment is made within three Business Days following
receipt of written notice from an interested party of such failure to pay."
If such provisions apply:
"Specified Indebtedness" means any obligation (whether present or
future, contingent or otherwise, as principal or surety or otherwise) for the
payment or repayment of any money.
"Threshold Amount" means:
(i) with respect to Party A , or any Specified Entity, an amount
equal to 2% of shareholders' equity (howsoever described) of
Party A or the relevant Specified Entity as shown on the most
recent annual audited financial statements of Party A or the
relevant Specified Entity and
(ii) with respect to Party B, an amount equal to 2% of shareholders'
equity (howsoever described) of Party B as shown on the most
recent annual audited financial statements of Party B.
(d) The "Credit Event Upon Merger" provisions of Section 5(b)(iv) will
apply to Party A and Party B, amended as follows:
"Credit Event Upon Merger' shall mean that a Designated Event (as
defined below) occurs with respect to a party, any Credit Support Provider of
the party or any applicable Specified Entity (any such party or entity, "X"),
and such Designated Event does not constitute an event described in Section
5(a)(viii) but the creditworthiness of X, or, if applicable, the successor,
surviving or transferee entity of X, is materially weaker than that of X
immediately prior to such event. In any such case the Affected Party shall be
the party with respect to which, or with respect to the Credit Support Provider
or Specified Entity of which, the Designated Event occurred, or, if applicable,
the successor, surviving or transferee entity of such party. For purposes
hereof, a Designated Event means that, after the date hereof:
(i) X consolidates, amalgamates with or merges with or into, or
transfers all or substantially all its assets to, or receives all
or substantially all the assets or obligations of, another
entity; or
(ii) any person or entity acquires directly or indirectly the
beneficial ownership of equity securities having the power to
elect a majority of the board of directors of X or otherwise
acquires directly or indirectly the power to control the
policy-making decisions of X."
(e) The "Automatic Early Termination" provision of Section 6(a) will not
apply to Party A or Party B.
(f) "Payments on Early Termination". For the purpose of Section 6(e) of
this Agreement:
(i) Market Quotation will apply.
(ii) The Second Method will apply.
(g) "Termination Currency" means one of the currencies in which payments
are required to be made pursuant to a Confirmation in respect of a Terminated
Transaction selected by the Non-Defaulting Party or the Non-Affected Party, as
the case may be, or, in the circumstances where there are two Affected Parties,
as agreed between the parties or, failing such agreement, if
2
<PAGE>
the currency so selected is not freely available, the Termination Currency shall
be U.S. Dollars.
(h) "Additional Termination Event" will apply to Party A and Party B.
The following shall constitute an Additional Termination Event: At any time the
rating issued by Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. ("S&P") or Duff & Phelps Ratings Co. ("Duff &
Phelps"), with respect to the long-term unsecured, unsubordinated debt
securities ("Debt Securities") of either Party A or Party B is below BB+ in the
case of S&P or Duff & Phelps. If one of the foregoing credit rating agencies
ceases to be in the business of rating Debt Securities and such business is not
continued by a successor or assign of such agency (the "Discontinued Agency"),
Party A and Party B shall jointly and in good faith (i) select a credit rating
agency in substitution thereof and (ii) agree on the rating level issued by such
substitute agency that is equivalent to the ratings specified herein of the
Discontinued Agency, whereupon such substitute agency and equivalent rating
shall replace the Discontinued Agency and the rating level thereof for the
purposes of this Agreement. If at any time, all of the agencies specified have
become Discontinued Agencies and Party A and Party B have not previously agreed
in good faith on at least one agency and equivalent rating in substitution for
the Discontinued Agency and the applicable rating thereof, the foregoing shall
cease to constitute an Additional Termination Event.
Part 2
Tax Representations
(i) Payer Tax Representation. For the purpose of Section 3(e), Party A and
Party B hereby make the following representation: It is not required by
any applicable law, as modified by the practice of any relevant
governmental revenue authority, of any Relevant Jurisdiction to make
any deduction or withholding for or on account of any Tax from any
payment (other than interest under Section 2(e), 6(d)(ii) or 6(e)) to
be made by it to the other party under this Agreement. In making this
representation, it may rely on: (A) the accuracy of any representation
made by the other party pursuant to Section 3(f); (B) the satisfaction
of the agreement of the other party contained in Section 4(a)(i) or
4(a)(iii) and the accuracy and effectiveness of any document provided
by the other party pursuant to Section 4(a)(i) or 4(a)(iii); and (C)
the satisfaction of the agreement of the other party contained in
Section 4(d); provided that it shall not be a breach of this
representation where reliance is placed on clause (B) and the other
party does not deliver a form or document under Section 4(a)(iii) by
reason of material prejudice to its legal or commercial position.
(ii) Payee Tax Representations. For the purpose of Section 3(f), Party A
makes the representation(s) specified below:
(A) The following representation will apply with respect to each
Transaction effectuated by an Office of Party A not located in
the United States of America and the Office of Party B which is
located in the United States of America:
It is fully eligible for the benefits of the "Business Profits"
or "Industrial and Commercial Profits" provision, as the case may
be, the "Interest" provision or the "Other Income" provision (if
any) of the Specified Treaty with respect to any payment
described in such provisions and received or to be received by it
in connection with this Agreement and no such payment is
attributable to a trade or business carried on by it through a
permanent establishment in the Specified Jurisdiction.
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<PAGE>
If such representation applies, then:
"Specified Treaty" means, with respect to a Transaction, the tax
treaty applicable between the United States of America and
Switzerland; and
"Specified Jurisdiction" means the United States of America.
Party A is a 'financial institution' and a 'non-U.S. branch of a
foreign person' as those terms are used in section
1.1441-4(a)(3)(ii) of United States Treasury Regulations (as
contained in Treasury Decision 8734 (October 6, 1997) ("TD
8734")), and Party A is a 'foreign person' as that term is used
in section 1.6041-4(a)(4) of TD 8734.
(B) The following representation will apply with respect to each
Transaction effectuated between an Office of Party A and an
Office of Party B located in the United States of America in both
cases:
Each payment received or to be received by Party A in connection
with this Agreement will be effectively connected with its
conduct of a trade or business in the United States of America.
(iii) Payee Tax Representations. For the purpose of Section 3(f), Party B
makes the representation(s) specified below:
(A) It is a corporation duly organized and incorporated under the
laws of the State of Indiana and is not a foreign corporation for
United States tax purposes.
Part 3
Agreement to Deliver Documents
For the purpose of Sections 3(d), 4(a)(i) and 4(a)(ii) of this Agreement, each
party agrees to deliver the following documents:
(a) Tax forms, documents or certificates to be delivered are:
Each party agrees to complete, accurately and in a manner reasonably
satisfactory to the other party (or any Specified Entity of the other party),
and to execute, arrange for any required certification of, and deliver to the
other party (or such Specified Entity) (or to such government or taxing
authority as the other party (or such Specified Entity) reasonably directs), any
form or document that may be required or reasonably requested in order to allow
the other party (or such Specified Entity) to make a payment under this
Agreement (or a Credit Support Document of the other party or a Specified Entity
thereof) without any deduction or withholding for or on account of any Tax or
with such deduction or withholding at a reduced rate, promptly upon the earlier
of (i) reasonable demand by the other party (or such Specified Entity) and (ii)
learning that the form or document is required.
4
<PAGE>
(b) Other documents to be delivered are:
<TABLE>
<CAPTION>
Party required Covered by
to deliver Date by which to Section 3(d)
document Form/Document/Certificate be delivered Representation
<S> <C> <C> <C>
Party A and Evidence of the authority and On or before Yes
Party B true signatuares of each official execution of this
or representative signing this Agreement and, if
Agreement or, as the case may requested by the
be, a Confirmation, on its other party each
behalf. Confirmation
forming a part of
this Agreement.
Party B Certified copy of the resolution On or before Yes
of Party B's Board of Directors execution of this
(or equivalent authorizing Agreement.
documentation) authorizing the
execution and delivery of this
Agreement and each
Confirmation and performance
of its obligation hereunder.
Party B Opinion of Party B's legal On or before Yes
counsel in a form satisfactory execution of this
to Party A regarding (inter alia) Agreement.
the power and authority of
Party B to enter into this
Agreement and Transactions
hereunder.
Party A Tax forms 1001 and 4224 On or before Yes
execution of this
Agreement.
</TABLE>
Part 4
Miscellaneous
(a) Addresses for Notices. For the purposes of Section 12(a) of this
Agreement:
(i) All notices or communications to Party A shall, with respect to a
particular Transaction, be sent to the address, telex number, or
facsimile number reflected in the Confirmation of that Transaction, and
any notice for purposes of Sections 5 or 6 shall be sent to:
Address: UBS AG, Stamford Branch, 677 Washington Blvd., Stamford,
CT 06912-0300
Attention: Legal Affairs Facsimile: (203) 719-6097
with a copy to: UBS AG, Legal Services, Bahnhofstrasse 45, Zurich,
CH-270.3.004.646-4, Switzerland, (Fax) +41 1 236 5111
5
<PAGE>
(ii) All notices or communications to Party B shall be sent to the
address, or facsimile number reflected below:
Address: Conseco, Inc. 11825 N. Pennsylvania Street,
Carmel Indiana 46032
Attention: Andrew Chow, CFA
Facsimile: (317) 817-6419 Telephone No: (317) 817-2602
Copies to:
James Adams, Treasurer
11825 N. Pennsylvania Street,
Carmel, Indiana 46032
Fax: (317) 817-2166, Phone: (317) 817-6166
John S. Sabl, General Counsel
11825 N. Pennsylvania Street
Carmel, Indiana 46032
Fax: (317) 817-6327, Phone: (317) 817-6092
(b) Process Agent. For the purpose of Section 13(c) of this Agreement:
Party A appoints as its Process Agent: Not Applicable.
Party B appoints as its Process Agent: Not Applicable.
(c) Offices. The provisions of Section 10(a) of this Agreement will
apply to Party A and Party B.
(d) Multibranch Party. For the purpose of Section 10(c) of this Agreement:
(i) Party A is a Multibranch Party and may act through its branches
in any of the following countries: England and Wales and the
United States of America.
(ii) Party B is not a Multibranch Party.
(e) Calculation Agent. The Calculation Agent is Party A, unless an Event
of Default or Potential Event of Default has occurred and is continuing with
respect to Party A or otherwise specified in a Confirmation in relation to the
relevant Transaction, in which case both parties will negotiate in good faith
and appoint a mutually acceptable third party dealer as Calculation Agent. All
determinations by the Calculation Agent are subject to agreement by Party A and
Party B. If the parties are unable to agree on a particular calculation, another
mutually acceptable third-party Calculation Agent which is a dealer in the
relevant market will be appointed.
(f) Credit Support Document. Not Applicable.
(g) Credit Support Provider. Credit Support Provider means: Not Applicable.
(h) Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York.
(i) Netting of Payments. Subparagraph (ii) of Section 2(c) of this
Agreement will apply, except the following groups of Transactions: (1) foreign
exchange transactions and currency
6
<PAGE>
options, in which case subparagraph (ii) of Section 2(c) of this Agreement will
not apply.
(j) "Affiliate" will have the meaning specified in Section 14 of this
Agreement with respect to Party B and for Party A shall mean any subsidiary
consolidated for financial reporting purposes in the group financial statements
as presented in the annual report of Party A.
Part 5
Other Provisions
(a) Set-off. Without affecting the provisions of the Agreement requiring
the calculation of certain net payment amounts, all payments under this
Agreement will be made without set-off or counterclaim; provided, however, that
upon the designation of any Early Termination Date, in addition to and not in
limitation of any other right or remedy (including any right to set off,
counterclaim, or otherwise withhold payment or any recourse to any Credit
Support Document) under applicable law the Non- defaulting Party or Non-affected
Party (in either case, "X") may without prior notice to any person set off any
sum or obligation (whether or not arising under this Agreement and whether
matured or unmatured, whether or not contingent and irrespective of the
currency, place of payment or booking office of the sum or obligation) owed by
the Defaulting Party or Affected Party (in either case, "Y") to X or any
Affiliate of X against any sum or obligation (whether or not arising under this
Agreement, whether matured or unmatured, whether or not contingent and
irrespective of the currency, place of payment or booking office of the sum or
obligation) owed by X or any Affiliate of X to Y and, for this purpose, may
convert one currency into another at a market rate determined by X. If any sum
or obligation is unascertained, X may in good faith estimate that sum or
obligation using available market input, and set-off in respect of that
estimate, subject to X or Y, as the case may be, accounting to the other party
when such sum or obligation is ascertained. X will give notice to Y of any
set-off effected under this provision.
(b) Representations. Section 3(a) is amended by adding the following
paragraphs (vi), (vii), (viii) and (ix):
(vi) No Agency. It is entering into this Agreement and each
Transaction as principal (and not as agent or in any other capacity,
fiduciary or otherwise).
(vii) Eligible Swap Participant. It is an "eligible swap participant"
as that term is defined by the United States Commodity Futures Trading
Commission in 17 C.F.R.ss.35.1(b)(2) and it has entered into this
Agreement and it is entering into each Transaction in connection with
its line of business (including financial intermediation services) or
the financing of its business; and the material terms of this Agreement
and such Transaction have been individually tailored and negotiated.
(viii) Compliance with Internal Investment Policies. In the case of
Party B, each Transaction entered into under this Agreement will be
entered into in accordance with, and will at all times comply with,
applicable internal investment policies and guidelines from time to
time adopted by Party B; and
(ix) Purpose. In the case of Party B, it has entered into this
Agreement (and it will enter into each Transaction hereunder) in
connection with exchange rate, interest rate or other price exposures
arising in the conduct or financing of its business or in order to
manage its assets or liabilities.
(c) Relationship Between Parties. Each party will be deemed to represent
to the other party
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<PAGE>
on the date on which it enters into a Transaction that (absent a written
agreement between the parties that expressly imposes affirmative obligations to
the contrary for that Transaction):
(i) Non-Reliance. It is cting for its own account, and it has made
its own independent decisions to enter into that Transaction and as to
whether that Transaction is appropriate or proper for it based upon its
own judgment and upon advice from such advisers as it has deemed
necessary. It is not relying on any communication (written or oral) of
the other party as investment advice or as a recommendation to enter
into that Transaction; it being understood that information and
explanations related to the terms and conditions of a Transaction shall
not be considered investment advice or a recommendation to enter into
that Transaction. No communication (written or oral) received from the
other party shall be deemed to be an assurance or guarantee as to the
expected results of that Transaction.
(ii) Assessment and Understanding. It is capable of assessing the
merits of and understanding (on its own behalf or through independent
professional advice), and understands and accepts the terms, conditions
and risks of that Transaction. It is also capable of assuming, and
assumes, the risks of that Transaction.
(iii) Status of Parties. The other party is not acting as a fiduciary
for or an adviser to it in respect of that Transaction.
(d) Waiver of Jury Trial. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY AND ALL
RIGHT TO TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY TRANSACTION AND ACKNOWLEDGES THAT THIS WAIVER
IS A MATERIAL INDUCEMENT TO THE OTHER PARTY'S ENTERING INTO THIS AGREEMENT.
(e) Consent to Recording. Each Party (i) consents to the recording of all
telephone conversations between trading, operations and marketing personnel of
the parties and their Affiliates in connection with this Agreement or any
potential Transaction; (ii) agrees to give notice to such personnel of it and
its Affiliates that their calls will be recorded; and (iii) agrees that in any
Proceedings, it will not object to the introduction of such recordings in
evidence on grounds that consent was not properly given.
(f) Scope of Agreement. Upon the effectiveness of this Agreement, unless
otherwise agreed to in writing by the parties to this Agreement with respect to
specific Specified Transactions, all Specified Transactions then outstanding or
any future Specified Transactions between Offices of the parties listed in Part
4(d) shall be subject to the terms hereof, with the exception of any Additional
Specified Transaction, and each such Specified Transaction shall be a
"Transaction" for purposes of this Agreement.
(g) Tax Event. Section 5(b)(ii) of this Agreement is hereby amended by the
deletion of "or there is a substantial likelihood that it will," from line four
thereof.
(h) Agreements. Section 4 of this Agreement is hereby amended by the
addition of Section 4(f) as follows:
"(f) Physical Delivery. In respect of any physically settled
Transactions, it will, at the time of delivery, be the legal and
beneficial owner, free of liens and other encumbrances, of any
securities or commodities it delivers to the other party; and, in
addition, with respect to any breach of this Section 4(f), Section
5(a)(ii) of this Agreement is hereby amended by the insertion of a
period after "Agreement" on the fifth line and the deletion of the
remainder of
8
<PAGE>
the Section.
(i) Transactions governed by FRABBA Terms. Any forward rate agreement into
which the parties have entered and in respect of which the confirmation or other
confirming evidence refers to or incorporates the British Bankers' Association
London Interbank Forward Rate Agreements Recommended Terms and Conditions (1985
edition) ("FRABBA Terms") will be governed by this Agreement. Any forward rate
agreement into which the parties may enter and in respect of which the
confirmation or other confirming evidence refers to or incorporates the FRABBA
Terms will be governed by this Agreement in all circumstances except when the
parties expressly agree otherwise. Each such transaction will be deemed to be a
Transaction and each such confirmation or other confirming evidence will be
deemed to constitute a Confirmation for purposes of this Agreement. Sections B,
C and E and clauses 1, 4, 5 and 6 of Section D of the FRABBA Terms are hereby
incorporated by reference in this Agreement. Those Sections are applicable only
to Transactions to which this provision relates and will prevail in the event of
any inconsistency with any other provision of this Agreement. In the event of
any other inconsistency between the FRABBA Terms and this Agreement, this
Agreement will govern. Clauses 2, 3, 7, 8, 9 and 10 of Section D of the FRABBA
Terms are not applicable to any Transactions to which this provision relates.
Part 6
Foreign Exchange Transactions and Currency Options
Notwithstanding anything to the contrary in this Agreement, the following
provisions shall apply with respect to FX Transactions and Currency Options.
Unless otherwise specified by the parties hereof, any "FX Transactions" and
"Currency Options" entered into by such parties shall be deemed to be
Transactions, and Specified Transactions, as the case may be, for the purposes
of this Agreement:
(a) Incorporation of the FX Definitions
The provisions of the 1998 FX and Currency Option Definitions (as
published by the International Swaps and Derivatives Association, Inc.
(the Emerging Markets Traders Association and the Foreign Exchange
Committee) (the "1998 FX Definitions") are hereby incorporated in their
entirety and shall (unless, in relation to a particular Transaction, as
otherwise specified in the relevant Confirmation) apply to any FX
Transaction or Currency Option entered into by the parties hereto. In
relation to any such FX Transaction or Currency Option and in the event
of any inconsistency between the provisions of the 1998 FX Definitions
and the provisions of the 1992 ISDA FX and Currency Option Definitions as
published by the International Swaps and Derivatives Association, Inc.
(the "1992 FX Definitions"), the 1998 FX Definitions shall prevail (such
1992 FX Definitions and 1998 FX Definitions collectively referred to
herein as the "FX Definitions").
The provisions of the 1992 FX Definitions are hereby incorporated herein
in their entirety and shall in relation to a particular Transaction if so
specified in the relevant Confirmation, apply to such FX Transaction or
Currency Option entered into by the parties hereto. In relation to any
such FX Transaction or Currency Option and in the event of any
inconsistency between the provisions of the 1992 FX Definitions and
provisions of the 1998 FX Definitions, the 1992 FX Definitions shall
prevail. In the event of any inconsistency between the provisions of: (i)
the 1992 FX Definitions and/or the 1998 FX Definitions and (ii) this Part
6 of the Schedule, this Part 6 will prevail.
9
<PAGE>
(b) Amendments to the FX Definitions
The following amendments are made to the FX Definitions:
With respect to all FX Transactions and Currency Options:
Section 1.2 of the 1992 FX Definitions is hereby amended by adding
the following new sub-section "(c)":
"Currency" means money denominated in the lawful currency of any
country or any "composite currency" such as the European Currency
Unit."
With respect to all Currency Options:
A. Section 2.2 of the 1992 FX Definitions is amended by the addition
of the following definitions with respect to Currency Options:
"Call Option" means a Currency Option entitling, but not
obligating, the Buyer to purchase from the Seller at the Strike
Price a specified quantity of the Call Currency;
"Put Option" means a Currency Option entitling, but not
obligating, the Buyer to sell to the Seller at the Strike Price a
specified quantity of the Put Currency.
B. Section 2.2(k) of the 1992 FX Definitions is amended by the
deletion of the word "facsimile," in the third line thereof.
(c) Foreign Exchange Contract Netting Agreement
This Agreement supersedes and cancels the terms of all Foreign Exchange
contract(s) and/or netting agreement(s) ("the Prior Agreement(s)") entered into
between the parties. Such Prior Agreement(s) shall cease to have effect as of
the date of this Master Agreement but without prejudice to any rights and
liabilities which may have arisen under the Prior Agreement(s) prior to the date
hereof and which have not been replaced by this Agreement.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.
UBS AG CONSECO, INC.
PARTY A PARTY B
By: /s/ Martin Weber By: /s/ James S. Adams
------------------------------- -----------------------------------
Name: Martin Weber Name: James S. Adams
Title: Legal Counsel Title: Senior Vice President,
Date: April 21, 1999 Chief Accounting Officer
and Treasurer
Date: April 21, 1999
By: /s/ Daniela Ben Saber
-------------------------------
Name: Daniela Ben Saber
Title: Associate Director
Date: April 21, 1999
10
<PAGE>
CONFIRMATION
Date: June 29, 1999
To: Conseco, Inc. ("Party B")
11825 N. Pennsylvania Street
Carmel, Indiana 46032
Attention: James S. Adams, Senior Vice President and Treasurer
Phone: (317) 817- 6166
Fax: (317) 817-2166
From: UBS AG, London Branch ("Party A")
Re: Equity Forward Confirmation
Reference Number: _____________
The purpose of this communication is to confirm the terms and conditions of the
forward transaction (the "Transaction") entered into between us on the Trade
Date specified below. This communication constitutes a "Confirmation" as
referred to in the 1992 ISDA Master Agreement specified below.
The definitions and provisions contained in the 1991 ISDA Definitions (the "Swap
Definitions") and the 1996 ISDA Equity Derivatives Definitions (the Equity
Definitions and, together with the Swap Definitions, the "Definitions"), each as
published by the International Swaps and Derivatives Association, Inc., are
incorporated into this Confirmation. In the event of any inconsistency between
the Swap Definitions and the Equity Definitions, the Equity Definitions will
govern. In the event of any inconsistency between the Definitions and this
Confirmation, this Confirmation will govern.
This Confirmation supplements, forms part of, and is subject to, the ISDA Master
Agreement dated as of April 21, 1999 (the "Agreement") between Party B and Party
A. All provisions contained in the Agreement govern this confirmation except as
expressly modified below.
The terms of the Transaction to which this Confirmation relates are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
General
- -------
Type of Transaction : Share Forward Transaction
Trade Date : June 29, 1999 (time of execution available upon
request)
<PAGE>
Effective Date : The Closing Date (if any) under the Purchase
Agreement
Termination Date : December 15, 1999, as it may be extended as
provided elsewhere in this Confirmation, or if
such day is not an Exchange Business Day, the next
succeeding day that is an Exchange Business Day
Buyer : Party B
Seller : Party A
Shares : Common Stock of Conseco, Inc. (Symbol: CNC)
Initial Number
of Shares : The number of Purchased Shares (as defined in the
Purchase Agreement)
Current Number
of Shares : At any time, the Initial Number of Shares less the
aggregate Number of Terminated Shares at that
time, determined as of the end of the most recent
Business Day
Number of
Terminated Shares : In respect of any early termination hereunder,
(i) the proceeds, net of Commission, of Party A's
sales of Purchased Shares pursuant to Party B's
Direction to Sell divided by (ii) the Forward
Price Per Share
Forward Price
per Share : The Purchase Price (as defined in the Purchase
Agreement)
Total Forward Price : At any time, the Current Number of Shares at that
time multiplied by the Forward Price per Share
Direction to Sell : As defined in the Purchase Agreement
Averaging Period : As defined under Settlement Terms, below
Purchase Agreement : The Purchase Agreement among Party A, Party B and
WDR, dated as of June 29, 1999
Purchased Shares : The Shares sold by Party B to WDR pursuant to the
Purchase Agreement and immediately transferred by
WDR to Party A
WDR : Warburg Dillon Read LLC, which shall serve as
Party A's selling agent in respect of Party A's
sales of Shares
<PAGE>
Exchange : New York Stock Exchange
Related Exchange : Any exchange on which options with respect to the
Shares are traded
Calculation Agent : Party A, subject to Section 4(e) of the Schedule
to the Agreement
Clearance System : The Depository Trust Company
Commission : $ 0.05 per Share, for each Share (as defined in
the Purchase Agreement) sold by Party A.
Parallel Termination : If the Purchase Agreement is terminated for any
reason before the purchase and sale of the
Purchased Shares contemplated therein is
consummated, this Confirmation and the Transaction
hereby confirmed shall likewise be terminated, and
neither party shall have any further obligation
hereunder.
Dividend Payment
- ----------------
Dividend Amount
Payer : Party A
Dividend Amount
Payee : Party B
Dividend Payment
Dates : The Floating Rate Payer Payment Date for each
Calculation Period during which an Applicable
Dividend is paid by Party B, provided that if an
Applicable Dividend is paid by Party B after the
termination of the Transaction, the Dividend
Payment Date in respect of that dividend shall be
the second Business Day after receipt thereof by
Party A
Dividend Amount : The per-share amount of an Applicable Dividend
multiplied by the aggregate number of Purchased
Shares, Payment Shares and Make- whole Shares of
which Party A or its nominee is the record holder
on the record date for such Applicable Dividend
(after giving effect to any sales of Purchased
Shares, Payment Shares or Make-whole Shares that
are settled on the record date)
3
<PAGE>
Applicable Dividend : Each dividend paid in respect of the Shares the
ex-dividend date of which occurs during the
Dividend Period
Dividend Period : The period from and including the second Exchange
Business Day before the Effective Date to and
including the Termination Date or any Early End
Date on which the Transaction (or such portion of
the Transaction as remains after any previous
terminations in part) is terminated in whole,
provided that if Party A holds Payment Shares
or Make-whole Shares after such termination, the
Dividend Period shall be extended until Party A
has disposed of all such Shares
Floating Rate Payments
- -----------------------
Floating Rate Payer : Party B
Floating Rate Payee : Party A
Initial Notional
Amount : The Total Forward Price on the Effective Date
Current Notional
Amount : At any time, the Total Forward Price at that time,
provided that for this purpose the Current Number
of Shares shall be reduced in respect of each sale
by Party A of Purchased Shares in the Averaging
Period by a number equal to the net proceeds of
such sale divided by the Forward Price per Share,
and provided further that no reduction (whether in
respect of a sale of Shares in the Averaging
Period or otherwise) shall take effect until Party
A has received the net proceeds of such sale.
Final Calculation
Period : The last day of the final Calculation Period
shall be the date on which Party A has received
the net proceeds of all sales of Purchased Shares
during the Averaging Period.
Floating Amount : For any day in a Calculation Period, the result of
multiplying (i) the Current Notional Amount on
that day by (ii) the sum of the Floating Rate for
that Calculation Period and the Spread by (iii)
the Floating Rate Day Count Fraction
4
<PAGE>
Floating Rate Option : USD-LIBOR-BBA
Designated Maturity : 1 month
Spread : plus 0.65%
Floating Rate for
Initial Calculation
Period : To be determined by Party A two London Banking
Days before the Effective Date and advised to
Party B
Floating Rate Day
Count Fraction : 1/360 for each day in the Calculation Period. (See
"Daily Basis" below)
Reset Dates : The first day of each Calculation Period
Floating Rate Payer
Payment Dates : Monthly, on the calendar date corresponding to the
Closing Date, and on the Termination Date, subject
to adjustment in accordance with the Business Day
Convention specified below.
Business Day
Convention : Modified Following
Daily Basis : Floating Amounts hereunder shall be calculated on
a daily basis and paid on each Floating Rate Payer
Payment Date.
Settlement Terms
- ----------------
Settlement : The Transaction will be physically settled;
provided, however, that Party B may elect to
require that the Transaction be net share settled
by giving an irrevocable notice to Party A no
later than ten Exchange Business Days before the
Termination Date.
Settlement Date : Three Clearance System Business Days after the
Termination Date
Physical Settlement : If the Transaction is to be physically settled, on
the Settlement Date the Seller shall deliver to
the Buyer the Current Number of Shares at
5
<PAGE>
the Termination Date against payment in
immediately available U.S. funds by the Buyer to
the Seller of an amount equal to the Total Forward
Price.
Net Share Settlement : If the Transaction is to be net share settled, the
following provisions shall apply (subject to
"Termination on Satisfaction in Full," below):
(a) If the Forward Price per Share is less than
the Final Price, on the Settlement Date Party A
shall deliver to Party B the number of whole
Shares equal to (i) the product of (A) the Current
Number of Shares at the close of trading on the
Exchange on the Termination Date multiplied by (B)
the amount by which the Forward Price per Share is
less than the Final Price, divided by (ii) the
Final Price, plus cash in lieu of any fractional
Share.
(b) If the Forward Price per Share is greater than
the Final Price, on the Settlement Date Party B
shall deliver to Party A the number of whole
Shares (the "Payment Shares") equal to (i) the
product of (A) the Current Number of Shares at the
close of trading on the Exchange on the
Termination Date multiplied by (B) the amount by
which the Forward Price per Share is greater than
the Final Price, divided by (ii) the Final Price,
plus cash in lieu of any fractional Share.
(c) If the Forward Price per Share is equal to the
Final Price, no delivery shall be made by either
Party A or Party B.
Final Price : (a) If on the first day of the Averaging Period
Party A holds Purchased Shares in a number greater
than or equal to one-half the Current Number of
Shares at that time, the volume-weighted average
price at which Party A sells its entire holding of
the Purchased Shares during the Averaging Period,
less Commission, provided that if Party A is
unable to sell its entire holding in a
commercially reasonable manner, the Final Price
shall be the volume-weighted average price at
which Party A sells the number of Purchased Shares
that it is able to sell during the Averaging
Period in a commercially reasonable manner, or
(b) if on the first day of the Averaging Period
Party A holds Purchased Shares in a number less
than one-half the Current Number
6
<PAGE>
of Shares at that time, then the Transaction shall
be bifurcated into Transactions 1 and 2, where
Transaction 1 comprises that portion of the
Current Number of Shares equal to the number of
Purchased Shares then held by Party A and
Transaction 2 comprises the remainder of the
Current Number of Shares. The Final Price for
purposes of the settlement of Transaction 1 shall
be the volume-weighted average sale price at which
Party A sells its Purchased Shares during the
Averaging Period, and the Final Price for purposes
of the settlement of Transaction 2 shall be the
arithmetic average of the Relevant Prices on all
Averaging Dates.
Averaging Period : The period from and including the ninth Exchange
Business Day immediately preceding the Termination
Date to and including the Termination Date
Relevant Price : With respect to any Averaging Date , the closing
price of a Share on such Averaging Date, as
reported by the Exchange
Averaging Dates : The Exchange Business Days in the Averaging Period
Averaging Date
Market Disruption : Modified Postponement, and for this purpose the
Transaction shall be deemed to be a Share
Transaction.
Valuation Date : The Termination Date
Extension for
Residual Shares : If Party A is unable to sell in a commercially
reasonable manner its entire holding of the
Purchased Shares during the Averaging Period,
Party A shall so notify Party B, and settlement of
the Transaction shall proceed, except with respect
to the Purchased Shares not sold. The Termination
Date of the Transaction shall be postponed until
the earliest date on which all such unsold
Purchased Shares (the "Residual Shares") have been
sold or until January 17, 2000, whichever first
occurs. A new Averaging Period ("Supplemental
Averaging Period") shall commence on the Exchange
Business Day following the last day of the
Averaging Period, and net share settlement shall
apply (provided that the Conditions for Net Share
Settlement are met during the Supplemental
Averaging Period).
7
<PAGE>
The Final Price for purposes of settlement shall
be the volume-weighted average price at which
Residual Shares are sold during the Supplemental
Averaging Period. For purposes of floating rate
payments, a supplemental Calculation Period shall
run from the last day of the final Calculation
Period to the date on which Party A has received
the net proceeds of all sales of Residual Shares
made during the Supplemental Averaging Period.
Conditions on Net
Share Settlement : If Party B elects to have the Transaction
net-share settled, the following conditions must
be met at all times during the Averaging Period:
(i) the Registration Statement shall be effective,
(ii) Party B shall have filed all reports and any
definitive proxy or information statements
required to be filed by Party B pursuant to
Section 13(a), 13(c) or 15(d) of the Securities
Exchange Act of 1934, (iii) no stop order or any
order preventing or suspending the use of any
prospectus relating to the Registered Shares or
suspending the qualification of the Registered
Shares for offering or sale in any jurisdiction
shall have been issued and shall continue in
effect, (iv) no notice by Party B to Party A
pursuant to Section 3(f) of the Purchase Agreement
shall have been given and remain in effect, (v)
Party B shall not be in possession of material
non-public information relating to Party B, (vi)
any Shares deliverable to Party A shall have been
authorized for listing on the Exchange, and (vii)
if Party A is delivering Shares to Party B, (1) no
issuer or third-party tender offer shall be in
effect in respect of the Shares on the Settlement
Date, and no issuer tender offer shall have been
in effect within the ten business days preceding
the Settlement Date, and (2) net share settlement
of the Transaction shall not constitute or cause a
violation of Rule 102 of Regulation M under the
Securities Exchange Act of 1934. If any of the
foregoing conditions are not met at all required
times, physical settlement shall apply to the
relevant termination.
Registration Statement: The registration statement and any additional
registration statements filed by Party B with the
Securities and Exchange Commission on Form S-3,
registering the Purchased Shares, the Payment
Shares or the Make-whole Shares, as amended and
supplemented from time to time
8
<PAGE>
Registered Shares : All Shares registered under the Registration
Statement
Make-Whole
Provisions : If Party A receives Payment Shares pursuant to net
share settlement, whether incident to an early
termination in part or in whole or final
settlement, and if within ten Exchange Business
Days after the Settlement Date Party A resells all
or any portion of the Payment Shares in
commercially reasonable market transactions and
the net proceeds received by Party A upon the
resale of such shares exceeds the product of the
number of Payment Shares multiplied by the Final
Pric (the "Settlement Amount") (or if less than
all of the Payment Shares are sold, the applicable
pro rata portion of the Settlement Amount), Party
A shall promptly refund in cash such difference to
Party B. If such net proceeds are less than the
Settlement Amount (or if less than all the Payment
Shares are sold, the applicable pro rata portion
of the Settlement Amount), Party B shall pay in
cash or (subject to the satisfaction of the
Conditions on Net Share Settlement) additional
Shares such difference (the "Make-whole Amount")
to Party A promptly after receipt of notice
thereof. If Party B elects to pay the Make-Whole
Amount in additional Shares, Party B shall deliver
to Party A the number of whole Shares (the
"Make-whole Shares") equal to (i) the Make-whole
Amount divided by (ii) the closing price of the
Shares as reported on the Exchange on the Exchange
Business Day immediately preceding the day of
delivery of such Shares. If within ten Exchange
Business Days after delivery of the Make-whole
Shares to Party A, Party A resells all or any
portion of such Shares in commercially reasonable
market transactions and the net proceeds received
by Party A from the resale of Make-whole Shares
exceed or are less than the Make-whole Amount (or
if less than all of the Make-whole Shares are
sold, the applicable portion of the Make-whole
Amount), Party A shall pay to Party B any such
excess in cash and Part B shall pay to Party A any
additional Make-whole Amount in cash. In
calculating the net proceeds from the resale of
any Payment Shares or Make-whole Shares, the
Commission shall be deducted from the proceeds. In
determining when the ten Exchange Business Days
referred to above in relation to resales by Party
A of Payment Shares or Make-whole Shares have
elapsed, Exchange Business Days occurring during
any period when Party A is required to suspend
sales of the Shares
9
<PAGE>
pursuant to a notice given by Party B under
Section 3(f) of the Purchase Agreement, and
Exchange Business Days on which a Market
Disruption Event occurs, shall be disregarded.
Deficiency of
Registered Shares : If there is an insufficient number of Registered
Shares to enable Party B to satisfy its obligation
to Party A to deliver Registered Shares as Payment
Shares or Make-whole Shares, the Transaction shall
be cash-settled to the extent of the deficiency,
and Party B, in addition to delivering such
Registered Shares as it has, shall pay to Party A
on the Settlement Date (in the case of Payment
Shares) or on the date of delivery (in the case of
Make-whole Shares) an amount in immediately
available U.S. funds equal to the Settlement
Amount or the Make-whole Amount, as the case may
be, less the product of the number of Registered
Shares delivered by Party B times the Final Price
(in the case of Payment Shares) or the closing
price of the Shares as reported on the Exchange on
the Exchange Business Day immediately preceding
the day of delivery of such Registered Shares (in
the case of Make-whole Shares).
Settlement Disruption : If a Settlement Disruption Event prevents delivery
of Shares (whether pursuant to physical settlement
or net share settlement) on the Settlement Date,
then the Settlement Date will be the first
succeeding day on which delivery of the Shares can
take place through the relevant Clearance System
unless a Settlement Disruption Event prevents
settlement on each of the 10 relevant Clearance
System Business Days immediately following the
original date, that, but for the Settlement
Disruption Event, would have been the Settlement
Date. In that case (a) if such Shares can be
delivered in any other commercially reasonable
manner, then the Settlement Date will be the first
day on which settlement of a sale of Shares
executed on the 10th relevant Clearance System
Business Day customarily would take place using
such other commercially reasonable manner of
delivery (which other manner of delivery will be
deemed the relevant Clearance System for the
purposes of delivery of the relevant Shares), and
(b) if such Shares cannot be delivered in any
other commercially reasonable manner, then the
Settlement Date will be postponed until delivery
can be effected through the relevant Clearance
System or in any other commercially reasonable
manner.
10
<PAGE>
Settlement
Disruption Event : An event beyond the control of the parties as a
result of which the relevant Clearance System
cannot clear the transfer of Shares
Early Termination
- -----------------
Early End Date : Any Exchange Business Day in advance of the
Termination Date on which the Transaction is
terminated, in whole or in part, pursuant to the
terms hereof
Termination on
Satisfaction in Full : If at any time while the Transaction is
outstanding Party A has attained the full amount
(after deducting Commission) of the Total Forward
Price (as adjusted from time to time) through
sales of Purchased Shares pursuant to Directions
to Sell, Payment Shares or Make-whole Shares in
any combination, Party A shall promptly cease all
sales of such Shares and shall promptly notify
Party B accordingly. Upon the giving of such
notice, and notwithstanding any other terms of the
Transaction regarding termination, the Transaction
shall terminate, The Early End Date shall be the
date on which such notice is given, and Party A
shall forthwith deliver to Party B the remaining
Purchased Shares, Payment Shares and Make-whole
Shares that it may be holding (other than Shares
needed to meet delivery requirements resulting
from previous sales), and Party A shall pay to
Party B in cash the amount of any excess that
Party A may have attained over the Total Forward
Price.
Termination on
Direction to Sell : If Party A sells Shares pursuant to a Direction to
Sell given by Party B, the Transaction shall be
terminated on the date of sale (which shall be the
Early End Date) to the extent of the Number of
Terminated Shares. If the Number of Terminated
Shares equals the entire Current Number of Shares
on the date of the Direction to Sell, the
Transaction shall be terminated in whole. If the
Number of Terminated Shares is less than the
entire Current Number of Shares on the date of the
Direction to Sell, the Transaction shall be
terminated in part as to the Number of Terminated
Shares. If the Transaction is terminated in part,
then on the Early End Date the Current Number of
Shares shall
11
<PAGE>
be reduced by the Number of Terminated Shares, the
Total Forward Price shall be recalculated using
the Current Number of Shares as so reduced, and
the Transaction, with the Current Number of Shares
and Total Forward Price so reduced, shall continue
to be a Transaction for all purposes of this
Confirmation and the Agreement.
Conditions on
Termination on
Direction to Sell : The early termination of the Transaction or part
thereof is subject to the satisfaction of the
following conditions at all times from the giving
of the Direction to Sell to the consummation of
the early termination: (i) the Registration
Statement shall be effective, (ii) Party B shall
have filed all reports and any definitive proxy or
information statements required to be filed by
Party B pursuant to Section 13(a), 13(c) or 15(d)
of the Securities Exchange Act of 1934, (iii) no
stop order or any order preventing or suspending
the use of any prospectus relating to the
Registered Shares or suspending the qualification
of the Registered Shares for offering or sale in
any jurisdiction shall have been issued and shall
continue in effect, (iv) no notice by Party B to
Party A pursuant to Section 3(f) of the Purchase
Agreement shall have been given and remain in
effect, (v) Party B shall not be in possession of
material non-public information relating to Party
B, (vi) any Shares deliverable to Party A shall
have been authorized for listing on the Exchange,
(vii) the Early End Date shall not fall within the
Averaging Period, and (viii) if Party A is
delivering Shares to Party B, (1) no issuer or
third-party tender offer shall be in effect in
respect of the Shares on the Settlement Date in
respect of the early termination, and no issuer
tender offer shall have been in effect within the
ten business days preceding such Settlement Date,
and (2) net share settlement of the Transaction or
part thereof shall not constitute or cause a
violation of Rule 102 of Regulation M under the
Securities Exchange Act of 1934. If any of the
foregoing conditions are not met at all required
times, the Direction to Sell shall be void and no
early termination shall take place.
Net Share Settlement
on Termination on
Direction to Sell : Any Termination on Direction to Sell shall be net
share settled as follows:
12
<PAGE>
(a) If the Forward Price per Share is less than
the Final Price on Early Termination, on the
Settlement Date Party A shall deliver to Party B
the number of whole Shares equal to (i) the
product of (A) the Number of Terminated Shares
multiplied by (B) the amount by which the Forward
Price per Share is less than the Final Price on
Early Termination, divided by (ii) the Final Price
on Early Termination, plus cash in lieu of any
fractional Share.
(b) If the Forward Price per Share is greater
than the Final Price on Early Termination, on the
Settlement Date Party B shall deliver to Party A
the number of whole Shares (the "Payment Shares")
equal to (i) the product of (A) the Number of
Terminated Shares multiplied by (B) the amount by
which the Forward Price per Share is greater than
the Final Price on Early Termination, divided by
(ii) the Final Price on Early Termination, plus
cash in lieu of any fractional Share.
(c) If the Forward Price per Share is equal to
the Final Price on Early Termination, no delivery
shall be made by either Party A or Party B.
Final Price on Early
Termination : The volume-weighted average price at which Party A
sells the number of Purchased Shares that it is
directed to sell, less Commission, provided that
if Party A does not hold that number of Purchased
Shares, Party A shall sell such Purchased Shares
as it does hold and shall also be deemed to have
sold, at the closing price on the Early End Date,
an additional number of Shares equal to the
difference between the number of Purchased Shares
that Party A is directed to sell and the number of
Purchased Shares that Party A then holds, and the
Final Price on Early Termination shall in that
case equal the volume-weighted average price of
Party A's sales of Purchased Shares, less
Commission, and deemed sales of additional Shares.
Early Termination
Settlement Date : All payments and deliveries required to be made
upon the early termination of the Transaction,
whether in whole or in part, shall be made on the
third Clearance System Business Day after the
Early End Date.
13
<PAGE>
Make-whole Provisions : The Make-whole Provisions set forth above under
Settlement Terms shall apply to settlements on
early termination.
No Termination
During Call : If Pioneer Financial Services, Inc. calls for
redemption its 6-1/2% Convertible Subordinated
Notes Due 2003 (the "Notes") while the Transaction
is outstanding, Party B may not give Party A a
Direction to Sell, and the Transaction shall not
be terminated in whole or in part, during the
period from and including the day that is one
Business Day before the effective date of the call
to and including the last day on which the Notes
may be tendered for conversion.
No Further
Obligations : Upon the early termination of the Transaction,
whether in whole or in part, and payment of all
amounts due and owing and the making of all
required deliveries to either party hereunder,
neither party shall have any further obligation to
the other party with respect to the Transaction as
a whole, in the case of termination in whole, and
the portion so terminated, in the case of
termination in part.
Breakage Cost : In the case of any early termination on an Early
End Date that is not also a Reset Date, Party A
shall determine whether it has sustained a net
economic cost or a net economic benefit from such
event. If Party A determines that it has sustained
a net economic cost, then (i) if physical
settlement applies, the aggregate amount of such
cost shall be added to the Total Forward Price,
and (ii) if net share settlement applies, the
result of dividing the amount of the cost b the
Number of Terminated Shares shall be subtracted
from the Final Price on Early Termination. If
Party A determines that it has sustained a net
economic benefit, then (iii) if physical
settlement applies, the aggregate amount of such
benefit shall be subtracted from the Total Forward
Price, and (iv) if net share settlement applies,
the result of dividing the amount of the benefit
by the Number of Terminated Shares shall be added
to the Final Price on Early Termination If Party A
determines that it has sustained neither a net
economic cost nor a net economic benefit, then no
such adjustments shall be made. Party A shall
provide to Party B an accounting if any
14
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adjustment is made pursuant to this paragraph,
which shall be binding on the parties, absent
demonstrable error.
Predelivery of Shares
- ---------------------
Requirement to
Predeliver Shares : If the closing price of the Shares on the Exchange
first becomes less than or equal to $15 per share
on a date while the Transaction is outstanding
(the "Threshold Date"), Party A shall notify Party
B of the occurrence of the Threshold Date within
seven Exchange Business Days thereafter, and Party
B shall thereupon issue and predeliver to Party A,
no later than the third Clearance System Business
Day after the date on which Party B receives such
notice, the number of Shares that Party B would be
required to deliver if the Transaction were
terminated in whole on the Threshold Date, net
share settlement applied and the Final Price on
Early Termination were the closing price on the
Threshold Date (the "Predelivered Shares").
Registration of Shares: If the Predelivered Shares are not registered
under the Registration Statement, Party B shall as
promptly as practicable cause such shares to be
registered under the Securities Act of 1933.
Application of Shares : If Party B elects net share settlement at
termination or any early termination, and Party B
is the party required to deliver Shares, Party B's
obligation to deliver Payment Shares and
Make-whole Shares shall be satisfied first out of
the Predelivered Shares, to the extent thereof.
Retention of Shares : Party A shall not sell or otherwise transfer any
Predelivered Shares that it has not applied to the
satisfaction of an obligation of Party B to
deliver Shares.
Return of Shares : If the Transaction is terminated in whole, whether
on the Termination Date or an Early End Date, and
Party A has Predelivered Shares remaining after
all obligations of Party B to deliver Payment
Shares, Make-whole Shares or cash have been
satisfied, Party A shall return such remaining
Predelivered Shares to Party B.
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Dividends : The provisions under Dividend Payment above shall
apply to Predelivered Shares until such time as
they are sold or otherwise transferred as
permitted hereunder, or until they are returned to
Party B.
Other Provisions
- ----------------
Undirected Sales
of Purchased Shares
by Party A : Party A may sell Purchased Shares in its
discretion without having received a Direction to
Sell from Party B, provided that Party A shall
notify Party B of its intent to make any such sale
sufficiently in advance of such sale to enable
Party B to verify that the Prospectus provided by
Party B for delivery by Party A to offerees and
purchasers of the Shares registered under the
Registration Statement will meet the requirements
of the Securities Act of 1933 at the time of
the intended sales, and to amend such Prospectus
if it will not meet those requirements. Such sales
shall not in any way reduce Party A's obligations
hereunder, including but not limited to its
obligations in regard to scheduled or early
termination.
Commercial
Reasonableness : All sales by Party A of Purchased hares, Payment
Shares and Make-whole Shares shall be made in a
commercially reasonable manner, provided that
undirected sales of Purchased Shares (if any)
shall not be subject to this requirement.
Market Transactions : Party A shall not, and shall cause WDR as its
selling agent not to, sell any Purchased Shares,
Payment Shares or Make-whole Shares otherwise than
in ordinary trading transactions for purposes of
Rule 100 of Regulation M.
Direction to Sell : Party A shall use its best efforts to comply with
a valid Direction to Sell, but shall not be liable
to Party B if Party A is unable, despite its best
efforts, to sell the entire number of Shares
specified in the Direction to Sell.
Registration
Statement Ineffective : If the Registration Statement is declared
effective but does not remain effective until all
Payment and Make-whole Shares have been sold by
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Party A, Party A shall have the right to require
that Party B repurchase any unsold Payment Shares
at a price per share equal to the Final Price and
any unsold Make-whole Shares at an aggregate price
equal to that portion of the Make-whole Amount not
recovered in the net proceeds of prior sales of
Make-whole Shares.
Method of Settlement : All payments of funds and deliveries of Shares
pursuant to scheduled termination and early
termination of the Transaction in whole or in part
shall be made through the Clearance System at the
accounts specified as provided below, on a
delivery versus payment basis.
Adjustments and Extraordinary Events
- ------------------------------------
Adjustments :
Method of Adjustment : Options Exchange Adjustment; provided that
references in the Equity Definitions to "Strike
Price" shall be deemed to refer to "Notional
Amount" and references to "Number of Options"
shall be deemed to refer to "Current Number of
Shares" herein.
Options Exchange : The Options Clearing Corporation
Consequences of Merger Events:
(a) Share-for-Share : Cancellation and Payment
(b) Share-for-Other : Cancellation and Payment
(c) Share-for-Combined : Cancellation and Payment
Nationalization and Insolvency : Cancellation and Payment
Amendment of the
Equity Definitions : For the purposes of this Transaction, the
Definitions are amended as follows:
(A) A new Section 1.3A is added after Section
1.3:
Section 1.3A. Share Forward Transaction. "Share
Forward
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Transaction" means an OTC equity forward
transaction relating to a single share or other
security.
(B) Section 1.5 is amended to read:
Section 1.5. Share Transaction."Share Transaction"
means a Share Option Transaction, a Share Swap
Transaction, and for the purposes of Article 9, a
Share Forward Transaction.
(C) A new clause (E) is added to Section 9.1(c):
"(E) in respect of a Share Forward Transaction,
the Forward Price per Share and the Current Number
of Shares";
(D) Clause (vi) of Section 9.1(e) is amended
to read:
"(vi) any other similar event that, in the
reasonable judgment of the Calculation Agent, may
have a diluting or concentrative effect on the
theoretical value of the relevant Shares."
Miscellaneous
- -------------
Title to Shares : A party delivering Shares or Predelivered Shares
to the other party hereunder represents, warrants
and agrees that (a) it is the legal and beneficial
owner of the Shares it is required to deliver; (b)
it has the right to transfer those Shares; and (c)
it will convey good title to the Shares it is
required to deliver, free from all liens, charges,
equities, preemptive rights or other security
interests or encumbrances whatsoever.
In addition, if the Transaction is net share
settled, Party B represents with respect to any
Payment Shares and Make-whole Shares delivered to
Party A that such Shares will, at the time of
delivery, be duly authorized, validly issued,
fully paid and nonassessable.
Transfer : Neither party may transfer the Transaction, in
whole or in part, without the prior written
consent of the non-transferring party.
Account Details
- ---------------
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Party A : As provided in separate direction
Party B : As provided in separate direction
</TABLE>
Special Provisions
- ------------------
1. Additional Party B Representations
Party B will be deemed to represent to Party A on the date on which it enters
into this Transaction that:
(a) Party B has a valid business purpose for entering into this Transaction.
(b) Party B is not entering into this Transaction to create actual or apparent
trading activity in the Shares (or any security convertible into or exchangeable
for Shares) or to raise or depress or otherwise manipulate the price of the
Shares (or any security convertible into or exchangeable for Shares).
(c) At the time of Party B's entry into the Transaction no "restricted period"
for purposes of Rule 102 of Regulation M under the Securities Exchange Act of
1934 and no tender offer for Shares (whether by Party B or a third party) is in
effect, and no Party B tender offer has been in effect within the preceding ten
business days.
2. Offeree/Buyer Representations
If the parties enter into a Transaction, or if one party offers to transfer or
transfers the security underlying a Transaction to the other party, in either
case in reliance on Section 4(2) of the Securities Act or Regulation D
thereunder, then the offeree or buyer of the Transaction and/or the offeree or
buyer of the security underlying the Transaction (the "Offeree"), shall make the
following representations, warranties and covenants on and as of the date on
which the Offeree enters into such a Transaction or makes any payment or
delivery relating thereto or to the transfer of the underlying security:
(a) the Offeree is entering into the Transaction for its own account as
principal, for investment purposes only, and not with a view to, or for, resale,
distribution or fractionalization thereof, in whole or in part, and no other
person has a direct or indirect beneficial interest in the Transaction entered
into by the Offeree hereunder;
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(b) the Offeree acknowledges its understanding that the offer and sale of any
Transaction with the other party is intended to be exempt from registration
under the Securities Act, by virtue of Section 4(2) of the Securities Act. In
furtherance thereof, the Offeree represents and warrants to the other party that
(i) it has the financial ability to bear the economic risk of its investment,
and (ii) the Offeree qualifies as an "accredited investor" as that term is
defined under Regulation D under the Securities Act.
(c) the Offeree has been given the opportunity to ask questions of, and receive
answers from, the other party concerning the terms and conditions of the
Transaction and has been given the opportunity to obtain such additional
information necessary in order for the Offeree to evaluate the merits and risks
of the Transaction, to the extent the other party possesses such information or
can acquire it without unreasonable effort or expense, and the Offeree has
determined that the Transaction is a suitabl investment for the Offeree. The
Offeree represents and warrants to the other party that, each time the Offeree
enters into a Transaction with the other party, the Offeree will be able to bear
a loss of its entire investment. The Offeree further understands and agrees that
in circumstances where the Offeree holds a short position, its risk of loss
could be unlimited;
(d) the Offeree represents and warrants that, in effecting a Transaction, it
will not be in possession of any material non-public information with respect to
any security related to a Transaction that, under the U.S. federal securities
laws, it would have to disclose in advance to a party effecting a purchase or
sale with the Offeree of such security;
(e) the Offeree fully understands and agrees that it must bear the economic risk
of the Transaction for the entire time period set forth in the Confirmation; and
the Offeree understands and agrees that disposition of the Transaction is
restricted under the Master Agreement, the Securities Act and state securities
laws. The Offeree understands that the Transaction has not been, and is not
intended to be, registered under the Securities Act or under the securities laws
of certain states and, therefore cannot be resold, pledged, assigned or
otherwise disposed of unless registered under the Securities Act and under the
applicable laws of such states, or an exemption from such registration is
available. The Offeree understands and agrees that the other party is not
obliged to register the Transaction on behalf of the Offeree or to assist the
Offeree in complying with any exemption from registration under the Securities
Act or state securities laws. The Offeree further understands and agrees that
the other party is not, and will not be, obliged under any circumstances to
enter into or arrange a Transaction for the purpose of offsetting a particular
Transaction, but may do so in its discretion; and
(f) nothing contained herein shall require the other party to enter into any
part or all of a Transaction offered by the Offeree. The other party reserves
the right to limit the number and amount of certain Transactions that the
Offeree, acting by itself or as part of a group, may maintain
20
<PAGE>
or acquire through or from the other party (or any affiliate of the other party)
at any time.
3. Relationship Between Parties
Each party will be deemed to represent to the other party on the date on which
it enters into a Transaction that (absent a written agreement between the
parties that expressly imposes affirmative obligations to the contrary for that
Transaction):
(a) It is acting for its own account, and it has made its own independent
decisions to enter into that Transaction and as to whether that Transaction is
appropriate or proper for it based upon its own judgement and upon advice from
such advisers as it has deemed necessary. It is not relying on any communication
(written or oral) of the other party as investment advice or as a recommendation
to enter into that Transaction; it being understood that information and
explanations related to the terms and conditions of a Transaction shall not be
considered investment advice or a recommendation to enter into that Transaction.
No communication (written or oral) received from the other party shall be deemed
to be an assurance or guarantee as to the expected results of that Transaction.
(b) It is capable of assessing the merits of and understanding (on its own
behalf or through independent professional advice), and understands and accepts,
the terms, conditions and risks of that Transaction. It is also capable of
assuming, and assumes, the risks of that Transaction.
(c) The other party is not acting as a fiduciary for or an adviser to it in
respect of that Transaction.
Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing the copy of this Confirmation enclosed for that purpose
and returning it to us or by sending to us a letter or telex substantially
similar to this letter, which letter or telex sets forth the material terms of
the Transaction to which this Confirmation relates and indicates your agreement
to those terms.
Yours sincerely,
UBS AG, LONDON BRANCH
By: /S/ SARAH EDMONSTON By: /S/ VICTORIA HARKNESS SOTGUI
------------------------ -----------------------------
Name: Sarah Edmonston Name: Victoria Harkness Sotgui
Title: Associate Director Title: Associate Director
21
<PAGE>
Confirmed as of the 29th day of June, 1999
CONSECO, INC.
By: /S/ ROLLIN M. DICK
-----------------------------------
Name: Rollin M. Dick
Title: Executive Vice President and
Chief Financial Officer
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of January 1, 1998, as amended and
restated as of May 26, 1999, between CONSECO, INC. (hereinafter called the
"Company"), and STEPHEN C. HILBERT (hereinafter called "Executive").
RECITALS
WHEREAS, the Company and Executive were parties to an Employment
Agreement dated January 1, 1987, as amended by Amendment No. 1 dated February
28, 1988 (as amended, the "Prior Employment Agreement"); and
WHEREAS, the Prior Employment Agreement was replaced by a new
employment agreement dated as of January 1, 1998 and subsequently amended as of
May 14, 1999 (as so amended, the "Existing Employment Agreement") and the
Company and Executive desire to make certain modifications to the Existing
Employment Agreement;
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, the parties agree that the Existing Employment
Agreement be amended and restated in its entirety to be as follows:
1. Employment. The Company hereby employs Executive, and Executive
hereby accepts employment upon the terms and conditions hereinafter set forth.
2. Term. This Agreement shall be deemed to have become effective (and
the Prior Employment Agreement terminated) as of January 1, 1998. On May 14,
1998 (the "Approval Date") the Company's shareholders approved the
performance-based compensation provisions hereof (i.e., Section 5(b)) as then in
effect. Subject to provisions for termination as provided in Section 9 hereof,
the term of this Agreement shall be five (5) years from and after January 1,
1998, and it shall be automatically renewed for successive five (5) year periods
on January 1 of each year thereafter, unless either party elects not to renew
this Agreement by serving written notice of such intention not to renew on the
other party at least one hundred eighty (180) days prior to January 1 of each
year. If such an election is made, this Agreement shall be in full force and
effect for the remaining portion of the then current five (5) year period,
subject to the provisions for termination as provided in Section 9 hereof. The
term Basic Employment Period as used in this Agreement shall mean the five (5)
year period commencing with the most recent annual renewal pursuant to this
section.
3. Duties. Executive is engaged by the Company in an executive capacity
as its chief executive officer. Executive's position with the Company shall be
Chairman of the Board of Directors, President and Chief Executive Officer, and
such other positions (not inconsistent with the aforementioned responsibilities)
as may be determined from time to time by the Board of Directors of the Company.
4. Extent of Services. Executive, subject to the direction and control
of the Board of Directors of the Company, shall have the power and authority
commensurate with his executive
1
<PAGE>
status and necessary to perform his duties hereunder. The Company agrees to
provide to Executive such assistance and work accommodations as are suitable to
the character of his positions with the Company and adequate for the performance
of his duties. Executive shall devote substantially all of his employable time,
attention and best efforts to the business of the Company, and shall not,
without the consent of the Company, during the term of this Agreement be
actively engaged in any other business activity, whether or not such business
activity is pursued for gain, profit or other pecuniary advantage; but this
shall not be construed as preventing Executive from investing his assets in such
form or manner as will not require any material services on the part of
Executive in the operation of the affairs of the companies in which such
investments are made. For purposes of this Agreement, full-time employment shall
be the normal work week for individuals in senior executive positions with the
Company.
5. Compensation.
(a) As compensation for services hereunder rendered during the
term hereof, Executive shall receive a base salary of One Million
Dollars ($1,000,000) per year payable in equal installments in
accordance with the Company's payroll procedure for its salaried
employees (but in no event less than twice a month), it being
understood that for 1998 a lump sum payment shall be made promptly
after the approval of this Agreement by the shareholders of the Company
to cause the salary payments to Executive in 1998 to such date in 1998
to at least equal the pro rata portion (based on the number of days in
1998 then elapsed through the end of the most recent pay period then
ended) of One Million Dollars ($1,000,000). Salary payments shall be
subject to withholding of taxes and other appropriate and customary
amounts. In addition to the base salary above, Executive may receive
additional annual salary increases based upon his performance in his
executive and management capacity. The amounts of such salary increases
shall be determined by the Board of Directors of the Company or the
Compensation Committee thereof (the "Compensation Committee").
(b) In addition to base salary, 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, 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 Executive and the Company's Executive Vice Presidents.
"Income from
2
<PAGE>
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.
(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% for such
fiscal year (such amount exceeding the Maximum Bonus 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 paid with respect to
such fiscal year on the Company's preferred stock (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
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 Transactions (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 Transaction 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
Transaction occurred (it being understood that with respect to a
Significant Transaction 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
Transaction" 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.
3
<PAGE>
(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, if it has been adjusted with respect to such
fiscal year, 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 have been 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
Incremental Bonus 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"), as
described in the following sentence. For an Adjustment Year the
Non-Discretionary Amount shall be adjusted to be the lesser of
(i) one-half of the average of the Maximum Bonus for the two
fiscal years immediately preceding such Adjustment year and (ii)
the arithmetic average of the Non-Discretionary Amount and the
Additional Potential Bonus, in each case regardless of the amount
of bonus actually paid, for such two fiscal years. 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, 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 may 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
soon as practicable, 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.
(vii) A bonus payment of $3,375,000 with respect to the
first quarter of 1999 has been made in cash. With respect to the
remainder of 1999 the bonus (the "Remaining Bonus") shall not
exceed the lesser of (x) the remainder of the Non-Discretionary
Amount (i.e., $10,125,000) for 1999 and (y) the difference
between the Maximum Bonus for all of 1999 and $3,375,000. At the
time all or any part of the Remaining Bonus is being determined,
if the Market Price of the Company's common stock is less than
$50 per share, the payment that would otherwise be made shall be
reduced by multiplying such amount by a fraction the numerator of
which shall be such Market Price and the denominator of which
shall be $50. A portion of the resulting payment
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<PAGE>
of the Remaining Bonus (whether or not reduced pursuant to the
preceding sentence) shall be paid in cash to provide for the
payment of Executive's estimated Federal, state and local income,
unemployment, social security, Medicare and similar income or
payroll taxes at maximum rates (such tax estimate to be made by
Executive subject to the approval of the Company, which approval
will not be unreasonably withheld). The remaining part of such
resulting payment shall be satisfied by the issuance to Executive
of a number of shares of the Company's common stock determined by
dividing such remaining part by the Market Price of such common
stock. The "Market Price" of the common stock for purposes of
this clause (vii) shall be the average of the high and low
trading price of the common stock on the New York Stock Exchange
Composite Tape on the day of computation or if no such trading
has occurred on such day on the last preceding day on which such
trading has occurred. If Executive subsequently is required to
return any portion of the bonus payable pursuant to the last
sentence of clause (vi) of this Section 5(b) Executive shall
return cash and stock to the Company on a last-paid,
first-returned basis. This clause (vii) shall apply to
Executive's bonus only for 1999. Notwithstanding that Executive's
bonus for 1999 may be reduced below the Non-Discretionary Amount
as provided in this clause (vii) based upon the Market Price of
the common stock, Executive shall, for purposes of Sections 9(b)
9(c), 10(a) and 11 be treated as having earned the
Non-Discretionary Amount for 1999 to the extent it would have
paid if such reduction had not occurred.
6. Fringe Benefits.
(a) Executive shall be entitled to participate in such existing
employee benefit plans and insurance programs offered by the Company,
or which it may adopt from time to time for its executive management or
supervisory personnel generally, at such time as Executive shall have
fulfilled the eligibility requirements for participation therein.
Nothing herein shall be construed so as to prevent the Company from
modifying or terminating any employee benefit plans or programs, or
employee fringe benefits, it may adopt from time to time.
(b) During the term of this Agreement, the Company shall pay
Executive a monthly automobile allowance in the amount of Six Hundred
Dollars ($600.00) and shall pay directly or shall reimburse Executive
for the cost of fuel he incurs in using his automobile.
(c) Executive shall be entitled to four (4) weeks vacation with
pay, for each year during the term hereof.
(d) Executive may incur reasonable expenses for promoting the
Company's business, including expenses for entertainment, travel, and
similar items. The Company shall reimburse Executive for all such
reasonable expenses upon Executive's periodic presentation of an
itemized account of such expenditures.
(e) The Company shall, upon periodic presentation of satisfactory
evidence and to a maximum of Ten Thousand Dollars ($10,000) per year of
this Agreement, reimburse
5
<PAGE>
Executive for reasonable medical expenses incurred by Executive and his
dependents which are not otherwise covered by health insurance provided
to Executive under Section 6(a).
(f) During the term of this Agreement, the Company shall at its
expense maintain a term life insurance policy or policies on the life
of Executive in the face amount of One Million Dollars ($1,000,000),
payable to such beneficiaries as Executive may designate.
7. Disability. If Executive shall become physically or mentally
disabled during the term of this Agreement to the extent that his ability to
perform his duties and services hereunder is materially and adversely impaired,
his salary, bonus and other compensation provided herein shall continue while he
remains employed by the Company; provided, that if such disability (as confirmed
by competent medical evidence) continues for at least twelve (12) consecutive
calendar months, the Company may terminate Executive's employment hereunder in
which case the Company shall immediately pay Executive a lump sum payment equal
to the sum of his salary and bonus as provided herein with respect to the most
recent fiscal year then ended and, provided, further that no such lump sum
payment shall be required if such disability arises primarily from: (a) chronic
depressive use of intoxicants, drugs or narcotics, or (b) intentional
self-inflicting injury or intentionally self-induced sickness; or (c) a proven
unlawful act or enterprise on the part of Executive.
8. Disclosure of Information. Executive acknowledges that in and as a
result of his employment hereunder, he will be making use of, acquiring and/or
adding to confidential information of the Company of a special and unique nature
and value. As a material inducement to the Company to enter into this Agreement
and to pay to Executive the compensation stated in Section 5, as well as any
additional benefits stated herein, Executive covenants and agrees that he shall
not, at any time during or following the term of his employment, directly or
indirectly, divulge or disclose for any purpose whatsoever, any confidential
information that has been obtained by or disclosed to him as a result of his
employment by the Company, except to the extent that such confidential
information (a) becomes a matter of public record or is published in a
newspaper, magazine or other periodical available to the general public, other
than as a result of any act or omission of Executive, (b) is required to be
disclosed by any law, regulation or order of any court or regulatory commission,
department or agency, provided that Executive gives prompt notice of such
requirement to the Company to enable the Company to seek an appropriate
protective order or confidential treatment, or (c) is necessary to perform
properly Executive's duties under this Agreement. Upon the termination of this
Agreement, Executive shall return all materials obtained from or belonging to
the Company which Executive may have in his possession or control.
9. Termination.
(a) Either the Company or Executive may terminate this Agreement
at any time for any reason upon written notice to the other. This
Agreement shall also terminate upon (i) the death of Executive and (ii)
termination by the Company pursuant to Section 7.
(b) In the event this Agreement is terminated by the Company
pursuant to the first sentence of Section 9(a) and such termination
does not constitute a Control Termination as
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defined in (d) below, Executive shall be entitled to receive (i) a
severance payment equal to five (5) times the sum of Executive's base
salary, as determined pursuant to Section 5(a) hereof for the fiscal
year in which such termination occurs, and the Non-Discretionary Amount
as defined in Section 5(a)(iv) applicable for such fiscal year
(regardless of whether the Company's results for such fiscal year would
have resulted in a bonus being paid to Executive) and (ii) all other
unpaid amounts previously accrued or awarded pursuant to any other
provision of this Agreement.
(c) In the event this Agreement is terminated upon the death of
Executive, or is terminated by Executive and such termination does not
constitute a Control Termination as defined in (d) below, Executive
shall be entitled to receive his base salary as provided in Section
5(a) accrued but unpaid (i) as of the date of termination, (ii) a pro
rata share of the bonus provided for in Section 5(b) based on the
number of months during which he performed duties hereunder in the
calendar year of his death, and (iii) all other unpaid amounts
previously accrued or awarded pursuant to any other provision of this
Agreement.
(d) The term "Control Termination" as used herein shall mean (1)
termination of this Agreement by the Company in anticipation of or not
later than two years following a "change in control" of the Company (as
defined below), or (2) termination of this Agreement by Executive
following a "change in control" of the Company (as defined below) upon
the occurrence of any of the following events:
(i) a significant change in the nature or scope of
Executive's authorities or duties from those in existence
immediately prior to the change in control, a reduction in total
compensation from that in existence immediately prior to the
change in control, or a breach by the Company of any other
provision of this Agreement; or
(ii) the reasonable determination by Executive that, as a
result of a change in circumstances significantly affecting his
position, he is unable to exercise Executive's authorities,
powers, functions or duties in existence immediately prior to the
change in control; or
(iii) the Company's principal executive offices are moved
outside the geographic area comprised of Marion County, Indiana,
and the seven contiguous counties; or
(iv) the giving of notice of termination by Executive to
the Company during the 6-month period commencing six (6) months
after the change in control.
The term "change in control" shall mean 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 Securities Exchange Act of 1934 (the
"1934 Act") if such Item 6(e) were applicable to the Company as such Item is in
effect on May 26, 1999; provided that, without limitation, such a change in
control shall be deemed to have occurred if and when (A) any "person" (as such
term is used in Sections 13(d) and 14(d)(2) of the 1934 Act) is or becomes a
beneficial owner, directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the
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Company's then outstanding securities or (B) in connection with or as a 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, as of the date hereof, constitute the Board of Directors of the
Company (the "Incumbent Board") cease to constitute at least a majority of such
Board; provided, however, that any individual who becomes a director of the
Company subsequent to the date hereof whose election was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board, shall
be deemed to have been a member of the Incumbent Board; and provided further,
that no individual who was initially elected as a director of the Company as a
result of an actual or threatened election contest, as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Act, or any other actual or
threatened solicitation of proxies or consents by or on behalf of any person
other than the Board of Directors shall be deemed to have been a member of the
Incumbent Board, or (C) any reorganization, merger or consolidation or the
issuance of shares of common stock of the Company in connection therewith unless
immediately after any such reorganization, merger or consolidation (i) more than
60% of the then outstanding shares of common stock of the corporation surviving
or resulting from such reorganization, merger or consolidation and more than 60%
of the combined voting power of the then outstanding securities of such
corporation entitled to vote generally in the election of directors are then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals or entities who were the beneficial owners, respectively, of the
outstanding shares of common stock of the Company and the outstanding voting
securities of the Company immediately prior to such reorganization, merger or
consolidation and in substantially the same proportions relative to each other
as their ownership, immediately prior to such reorganization, merger or
consolidation, of the outstanding shares of common stock of the Company and the
outstanding voting securities of the Company, as the case may be, and (ii) at
least a majority of the members of the board of directors of the corporation
surviving or resulting from such reorganization, merger or consolidation were
members of the Board of Directors of the Company at the time of the execution of
the initial agreement or action of the Board of Directors providing for such
reorganization, merger or consolidation or issuance of shares of common stock of
the Company. Upon the occurrence of a change in control, the Company shall
promptly notify Executive in writing of the occurrence of such event (such
notice, the "Change in Control Notice"). If the Change in Control Notice is not
given within 10 days after the occurrence of a change in control the period
specified in clause (d)(A) of this Section 9 shall be extended until the second
anniversary of the date such Change in Control Notice is given.
10. Payments for Control Termination. In the event of a Control
Termination of this Agreement, the Company shall pay Executive and provide him
with the following:
(a) During the remainder of the Basic Employment Period, the
Company shall continue to pay Executive his salary on a monthly basis
at the same rate as payable immediately prior to the date of
termination plus the estimated amount of any bonuses to which he would
have been entitled had he remained in the employ of the Company and a
change in control of the Company had not occurred, which estimate shall
be reasonable and made by the Company in good faith.
(b) During the remainder of the Basic Employment Period,
Executive shall continue to be treated as an employee under the
provisions of all incentive compensation arrangements
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applicable to the Company's executive employees. In addition, Executive
shall continue to be entitled to all benefits and service credit for
benefits under medical, insurance and other employee benefit plans,
programs and arrangements of the Company as if he were still employed
under this Agreement and a change in control of the Company had not
occurred.
(c) If, despite the provisions of paragraph (b) above, benefits
under any employee benefit plan shall not be payable or provided under
any such plan to Executive, or Executive's dependents, beneficiaries
and estate, because he is no longer an employee of the Company, the
Company itself shall, to the extent necessary to provide the full value
of such benefits and service credits to Executive, Executive's
dependents, beneficiaries and estate, pay or provide for payment of
such benefits and service credit for such benefits to Executive, his
dependents, beneficiaries and estate.
(d) If, despite the provisions of paragraph (b) above, benefits
or the right to accrue further benefits under any stock option or other
long-term incentive compensation arrangement shall not be provided
under any such arrangement to Executive, or his dependents,
beneficiaries and estate, because he is no longer an employee of the
Company, the Company shall, to the extent necessary, pay or provide for
payment of such benefits to Executive, his dependents, beneficiaries
and estate.
11. Severance Allowance. In the event of a Control Termination of
this Agreement, Executive may elect, within 60 days after such Control
Termination, to be paid a lump sum severance allowance, in lieu of the
termination payments provided for in Section 10 above, in an amount which is
equal to the sum of the amounts determined in accordance with the following
paragraphs (a) and (b):
(a) an amount equal to the aggregate of salary payments for 60
calendar months at the rate which he would have been entitled to
receive in accordance with Section 5(a) plus a pro rata share of the
estimated amount of any bonus which would have been payable for the
bonus period which includes the termination date; and
(b) an amount equal to five times the greater of (i) the highest
annual bonus payable under Section 5(b) hereof for the last three (3)
fiscal years of the company ended prior to such Control Termination, or
(ii) the estimated amount of the annual bonus payable under Section
5(b) hereof for the fiscal year of the Company which includes the date
of such Control Termination.
In the event that Executive makes an election pursuant to this Section
to receive a lump sum severance allowance of the amount described in clauses (a)
and (b), then, in addition to such amount, he shall receive (i) in addition to
the benefits provided under any retirement or pension benefit plan maintained by
the Company, the benefits he would have accrued under such benefit plan if he
had remained in the employ of the Company and such plan had remained in effect
for 60 calendar months after his termination, which benefits will be paid
concurrently with, and in addition to, the benefits provided under such benefit
plan, and (ii) the employee benefits (including, but not limited to, coverage
under any medical insurance and split-dollar life insurance arrangements or
programs)
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to which he would have been entitled under all employee benefit plans, programs
or arrangements maintained by the Company if he had remained in the employ of
the Company and such plan, programs or arrangements had remained in effect for
60 calendar months after his termination; or the value of the amounts described
in clauses (i) and (ii) next preceding. The amount of the payments described in
the preceding sentence shall be determined and such payments shall be
distributed as soon as it is reasonably possible.
12. Tax Indemnity Payments. (a) Anything in this Agreement to the
contrary notwithstanding, in the event it shall be determined that any payment
or distribution by the Company or its affiliated companies to or for the benefit
of Executive, whether paid or payable or distributed or distributable pursuant
to the terms of the Agreement or otherwise but determined without regard to any
additional payments required under this Section 12 (a "Payment"), would be
subject to the excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986 (as amended the "Code"), or any successor provision (collectively,
"Section 4999"), or any interest or penalties are incurred by Executive with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any Federal, state or local income and employment
taxes and Excise Tax (and any interest and penalties imposed with respect to any
such taxes) imposed upon the Gross-Up Payment, Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 12(c), all
determinations required to be made under this Section 12, including
whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Company's public accounting firm
(the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and Executive within fifteen (15)
business days of the receipt of notice from Executive that there has
been a Payment, or such earlier time as is requested by the Company. In
the event that the Accounting Firm is serving as accountant or auditor
for the individual, entity or group effecting the Change in Control,
Executive shall appoint another nationally recognized public accounting
firm to make the determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this Section
12, shall be paid by the Company to Executive within five (5) days of
the receipt of the Accounting Firm's determination. If the Accounting
Firm determines that no Excise Tax is payable by Executive, it shall
furnish Executive with a written opinion that failure to report the
Excise Tax on Executive's applicable federal income tax return would
not result in the imposition of a negligence or similar penalty. Any
determination by the Accounting Firm shall be binding upon the Company
and Executive. As a result of the uncertainty in the application of
Section 4999 at the time of the initial determination by the Accounting
Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the
event that the
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Company exhausts its remedies pursuant to Section 12(c) and Executive
thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of Executive.
(c) Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the
payment by the Company of, or change in the amount of the payment by
the Company of, the Gross-Up Payment. Such notification shall be given
as soon as practicable after Executive is informed in writing of such
claim and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid; provided that the
failure to give any notice pursuant to this Section 12(c) shall not
impair Executive's rights under this Section 12 except to the extent
the Company is materially prejudiced thereby. Executive shall not pay
such claim prior to the expiration of the 30-day period following the
date on which Executive gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies Executive in
writing prior to the expiration of such period that it desires to
contest such claim, Executive shall:
(1) give the Company any information reasonably requested
by the Company relating to such claim,
(2) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company,
(3) cooperate with the Company in good faith in order
effectively to contest such claim, and
(4) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Executive harmless, on an
after-tax basis, for any Excise Tax or income, employment or other tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 12(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct Executive to pay the tax claimed and sue for a refund
or contest the claim in any permissible manner, and Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided further, that if the Company directs Executive
to pay such claim and sue for a refund, the Company shall advance the amount of
such payment to Executive on an interest-free
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basis and shall indemnify and hold Executive harmless, on an after-tax basis,
from any Excise Tax or income, employment or other tax (including interest or
penalties with respect to any such taxes) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and provided
further, that any extension of the statute of limitations relating to payment of
taxes for the taxable year of Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by Executive of an amount advanced
by the Company pursuant to Section 12(c), Executive becomes entitled to
receive, and receives, any refund with respect to such claim, Executive
shall (subject to the Company's complying with the requirements of
Section 12(c)) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by Executive of an amount
advanced by the Company pursuant to Section 12(c), a determination is
made that Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify Executive in writing of its
intent to contest such denial of refund prior to the expiration of
thirty (30) days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
13. Payment for Options and Stock. In the event of a Control
Termination of this Agreement, Executive may elect, within sixty (60) days after
such Control Termination, to receive (in addition to any other amounts owed to
Executive under this Agreement) a lump sum payment in cash equal to the sum of
the following: (i) all or any portion of the number of shares of common stock of
the Company which may be acquired pursuant to options granted by the Company and
held by Executive at the time of such election, multiplied by the Conseco Put
Price; plus (ii) all or any portion of the number of Successor Securities which
may be acquired pursuant to options (which options were granted to Executive in
exchange or substitution for options to acquire the common stock of the Company)
held by Executive at the time of such election, multiplied by the Successor
Security Put Price; plus (iii) the number of shares of common stock of the
Company which were acquired pursuant to options granted by the Company which
were exercised, or which were discharged and satisfied by the payment to
Executive of cash or other property (other than Successor Securities), in
connection with the change in control subsequent to the first public
announcement of the transaction or event which led to the change in control,
multiplied by the respective per share exercise prices of such exercised or
discharged options; plus (iv) all or any portion of the number of shares of
common stock of the Company held by Executive at the time of such election,
multiplied by the Conseco Put Price; plus (v) all or any portion of the number
of Successor Securities held by Executive at the time of such election,
multiplied by the Successor Security Put Price; plus (vi) to the extent that any
of Executive's deferred compensation units were not satisfied in cash in
connection with the change in control and were instead payable in shares of
common stock of the
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Company or Successor Securities, all or any portion of the number of units held
by Executive at the time of such election, multiplied by the Conseco Put Price
of the common stock of the Company or the Successor Security Put Price of the
Successor Securities, as the case may be. For purposes of calculating the above
lump sum payment, the options described in clauses (i) and (ii) shall include
all such options, whether or not then exercisable, and, to compensate Executive
for the loss of the potential future speculative value of unexercised options,
there shall not be any deduction of the respective per share exercise prices for
any of the options described in such clauses (i) and (ii). The cash payment due
from the Company pursuant to this Section 13 shall be made to Executive within
ten (10) days after the date of such election hereunder, against the execution
and delivery by Executive to the Company of an appropriate agreement confirming
the surrender to the Company of the options and deferred compensation units and
the certificates representing the common stock of the Company or Successor
Securities, in each case in respect of which the lump sum cash payment is being
made to Executive.
"Successor Securities" means any securities of any person
received by the holders of the common stock of the Company in exchange,
substitution or payment for, or upon conversion of, the common stock of the
Company in connection with a change in control.
"Conseco Put Price" means the greater of (i) the Change in
Control Price or (ii) the Current Market Price of the common stock of the
Company.
"Successor Security Put Price" means the greater of (i) the
Change in Control Price divided by the Exchange Ratio or (ii) the Current Market
Price of the Successor Securities.
"Current Market Price" for any security means the average of the
daily Prices per security for the twenty (20) consecutive trading days ending on
the trading day which is immediately prior to Executive's election under this
Section 13.
"Price" for any security means the average of the highest and
lowest sales price of such security (regular way) on a trading day as shown on
the Composite Tape of the New York Stock Exchange (or, if such security is not
listed or admitted to trading on the New York Stock Exchange, on the principal
national securities exchange on which such security is listed or admitted to
trading) or, in case no sales take place on such day, the average of the closing
bid and asked prices on the New York Stock Exchange (or, if such security is not
listed or admitted to trading on the New York Stock Exchange, on the principal
national securities exchange on which such security is listed or admitted to
trading) or, if it is not listed or admitted to trading on any national
securities exchange, the average of the highest and lowest sales prices of such
security on such day as reported by the NASDAQ Stock Market, or in case no sales
take place on such day, the average of the closing bid and asked prices as
reported by NASDAQ, or if such security is not so reported, the average of the
closing bid and asked prices as furnished by any securities broker-dealer of
recognized national standing selected from time to time by the Company (or its
successor in interest) for that purpose.
"Change in Control Price" means (i) in the case of a change in
control which occurs solely as a result of a change in the composition of the
Board of Directors of the Company or which occurs in a transaction, or series of
related transactions, in which the same consideration is paid or delivered to
all of the holders of common stock of the Company (or, in the event of an
election by holders of the common stock of the Company of different forms of
consideration, if the same
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election is offered to all of the holders of common stock of the Company), the
Price per share of the common stock of the Company on the date on which the
change in control occurs, or if such date is not a trading day, then the trading
day immediately prior to such date, or (ii) in the case of a change in control
effected through a series of related transactions, or in a single transaction in
which less than all of the outstanding shares of common stock of the Company is
acquired, the highest price paid to the holders of common stock of the Company
in the transaction or series of related transactions whereby the change in
control takes place. In determining the highest price paid to the holders
pursuant to clause (ii) of the immediately preceding sentence, in the case of
Successor Securities paid or delivered to the holders of common stock of the
Company in exchange, payment or substitution for, or upon conversion of, the
common stock of the Company, the price paid to such holders shall be the Price
of such security at the time or times paid or delivered to such holders.
"Exchange Ratio" means, in connection with a change in control,
the number of Successor Securities to be paid or delivered to the holders of
common stock of the Company in exchange, payment or substitution for, or upon
conversion of, each share of such common stock.
14. Character of Termination Payments. The amounts payable to
Executive upon any termination of this Agreement shall be considered severance
pay in consideration of past services rendered on behalf of the Company and his
continued service from the date hereof to the date he becomes entitled to such
payments. Executive shall have no duty to mitigate his damages by seeking other
employment and, should Executive actually receive compensation from any such
other employment, the payments required hereunder shall not be reduced or offset
by any such other compensation.
15. Grant of Stock Option. On the Approval Date, the Company shall
grant to Executive, a nonqualified stock option under the Code to purchase One
Million Five Hundred Thousand (1,500,000) shares of common stock at the fair
market value per share of common stock on the Effective Date. Such stock option
shall expire ten (10) years after the Approval Date of grant and shall become
exercisable with respect to one-half of the shares covered on the third
anniversary of the Approval Date, with respect to one-quarter of such shares on
the fourth anniversary of the Approval Date and with respect to the remaining
one-quarter of such shares on the fifth anniversary of the Approval Date.
16. Arbitration of Disputes; Injunctive Relief.
(a) Except as specified in paragraph (b) below, any controversy
or claim arising out of or relating to this Agreement or the breach
thereof, shall be settled by binding arbitration in the City of
Indianapolis, Indiana, in accordance with the laws of the State of
Indiana by three arbitrators, one of whom shall be appointed by the
Company, one by Executive and the third of whom shall be appointed by
the first two arbitrators. If the first two arbitrators cannot agree on
the appointment of a third arbitrator, then the third arbitrator shall
be appointed by the Chief Judge of the United States District Court for
the Southern District of Indiana. The arbitration shall be conducted in
accordance with the rules of the American Arbitration Association,
except with respect to the selection of arbitrators which shall be as
provided in this Section. Judgment upon the award rendered by the
arbitrators may be entered in any
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court having jurisdiction thereof. In the event that it shall be
necessary or desirable for Executive to retain legal counsel and/or
incur other costs and expenses in connection with the enforcement of
any and all of his rights under this Agreement, the Company shall pay
(or Executive shall be entitled to recover from the Company, as the
case may be) his reasonable attorneys' fees and costs and expenses in
connection with such rights, regardless of the final outcome, unless
the arbitrators shall determine that under the circumstances recovery
by Executive of all or a part of any such fees and costs and expenses
would be unjust.
(b) Executive acknowledges that a breach or threatened breach by
Executive of Section 8 of this Agreement will give rise to irreparable
injury to the Company and that money damages will not be adequate
relief for such injury. Notwithstanding paragraph (a) above, the
Company and Executive agree that the Company may seek and obtain
injunctive relief, including, without limitation, temporary restraining
orders, preliminary injunctions and/or permanent injunctions, in a
court of proper jurisdiction to restrain or prohibit a breach or
threatened breach of Section 8 of this Agreement. Nothing herein shall
be construed as prohibiting the Company from pursuing any other
remedies available to the Company for such breach or threatened breach,
including the recovery of damages from Executive.
17. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by certified registered
mail to his residence, in the case of Executive, or to its principal offices in
the case of the Company.
18. Waiver of Breach and Severability. The waiver by either party of a
breach of any provision of this Agreement by the other party shall not operate
or be construed as a waiver of any subsequent breach by either party. In the
event any provision of this Agreement is found to be invalid or unenforceable,
it may be severed from the Agreement and the remaining provisions of the
Agreement shall continue to be binding and effective.
19. Entire Agreement. This instrument contains the entire agreement
of the parties. It may not be changed orally, but only by an agreement in
writing signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought. This Agreement supersedes and
replaces all prior employment and compensatory agreements, understandings and
arrangements between Executive and the Company or any subsidiary of the Company.
20. Binding Agreement and Governing Law. This Agreement shall be
binding upon and shall insure to the benefit of the parties and their successors
in interest and shall be construed in accordance with and governed by the laws
of the State of Indiana. This Agreement is personal to each of the parties
hereto, and neither party may assign nor delegate any of its rights or
obligations hereunder without the prior written consent of the other.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CONSECO, INC.
By:/s/ Rollin M. Dick /s/ Stephen C. Hilbert
------------------------- --------------------------
Rollin M. Dick Stephen C. Hilbert
"Company" "Executive"
16
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of July 1, 1991, as amended and
restated as of May 26, 1999, between CONSECO, INC., an Indiana corporation
(hereinafter called the "Company"), and Rollin M. Dick (hereinafter called
"Executive").
RECITALS
WHEREAS, Executive has been employed by the Company for a number of
years and the services of Executive, his managerial and professional experience,
and his knowledge of the affairs of the Company are of great value to the
Company;
WHEREAS, the Company deems it to be essential for it to have the
benefit and advantage of the services of the Executive for an extended period;
and
WHEREAS, the Company and Executive are parties to an employment
agreement dated July 1, 1991, as amended on March 12, 1996, October 29, 1997 and
May 14, 1998 (as so amended the "Existing Employment Agreement"), and the
Company and Executive desire to make certain modifications to the Existing
Employment Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, the parties agree the Existing Employment Agreement
be amended and restated in its entirety to be as follows:
1. Employment. The Company hereby employs Executive and Executive
hereby accepts employment upon the terms and conditions hereinafter set forth.
2. Term. The effective date of this Agreement shall be July 1,
1991. Subject to the provisions for termination as provided in Section 10
hereof, the term of this Agreement shall be the period beginning July 1, 1991
and ending December 31, 2001 (hereinafter called the "Basic Employment Period").
3. Duties. Executive is engaged by the Company in an executive
capacity as its chief financial officer. Executive shall report to the Chief
Executive Officer regarding the performance of his duties and shall be subject
to the direction and control of the Board of Directors of the Company (sometimes
referred to herein as the "Board") and the Chief Executive Officer. Executive's
position with the Company shall initially be Executive Vice President, and such
other positions as may be determined from time to time by the Board.
4. Extent of Services. Executive, subject to the direction and
control of the Chief Executive Officer and the Board, shall have the power and
authority commensurate with his executive status and necessary to perform his
duties hereunder. The Company agrees to provide to Executive such assistance and
work accommodations as are suitable to the character of his positions with the
Company and adequate for the performance of his duties. Executive shall devote
his entire
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employable time, attention and best efforts to the business of the Company, and
shall not, without the consent of the Company, during the term of this Agreement
be actively engaged in any other business activity, whether or not such business
activity is pursued for gain, profit or other pecuniary advantage; but this
shall not be construed as preventing Executive from investing his assets in such
form or manner as will not require any services on the part of Executive in the
operation of the affairs of the companies in which such investments are made.
For purposes of this Agreement, full-time employment shall be the normal work
week for individuals in comparable executive positions with the Company.
5. Compensation.
(a) As compensation for services hereunder rendered during the
term hereof, Executive shall receive a base salary ("Base Salary") of
Two Hundred Fifty Thousand Dollars ($250,000) per year payable in equal
installments in accordance with the Company's payroll procedure for its
salaried employees. Salary payments shall be subject to withholding of
taxes and other appropriate and customary amounts. Executive may
receive increases in his Base Salary from time to time, based upon his
performance in his executive and management capacity. The amounts of
any such salary increases shall be approved by the Board or the
Compensation Committee of the Board upon the recommendation of the
Chief Executive Officer.
(b) In addition to Base Salary, Executive may receive such
other bonuses or incentive compensation as the Compensation Committee
or the Board may approve from time to time, upon the recommendation of
the Chief Executive Officer.
6. Fringe Benefits.
(a) Executive shall be entitled to participate in such
existing employee benefit plans and insurance programs offered by the
Company, or which it may adopt form time to time, for its executive
management or supervisory personnel generally, in accordance with the
eligibility requirements for participation therein. Nothing herein
shall be construed so as to prevent the Company from modifying or
terminating any employee benefit plans or programs, or employee fringe
benefits, it may adopt from time to time.
(b) During the term of this Agreement, the Company shall pay
Executive a monthly automobile allowance in the amount of Six Hundred
Dollars ($600), and the Company shall pay directly or shall reimburse
Executive for the cost of fuel that he incurs in using his automobile.
(c) Executive shall be entitled to four (4) weeks vacation
with pay for each year during the term hereof.
(d) Executive may incur reasonable expenses for promoting the
Company's business, including expenses for entertainment, travel, and
similar items. The Company shall
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reimburse Executive for all such reasonable expenses upon Executive's
periodic presentation of an itemized account of such expenditures.
(e) The Company shall, upon periodic presentation of
satisfactory evidence and to a maximum of Ten Thousand Dollars
($10,000) per each year of this Agreement, reimburse Executive for
reasonable medical expenses incurred by Executive and his dependents
which are not otherwise covered by health insurance provided to
Executive under Section 6(a).
(f) During the term of this Agreement, the Company shall at
its expense maintain a term life insurance policy or policies on the
life of Executive in the face amount of Five Hundred Thousand Dollars
($500,000), payable to such beneficiaries as Executive may designate.
7. Disability. If Executive shall become physically or mentally
disabled during the term of this Agreement to the extent that his ability to
perform his duties and services hereunder is materially and adversely impaired,
his salary, bonus and other compensation provided herein shall continue while he
remains employed by the Company; provided, that if such disability (as confirmed
by competent medical evidence) continues for at least nine (9) consecutive
months, the Company may terminate Executive's employment hereunder in which case
the Company shall immediately pay Executive a lump sum payment equal to
one-quarter of the sum of his annual salary and bonus with respect to the most
recent fiscal year then ended and, provided further, that no such lump sum
payment shall be required if such disability arises primarily from: (a) chronic
depressive use of intoxicants, drugs or narcotics, or (b) intentionally
self-inflicted injury or intentionally self-induced sickness; or (c) a proven
unlawful act or enterprise on the part of Executive.
8. Disclosure of Information. Executive acknowledges that in and
as a result of his employment with the Company, he has been and will be making
use of, acquiring and/or adding to confidential information of the Company of a
special and unique nature and value. As a material inducement to the Company to
enter into this Agreement and to pay to Executive the compensation stated in
Section 5, as well as any additional benefits stated herein, Executive covenants
and agrees that he shall not, at any time during or following the term of his
employment, directly or indirectly, divulge or disclose for any purpose
whatsoever, any confidential information that has been obtained by or disclosed
to him as a result of his employment with the Company, except to the extent that
such confidential information (a) becomes a matter of public record or is
published in a newspaper, magazine or other periodical available to the general
public, other than as a result of any act or omission of Executive, (b) is
required to be disclosed by any law, regulation or order of any court or
regulatory commission, department or agency, provided that Executive gives
prompt notice of such requirement to the Company to enable the Company to seek
an appropriate protective order or confidential treatment, or (c) is necessary
to perform properly Executive's duties under this Agreement. Upon the
termination of this Agreement, Executive shall return all materials obtained
from or belonging to the Company which he may have in his possession or control.
9. Covenants Against Competition and Solicitation. Executive
acknowledges that the services he is to render to the Company are of a special
and unusual character, with a unique value to the Company, the loss of which
cannot adequately be compensated by damages or an action at
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law. In view of the unique value to the Company of the services of Executive for
which the Company has contracted hereunder, because of the confidential
information to be obtained by, or disclosed to, Executive as hereinabove set
forth, and as a material inducement to the Company to enter into this Agreement
and to pay to Executive the compensation stated in Section 5, as well as any
additional benefits stated herein, and other good and valuable consideration,
Executive covenants and agrees that throughout the period Executive remains
employed hereunder and for one year thereafter, Executive shall not, directly or
indirectly, anywhere in the United States of America (i) render any services, as
an agent, independent contractor, consultant or otherwise, or become employed or
compensated by, any other corporation, person or entity engaged in the business
of selling or providing life, accident or health insurance products or services;
(ii) render any services, as an agent, independent contractor, consultant or
otherwise, or become employed or compensated by, any other corporation, person
or entity engaged in the business of selling or providing any lending or other
financial products or services that are competitive with the lending or other
financial products or services sold or provided by the Company or its
subsidiaries, (iii) in any manner compete with the Company or any of its
subsidiaries; (iv) solicit or attempt to convert to other insurance carriers,
finance companies or other corporations, persons or other entities providing
these same or similar products or services provided by the Company and its
subsidiaries, any customers or policyholders of the Company, or any of its
subsidiaries; or (v) solicit for employment or employ any employee of the
Company or any of its subsidiaries. The covenants of Executive in this Section 9
shall be void and unenforceable in the event of a Control Termination of this
Agreement as defined in Section 10 below. Should any particular covenant or
provision of this Section 9 be held unreasonable or contrary to public policy
for any reason, including, without limitation, the time period, geographical
area, or scope of activity covered by any restrictive covenant or provision, the
Company and Executive acknowledge and agree that such covenant or provision
shall automatically be deemed modified such that the contested covenant or
provision shall have the closest effect permitted by applicable law to the
original form and shall be given effect and enforced as so modified to whatever
extent would be reasonable and enforceable under applicable law.
10. Termination.
(a) Either the Company or Executive may terminate this
Agreement at any time for any reason upon written notice to the other.
This Agreement shall also terminate upon (i) the death of Executive or
(ii) termination by the Company pursuant to Section 7.
(b) In the event this Agreement is terminated by the Company
and such termination is not pursuant to the last sentence of (a) above
or for "just cause" as defined in (e) below and does not constitute a
Control Termination as defined in (d) below, Executive shall be
entitled to receive Executive's Base Salary, as determined pursuant to
Section 5(a) hereof, for the remainder of the Basic Employment Period
and all other unpaid amounts previously accrued or awarded pursuant to
any other provision of this Agreement.
(c) In the event this Agreement is terminated by the death of
Executive, is terminated by the Company for "just cause" as defined in
(e) below, or is terminated by Executive and such termination does not
constitute a Control Termination as defined in (d) below, Executive
shall be entitled to receive Executive's Base Salary as provided in
Section 5(a)
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accrued but unpaid as of the date of termination, and all other unpaid
amounts previously accrued or awarded pursuant to any other provision
of this Agreement.
(d) The term "Control Termination" as used herein shall mean
(A) termination of this Agreement by the Company in anticipation of or
not later than two years following a "change in control" of the Company
(as defined below), or (B) termination of this Agreement by Executive
following a "change in control" of the Company (as defined below) upon
the occurrence of any of the following events:
(i) a significant change in the nature or scope of
Executive's authorities or duties from those in existence
immediately prior to the change in control, a reduction in his
total compensation from that in existence immediately prior to
the change in control, or a breach by the Company of any other
provision of this Agreement; or
(ii) the reasonable determination by Executive that,
as a result of a change in circumstances significantly
affecting his position, he is unable to exercise Executive's
authorities, powers, functions or duties in existence
immediately prior to the change in control, or
(iii) the Company's principal executive offices are
moved outside the geographic area comprised of Marion County,
Indiana, and the seven contiguous counties or Executive is
required to work at a location other than the Company's
principal executive offices; or
(iv) the giving of notice of termination by Executive
during the 6-month period commencing six (6) months after the
change in control.
The term "change in control" shall mean 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 Securities Exchange Act of 1934 (the "Act")
if such Item 6(e) were applicable to the Company as such Item is in effect on
May 26, 1999; provided that, without limitation, such a change in control shall
be deemed to have occurred if and when (A) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Act) is or becomes a "beneficial owner" (as such
term is defined in Rule 13d-3 promulgated under the Act), directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities entitled to
vote with respect to the election of its Board of Directors or (B) as the result
of a tender offer, merger, consolidation, sale of assets, or contest for
election of directors, or any combination of the foregoing transactions or
events, individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Incumbent Board") cease to constitute at least a
majority of such Board; provided, however, that any individual who becomes a
director of the Company subsequent to the date hereof whose election was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board, shall be deemed to have been a member of the Incumbent Board;
and provided further, that no individual who was initially elected as a director
of the Company as a result of an actual or threatened election contest, as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the Act, or
any other actual or threatened solicitation of proxies
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or consents by or on behalf of any person other than the Board of Directors
shall be deemed to have been a member of the Incumbent Board, or (C) any
reorganization, merger or consolidation or the issuance of shares of common
stock of the Company in connection therewith unless immediately after any such
reorganization, merger or consolidation (i) more than 60% of the then
outstanding shares of common stock of the corporation surviving or resulting
from such reorganization, merger or consolidation and more than 60% of the
combined voting power of the then outstanding securities of such corporation
entitled to vote generally in the election of directors are then beneficially
owned, directly or indirectly, by all or substantially all of the individuals or
entities who were the beneficial owners, respectively, of the outstanding shares
of common stock of the Company and the outstanding voting securities of the
Company immediately prior to such reorganization, merger or consolidation and in
substantially the same proportions relative to each other as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
outstanding shares of common stock of the Company and the outstanding voting
securities of the Company, as the case may be, and (ii) at least a majority of
the members of the board of directors of the corporation surviving or resulting
from such reorganization, merger or consolidation were members of the Board of
Directors of the Company at the time of the execution of the initial agreement
or action of the Board of Directors providing for such reorganization, merger or
consolidation or issuance of shares of common stock of the Company. Upon the
occurrence of a change in control, the Company shall promptly notify Executive
in writing of the occurrence of such event (such notice, the "Change in Control
Notice"). If the Change in Control Notice is not given within 10 days after the
occurrence of a change in control the period specified in clause (d)(A) of this
Section 10 shall be extended until the second anniversary of the date such
Change in Control Notice is given.
(e) For purposes of this Agreement "just cause" shall mean:
(i) a material breach by Executive of this Agreement,
the commission of gross negligence, or willful malfeasance or
fraud or dishonesty of a substantial nature in performing
Executive's services on behalf of the Company, which is in
each case (A) willful and deliberate on Executive's part and
committed in bad faith or without reasonable belief that such
breach is in the best interests of the Company and (B) not
remedied by Executive in a reasonable period of time after
receipt of written notice from the Company specifying such
breach;
(ii) Executive's breach of any provisions of this
Agreement, or his use of alcohol or drugs which interferes
with the performance of his duties hereunder or which
compromises the integrity and reputation of the Company, its
employees, and products;
(iii) Executive's conviction by a court of law, or
admission that he is guilty, of a felony or other crime
involving moral turpitude; or
(iv) Executive's absence from his employment other
than as a result of Section 7 hereof, for whatever cause, for
a period of more than one (1) month, without prior written
consent from the Company.
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11. Payments for Control Termination. In the event of a Control
Termination of this Agreement, the Company shall pay Executive and provide him
with the following:
(a) During the remainder of the Basic Employment Period, the
Company shall continue to pay Executive his Base Salary at the same
rate as payable immediately prior to the date of termination plus the
estimated amount of any bonuses to which he would have been entitled
had he remained in the employ of the Company and a change in control of
the Company had not occurred, which estimate shall be reasonable and
made by the Company in good faith.
(b) During the remainder of the Basic Employment Period,
Executive shall continue to be treated as an employee under the
provisions of all incentive compensation arrangements applicable to the
Company's executive employees. In addition, Executive shall continue to
be entitled to all benefits and service credits for benefits under
medical, insurance and other employee benefit plans, programs and
arrangements of the Company as if he were still employed under this
Agreement and a change in control of the Company had not occurred.
(c) If, despite the provisions of paragraph (b) above,
benefits under any employee benefit plan shall not be payable or
provided under any such plan to Executive, or Executive's dependents,
beneficiaries and estate, because he is no longer an employee of the
Company, the Company itself shall, to the extent necessary to provide
the full value of such benefits and service credits to Executive,
Executive's dependents, beneficiaries and estate, pay or provide for
payment of such benefits and service credits for such benefits to
Executive, Executive's dependents, beneficiaries and estate.
(d) If, despite the provisions of paragraph (b) above,
benefits or the right to accrue further benefits under any stock option
or other incentive compensation arrangement shall not be provided under
any such arrangement to Executive, or his dependents, beneficiaries and
estate, because he is no longer an employee of the Company, the Company
shall, to the extent necessary, pay or provide for payment of such
benefits to Executive, his dependents, beneficiaries and estate.
12. Severance Allowance. In the event of a Control Termination of
this Agreement, Executive may elect, within 60 days after such Control
Termination, to be paid a lump sum severance allowance, in lieu of the
termination payments provided for in Section 11 above, in an amount which is
equal to the sum of the amounts determined in accordance with the following
clauses (a) and (b):
(a) an amount equal to the aggregate of salary payments for 60
calendar months at the rate of Base Salary which he would have been
entitled to receive in accordance with Section 5(a); and
(b) an amount equal to the aggregate of 60 calendar months of
bonus at the greater of (i) the monthly rate of the bonus payment for
the annual bonus period immediately
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prior to this termination date, or (ii) the monthly rate of the
estimated amount of the bonus for the annual bonus period which
includes his termination date.
In the event that Executive makes an election pursuant to this Section
to receive a lump sum severance allowance of the amount described in clauses (a)
and (b), then, in addition to such amount, he shall receive (i) in addition to
the benefits provided under any deferred compensation, retirement or pension
benefit plan maintained by the Company, the benefits he would have accrued under
such benefit plan if he had remained in the employ of the Company and such plan
had remained in effect for 60 calendar months after his termination, which
benefits will be paid concurrently with, and in addition to, the benefits
provided under such benefit plan, and (ii) the employee benefits (including, but
not limited to, coverage under any medical insurance and life insurance
arrangements or programs) to which he would have been entitled under all
employee benefit plans, programs or arrangements maintained by the Company if he
had remained in the employ of the Company and such plans, programs or
arrangements had remained in effect for 60 calendar months after his
termination; or the value of the amounts described in clauses (i) and (ii) next
preceding. The amount of the payments described in the preceding sentence shall
be determined and such payments shall be distributed as soon as it is reasonably
possible.
13. Tax Indemnity Payments. (a) Anything in this Agreement to
the contrary notwithstanding, in the event it shall be determined that any
payment or distribution by the Company or its affiliated companies to or for the
benefit of Executive, whether paid or payable or distributed or distributable
pursuant to the terms of the Agreement or otherwise but determined without
regard to any additional payments required under this Section 13 (a "Payment"),
would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986 (as amended the "Code"), or any successor provision
(collectively, "Section 4999"), or any interest or penalties are incurred by
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then Executive shall be entitled to receive an additional payment
(a "Gross-Up Payment") in an amount such that after payment by Executive of all
taxes (including any interest or penalties imposed with respect to such taxes),
including, without limitation, any Federal, state or local income and employment
taxes and Excise Tax (and any interest and penalties imposed with respect to any
such taxes) imposed upon the Gross-Up Payment, Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 13(c), all determinations
required to be made under this Section 13, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by the Company's
public accounting firm (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and Executive within fifteen (15)
business days of the receipt of notice from Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, Executive may appoint another
nationally recognized public accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment,
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as determined pursuant to this Section 13, shall be paid by the Company to
Executive within five (5) days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is payable
by Executive, it shall furnish Executive with a written opinion that failure to
report the Excise Tax on Executive's applicable federal income tax return would
not result in the imposition of a negligence or similar penalty. Any
determination by the Accounting Firm shall be binding upon the Company and
Executive. As a result of the uncertainty in the application of Section 4999 at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made by the Company ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 13(c) and Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
Executive.
(c) Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require a payment by the
Company of, or a change in the amount of the payment by the Company of, the
Gross-Up Payment. Such notification shall be given as soon as practicable after
Executive is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid; provided that the failure to give any notice pursuant to this Section
13(c) shall not impair Executive's rights under this Section 13 except to the
extent the Company is materially prejudiced thereby. Executive shall not pay
such claim prior to the expiration of the 30-day period following the date on
which Executive gives such notice to the Company (or such shorter period ending
on the date that any payment of taxes with respect to such claim is due). If the
Company notifies Executive in writing prior to the expiration of such period
that it desires to contest such claim, Executive shall:
(1) give the Company any information reasonably requested by
the Company relating to such claim,
(2) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(3) cooperate with the Company in good faith in order
effectively to contest such claim, and
(4) permit the Company to participate in any proceedings
relating to such claim,
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Executive harmless, on an
after-tax basis, for any Excise Tax or income, employment or other tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 13(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
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conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct Executive to pay the tax claimed and sue for a refund
or contest the claim in any permissible manner, and Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided further, that if the Company directs Executive
to pay such claim and sue for a refund, the Company shall advance the amount of
such payment to Executive on an interest-free basis and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income,
employment or other tax (including interest or penalties with respect to any
such taxes) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and provided further, that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and Executive shall be entitled to settle or contest,
as the case may be, any other issue raised by the Internal Revenue Service or
any other taxing authority.
(d) If, after the receipt by Executive of an amount advanced by the
Company pursuant to Section 13(c), Executive becomes entitled to receive, and
receives, any refund with respect to such claim, Executive shall (subject to the
Company's complying with the requirements of Section 12(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by Executive of
an amount advanced by the Company pursuant to Section 13(c), a determination is
made that Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify Executive in writing of its intent to
contest such denial of refund prior to the expiration of thirty (30) days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
14. Payment for Options and Stock. In the event of a Control
Termination of this Agreement, Executive may also elect, within sixty (60) days
after such Control Termination, to receive (in addition to any other amounts
owed to Executive under this Agreement) a lump sum payment in cash equal to the
sum of the following: (i) all or any portion of the number of shares of common
stock of the Company which may be acquired pursuant to options granted by the
Company and held by Executive at the time of such election, multiplied by the
Conseco Put Price; plus (ii) all or any portion of the number of Successor
Securities which may be acquired pursuant to options (which options were granted
to Executive in exchange or substitution for options to acquire the common stock
of the Company) held by Executive at the time of such election, multiplied by
the Successor Security Put Price; plus (iii) the number of shares of common
stock of the Company which were acquired pursuant to options granted by the
Company which were exercised, or which were discharged and satisfied by the
payment to Executive of cash or other property (other than Successor
Securities), subsequent to the first public announcement of the transaction or
event which led to the change in control, multiplied by the respective per share
exercise prices of such exercised or discharged options; plus (iv) all or any
portion of the number of shares of common stock of the Company held by Executive
at the time of such election, multiplied by the Conseco Put Price; plus (v) all
or any portion of the number of Successor Securities held by Executive at the
time of such election, multiplied by the Successor Security Put Price; plus (vi)
to the extent that any of Executive's deferred compensation units were not
satisfied in cash in connection with the change in control and were instead
payable in shares of common stock of the Company or Successor Securities, all or
any portion of the number of units held by Executive at the time of such
election, multiplied by the Conseco Put Price of the common stock of the Company
or the Successor Security Put Price of the Successor Securities, as the case may
be. For purposes of calculating the above lump sum payment, the options
described in clauses (i) and (ii) shall include all such options, whether or not
then exercisable, and, to compensate Executive for the loss of the potential
future speculative value of unexercised options, there shall not be any
deduction of the respective per share exercise prices for any of the options
described in such clauses (i) and (ii). The cash payment due from the Company
pursuant to this Section 14 shall be made to Executive within ten (10) days
after the date of such
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election hereunder, against the execution and delivery by Executive to the
Company of an appropriate agreement confirming the surrender to the Company of
the options and deferred compensation units and the certificates representing
the common stock of the Company or Successor Securities, in each case in respect
of which the lump sum cash payment is being made to Executive.
"Successor Securities" means any securities of any person
received by the holders of the common stock of the Company in exchange,
substitution or payment for, or upon conversion of, the common stock of the
Company in connection with a change in control.
"Conseco Put Price" means the greater of (i) the Change in
Control Price or (ii) the Current Market Price of the common stock of the
Company.
"Successor Security Put Price" means the greater of (i) the
Change in Control Price divided by the Exchange Ratio or (ii) the Current Market
Price of the Successor Securities.
"Current Market Price" for any security means the average of
the daily Prices per security for the twenty (20) consecutive trading days
ending on the trading day which is immediately prior to Executive's election
under this Section 14.
"Price" for any security means the average of the highest and
lowest sales price of such security (regular way) on a trading day as shown on
the Composite Tape of the New York Stock Exchange (or, if such security is not
listed or admitted to trading on the New York Stock Exchange, on the principal
national securities exchange on which such security is listed or admitted to
trading) or, in case no sales take place on such day, the average of the closing
bid and asked prices on the New York Stock Exchange (or, if such security is not
listed or admitted to trading on the New York Stock Exchange, on the principal
national securities exchange on which such security is listed or admitted to
trading) or, if it is not listed or admitted to trading on any national
securities exchange, the average of the highest and lowest sales prices of such
security on such day as reported by the NASDAQ Stock Market, or in case no sales
take place on such day, the average of the closing bid and asked prices as
reported by NASDAQ, or if such security is not so reported, the average of the
closing bid and asked prices as furnished by any securities broker-dealer of
recognized national standing selected from time to time by the Company (or its
successor in interest) for that purpose.
"Change in Control Price" means (i) in the case of a change in
control which occurs solely as a result of a change in the composition of the
Board of Directors of the Company or which
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occurs in a transaction, or series of related transactions, in which the same
consideration is paid or delivered to all of the holders of common stock of the
Company (or, in the event of an election by holders of the common stock of the
Company of different forms of consideration, if the same election is offered to
all of the holders of common stock of the Company), the Price per share of the
common stock of the Company on the date on which the change in control occurs,
or if such date is not a trading day, then the trading day immediately prior to
such date, or (ii) in the case of a change in control effected through a series
of related transactions, or in a single transaction in which less than all of
the outstanding shares of common stock of the Company is acquired, the highest
price paid to the holders of common stock of the Company in the transaction or
series of related transactions whereby the change in control takes place. In
determining the highest price paid to the holders pursuant to clause (ii) of the
immediately preceding sentence, in the case of Successor Securities paid or
delivered to the holders of common stock of the Company in exchange, payment or
substitution for, or upon conversion of, the common stock of the Company, the
price paid to such holders shall be the Price of such security at the time or
times paid or delivered to such holders.
"Exchange Ratio" means, in connection with a change in
control, the number of Successor Securities to be paid or delivered to the
holders of common stock of the Company in exchange, payment or substitution for,
or upon conversion of, each share of such common stock.
15. Character of Termination Payments. The amounts payable to
Executive upon any termination of this Agreement shall be considered severance
pay in consideration of past services rendered on behalf of the Company and his
continued service from the date hereof to the date he becomes entitled to such
payments. Executive shall have no duty to mitigate his damages by seeking other
employment and, should Executive actually receive compensation from any such
other employment, the payments required hereunder shall not be reduced or offset
by any such other compensation.
16. Right of First Refusal to Purchase Stock. Executive agrees
that the Company shall have throughout the Basic Employment Period the right of
first refusal to purchase all or any portion of the shares of the Company's
common stock owned by him (the "Shares") at the following price:
(a) in the event of a bona fide offer for the Shares, or any
part thereof, received by Executive from any other person (a "Third
Party Offer"), the price to be paid by the Company shall be the price
set forth in such Third Party Offer; and
(b) in the event Executive desires to sell the Shares, or any
part thereof, in the public securities market, the price to be paid by
the Company shall be the last sale price quoted on the New York Stock
Exchange (or any other exchange or national market system upon which
price quotations for the Company's common stock are regularly
available) for the Company's common stock on the last business day
preceding the date on which Executive notifies the Company of such
desire.
In the event Executive shall receive a Third Party Offer which he
desires to accept, he shall deliver to the Company a written notification of the
terms thereof and the Company shall have a
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period of 48 hours after such delivery in which to notify Executive of its
desire to exercise its right of first refusal hereunder.
In the event Executive desires to sell any portion of the Shares in the
public market he shall deliver to the Company a written notification of the
amount of Shares he desires to sell, and the Company shall have a period of 24
hours after such delivery to notify Executive of its desire to exercise its
right of first refusal hereunder with respect to such amount of Shares.
Upon each exercise by the Company of its right of first refusal
hereunder, it shall make payment to Executive for the Shares in accordance with
standard practice in the securities brokerage industry. After each failure by
the Company to exercise its right of first refusal hereunder, Executive may
proceed to complete the sale of Shares pursuant to the Third Party Offer or in
the open market in accordance with his notification to the Company, but his
failure to complete such sale within two
weeks after his notification to the Company shall reinstate the Company's right
of first refusal with respect thereto and require a new notification to the
Company.
17. Arbitration of Disputes; Injunctive Relief.
(a) Except as provided in paragraph (b) below, any controversy
or claim arising out of or relating to this Agreement or the breach
thereof, shall be settled by binding arbitration in the City of
Indianapolis, Indiana, in accordance with the laws of the State of
Indiana by three arbitrators, one of whom shall be appointed by the
Company, one by Executive and the third of whom shall be appointed by
the first two arbitrators. If the first two arbitrators cannot agree on
the appointment of a third arbitrator, then the third arbitrator shall
be appointed by the Chief Judge of the United States District Court for
the Southern District of Indiana. The arbitration shall be conducted in
accordance with the rules of the American Arbitration Association,
except with respect to the selection of arbitrators which shall be as
provided in this Section. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. In
the event that it shall be necessary or desirable for Executive to
retain legal counsel and/or incur other costs and expenses in
connection with the enforcement of any and all of his rights under this
Agreement, the Company shall pay (or Executive shall be entitled to
recover from the Company, as the case may be) his reasonable attorneys'
fees and costs and expenses in connection with the enforcement of any
arbitration award in court, regardless of the final outcome, unless the
arbitrators shall determine that under the circumstances recovery by
Executive of all or a part of any such fees and costs and expenses
would be unjust.
(b) Executive acknowledges that a breach or threatened breach
by Executive of Sections 8 or 9 of this Agreement will give rise to
irreparable injury to the Company and that money damages will not be
adequate relief for such injury. Notwithstanding paragraph (a) above,
the Company and Executive agree that the Company may seek and obtain
injunctive relief, including, without limitation, temporary restraining
orders, preliminary injunctions and/or permanent injunctions, in a
court of proper jurisdiction to restrain or prohibit a breach or
threatened breach of Section 8 or 9 of this Agreement. Nothing herein
shall be construed
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as prohibiting the Company from pursuing any other remedies available
to the Company for such breach or threatened breach, including the
recovery of damages from Executive.
18. Notices. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and if sent by registered mail
to his residence, in the case of Executive, or to the business office of its
Chief Executive Officer, in the case of the Company.
19. Waiver of Breach and Severability. The waiver by either party
of a breach of any provision of this Agreement by the other party shall not
operate or be construed as a waiver of any subsequent breach by either party. In
the event any provision of this Agreement is found to be invalid or
unenforceable, it may be severed from the Agreement and the remaining provisions
of the Agreement shall continue to be binding and effective.
20. Entire Agreement. This instrument contains the entire
agreement of the parties and supersedes all prior agreements between them. This
agreement may not be changed orally, but only by an instrument in writing signed
by the party against whom enforcement of any waiver, change, modification,
extension or discharge is sought.
21. Binding Agreement and Governing Law; Assignment Limited.
This Agreement shall be binding upon and shall inure to the benefit of the
parties and their lawful successors in interest and shall be construed in
accordance with and governed by the laws of the State of Indiana. This Agreement
is personal to each of the parties hereto, and neither party may assign nor
delegate any of its rights or obligations hereunder without the prior written
consent of the other.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CONSECO, INC.
By: /s/ Stephen C. Hilbert
--------------------------
Stephen C. Hilbert
Chairman of the Board
"Company"
/s/ Rollin M. Dick
--------------------------
Rollin M. Dick
"Executive"
14
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of the 17th day of August,
1992, as amended and restated as of May 26, 1999, between CONSECO, INC., an
Indiana corporation (hereinafter called the "Company"), and Ngaire E. Cuneo
(hereinafter called "Executive").
RECITALS
WHEREAS, the services of Executive, her managerial and professional
experience, and her knowledge of the affairs of the Company are of great value
to the Company;
WHEREAS, the Company deems it to be essential for it to have the
benefit and advantage of the services of the Executive for an extended period;
and
WHEREAS, the Company and Executive are parties to an employment
agreement dated August 17, 1992, as amended on March 12, 1996 and May 14, 1998
(as so amended the "Existing Employment Agreement"), and the Company and
Executive desire to make certain modifications to the Existing Employment
Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, the parties agree the Existing Employment Agreement
be amended and restated in its entirety to be as follows:
1. Employment. The Company hereby employs Executive and Executive
hereby accepts employment upon the terms and conditions hereinafter set forth.
2. Term. The effective date of this Agreement shall be August 17,
1992. Subject to the provisions for termination as provided in Section 10
hereof, the term of this Agreement shall be the period beginning September 1,
1992 and ending December 31, 2001 (hereinafter called the "Basic Employment
Period").
3. Duties. Executive is engaged by the Company in an executive
capacity as its executive vice president of corporate development. Executive
shall report to the Chief Executive Officer regarding the performance of her
duties and shall be subject to the direction and control of the Board of
Directors of the Company (sometimes referred to herein as the "Board") and the
Chief Executive Officer. Executive's position with the Company shall initially
be Executive Vice President, and such other positions as may be determined from
time to time by the Board.
4. Extent of Services. Executive, subject to the direction and
control of the Chief Executive Officer and the Board, shall have the power and
authority commensurate with her executive status and necessary to perform her
duties hereunder. The Company agrees to provide to Executive such assistance and
work accommodations as are suitable to the character of her positions with the
Company and adequate for the performance of her duties. Executive shall devote
her entire employable time, attention and best efforts to the business of the
Company, and shall not, without
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the consent of the Company, during the term of this Agreement be actively
engaged in any other business activity, whether or not such business activity is
pursued for gain, profit or other pecuniary advantage; but this shall not be
construed as preventing Executive from investing her assets in such form or
manner as will not require any services on the part of Executive in the
operation of the affairs of the companies in which such investments are made.
For purposes of this Agreement, full-time employment shall be the normal work
week for individuals in comparable executive positions with the Company.
5. Compensation.
(a) As compensation for services hereunder rendered during the
term hereof, Executive shall receive a base salary ("Base Salary") of
Two Hundred Fifty Thousand Dollars ($250,000) per year payable in equal
installments in accordance with the Company's payroll procedure for its
salaried employees. Salary payments shall be subject to withholding of
taxes and other appropriate and customary amounts. Executive may
receive increases in her Base Salary from time to time, based upon her
performance in her executive and management capacity. The amounts of
any such salary increases shall be approved by the Board or the
Compensation Committee of the Board upon the recommendation of the
Chief Executive Officer.
(b) In addition to Base Salary, Executive may receive such
other bonuses or incentive compensation as the Compensation Committee
or the Board may approve from time to time, upon the recommendation of
the Chief Executive Officer.
6. Fringe Benefits.
(a) Executive shall be entitled to participate in such
existing employee benefit plans and insurance programs offered by the
Company, or which it may adopt form time to time, for its executive
management or supervisory personnel generally, in accordance with the
eligibility requirements for participation therein. Nothing herein
shall be construed so as to prevent the Company from modifying or
terminating any employee benefit plans or programs, or employee fringe
benefits, it may adopt from time to time.
(b) During the term of this Agreement, the Company shall pay
Executive a monthly automobile allowance in the amount of Six Hundred
Dollars ($600), and the Company shall pay directly or shall reimburse
Executive for the cost of fuel that she incurs in using her automobile.
(c) Executive shall be entitled to four (4) weeks vacation
with pay for each year during the term hereof.
(d) Executive may incur reasonable expenses for promoting the
Company's business, including expenses for entertainment, travel, and
similar items. The Company shall reimburse Executive for all such
reasonable expenses upon Executive's periodic presentation of an
itemized account of such expenditures.
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(e) The Company shall, upon periodic presentation of
satisfactory evidence and to a maximum of Ten Thousand Dollars
($10,000) per each year of this Agreement, reimburse Executive for
reasonable medical expenses incurred by Executive and her dependents
which are not otherwise covered by health insurance provided to
Executive under Section 6(a).
(f) During the term of this Agreement, the Company shall at
its expense maintain a term life insurance policy or policies on the
life of Executive in the face amount of Five Hundred Thousand Dollars
($500,000), payable to such beneficiaries as Executive may designate.
7. Disability. If Executive shall become physically or mentally
disabled during the term of this Agreement to the extent that her ability to
perform her duties and services hereunder is materially and adversely impaired,
her salary, bonus and other compensation provided herein shall continue while
she remains employed by the Company; provided, that if such disability (as
confirmed by competent medical evidence) continues for at least nine (9)
consecutive months, the Company may terminate Executive's employment hereunder
in which case the Company shall immediately pay Executive a lump sum payment
equal to one-quarter of the sum of her annual salary and bonus with respect to
the most recent fiscal year then ended and, provided further, that no such lump
sum payment shall be required if such disability arises primarily from: (a)
chronic depressive use of intoxicants, drugs or narcotics, or (b) intentionally
self-inflicted injury or intentionally self- induced sickness; or (c) a proven
unlawful act or enterprise on the part of Executive.
8. Disclosure of Information. Executive acknowledges that in and
as a result of her employment with the Company, she has been and will be making
use of, acquiring and/or adding to confidential information of the Company of a
special and unique nature and value. As a material inducement to the Company to
enter into this Agreement and to pay to Executive the compensation stated in
Section 5, as well as any additional benefits stated herein, Executive covenants
and agrees that she shall not, at any time during or following the term of her
employment, directly or indirectly, divulge or disclose for any purpose
whatsoever, any confidential information that has been obtained by or disclosed
to her as a result of her employment with the Company, except to the extent that
such confidential information (a) becomes a matter of public record or is
published in a newspaper, magazine or other periodical available to the general
public, other than as a result of any act or omission of Executive, (b) is
required to be disclosed by any law, regulation or order of any court or
regulatory commission, department or agency, provided that Executive gives
prompt notice of such requirement to the Company to enable the Company to seek
an appropriate protective order or confidential treatment, or (c) is necessary
to perform properly Executive's duties under this Agreement. Upon the
termination of this Agreement, Executive shall return all materials obtained
from or belonging to the Company which she may have in her possession or
control.
9. Covenants Against Competition and Solicitation. Executive
acknowledges that the services she is to render to the Company are of a special
and unusual character, with a unique value to the Company, the loss of which
cannot adequately be compensated by damages or an action at law. In view of the
unique value to the Company of the services of Executive for which the Company
has contracted hereunder, because of the confidential information to be obtained
by, or disclosed to, Executive as hereinabove set forth, and as a material
inducement to the Company to enter into this Agreement and to pay to Executive
the compensation stated in Section 5, as well as any additional benefits stated
herein, and other good and valuable consideration, Executive
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covenants and agrees that throughout the period Executive remains employed
hereunder and for one year thereafter, Executive shall not, directly or
indirectly, anywhere in the United States of America (i) render any services, as
an agent, independent contractor, consultant or otherwise, or become employed or
compensated by, any other corporation, person or entity engaged in the business
of selling or providing life, accident or health insurance products or services;
(ii) render any services, as an agent, independent contractor, consultant or
otherwise, or become employed or compensated by, any other corporation, person
or entity engaged in the business of selling or providing any lending or other
financial products or services that are competitive with the lending or other
financial products or services sold or provided by the Company or its
subsidiaries, (iii) in any manner compete with the Company or any of its
subsidiaries; (iv) solicit or attempt to convert to other insurance carriers,
finance companies or other corporations, persons or other entities providing
these same or similar products or services provided by the Company and its
subsidiaries, any customers or policyholders of the Company, or any of its
subsidiaries; or (v) solicit for employment or employ any employee of the
Company or any of its subsidiaries. The covenants of Executive in this Section 9
shall be void and unenforceable in the event of a Control Termination of this
Agreement as defined in Section 10 below. Should any particular covenant or
provision of this Section 9 be held unreasonable or contrary to public policy
for any reason, including, without limitation, the time period, geographical
area, or scope of activity covered by any restrictive covenant or provision, the
Company and Executive acknowledge and agree that such covenant or provision
shall automatically be deemed modified such that the contested covenant or
provision shall have the closest effect permitted by applicable law to the
original form and shall be given effect and enforced as so modified to whatever
extent would be reasonable and enforceable under applicable law.
10. Termination.
(a) Either the Company or Executive may terminate this
Agreement at any time for any reason upon written notice to the other.
This Agreement shall also terminate upon (i) the death of Executive or
(ii) termination by the Company pursuant to Section 7.
(b) In the event this Agreement is terminated by the Company
and such termination is not pursuant to the last sentence of (a) above
or for "just cause" as defined in (e) below and does not constitute a
Control Termination as defined in (d) below, Executive shall be
entitled to receive Executive's Base Salary, as determined pursuant to
Section 5(a) hereof, for the remainder of the Basic Employment Period
and all other unpaid amounts previously accrued or awarded pursuant to
any other provision of this Agreement.
(c) In the event this Agreement is terminated by the death of
Executive, is terminated by the Company for "just cause" as defined in
(e) below, or is terminated by Executive and such termination does not
constitute a Control Termination as defined in (d) below, Executive
shall be entitled to receive Executive's Base Salary as provided in
Section 5(a) accrued but unpaid as of the date of termination, and all
other unpaid amounts previously accrued or awarded pursuant to any
other provision of this Agreement.
(d) The term "Control Termination" as used herein shall mean
(A) termination of this Agreement by the Company in anticipation of or
not later than two years following a "change in control" of the Company
(as defined below), or (B) termination of this Agreement by
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Executive following "change in control" of the Company (as defined
below) upon the occurrence of any of the following events:
(i) a significant change in the nature or scope of
Executive's authorities or duties from those in existence
immediately prior to the change in control, a reduction in
Executive's total compensation from that in existence
immediately prior to the change in control, or a breach by the
Company of any other provision of this Agreement; or
(ii) the reasonable determination by Executive that,
as a result of a change in circumstances significantly
affecting her position, she is unable to exercise Executive's
authorities, powers, functions or duties in existence
immediately prior to the change in control, or
(iii) the Company's principal executive offices are
moved outside the geographic area comprised of Marion County,
Indiana, and the seven contiguous counties or Executive is
required to work at a location other than the Company's
principal executive offices; or
(iv) the giving of notice of termination by Executive
during the 6-month period commencing six (6) months after the
change in control.
The term "change in control" shall mean 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 Securities Exchange Act of 1934 (the "Act")
if such Item 6(e) were applicable to the Company as such Item is in effect on
May 26, 1999; provided that, without limitation,
(x) such a change in control shall be deemed to have occurred
if and when (A) except as provided in (y) below, any "person" (as such
term is used in Sections 13(d) and 14(d) of the Act) is or becomes a
"beneficial owner" (as such term is defined in Rule 13d-3 promulgated
under the Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's
then outstanding securities entitled to vote with respect to the
election of its Board of Directors or (B) as the result of a tender
offer, merger, consolidation, sale of assets, or contest for election
of directors, or any combination of the foregoing transactions or
events, individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Incumbent Board") cease to constitute at
least a majority of such Board; provided, however, that any individual
who becomes a director of the Company subsequent to the date hereof
whose election was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board, shall be deemed to have
been a member of the Incumbent Board; and provided further, that no
individual who was initially elected as a director of the Company as a
result of an actual or threatened election contest, as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Act, or any
other actual or threatened solicitation of proxies or consents by or on
behalf of any person other than the Board of Directors shall be deemed
to have been a member of the Incumbent Board, or (C) any
reorganization, merger
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or consolidation or the issuance of shares of common stock of the
Company in connection therewith unless immediately after any such
reorganization, merger or consolidation (i) more than 60% of the then
outstanding shares of common stock of the corporation surviving or
resulting from such reorganization, merger or consolidation and more
than 60% of the combined voting power of the then outstanding
securities of such corporation entitled to vote generally in the
election of directors are then beneficially owned, directly or
indirectly, by all or substantially all of the individuals or entities
who were the beneficial owners, respectively, of the outstanding shares
of common stock of the Company and the outstanding voting securities of
the Company immediately prior to such reorganization, merger or
consolidation and in substantially the same proportions relative to
each other as their ownership, immediately prior to such
reorganization, merger or consolidation, of the outstanding shares of
common stock of the Company and the outstanding voting securities of
the Company, as the case may be, and (ii) at least a majority of the
members of the board of directors of the corporation surviving or
resulting from such reorganization, merger or consolidation were
members of the Board of Directors of the Company at the time of the
execution of the initial agreement or action of the Board of Directors
providing for such reorganization, merger or consolidation or issuance
of shares of common stock of the Company, and
(y) no change of control shall be deemed to have occurred if
and when any such person becomes, with the approval of the Board of
Directors of the Company, the beneficial owner of securities of the
Company representing 25% or more but less than 50% of the combined
voting power of the Company's then outstanding securities entitled to
vote with respect to the election of its Board of Directors and in
connection therewith represents, and at all times continues to
represent, in a filing, as amended, with the Securities and Exchange
Commission on Schedule 13D or Schedule 13G (or any successor Schedule
thereto) that "such person has acquired such securities for investment
and not with the purpose nor with the effect of changing or influencing
the control of the Company, nor in connection with or as a participant
in any transaction having such purpose or effect", or words of
comparable meaning and import. The designation by any such person, with
the approval of the Board of Directors of the Company, of a single
individual to serve as a member of, or observer at meetings of, the
Company's Board of Directors, shall not be considered "changing or
influencing the control of the Company" within the meaning of the
immediately preceding clause (B), so long as such individual does not
constitute at any time more than one-third of the total number of
directors serving on such Board.
Upon the occurrence of a change in control, the Company shall promptly notify
Executive in writing of the occurrence of such event (such notice, the "Change
in Control Notice"). If the Change in Control Notice is not given within 10 days
after the occurrence of a change in control the period specified in clause
(d)(A) of this Section 10 shall be extended until the second anniversary of the
date such Change in Control Notice is given.
(e) For purposes of this Agreement "just cause" shall mean:
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(i) a material breach by Executive of this Agreement,
the commission of gross negligence, or willful malfeasance or
fraud or dishonesty of a substantial nature in performing
Executive's services on behalf of the Company, which is in
each case (A) willful and deliberate on Executive's part and
committed in bad faith or without reasonable belief that such
breach is in the best interests of the Company and (B) not
remedied by Executive in a reasonable period of time after
receipt of written notice from the Company specifying such
breach;
(ii) Executive's breach of any provisions of this
Agreement, or her use of alcohol or drugs which interferes
with the performance of her duties hereunder or which
compromises the integrity and reputation of the Company, its
employees, and products;
(iii) Executive's conviction by a court of law, or
admission that she is guilty, of a felony or other crime
involving moral turpitude; or
(iv) Executive's absence from her employment other
than as a result of Section 7 hereof, for whatever cause, for
a period of more than one (1) month, without prior written
consent from the Company.
11. Payments for Control Termination. In the event of a Control
Termination of this Agreement, the Company shall pay Executive and provide her
with the following:
(a) During the remainder of the Basic Employment Period, the
Company shall continue to pay Executive her Base Salary at the same
rate as payable immediately prior to the date of termination plus the
estimated amount of any bonuses to which she would have been entitled
had she remained in the employ of the Company and a change in control
of the Company had not occurred, which estimate shall be reasonable and
made by the Company in good faith.
(b) During the remainder of the Basic Employment Period,
Executive shall continue to be treated as an employee under the
provisions of all incentive compensation arrangements applicable to the
Company's executive employees. In addition, Executive shall continue to
be entitled to all benefits and service credits for benefits under
medical, insurance and other employee benefit plans, programs and
arrangements of the Company as if she were still employed under this
Agreement and a change in control of the Company had not occurred.
(c) If, despite the provisions of paragraph (b) above,
benefits under any employee benefit plan shall not be payable or
provided under any such plan to Executive, or Executive's dependents,
beneficiaries and estate, because she is no longer an employee of the
Company, the Company itself shall, to the extent necessary to provide
the full value of such benefits and service credits to Executive,
Executive's dependents, beneficiaries and estate, pay or provide for
payment of such benefits and service credits for such benefits to
Executive, her dependents, beneficiaries and estate.
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(d) If, despite the provisions of paragraph (b) above,
benefits or the right to accrue further benefits under any stock option
or other incentive compensation arrangement shall not be provided under
any such arrangement to Executive, or her dependents, beneficiaries and
estate, because she is no longer an employee of the Company, the
Company shall, to the extent necessary, pay or provide for payment of
such benefits to Executive, her dependents, beneficiaries and estate.
12. Severance Allowance. In the event of a Control Termination of
this Agreement, Executive may elect, within 60 days after such Control
Termination, to be paid a lump sum severance allowance, in lieu of the
termination payments provided for in Section 11 above, in an amount which is
equal to the sum of the amounts determined in accordance with the following
clauses (a) and (b):
(a) an amount equal to the aggregate salary payments for 60
calendar months at the rate of Base Salary which she would have been
entitled to receive in accordance with Section 5(a); and
(b) an amount equal to the aggregate of 60 calendar months of
bonus at the greater of (i) the monthly rate of the bonus payment for
the annual bonus period immediately prior to this termination date, or
(ii) the monthly rate of the estimated amount of the bonus for the
annual bonus period which includes her termination date.
In the event that Executive makes an election pursuant to this Section
to receive a lump sum severance allowance of the amount described in clauses (a)
and (b), then, in addition to such amount, she shall receive (i) in addition to
the benefits provided under any deferred compensation, retirement or pension
benefit plan maintained by the Company, the benefits she would have accrued
under such benefit plan if she had remained in the employ of the Company and
such plan had remained in effect for 60 calendar months after her termination,
which benefits will be paid concurrently with, and in addition to, the benefits
provided under such benefit plan, and (ii) the employee benefits (including, but
not limited to, coverage under any medical insurance and life insurance
arrangements or programs) to which she would have been entitled under all
employee benefit plans, programs or arrangements maintained by the Company if
she had remained in the employ of the Company and such plans, programs or
arrangements had remained in effect for 60 calendar months after her
termination; or the value of the amounts described in clauses (i) and (ii) next
preceding. The amount of the payments described in the preceding sentence shall
be determined and such payments shall be distributed as soon as it is reasonably
possible.
13. Tax Indemnity Payments. (a) Anything in this Agreement to
the contrary notwithstanding, in the event it shall be determined that any
payment or distribution by the Company or its affiliated companies to or for the
benefit of Executive, whether paid or payable or distributed or distributable
pursuant to the terms of the Agreement or otherwise but determined without
regard to any additional payments required under this Section 13 (a "Payment"),
would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986 (as amended the "Code"), or any successor provision
(collectively, "Section 4999"), or any interest or penalties are incurred by
Executive with respect to such excise tax (such excise tax, together with any
such interest and
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penalties, are hereinafter collectively referred to as the "Excise Tax"), then
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any Federal, state or local income and employment
taxes and Excise Tax (and any interest and penalties imposed with respect to any
such taxes) imposed upon the Gross-Up Payment, Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 13(c), all determinations
required to be made under this Section 13, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by the Company's
public accounting firm (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and Executive within fifteen (15)
business days of the receipt of notice from Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, Executive may appoint another
nationally recognized public accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 13, shall be paid by the Company to Executive within five (5) days of
the receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by Executive, it shall furnish
Executive with a written opinion that failure to report the Excise Tax on
Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and Executive. As a result of
the uncertainty in the application of Section 4999 at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made by
the Company ("Underpayment"), consistent with the calculations required to be
made hereunder. In the event that the Company exhausts its remedies pursuant to
Section 13(c) and Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of Executive.
(c) Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require a payment by the
Company of, or a change in the amount of the payment by the Company of, the
Gross-Up Payment. Such notification shall be given as soon as practicable after
Executive is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid; provided that the failure to give any notice pursuant to this Section
13(c) shall not impair Executive's rights under this Section 13 except to the
extent the Company is materially prejudiced thereby. Executive shall not pay
such claim prior to the expiration of the 30-day period following the date on
which Executive gives such notice to the Company (or such shorter period ending
on the date that any payment of taxes with respect to such claim is due). If the
Company notifies Executive in writing prior to the expiration of such period
that it desires to contest such claim, Executive shall:
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(1) give the Company any information reasonably requested by
the Company relating to such claim,
(2) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(3) cooperate with the Company in good faith in order
effectively to contest such claim,
(4) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Executive harmless, on an
after-tax basis, for any Excise Tax or income, employment or other tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 13(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct Executive to pay the tax claimed and sue for a refund
or contest the claim in any permissible manner, and Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided further, that if the Company directs Executive
to pay such claim and sue for a refund, the Company shall advance the amount of
such payment to Executive on an interest-free basis and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income,
employment or other tax (including interest or penalties with respect to any
such taxes) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and provided further, that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and Executive shall be entitled to settle or contest,
as the case may be, any other issue raised by the Internal Revenue Service or
any other taxing authority.
(d) If, after the receipt by Executive of an amount advanced by the
Company pursuant to Section 13(c), Executive becomes entitled to receive, and
receives, any refund with respect to such claim, Executive shall (subject to the
Company's complying with the requirements of Section 12(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by Executive of
an amount advanced by the Company pursuant to Section 13(c), a determination is
made that Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify Executive in writing of its intent to
contest such denial of refund prior to the expiration of thirty (30) days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the
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amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
14. Payment for Options and Stock. In the event of a Control
Termination of this Agreement, Executive may also elect, within sixty (60) days
after such Control Termination, to receive (in addition to any other amounts
owed to Executive under this Agreement) a lump sum payment in cash equal to the
sum of the following: (i) all or any portion of the number of shares of common
stock of the Company which may be acquired pursuant to options granted by the
Company and held by Executive at the time of such election, multiplied by the
Conseco Put Price; plus (ii) all or any portion of the number of Successor
Securities which may be acquired pursuant to options (which options were granted
to Executive in exchange or substitution for options to acquire the common stock
of the Company) held by Executive at the time of such election, multiplied by
the Successor Security Put Price; plus (iii) the number of shares of common
stock of the Company which were acquired pursuant to options granted by the
Company which were exercised, or which were discharged and satisfied by the
payment to Executive of cash or other property (other than Successor
Securities), subsequent to the first public announcement of the transaction or
event which led to the change in control, multiplied by the respective per share
exercise prices of such exercised or discharged options; plus (iv) all or any
portion of the number of shares of common stock of the Company held by Executive
at the time of such election, multiplied by the Conseco Put Price; plus (v) all
or any portion of the number of Successor Securities held by Executive at the
time of such election, multiplied by the Successor Security Put Price; plus (vi)
to the extent that any of Executive's deferred compensation units were not
satisfied in cash in connection with the change in control and were instead
payable in shares of common stock of the Company or Successor Securities, all or
any portion of the number of units held by Executive at the time of such
election, multiplied by the Conseco Put Price of the common stock of the Company
or the Successor Security Put Price of the Successor Securities, as the case may
be. For purposes of calculating the above lump sum payment, the options
described in clauses (i) and (ii) shall include all such options, whether or not
then exercisable, and, to compensate Executive for the loss of the potential
future speculative value of unexercised options, there shall not be any
deduction of the respective per share exercise prices for any of the options
described in such clauses (i) and (ii). The cash payment due from the Company
pursuant to this Section 14 shall be made to Executive within ten (10) days
after the date of such election hereunder, against the execution and delivery by
Executive to the Company of an appropriate agreement confirming the surrender to
the Company of the options and deferred compensation units and the certificates
representing the common stock of the Company or Successor Securities, in each
case in respect of which the lump sum cash payment is being made to Executive.
"Successor Securities" means any securities of any person
received by the holders of the common stock of the Company in exchange,
substitution or payment for, or upon conversion of, the common stock of the
Company in connection with a change in control.
"Conseco Put Price" means the greater of (i) the Change in
Control Price or (ii) the Current Market Price of the common stock of the
Company.
"Successor Security Put Price" means the greater of (i) the
Change in Control Price divided by the Exchange Ratio or (ii) the Current Market
Price of the Successor Securities.
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"Current Market Price" for any security means the average of
the daily Prices per security for the twenty (20) consecutive trading days
ending on the trading day which is immediately prior to Executive's election
under this Section 14.
"Price" for any security means the average of the highest and
lowest sales price of such security (regular way) on a trading day as shown on
the Composite Tape of the New York Stock Exchange (or, if such security is not
listed or admitted to trading on the New York Stock Exchange, on the principal
national securities exchange on which such security is listed or admitted to
trading) or, in case no sales take place on such day, the average of the closing
bid and asked prices on the New York Stock Exchange (or, if such security is not
listed or admitted to trading on the New York Stock Exchange, on the principal
national securities exchange on which such security is listed or admitted to
trading) or, if it is not listed or admitted to trading on any national
securities exchange, the average of the highest and lowest sales prices of such
security on such day as reported by the NASDAQ Stock Market, or in case no sales
take place on such day, the average of the closing bid and asked prices as
reported by NASDAQ, or if such security is not so reported, the average of the
closing bid and asked prices as furnished by any securities broker-dealer of
recognized national standing selected from time to time by the Company (or its
successor in interest) for that purpose.
"Change in Control Price" means (i) in the case of a change in
control which occurs solely as a result of a change in the composition of the
Board of Directors of the Company or which occurs in a transaction, or series of
related transactions, in which the same consideration is paid or delivered to
all of the holders of common stock of the Company (or, in the event of an
election by holders of the common stock of the Company of different forms of
consideration, if the same election is offered to all of the holders of common
stock of the Company), the Price per share of the common stock of the Company on
the date on which the change in control occurs, or if such date is not a trading
day, then the trading day immediately prior to such date, or (ii) in the case of
a change in control effected through a series of related transactions, or in a
single transaction in which less than all of the outstanding shares of common
stock of the Company is acquired, the highest price paid to the holders of
common stock of the Company in the transaction or series of related transactions
whereby the change in control takes place. In determining the highest price paid
to the holders pursuant to clause (ii) of the immediately preceding sentence, in
the case of Successor Securities paid or delivered to the holders of common
stock of the Company in exchange, payment or substitution for, or upon
conversion of, the common stock of the Company, the price paid to such holders
shall be the Price of such security at the time or times paid or delivered to
such holders.
"Exchange Ratio" means, in connection with a change in
control, the number of Successor Securities to be paid or delivered to the
holders of common stock of the Company in exchange, payment or substitution for,
or upon conversion of, each share of such common stock.
15. Character of Termination Payments. The amounts payable to
Executive upon any termination of this Agreement shall be considered severance
pay in consideration of past services rendered on behalf of the Company and her
continued service from the date hereof to the date she becomes entitled to such
payments. Executive shall have no duty to mitigate her damages by seeking other
employment and, should Executive actually receive compensation from any such
other employment, the payments required hereunder shall not be reduced or offset
by any such other compensation.
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16. Right of First Refusal to Purchase Stock. Executive agrees
that the Company shall have throughout the Basic Employment Period the right of
first refusal to purchase all or any portion of the shares of the Company's
common stock owned by her (the "Shares") at the following price:
(a) in the event of a bona fide offer for the Shares, or any
part thereof, received by Executive from any other person (a "Third
Party Offer"), the price to be paid by the Company shall be the price
set forth in such Third Party Offer; and
(b) in the event Executive desires to sell the Shares, or any
part thereof, in the public securities market, the price to be paid by
the Company shall be the last sale price quoted on the New York Stock
Exchange (or any other exchange or national market system upon which
price quotations for the Company's common stock are regularly
available) for the Company's common stock on the last business day
preceding the date on which Executive notifies the Company of such
desire.
In the event Executive shall receive a Third Party Offer which she
desires to accept, she shall deliver to the Company a written notification of
the terms thereof and the Company shall have a period of 48 hours after such
delivery in which to notify Executive of its desire to exercise its right of
first refusal hereunder.
In the event Executive desires to sell any portion of the Shares in the
public market she shall deliver to the Company a written notification of the
amount of Shares she desires to sell, and the Company shall have a period of 24
hours after such delivery to notify Executive of its desire to exercise its
right of first refusal hereunder with respect to such amount of Shares.
Upon each exercise by the Company of its right of first refusal
hereunder, it shall make payment to Executive for the Shares in accordance with
standard practice in the securities brokerage industry. After each failure by
the Company to exercise its right of first refusal hereunder, Executive may
proceed to complete the sale of Shares pursuant to the Third Party Offer or in
the open market in accordance with her notification to the Company, but her
failure to complete such sale within two weeks after her notification to the
Company shall reinstate the Company's right of first refusal with respect
thereto and require a new notification to the Company.
17. Arbitration of Disputes; Injunctive Relief.
(a) Except as provided in paragraph (b) below, any controversy
or claim arising out of or relating to this Agreement or the breach
thereof, shall be settled by binding arbitration in the City of
Indianapolis, Indiana, in accordance with the laws of the State of
Indiana by three arbitrators, one of whom shall be appointed by the
Company, one by Executive and the third of whom shall be appointed by
the first two arbitrators. If the first two arbitrators cannot agree on
the appointment of a third arbitrator, then the third arbitrator shall
be appointed by the Chief Judge of the United States District Court for
the Southern District of Indiana. The arbitration shall be conducted in
accordance with the rules of the American Arbitration Association,
except with respect to the selection of arbitrators which shall be as
provided in this Section. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. In
the event that it shall be necessary or desirable for Executive to
retain legal counsel and/or incur other costs and expenses in
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connection with the enforcement of any and all of her rights under this
Agreement, the Company shall pay (or Executive shall be entitled to
recover from the Company, as the case may be) her reasonable attorneys'
fees and costs and expenses in connection with the enforcement of any
arbitration award in court, regardless of the final outcome, unless the
arbitrators shall determine that under the circumstances recovery by
Executive of all or a part of any such fees and costs and expenses
would be unjust.
(b) Executive acknowledges that a breach or threatened breach
by Executive of Sections 8 or 9 of this Agreement will give rise to
irreparable injury to the Company and that money damages will not be
adequate relief for such injury. Notwithstanding paragraph (a) above,
the Company and Executive agree that the Company may seek and obtain
injunctive relief, including, without limitation, temporary restraining
orders, preliminary injunctions and/or permanent injunctions, in a
court of proper jurisdiction to restrain or prohibit a breach or
threatened breach of Section 8 or 9 of this Agreement. Nothing herein
shall be construed as prohibiting the Company from pursuing any other
remedies available to the Company for such breach or threatened breach,
including the recovery of damages from Executive.
18. Notices. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and if sent by registered mail
to her residence, in the case of Executive, or to the business office of its
Chief Executive Officer, in the case of the Company.
19. Waiver of Breach and Severability. The waiver by either party
of a breach of any provision of this Agreement by the other party shall not
operate or be construed as a waiver of any subsequent breach by either party. In
the event any provision of this Agreement is found to be invalid or
unenforceable, it may be severed from the Agreement and the remaining provisions
of the Agreement shall continue to be binding and effective.
20. Entire Agreement. This instrument contains the entire
agreement of the parties and supersedes all prior agreements between them. This
agreement may not be changed orally, but only by an instrument in writing signed
by the party against whom enforcement of any waiver, change, modification,
extension or discharge is sought.
21. Binding Agreement and Governing Law; Assignment Limited.
This Agreement shall be binding upon and shall inure to the benefit of the
parties and their lawful successors in interest and shall be construed in
accordance with and governed by the laws of the State of Indiana. This Agreement
is personal to each of the parties hereto, and neither party may assign nor
delegate any of its rights or obligations hereunder without the prior written
consent of the other.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CONSECO, INC.
By: /s/ Stephen C. Hilbert
----------------------
Stephen C. Hilbert
Chairman of the Board
"Company"
/s/ Ngaire E. Cuneo
----------------------
Ngaire E. Cuneo
"Executive"
15
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of the 8th day of September,
1997, as amended and restated as of May 26, 1999, between CONSECO, INC., an
Indiana corporation (hereinafter called the "Company"), and John J. Sabl
(hereinafter called "Executive").
RECITALS
WHEREAS, the services of Executive, his managerial and professional
experience, and his knowledge of the affairs of the Company are of great value
to the Company;
WHEREAS, the Company deems it to be essential for it to have the
benefit and advantage of the services of the Executive for an extended period;
and
WHEREAS, the Company and Executive are parties to an employment
agreement dated as of September 8, 1997, as amended on May 14, 1998 (as so
amended, the "Existing Employment Agreement") and the Company and Executive
desire to make certain modifications to the Existing Employment Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, the parties agree the Existing Employment Agreement
be amended and restated in its entirety to be as follows:
1. Employment. The Company hereby employs Executive and
Executive hereby accepts employment upon the terms and conditions hereinafter
set forth.
2. Term. The effective date of this Agreement shall be
September 8, 1997. Subject to the provisions for termination as provided in
Section 10 hereof, the term of this Agreement shall be the period beginning
September 8, 1997, and ending December 31, 2002 (hereinafter called the "Basic
Employment Period").
3. Duties. Executive is engaged by the Company in an executive
capacity as its chief legal officer. Executive shall report to the Chief
Executive Officer regarding the performance of his duties and shall be subject
to the direction and control of the Board of Directors of the Company (sometimes
referred to herein as the "Board") and the Chief Executive Officer. Executive's
position with the Company shall be Executive Vice President, General Counsel and
Secretary, and such other positions as may be determined from time to time by
the Board.
4. Extent of Services. Executive, subject to the direction and
control of the Chief Executive Officer and the Board, shall have the power and
authority commensurate with his executive status and necessary to perform his
duties hereunder. The Company agrees to provide to Executive such assistance and
work accommodations as are suitable to the character of his positions with the
Company and adequate for the performance of his duties. Executive shall devote
his entire employable time, attention and best efforts to the business of the
Company, and shall not, without
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the consent of the Company, during the term of this Agreement be actively
engaged in any other business activity, whether or not such business activity is
pursued for gain, profit or other pecuniary advantage; but this shall not be
construed as preventing Executive from investing his assets in such form or
manner as will not require any services on the part of Executive in the
operation of the affairs of the companies in which such investments are made.
For purposes of this Agreement, full-time employment shall be the normal work
week for individuals in comparable executive positions with the Company.
5. Compensation.
(a) As compensation for services hereunder rendered during the
term hereof, Executive shall receive a base salary ("Base Salary") of
One Million Dollars ($1,000,000) per year payable in equal installments
in accordance with the Company's payroll procedure for its salaried
employees. Salary payments shall be subject to withholding of taxes and
other appropriate and customary amounts. Executive may receive
increases in his Base Salary from time to time, based upon his
performance in his executive and management capacity. The amounts of
any such salary increases shall be approved by the Board or the
Compensation Committee of the Board upon the recommendation of the
Chief Executive Officer.
(b) In addition to Base Salary, Executive may receive such
other bonuses or incentive compensation as the Compensation Committee
or the Board may approve from time to time, upon the recommendation of
the Chief Executive Officer; provided, that Executive shall receive a
cash bonus of at least Seven Hundred Fifty Thousand Dollars ($750,000)
for each calendar year (or a pro rata portion thereof, based on the
portion of the year worked, for any part of a calendar year worked).
6. Fringe Benefits.
(a) Executive shall be entitled to participate in such
existing employee benefit plans and insurance programs offered by the
Company, or which it may adopt form time to time, for its executive
management or supervisory personnel generally, in accordance with the
eligibility requirements for participation therein. Nothing herein
shall be construed so as to prevent the Company from modifying or
terminating any employee benefit plans or programs, or employee fringe
benefits, it may adopt from time to time.
(b) During the term of this Agreement, the Company shall pay
Executive a monthly automobile allowance in the amount of Six Hundred
Dollars ($600), and the Company shall pay directly or shall reimburse
Executive for the cost of fuel that he incurs in using his automobile.
(c) Executive shall be entitled to four (4) weeks vacation
with pay for each year during the term hereof.
(d) Executive may incur reasonable expenses for promoting the
Company's business, including expenses for entertainment, travel, and
similar items. The Company shall reimburse Executive for all such
reasonable expenses upon Executive's periodic presentation of an
itemized account of such expenditures.
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(e) The Company shall, upon periodic presentation of
satisfactory evidence and to a maximum of Ten Thousand Dollars
($10,000) per each year of this Agreement, reimburse Executive for
reasonable medical expenses incurred by Executive and his dependents
which are not otherwise covered by health insurance provided to
Executive under Section 6(a).
(f) During the term of this Agreement, the Company shall at
its expense maintain a term life insurance policy or policies on the
life of Executive in the face amount of Five Hundred Thousand Dollars
($500,000), payable to such beneficiaries as Executive may designate.
7. Disability. If Executive shall become physically or mentally
disabled during the term of this Agreement to the extent that his ability to
perform his duties and services hereunder is materially and adversely impaired,
his salary, bonus and other compensation provided herein shall continue while he
remains employed by the Company; provided, that if such disability (as confirmed
by competent medical evidence) continues for at least nine (9) consecutive
months, the Company may terminate Executive's employment hereunder in which case
the Company shall immediately pay Executive a lump sum payment equal to
one-quarter of the sum of his annual salary and bonus with respect to the most
recent fiscal year then ended and, provided further, that no such lump sum
payment shall be required if such disability arises primarily from: (a) chronic
depressive use of intoxicants, drugs or narcotics, or (b) intentionally
self-inflicted injury or intentionally self-induced sickness; or (c) a proven
unlawful act or enterprise on the part of Executive.
8. Disclosure of Information. Executive acknowledges that in and
as a result of his employment with the Company, he has been and will be making
use of, acquiring and/or adding to confidential information of the Company of a
special and unique nature and value. As a material inducement to the Company to
enter into this Agreement and to pay to Executive the compensation stated in
Section 5, as well as any additional benefits stated herein, Executive covenants
and agrees that he shall not, at any time during or following the term of his
employment, directly or indirectly, divulge or disclose for any purpose
whatsoever, any confidential information that has been obtained by or disclosed
to him as a result of his employment with the Company, except to the extent that
such confidential information (a) becomes a matter of public record or is
published in a newspaper, magazine or other periodical available to the general
public, other than as a result of any act or omission of Executive, (b) is
required to be disclosed by any law, regulation or order of any court or
regulatory commission, department or agency, provided that Executive gives
prompt notice of such requirement to the Company to enable the Company to seek
an appropriate protective order or confidential treatment, or (c) is necessary
to perform properly Executive's duties under this Agreement. Upon the
termination of this Agreement, Executive shall return all materials obtained
from or belonging to the Company which he may have in his possession or control.
9. Covenants Against Competition and Solicitation. Executive
acknowledges that the services he is to render to the Company are of a special
and unusual character, with a unique value to the Company, the loss of which
cannot adequately be compensated by damages or an action at law. In view of the
unique value to the Company of the services of Executive for which the Company
has contracted hereunder, because of the confidential information to be obtained
by, or disclosed to, Executive as hereinabove set forth, and as a material
inducement to the Company to
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enter into this Agreement and to pay to Executive the compensation stated in
Section 5, as well as any additional benefits stated herein, and other good and
valuable consideration, Executive covenants and agrees that throughout the
period Executive remains employed hereunder and for one year thereafter,
Executive shall not, directly or indirectly, anywhere in the United States of
America (i) render any services, as an agent, independent contractor, consultant
or otherwise, or become employed or compensated by, any other corporation,
person or entity engaged in the business of selling or providing life, accident
or health insurance products or services; (ii) render any services, as an agent,
independent contractor, consultant or otherwise, or become employed or
compensated by, any other corporation, person or entity engaged in the business
of selling or providing any lending or other financial products or services that
are competitive with the lending or other financial products or services sold or
provided by the Company or its subsidiaries, (iii) in any manner compete with
the Company or any of its subsidiaries; (iv) solicit or attempt to convert to
other insurance carriers, finance companies or other corporations, persons or
other entities providing these same or similar products or services provided by
the Company and its subsidiaries, any customers or policyholders of the Company,
or any of its subsidiaries; or (v) solicit for employment or employ any employee
of the Company or any of its subsidiaries. The covenants of Executive in this
Section 9 shall be void and unenforceable in the event of a Control Termination
of this Agreement as defined in Section 10 below. Should any particular covenant
or provision of this Section 9 be held unreasonable or contrary to public policy
for any reason, including, without limitation, the time period, geographical
area, or scope of activity covered by any restrictive covenant or provision, the
Company and Executive acknowledge and agree that such covenant or provision
shall automatically be deemed modified such that the contested covenant or
provision shall have the closest effect permitted by applicable law to the
original form and shall be given effect and enforced as so modified to whatever
extent would be reasonable and enforceable under applicable law.
10. Termination.
(a) Either the Company or Executive may terminate this
Agreement at any time for any reason upon written notice to the other.
This Agreement shall also terminate upon (i) the death of Executive or
(ii) termination by the Company pursuant to Section 7.
(b) In the event this Agreement is terminated by the Company
and such termination is not pursuant to the last sentence of (a) above
or for "just cause" as defined in (e) below and does not constitute a
Control Termination as defined in (d) below, Executive shall be
entitled to receive Executive's Base Salary, as determined pursuant to
Section 5(a) hereof, for the remainder of the Basic Employment Period
and all other unpaid amounts previously accrued or awarded pursuant to
any other provision of this Agreement.
(c) In the event this Agreement is terminated by the death of
Executive, is terminated by the Company for "just cause" as defined in
(e) below, or is terminated by Executive and such termination does not
constitute a Control Termination as defined in (d) below, Executive
shall be entitled to receive Executive's Base Salary as provided in
Section 5(a) accrued but unpaid as of the date of termination, and all
other unpaid amounts previously accrued or awarded pursuant to any
other provision of this Agreement.
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(d) The term "Control Termination" as used herein shall mean
(A) termination of this Agreement by the Company in anticipation of or
not later than two years following a "change in control" of the Company
(as defined below), or (B) termination of this Agreement by Executive
following "change in control" of the Company (as defined below) upon
the occurrence of any of the following events:
(i) a significant change in the nature or scope of
Executive's authorities or duties from those in existence
immediately prior to the change in control, a reduction in his
total compensation from that in existence immediately prior to
the change in control or a breach by the Company of any other
provision of this Agreement; or
(ii) the reasonable determination by Executive that,
as a result of a change in circumstances significantly
affecting his position, he is unable to exercise Executive's
authorities, powers, functions or duties in existence
immediately prior to the change in control, or
(iii) the Company's principal executive offices are
moved outside the geographic area comprised of Marion County,
Indiana, and the seven contiguous counties or Executive is
required to work at a location other than the Company's
principal executive offices; or
(iv) the giving of notice of termination by Executive
during the 6-month period commencing six (6) months after the
change in control.
The term "change in control" shall mean 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 Securities Exchange Act of 1934 (the "Act")
if such Item 6(e) were applicable to the Company as such Item is in effect on
May 26, 1999; provided that, without limitation,
(x) such a change in control shall be deemed to have occurred
if and when (A) except as provided in (y) below, any "person" (as such
term is used in Sections 13(d) and 14(d) of the Act) is or becomes a
"beneficial owner" (as such term is defined in Rule 13d-3 promulgated
under the Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's
then outstanding securities entitled to vote with respect to the
election of its Board of Directors or (B) as the result of a tender
offer, merger, consolidation, sale of assets, or contest for election
of directors, or any combination of the foregoing transactions or
events, individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Incumbent Board") cease to constitute at
least a majority of such Board; provided, however, that any individual
who becomes a director of the Company subsequent to the date hereof
whose election was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board, shall be deemed to have
been a member of the Incumbent Board; and provided further, that no
individual who was initially elected as a director of the Company as a
result of an actual or threatened election contest, as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Act, or any
other actual or threatened solicitation of
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proxies or consents by or on behalf of any person other than the Board
of Directors shall be deemed to have been a member of the Incumbent
Board, or (C) any reorganization, merger or consolidation or the
issuance of shares of common stock of the Company in connection
therewith unless immediately after any such reorganization, merger or
consolidation (i) more than 60% of the then outstanding shares of
common stock of the corporation surviving or resulting from such
reorganization, merger or consolidation and more than 60% of the
combined voting power of the then outstanding securities of such
corporation entitled to vote generally in the election of directors are
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals or entities who were the
beneficial owners, respectively, of the outstanding shares of common
stock of the Company and the outstanding voting securities of the
Company immediately prior to such reorganization, merger or
consolidation and in substantially the same proportions relative to
each other as their ownership, immediately prior to such
reorganization, merger or consolidation, of the outstanding shares of
common stock of the Company and the outstanding voting securities of
the Company, as the case may be, and (ii) at least a majority of the
members of the board of directors of the corporation surviving or
resulting from such reorganization, merger or consolidation were
members of the Board of Directors of the Company at the time of the
execution of the initial agreement or action of the Board of Directors
providing for such reorganization, merger or consolidation or issuance
of shares of common stock of the Company, and
(y) no change of control shall be deemed to have occurred if
and when any such person becomes, with the approval of the Board of
Directors of the Company, the beneficial owner of securities of the
Company representing 25% or more but less than 50% of the combined
voting power of the Company's then outstanding securities entitled to
vote with respect to the election of its Board of Directors and in
connection therewith represents, and at all times continues to
represent, in a filing, as amended, with the Securities and Exchange
Commission on Schedule 13D or Schedule 13G (or any successor Schedule
thereto) that "such person has acquired such securities for investment
and not with the purpose nor with the effect of changing or influencing
the control of the Company, nor in connection with or as a participant
in any transaction having such purpose or effect", or words of
comparable meaning and import. The designation by any such person, with
the approval of the Board of Directors of the Company, of a single
individual to serve as a member of, or observer at meetings of, the
Company's Board of Directors, shall not be considered "changing or
influencing the control of the Company" within the meaning of the
immediately preceding clause (B), so long as such individual does not
constitute at any time more than one-third of the total number of
directors serving on such Board.
Upon the occurrence of a change in control, the Company shall promptly notify
Executive in writing of the occurrence of such event (such notice, the "Change
in Control Notice"). If the Change in Control Notice is not given within 10 days
after the occurrence of a change in control the period specified in clause
(d)(A) of this Section 10 shall be extended until the second anniversary of the
date such Change in Control Notice is given.
(e) For purposes of this Agreement "just cause" shall mean:
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<PAGE>
(i) a material breach by Executive of this Agreement,
the commission of gross negligence, or willful malfeasance or
fraud or dishonesty of a substantial nature in performing
Executive's services on behalf of the Company, which is in
each case (A) willful and deliberate on Executive's part and
committed in bad faith or without reasonable belief that such
breach is in the best interests of the Company and (B) not
remedied by Executive in a reasonable period of time after
receipt of written notice from the Company specifying such
breach;
(ii) Executive's breach of any provisions of this
Agreement, or his use of alcohol or drugs which interferes
with the performance of his duties hereunder or which
compromises the integrity and reputation of the Company, its
employees, and products;
(iii) Executive's conviction by a court of law, or
admission that he is guilty, of a felony or other crime
involving moral turpitude; or
(iv) Executive's absence from his employment other
than as a result of Section 7 hereof, for whatever cause, for
a period of more than one (1) month, without prior written
consent from the Company.
11. Payments for Control Termination. In the event of a Control
Termination of this Agreement, the Company shall pay Executive and provide him
with the following:
(a) During the remainder of the Basic Employment Period, the
Company shall continue to pay Executive his Base Salary at the same
rate as payable immediately prior to the date of termination plus the
estimated amount of any bonuses to which he would have been entitled
had he remained in the employ of the Company and a change in control of
the Company had not occurred, which estimate shall be reasonable and
made by the Company in good faith.
(b) During the remainder of the Basic Employment Period,
Executive shall continue to be treated as an employee under the
provisions of all incentive compensation arrangements applicable to the
Company's executive employees. In addition, Executive shall continue to
be entitled to all benefits and service credits for benefits under
medical, insurance and other employee benefit plans, programs and
arrangements of the Company as if he were still employed under this
Agreement and a change in control of the Company had not occurred.
(c) If, despite the provisions of paragraph (b) above,
benefits under any employee benefit plan shall not be payable or
provided under any such plan to Executive, or Executive's dependents,
beneficiaries and estate, because he is no longer an employee of the
Company, the Company itself shall, to the extent necessary to provide
the full value of such benefits and service credits to Executive,
Executive's dependants, beneficiaries and estate, pay or provide for
payment of such benefits and service credits for such benefits to
Executive, Executive's dependents, beneficiaries and estate.
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<PAGE>
(d) If, despite the provisions of paragraph (b) above,
benefits or the right to accrue further benefits under any stock option
or other incentive compensation arrangement shall not be provided under
any such arrangement to Executive, or his dependents, beneficiaries and
estate, because he is no longer an employee of the Company, the Company
shall, to the extent necessary, pay or provide for payment of such
benefits to Executive, his dependents, beneficiaries and estate.
12. Severance Allowance. In the event of a Control Termination of
this Agreement, Executive may elect, within 60 days after such Control
Termination, to be paid a lump sum severance allowance, in lieu of the
termination payments provided for in Section 11 above, in an amount which is
equal to the sum of the amounts determined in accordance with the following
clauses (a) and (b):
(a) an amount equal to the aggregate of salary payments for 60
calendar months at the rate of Base Salary which he would have been
entitled to receive in accordance with Section 5(a); and
(b) an amount equal to the aggregate of 60 calendar months of
bonus at the greater of (i) the monthly rate of the bonus payment for
the annual bonus period immediately prior to this termination date, or
(ii) the monthly rate of the estimated amount of the bonus for the
annual bonus period which includes his termination date.
In the event that Executive makes an election pursuant to this Section
to receive a lump sum severance allowance of the amount described in clauses (a)
and (b), then, in addition to such amount, he shall receive (i) in addition to
the benefits provided under any deferred compensation, retirement or pension
benefit plan maintained by the Company, the benefits he would have accrued under
such benefit plan if he had remained in the employ of the Company and such plan
had remained in effect for 60 calendar months after his termination, which
benefits will be paid concurrently with, and in addition to, the benefits
provided under such benefit plan, and (ii) the employee benefits (including, but
not limited to, coverage under any medical insurance and life insurance
arrangements or programs) to which he would have been entitled under all
employee benefit plans, programs or arrangements maintained by the Company if he
had remained in the employ of the Company and such plans, programs or
arrangements had remained in effect for 60 calendar months after his
termination; or the value of the amounts described in clauses (i) and (ii) next
preceding. The amount of the payments described in the preceding sentence shall
be determined and such payments shall be distributed as soon as it is reasonably
possible.
13. Tax Indemnity Payments. (a) Anything in this Agreement to
the contrary notwithstanding, in the event it shall be determined that any
payment or distribution by the Company or its affiliated companies to or for the
benefit of Executive, whether paid or payable or distributed or distributable
pursuant to the terms of the Agreement or otherwise but determined without
regard to any additional payments required under this Section 13 (a "Payment"),
would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986 (as amended the "Code"), or any successor provision
(collectively, "Section 4999"), or any interest or penalties are incurred by
Executive with respect to such excise tax (such excise tax, together with any
such interest and
8
<PAGE>
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any Federal, state or local income and employment
taxes and Excise Tax (and any interest and penalties imposed with respect to any
such taxes) imposed upon the Gross-Up Payment, Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 13(c), all determinations
required to be made under this Section 13, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by the Company's
public accounting firm (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and Executive within fifteen (15)
business days of the receipt of notice from Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, Executive may appoint another
nationally recognized public accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 13, shall be paid by the Company to Executive within five (5) days of
the receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by Executive, it shall furnish
Executive with a written opinion that failure to report the Excise Tax on
Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and Executive. As a result of
the uncertainty in the application of Section 4999 at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made by
the Company ("Underpayment"), consistent with the calculations required to be
made hereunder. In the event that the Company exhausts its remedies pursuant to
Section 13(c) and Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of Executive.
(c) Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require a payment by the
Company, or a change in the amount of the payment by the Company of, the
Gross-Up Payment. Such notification shall be given as soon as practicable after
Executive is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid; provided that the failure to give any notice pursuant to this Section
13(c) shall not impair Executive's rights under this Section 13 except to the
extent the Company is materially prejudiced thereby. Executive shall not pay
such claim prior to the expiration of the 30-day period following the date on
which Executive gives such notice to the Company (or such shorter period ending
on the date that any payment of taxes with respect to such claim is due). If the
Company notifies Executive in writing prior to the expiration of such period
that it desires to contest such claim, Executive shall:
9
<PAGE>
(1) give the Company any information reasonably requested by
the Company relating to such claim,
(2) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(3) cooperate with the Company in good faith in order
effectively to contest such claim, and
(4) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Executive harmless, on an
after-tax basis, for any Excise Tax or income, employment or other tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 13(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct Executive to pay the tax claimed and sue for a refund
or contest the claim in any permissible manner, and Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided further, that if the Company directs Executive
to pay such claim and sue for a refund, the Company shall advance the amount of
such payment to Executive on an interest-free basis and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income,
employment or other tax (including interest or penalties with respect to any
such taxes) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and provided further, that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and Executive shall be entitled to settle or contest,
as the case may be, any other issue raised by the Internal Revenue Service or
any other taxing authority.
(d) If, after the receipt by Executive of an amount advanced by the
Company pursuant to Section 13(c), Executive becomes entitled to receive, and
receives, any refund with respect to such claim, Executive shall (subject to the
Company's complying with the requirements of Section 12(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by Executive of
an amount advanced by the Company pursuant to Section 13(c), a determination is
made that Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify Executive in writing of its intent to
contest such denial of refund prior to the expiration of thirty (30) days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the
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<PAGE>
amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
14. Payment for Options and Stock. In the event of a Control
Termination of this Agreement, Executive may also elect, within sixty (60) days
after such Control Termination, to receive (in addition to any other amounts
owed to Executive under this Agreement) a lump sum payment in cash equal to the
sum of the following: (i) all or any portion of the number of shares of common
stock of the Company which may be acquired pursuant to options granted by the
Company and held by Executive at the time of such election, multiplied by the
Conseco Put Price; plus (ii) all or any portion of the number of Successor
Securities which may be acquired pursuant to options (which options were granted
to Executive in exchange or substitution for options to acquire the common stock
of the Company) held by Executive at the time of such election, multiplied by
the Successor Security Put Price; plus (iii) the number of shares of common
stock of the Company which were acquired pursuant to options granted by the
Company which were exercised, or which were discharged and satisfied by the
payment to Executive of cash or other property (other than Successor
Securities), subsequent to the first public announcement of the transaction or
event which led to the change in control, multiplied by the respective per share
exercise prices of such exercised or discharged options; plus (iv) all or any
portion of the number of shares of common stock of the Company held by Executive
at the time of such election, multiplied by the Conseco Put Price; plus (v) all
or any portion of the number of Successor Securities held by Executive at the
time of such election, multiplied by the Successor Security Put Price; plus (vi)
to the extent that any of Executive's deferred compensation units were not
satisfied in cash in connection with the change in control and were instead
payable in shares of common stock of the Company or Successor Securities, all or
any portion of the number of units held by Executive at the time of such
election, multiplied by the Conseco Put Price of the common stock of the Company
or the Successor Security Put Price of the Successor Securities, as the case may
be. For purposes of calculating the above lump sum payment, the options
described in clauses (i) and (ii) shall include all such options, whether or not
then exercisable, and, to compensate Executive for the loss of the potential
future speculative value of unexercised options, there shall not be any
deduction of the respective per share exercise prices for any of the options
described in such clauses (i) and (ii). The cash payment due from the Company
pursuant to this Section 14 shall be made to Executive within ten (10) days
after the date of such election hereunder, against the execution and delivery by
Executive to the Company of an appropriate agreement confirming the surrender to
the Company of the options and deferred compensation units and the certificates
representing the common stock of the Company or Successor Securities, in each
case in respect of which the lump sum cash payment is being made to Executive.
"Successor Securities" means any securities of any person
received by the holders of the common stock of the Company in exchange,
substitution or payment for, or upon conversion of, the common stock of the
Company in connection with a change in control.
"Conseco Put Price" means the greater of (i) the Change in
Control Price or (ii) the Current Market Price of the common stock of the
Company.
"Successor Security Put Price" means the greater of (i) the
Change in Control Price divided by the Exchange Ratio or (ii) the Current Market
Price of the Successor Securities.
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"Current Market Price" for any security means the average of
the daily Prices per security for the twenty (20) consecutive trading days
ending on the trading day which is immediately prior to Executive's election
under this Section 14.
"Price" for any security means the average of the highest and
lowest sales price of such security (regular way) on a trading day as shown on
the Composite Tape of the New York Stock Exchange (or, if such security is not
listed or admitted to trading on the New York Stock Exchange, on the principal
national securities exchange on which such security is listed or admitted to
trading) or, in case no sales take place on such day, the average of the closing
bid and asked prices on the New York Stock Exchange (or, if such security is not
listed or admitted to trading on the New York Stock Exchange, on the principal
national securities exchange on which such security is listed or admitted to
trading) or, if it is not listed or admitted to trading on any national
securities exchange, the average of the highest and lowest sales prices of such
security on such day as reported by the NASDAQ Stock Market, or in case no sales
take place on such day, the average of the closing bid and asked prices as
reported by NASDAQ, or if such security is not so reported, the average of the
closing bid and asked prices as furnished by any securities broker-dealer of
recognized national standing selected from time to time by the Company (or its
successor in interest) for that purpose.
"Change in Control Price" means (i) in the case of a change in
control which occurs solely as a result of a change in the composition of the
Board of Directors of the Company or which occurs in a transaction, or series of
related transactions, in which the same consideration is paid or delivered to
all of the holders of common stock of the Company (or, in the event of an
election by holders of the common stock of the Company of different forms of
consideration, if the same election is offered to all of the holders of common
stock of the Company), the Price per share of the common stock of the Company on
the date on which the change in control occurs, or if such date is not a trading
day, then the trading day immediately prior to such date, or (ii) in the case of
a change in control effected through a series of related transactions, or in a
single transaction in which less than all of the outstanding shares of common
stock of the Company is acquired, the highest price paid to the holders of
common stock of the Company in the transaction or series of related transactions
whereby the change in control takes place. In determining the highest price paid
to the holders pursuant to clause (ii) of the immediately preceding sentence, in
the case of Successor Securities paid or delivered to the holders of common
stock of the Company in exchange, payment or substitution for, or upon
conversion of, the common stock of the Company, the price paid to such holders
shall be the Price of such security at the time or times paid or delivered to
such holders.
"Exchange Ratio" means, in connection with a change in
control, the number of Successor Securities to be paid or delivered to the
holders of common stock of the Company in exchange, payment or substitution for,
or upon conversion of, each share of such common stock.
15. Character of Termination Payments. The amounts payable to
Executive upon any termination of this Agreement shall be considered severance
pay in consideration of past services rendered on behalf of the Company and his
continued service from the date hereof to the date he becomes entitled to such
payments. Executive shall have no duty to mitigate his damages by seeking other
employment and, should Executive actually receive compensation from any such
other
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employment, the payments required hereunder shall not be reduced or offset by
any such other compensation.
16. Right of First Refusal to Purchase Stock. Executive agrees
that the Company shall have throughout the Basic Employment Period the right of
first refusal to purchase all or any portion of the shares of the Company's
common stock owned by him (the "Shares") at the following price:
(a) in the event of a bona fide offer for the Shares, or any
part thereof, received by Executive from any other person (a "Third
Party Offer"), the price to be paid by the Company shall be the price
set forth in such Third Party Offer; and
(b) in the event Executive desires to sell the Shares, or any
part thereof, in the public securities market, the price to be paid by
the Company shall be the last sale price quoted on the New York Stock
Exchange (or any other exchange or national market system upon which
price quotations for the Company's common stock are regularly
available) for the Company's common stock on the last business day
preceding the date on which Executive notifies the Company of such
desire.
In the event Executive shall receive a Third Party Offer which he
desires to accept, he shall deliver to the Company a written notification of the
terms thereof and the Company shall have a period of 48 hours after such
delivery in which to notify Executive of its desire to exercise its right of
first refusal hereunder.
In the event Executive desires to sell any portion of the Shares in the
public market he shall deliver to the Company a written notification of the
amount of Shares he desires to sell, and the Company shall have a period of 24
hours after such delivery to notify Executive of its desire to exercise its
right of first refusal hereunder with respect to such amount of Shares.
Upon each exercise by the Company of its right of first refusal
hereunder, it shall make payment to Executive for the Shares in accordance with
standard practice in the securities brokerage industry. After each failure by
the Company to exercise its right of first refusal hereunder, Executive may
proceed to complete the sale of Shares pursuant to the Third Party Offer or in
the open market in accordance with his notification to the Company, but his
failure to complete such sale within two weeks after his notification to the
Company shall reinstate the Company's right of first refusal with respect
thereto and require a new notification to the Company.
17. Arbitration of Disputes; Injunctive Relief.
(a) Except as provided in paragraph (b) below, any controversy
or claim arising out of or relating to this Agreement or the breach
thereof, shall be settled by binding arbitration in the City of
Indianapolis, Indiana, in accordance with the laws of the State of
Indiana by three arbitrators, one of whom shall be appointed by the
Company, one by Executive and the third of whom shall be appointed by
the first two arbitrators. If the first two arbitrators cannot agree on
the appointment of a third arbitrator, then the third arbitrator shall
be appointed by the Chief Judge of the United States District Court for
the Southern District of
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Indiana. The arbitration shall be conducted in accordance with the
rules of the American Arbitration Association, except with respect to
the selection of arbitrators which shall be as provided in this
Section. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. In the event that it
shall be necessary or desirable for Executive to retain legal counsel
and/or incur other costs and expenses in connection with the
enforcement of any and all of his rights under this Agreement, the
Company shall pay (or Executive shall be entitled to recover from the
Company, as the case may be) his reasonable attorneys' fees and costs
and expenses in connection with the enforcement of any arbitration
award in court, regardless of the final outcome, unless the arbitrators
shall determine that under the circumstances recovery by Executive of
all or a part of any such fees and costs and expenses would be unjust.
(b) Executive acknowledges that a breach or threatened breach
by Executive of Sections 8 or 9 of this Agreement will give rise to
irreparable injury to the Company and that money damages will not be
adequate relief for such injury. Notwithstanding paragraph (a) above,
the Company and Executive agree that the Company may seek and obtain
injunctive relief, including, without limitation, temporary restraining
orders, preliminary injunctions and/or permanent injunctions, in a
court of proper jurisdiction to restrain or prohibit a breach or
threatened breach of Section 8 or 9 of this Agreement. Nothing herein
shall be construed as prohibiting the Company from pursuing any other
remedies available to the Company for such breach or threatened breach,
including the recovery of damages from Executive.
18. Notices. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and if sent by registered mail
to his residence, in the case of Executive, or to the business office of its
Chief Executive Officer, in the case of the Company.
19. Waiver of Breach and Severability. The waiver by either party
of a breach of any provision of this Agreement by the other party shall not
operate or be construed as a waiver of any subsequent breach by either party. In
the event any provision of this Agreement is found to be invalid or
unenforceable, it may be severed from the Agreement and the remaining provisions
of the Agreement shall continue to be binding and effective.
20. Entire Agreement. This instrument contains the entire
agreement of the parties and supersedes all prior agreements between them. This
agreement may not be changed orally, but only by an instrument in writing signed
by the party against whom enforcement of any waiver, change, modification,
extension or discharge is sought.
21. Binding Agreement and Governing Law; Assignment Limited.
This Agreement shall be binding upon and shall inure to the benefit of the
parties and their lawful successors in interest and shall be construed in
accordance with and governed by the laws of the State of Indiana. This Agreement
is personal to each of the parties hereto, and neither party may assign nor
delegate any of its rights or obligations hereunder without the prior written
consent of the other.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CONSECO, INC.
By: /s/ Stephen C. Hilbert
---------------------------
Stephen C. Hilbert
Chairman of the Board
"Company"
/s/ John J. Sabl
---------------------------
John J. Sabl
"Executive"
15
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of the 31st day of March, 1998,
as amended and restated as of May 26, 1999, between CONSECO, INC., an Indiana
corporation (hereinafter called the "Company"), and Thomas J. Kilian
(hereinafter called "Executive").
RECITALS
WHEREAS, Executive has been employed by the Company for a number of
years, and the services of Executive, his managerial and professional
experience, and his knowledge of the affairs of the Company are of great value
to the Company; and
WHEREAS, the Company deems it to be essential for it to have the
benefit and advantage of the services of the Executive for an extended period;
and
WHEREAS, the Company and Executive are parties to an employment
agreement dated as of March 31, 1998 (the "Existing Employment Agreement"), and
the Company and Executive desire to make certain modifications to the Existing
Employment Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, the parties agree that the Existing Employment be
amended and restated in its entirety to be as follows:
1. Employment. The Company hereby employs Executive and
Executive hereby accepts employment upon the terms and conditions hereinafter
set forth.
2. Term. The effective date of this Agreement shall be March 31,
1998. Subject to the provisions for termination as provided in Section 10
hereof, the term of this Agreement shall be the period beginning March 31, 1998,
and ending December 31, 2002, (hereinafter called the "Basic Employment
Period").
3. Duties. Executive is engaged by the Company in an executive
capacity as its chief operations officer. Executive shall report to the Chief
Executive Officer regarding the performance of his duties and shall be subject
to the direction and control of the Board of Directors of the Company (sometimes
referred to herein as the "Board") and the Chief Executive Officer. Executive's
position with the Company shall initially be Executive Vice President and Chief
Operations Officer and such other positions as may be determined from time to
time by the Board.
4. Extent of Services. Executive, subject to the direction and
control of the Chief Executive Officer and the Board, shall have the power and
authority commensurate with his executive status and necessary to perform his
duties hereunder. The Company agrees to provide to Executive such assistance and
work accommodations as are suitable to the character of his positions with the
Company and adequate for the performance of his duties. Executive shall devote
his entire employable time, attention and best efforts to the business of the
Company, and shall not, without the consent of the Company, during the term of
this Agreement be actively engaged in any other business activity, whether or
not such business activity is pursued for gain, profit or other pecuniary
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advantage; but this shall not be construed as preventing Executive from
investing his assets in such form or manner as will not require any services on
the part of Executive in the operation of the affairs of the companies in which
such investments are made. For purposes of this Agreement, full-time employment
shall be the normal work week for individuals in comparable executive positions
with the Company.
5. Compensation.
(a) As compensation for services hereunder rendered during the
term hereof, Executive shall receive a base salary ("Base Salary") of
Two Hundred Fifty Thousand Dollars ($250,000) per year payable in equal
installments in accordance with the Company's payroll procedure for its
salaried employees. Salary and all other payments made pursuant to this
Agreement shall be subject to withholding of taxes. Executive may
receive increases in his Base Salary from time to time, based upon his
performance in his executive and management capacity. The amounts of
any such salary increases shall be approved by the Board or the
Compensation Committee of the Board upon the recommendation of the
Chief Executive Officer.
(b) In addition to Base Salary, Executive may receive such
other bonuses or incentive compensation as the Compensation Committee
or the Board may approve from time to time, upon the recommendation of
the Chief Executive Officer; provided, that Executive shall receive a
cash bonus of at least Seven Hundred Fifty Thousand Dollars ($750,000)
for each of the first two calendar years (i.e., 1998 and 1999)
completed under this Agreement.
6. Fringe Benefits.
(a) Executive shall be entitled to participate in such
existing employee benefit plans and insurance programs offered by the
Company, or which it may adopt form time to time, for its executive
management or supervisory personnel generally, in accordance with the
eligibility requirements for participation therein. Nothing herein
shall be construed so as to prevent the Company from modifying or
terminating any employee benefit plans or programs, or employee fringe
benefits, it may adopt from time to time.
(b) During the term of this Agreement, the Company shall pay
Executive a monthly automobile allowance in the amount of Six Hundred
Dollars ($600), and the Company shall pay directly or shall reimburse
Executive for the cost of fuel that he incurs in using his automobile.
(c) Executive shall be entitled to four (4) weeks vacation
with pay each year during the term hereof.
(d) Executive may incur reasonable expenses for promoting the
Company's business, including expenses for entertainment, travel, and
similar items. The Company shall
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reimburse Executive for all such reasonable expenses upon Executive's
periodic presentation of an itemized account of such expenditures.
(e) The Company shall, upon periodic presentation of
satisfactory evidence and to a maximum of Ten Thousand Dollars
($10,000) per each year of this Agreement, reimburse Executive for
reasonable medical expenses incurred by Executive and his dependents
which are not otherwise covered by health insurance provided to
Executive under Section 6(a).
(f) During the term of this Agreement, the Company shall at
its expense maintain a term life insurance policy or policies on the
life of Executive in the face amount of Five Hundred Thousand Dollars
($500,000), payable to such beneficiaries as Executive may designate.
7. Disability. If Executive shall become physically or mentally
disabled during the term of this Agreement to the extent that his ability to
perform his duties and services hereunder is materially and adversely impaired,
his salary, bonus and other compensation provided herein shall continue while he
remains employed by the Company; provided, that if such disability (as confirmed
by competent medical evidence) continues for at least nine (9) consecutive
months, the Company may terminate Executive's employment hereunder in which case
the Company shall immediately pay Executive a lump sum payment equal to
one-quarter of the sum of his annual salary and bonus with respect to the most
recent fiscal year then ended and, provided further, that no such lump sum
payment shall be required if such disability arises primarily from: (a) chronic
depressive use of intoxicants, drugs or narcotics, or (b) intentionally
self-inflicted injury or intentionally self-induced sickness; or (c) a proven
unlawful act or enterprise on the part of Executive.
8. Disclosure of Information. Executive acknowledges that in and
as a result of his employment with the Company, he has been and will be making
use of, acquiring and/or adding to confidential information of the Company of a
special and unique nature and value. As a material inducement to the Company to
enter into this Agreement and to pay to Executive the compensation stated in
Section 5, as well as any additional benefits stated herein, Executive covenants
and agrees that he shall not, at any time during or following the term of his
employment, directly or indirectly, divulge or disclose for any purpose
whatsoever, any confidential information that has been obtained by or disclosed
to him as a result of his employment with the Company, except to the extent that
such confidential information (a) becomes a matter of public record or is
published in a newspaper, magazine or other periodical available to the general
public, other than as a result of any act or omission of Executive, (b) is
required to be disclosed by any law, regulation or order of any court or
regulatory commission, department or agency, provided that Executive gives
prompt notice of such requirement to the Company to enable the Company to seek
an appropriate protective order or confidential treatment, or (c) is necessary
to perform properly Executive's duties under this Agreement. Upon the
termination of this Agreement, Executive shall return all materials obtained
from or belonging to the Company which he may have in his possession or control.
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9. Covenants Against Competition and Solicitation. Executive
acknowledges that the services he is to render to the Company are of a special
and unusual character, with a unique value to the Company, the loss of which
cannot adequately be compensated by damages or an action at law. In view of the
unique value to the Company of the services of Executive for which the Company
has contracted hereunder, because of the confidential information to be obtained
by, or disclosed to, Executive as hereinabove set forth, and as a material
inducement to the Company to enter into this Agreement and to pay to Executive
the compensation stated in Section 5, as well as any additional benefits stated
herein, and other good and valuable consideration, Executive covenants and
agrees that throughout the period Executive remains employed hereunder and for
one year thereafter, Executive shall not, directly or indirectly, anywhere in
the United States of America (i) render any services, as an agent, independent
contractor, consultant or otherwise, or become employed or compensated by, any
other corporation, person or entity engaged in the business of selling or
providing life, accident or health insurance products or services; (ii) render
any services, as an agent, independent contractor, consultant or otherwise, or
become employed or compensated by, any other corporation, person or entity
engaged in the business of selling or providing any lending or other financial
products or services that are competitive with the lending or other financial
products or services sold or provided by the Company or its subsidiaries, (iii)
in any manner compete with the Company or any of its subsidiaries; (iv) solicit
or attempt to convert to other insurance carriers, finance companies or other
corporations, persons or other entities providing these same or similar products
or services provided by the Company and its subsidiaries, any customers or
policyholders of the Company, or any of its subsidiaries; or (v) solicit for
employment or employ any employee of the Company or any of its subsidiaries. The
covenants of Executive in this Section 9 shall be void and unenforceable in the
event of a Control Termination of this Agreement as defined in Section 10 below.
Should any particular covenant or provision of this Section 9 be held
unreasonable or contrary to public policy for any reason, including, without
limitation, the time period, geographical area, or scope of activity covered by
any restrictive covenant or provision, the Company and Executive acknowledge and
agree that such covenant or provision shall automatically be deemed modified
such that the contested covenant or provision shall have the closest effect
permitted by applicable law to the original form and shall be given effect and
enforced as so modified to whatever extent would be reasonable and enforceable
under applicable law.
10. Termination.
(a) Either the Company or Executive may terminate this
Agreement at any time for any reason upon written notice to the other.
This Agreement shall also terminate upon (i) the death of Executive or
(ii) termination by the Company pursuant to Section 7.
(b) In the event this Agreement is terminated by the Company
and such termination is not pursuant to the last sentence of (a) above
or for "just cause" as defined in (e) below and does not constitute a
Control Termination as defined in (d) below, Executive shall be
entitled to receive Executive's Base Salary, as determined pursuant to
Section 5(a) hereof, for the remainder of the Basic Employment Period
(provided, that, if such amount for the remainder of the Basic
Employment Period aggregates less than $1,000,000, Executive shall
receive an aggregate lump sum payment of $1,000,000) and all other
unpaid amounts previously accrued or awarded pursuant to any other
provision of this Agreement.
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(c) In the event this Agreement is terminated by the death of
Executive, is terminated by the Company for "just cause" as defined in
(e) below, or is terminated by Executive and such termination does not
constitute a Control Termination as defined in (d) below, Executive
shall be entitled to receive Executive's Base Salary as provided in
Section 5(a) accrued but unpaid as of the date of termination, and all
other unpaid amounts previously accrued or awarded pursuant to any
other provision of this Agreement.
(d) The term "Control Termination" as used herein shall mean
(A) termination of this Agreement by the Company in anticipation of or
not later than two years following a "change in control" of the Company
(as defined below), or (B) termination of this Agreement by Executive
following "change in control" of the Company (as defined below) upon
the occurrence of any of the following events:
(i) a significant change in the nature or scope of
Executive's authorities or duties from those in existence
immediately prior to the change in control, a reduction in his
total compensation from that in existence immediately prior to
the change in control, or a breach by the Company of any other
provision of this Agreement; or
(ii) the reasonable determination by Executive that,
as a result of a change in circumstances significantly
affecting his position, he is unable to exercise Executive's
authorities, powers, functions or duties in existence
immediately prior to the change in control, or
(iii) the Company's principal executive offices are
moved outside the geographic area comprised of Marion County,
Indiana, and the seven contiguous counties or Executive is
required to work at a location other than the Company's
principal executive offices; or
(iv) the giving of notice of termination by Executive
during the 6-month period commencing six (6) months after the
change in control.
The term "change in control" shall mean 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 Securities Exchange Act of 1934 (the "Act")
if such Item 6(e) were applicable to the Company as such Item is in effect on
May 26, 1999; provided that, without limitation,
(x) such a change in control shall be deemed to have occurred
if and when either (A) except as provided in (y) below, any "person"
(as such term is used in Sections 13(d) and 14(d) of the Act) is or
becomes a "beneficial owner" (as such term is defined in Rule 13d-3
promulgated under the Act), directly or indirectly, of securities of
the Company representing 25% or more of the combined voting power of
the Company's then outstanding securities entitled to vote with respect
to the election of its Board of Directors or (B) as the result of a
tender offer, merger, consolidation, sale of assets, or contest for
election of directors, or any combination of the foregoing transactions
or events, individuals who, as of the date hereof,
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constitute the Board of Directors of the Company (the "Incumbent
Board") cease to constitute at least a majority of such Board;
provided, however, that any individual who becomes a director of the
Company subsequent to the date hereof whose election was approved by a
vote of at least a majority of the directors then comprising the
Incumbent Board, shall be deemed to have been a member of the Incumbent
Board; and provided further, that no individual who was initially
elected as a director of the Company as a result of an actual or
threatened election contest, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Act, or any other actual or
threatened solicitation of proxies or consents by or on behalf of any
person other than the Board of Directors shall be deemed to have been a
member of the Incumbent Board, or (C) any reorganization, merger or
consolidation or the issuance of shares of common stock of the Company
in connection therewith unless immediately after any such
reorganization, merger or consolidation (i) more than 60% of the then
outstanding shares of common stock of the corporation surviving or
resulting from such reorganization, merger or consolidation and more
than 60% of the combined voting power of the then outstanding
securities of such corporation entitled to vote generally in the
election of directors are then beneficially owned, directly or
indirectly, by all or substantially all of the individuals or entities
who were the beneficial owners, respectively, of the outstanding shares
of common stock of the Company and the outstanding voting securities of
the Company immediately prior to such reorganization, merger or
consolidation and in substantially the same proportions relative to
each other as their ownership, immediately prior to such
reorganization, merger or consolidation, of the outstanding shares of
common stock of the Company and the outstanding voting securities of
the Company, as the case may be, and (ii) at least a majority of the
members of the board of directors of the corporation surviving or
resulting from such reorganization, merger or consolidation were
members of the Board of Directors of the Company at the time of the
execution of the initial agreement or action of the Board of Directors
providing for such reorganization, merger or consolidation or issuance
of shares of common stock of the Company, and
(y) no change of control shall be deemed to have occurred if
and when any such person becomes, with the approval of the Board of
Directors of the Company, the beneficial owner of securities of the
Company representing 25% or more but less than 50% of the combined
voting power of the Company's then outstanding securities entitled to
vote with respect to the election of its Board of Directors and in
connection therewith represents, and at all times continues to
represent, in a filing, as amended, with the Securities and Exchange
Commission on Schedule 13D or Schedule 13G (or any successor Schedule
thereto) that "such person has acquired such securities for investment
and not with the purpose nor with the effect of changing or influencing
the control of the Company, nor in connection with or as a participant
in any transaction having such purpose or effect", or words of
comparable meaning and import. The designation by any such person, with
the approval of the Board of Directors of the Company, of a single
individual to serve as a member of, or observer at meetings of, the
Company's Board of Directors, shall not be considered "changing or
influencing the control of the Company" within the meaning of the
immediately preceding
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clause (B), so long as such individual does not constitute at any time
more than one-third of the total number of directors serving on such
Board.
Upon the occurrence of a change in control, the Company shall promptly notify
Executive in writing of the occurrence of such event (such notice, the "Change
in Control Notice"). If the Change in Control Notice is not given within 10 days
after the occurrence of a change in control the period specified in clause
(d)(A) of this Section 10 shall be extended until the second anniversary of the
date such Change in Control Notice is given.
(e) For purposes of this Agreement "just cause" shall
mean:
(i) a material breach by Executive of this Agreement,
the commission of gross negligence, or willful malfeasance or
fraud or dishonesty of a substantial nature in performing
Executive's services on behalf of the Company, which is in
each case (A) willful and deliberate on Executive's part and
committed in bad faith or without reasonable belief that such
breach is in the best interests of the Company and (B) not
remedied by Executive in a reasonable period of time after
receipt of written notice from the Company specifying such
breach;
(ii) Executive's breach of any provisions of this
Agreement, or his use of alcohol or drugs which interferes
with the performance of his duties hereunder or which
compromises the integrity and reputation of the Company, its
employees, and products;
(iii) Executive's conviction by a court of law, or
admission that he is guilty, of a felony or other crime
involving moral turpitude; or
(iv) Executive's absence from his employment other
than as a result of Section 7 hereof, for whatever cause, for
a period of more than one (1) month, without prior written
consent from the Company.
11. Payments for Control Termination. In the event of a Control
Termination of this Agreement, the Company shall pay Executive and provide him
with the following:
(a) During the remainder of the Basic Employment Period, the
Company shall continue to pay Executive his Base Salary at the same
rate as payable immediately prior to the date of termination plus the
estimated amount of any bonuses to which he would have been entitled
had he remained in the employ of the Company and a change in control of
the Company had not occurred, which estimate shall be reasonable and
made by the Company in good faith.
(b) During the remainder of the Basic Employment Period,
Executive shall continue to be treated as an employee under the
provisions of all incentive compensation
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arrangements applicable to the Company's executive employees. In
addition, Executive shall continue to be entitled to all benefits and
service credits for benefits under medical, insurance and other
employee benefit plans, programs and arrangements of the Company as if
he were still employed under this Agreement and a change in control of
the Company had not occurred.
(c) If, despite the provisions of paragraph (b) above,
benefits under any employee benefit plan shall not be payable or
provided under any such plan to Executive, or Executive's dependents,
beneficiaries and estate, because he is no longer an employee of the
Company, the Company itself shall, to the extent necessary to provide
the full value of such benefits and service credits to Executive,
Executive's dependants, beneficiaries and estate, pay or provide for
payment of such benefits and service credits for such benefits to
Executive, his dependents, beneficiaries and estate.
(d) If, despite the provisions of paragraph (b) above,
benefits or the right to accrue further benefits under any stock option
or other incentive compensation arrangement shall not be provided under
any such arrangement to Executive, or his dependents, beneficiaries and
estate, because he is no longer an employee of the Company, the Company
shall, to the extent necessary, pay or provide for payment of such
benefits to Executive, his dependents, beneficiaries and estate.
12. Severance Allowance. In the event of a Control Termination of
this Agreement, Executive may elect, within 60 days after such Control
Termination, to be paid a lump sum severance allowance, in lieu of the
termination payments provided for in Section 11 above, in an amount which is
equal to the sum of the amounts determined in accordance with the following
clauses (a) and (b):
(a) an amount equal to the aggregate of salary payments for 60
calendar months at the rate of Base Salary which he would have been
entitled to receive in accordance with Section 5(a); and
(b) an amount equal to the aggregate of 60 calendar months of
bonus at the greater of (i) the monthly rate of the bonus payment for
the annual bonus period immediately prior to this termination date, or
(ii) the monthly rate of the estimated amount of the bonus for the
annual bonus period which includes his termination date.
In the event that Executive makes an election pursuant to this Section
to receive a lump sum severance allowance of the amount described in clauses (a)
and (b), then, in addition to such amount, he shall receive (i) in addition to
the benefits provided under any deferred compensation, retirement or pension
benefit plan maintained by the Company, the benefits he would have accrued under
such benefit plan if he had remained in the employ of the Company and such plan
had remained in effect for 60 calendar months after his termination, which
benefits will be paid concurrently with, and in addition to, the benefits
provided under such benefit plan, and (ii) the employee benefits (including,
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but not limited to, coverage under any medical insurance and life insurance
arrangements or programs) to which he would have been entitled under all
employee benefit plans, programs or arrangements maintained by the Company if he
had remained in the employ of the Company and such plans, programs or
arrangements had remained in effect for 60 calendar months after his
termination; or the value of the amounts described in clauses (i) and (ii) next
preceding. The amount of the payments described in the preceding sentence shall
be determined and such payments shall be distributed as soon as it is reasonably
possible.
13. Tax Indemnity Payments. (a) Anything in this Agreement to
the contrary notwithstanding, in the event it shall be determined that any
payment or distribution by the Company or its affiliated companies to or for the
benefit of Executive, whether paid or payable or distributed or distributable
pursuant to the terms of the Agreement or otherwise but determined without
regard to any additional payments required under this Section 13 (a "Payment"),
would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986 (as amended the "Code"), or any successor provision
(collectively, "Section 4999"), or any interest or penalties are incurred by
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then Executive shall be entitled to receive an additional payment
(a "Gross-Up Payment") in an amount such that after payment by Executive of all
taxes (including any interest or penalties imposed with respect to such taxes),
including, without limitation, any Federal, state or local income and employment
taxes and Excise Tax (and any interest and penalties imposed with respect to any
such taxes) imposed upon the Gross-Up Payment, Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 13(c), all determinations
required to be made under this Section 13, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by the Company's
public accounting firm (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and Executive within fifteen (15)
business days of the receipt of notice from Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, Executive may appoint another
nationally recognized public accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 13, shall be paid by the Company to Executive within five (5) days of
the receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by Executive, it shall furnish
Executive with a written opinion that failure to report the Excise Tax on
Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and Executive. As a result of
the uncertainty in the application of Section 4999 at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been
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made by the Company ("Underpayment"), consistent with the calculations required
to be made hereunder. In the event that the Company exhausts its remedies
pursuant to Section 13(c) and Executive thereafter is required to make a payment
of any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid
by the Company to or for the benefit of Executive.
(c) Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require a payment by the
Company of, or a change in the amount of the payment by the Company of, the
Gross-Up Payment. Such notification shall be given as soon as practicable after
Executive is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid; provided that the failure to give any notice pursuant to this Section
13(c) shall not impair Executive's rights under this Section 13 except to the
extent the Company is materially prejudiced thereby. Executive shall not pay
such claim prior to the expiration of the 30-day period following the date on
which Executive gives such notice to the Company (or such shorter period ending
on the date that any payment of taxes with respect to such claim is due). If the
Company notifies Executive in writing prior to the expiration of such period
that it desires to contest such claim, Executive shall:
(1) give the Company any information reasonably requested by
the Company relating to such claim,
(2) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(3) cooperate with the Company in good faith in order
effectively to contest such claim, and
(4) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Executive harmless, on an
after-tax basis, for any Excise Tax or income, employment or other tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 13(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct Executive to pay the tax claimed and sue for a
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refund or contest the claim in any permissible manner, and Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided further, that if the Company directs Executive
to pay such claim and sue for a refund, the Company shall advance the amount of
such payment to Executive on an interest-free basis and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income,
employment or other tax (including interest or penalties with respect to any
such taxes) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and provided further, that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and Executive shall be entitled to settle or contest,
as the case may be, any other issue raised by the Internal Revenue Service or
any other taxing authority.
(d) If, after the receipt by Executive of an amount advanced by the
Company pursuant to Section 13(c), Executive becomes entitled to receive, and
receives, any refund with respect to such claim, Executive shall (subject to the
Company's complying with the requirements of Section 12(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by Executive of
an amount advanced by the Company pursuant to Section 13(c), a determination is
made that Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify Executive in writing of its intent to
contest such denial of refund prior to the expiration of thirty (30) days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
14. Payment for Options and Stock. In the event of a Control
Termination of this Agreement, Executive may also elect, within sixty (60) days
after such Control Termination, to receive (in addition to any other amounts
owed to Executive under this Agreement) a lump sum payment in cash equal to the
sum of the following: (i) all or any portion of the number of shares of common
stock of the Company which may be acquired pursuant to options granted by the
Company and held by Executive at the time of such election, multiplied, with
respect to shares subject to any such options by the difference between the
Conseco Put Price and the respective exercise price under such option with
respect to such shares; plus (ii) all or any portion of the number of Successor
Securities which may be acquired pursuant to options (which options were granted
to Executive in exchange or substitution for options to acquire the common stock
of the Company) held by Executive at the time of such election, multiplied with
respect to shares subject to any such options relating to Successor Securities,
by the difference between the Successor Security Put Price and the respective
exercise price under such option with respect to such shares; plus (iii) all or
any portion of the number of shares of common stock of the Company held by
Executive at the time of such election, multiplied by the Conseco Put Price;
plus (iv) all or any portion of the number of Successor Securities held by
Executive at the time of such election, multiplied by the Successor Security Put
Price; plus (v) to the extent that any of Executive's deferred compensation
units were not satisfied in cash in connection with the change in control and
were instead payable in shares of common stock of the Company or Successor
Securities, all or any portion of the number of units held by Executive at the
time of such election, multiplied by the Conseco Put Price of the common stock
of the
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Company or the Successor Security Put Price of the Successor Securities, as the
case may be. For purposes of calculating the above lump sum payment, the options
described in clauses (i) and (ii) shall include all such options, whether or not
then exercisable. The cash payment due from the Company pursuant to this Section
14 shall be made to Executive within ten (10) days after the date of such
election hereunder, against the execution and delivery by Executive to the
Company of an appropriate agreement confirming the surrender to the Company of
the options and deferred compensation units and the certificates representing
the common stock of the Company or Successor Securities, in each case in respect
of which the lump sum cash payment is being made to Executive.
"Successor Securities" means any securities of any person
received by the holders of the common stock of the Company in exchange,
substitution or payment for, or upon conversion of, the common stock of the
Company in connection with a change in control.
"Conseco Put Price" means the greater of (i) the Change in
Control Price or (ii) the Current Market Price of the common stock of the
Company.
"Successor Security Put Price" means the greater of (i) the
Change in Control Price divided by the Exchange Ratio or (ii) the Current Market
Price of the Successor Securities.
"Current Market Price" for any security means the average of
the daily Prices per security for the twenty (20) consecutive trading days
ending on the trading day which is immediately prior to Executive's election
under this Section 14.
"Price" for any security means the average of the highest and
lowest sales price of such security (regular way) on a trading day as shown on
the Composite Tape of the New York Stock Exchange (or, if such security is not
listed or admitted to trading on the New York Stock Exchange, on the principal
national securities exchange on which such security is listed or admitted to
trading) or, in case no sales take place on such day, the average of the closing
bid and asked prices on the New York Stock Exchange (or, if such security is not
listed or admitted to trading on the New York Stock Exchange, on the principal
national securities exchange on which such security is listed or admitted to
trading) or, if it is not listed or admitted to trading on any national
securities exchange, the average of the highest and lowest sales prices of such
security on such day as reported by the NASDAQ Stock Market, or in case no sales
take place on such day, the average of the closing bid and asked prices as
reported by NASDAQ, or if such security is not so reported, the average of the
closing bid and asked prices as furnished by any securities broker-dealer of
recognized national standing selected from time to time by the Company (or its
successor in interest) for that purpose.
"Change in Control Price" means (i) in the case of a change in
control which occurs solely as a result of a change in the composition of the
Board of Directors of the Company or which occurs in a transaction, or series of
related transactions, in which the same consideration is paid or delivered to
all of the holders of common stock of the Company (or, in the event of an
election by holders of the common stock of the Company of different forms of
consideration, if the same election is offered to all of the holders of common
stock of the Company), the Price per share of the
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common stock of the Company on the date on which the change in control occurs,
or if such date is not a trading day, then the trading day immediately prior to
such date, or (ii) in the case of a change in control effected through a series
of related transactions, or in a single transaction in which less than all of
the outstanding shares of common stock of the Company is acquired, the highest
price paid to the holders of common stock of the Company in the transaction or
series of related transactions whereby the change in control takes place. In
determining the highest price paid to the holders pursuant to clause (ii) of the
immediately preceding sentence, in the case of Successor Securities paid or
delivered to the holders of common stock of the Company in exchange, payment or
substitution for, or upon conversion of, the common stock of the Company, the
price paid to such holders shall be the Price of such security at the time or
times paid or delivered to such holders.
"Exchange Ratio" means, in connection with a change in
control, the number of Successor Securities to be paid or delivered to the
holders of common stock of the Company in exchange, payment or substitution for,
or upon conversion of, each share of such common stock.
15. Character of Termination Payments. The amounts payable to
Executive upon any termination of this Agreement shall be considered severance
pay in consideration of past services rendered on behalf of the Company and his
continued service from the date hereof to the date he becomes entitled to such
payments. Executive shall have no duty to mitigate his damages by seeking other
employment and, should Executive actually receive compensation from any such
other employment, the payments required hereunder shall not be reduced or offset
by any such other compensation.
16. Right of First Refusal to Purchase Stock. Executive agrees
that the Company shall have throughout the Basic Employment Period the right of
first refusal to purchase all or any portion of the shares of the Company's
common stock owned by him (the "Shares") at the following price:
(a) in the event of a bona fide offer for the Shares, or any
part thereof, received by Executive from any other person (a "Third
Party Offer"), the price to be paid by the Company shall be the price
set forth in such Third Party Offer; and
(b) in the event Executive desires to sell the Shares, or any
part thereof, in the public securities market, the price to be paid by
the Company shall be the last sale price quoted on the New York Stock
Exchange (or any other exchange or national market system upon which
price quotations for the Company's common stock are regularly
available) for the Company's common stock on the last business day
preceding the date on which Executive notifies the Company of such
desire.
In the event Executive shall receive a Third Party Offer which he
desires to accept, he shall deliver to the Company a written notification of the
terms thereof and the Company shall have a period of 48 hours after such
delivery in which to notify Executive of its desire to exercise its right of
first refusal hereunder.
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In the event Executive desires to sell any portion of the Shares in the
public market he shall deliver to the Company a written notification of the
amount of Shares he desires to sell, and the Company shall have a period of 24
hours after such delivery to notify Executive of its desire to exercise its
right of first refusal hereunder with respect to such amount of Shares.
Upon each exercise by the Company of its right of first refusal
hereunder, it shall make payment to Executive for the Shares in accordance with
standard practice in the securities brokerage industry. After each failure by
the Company to exercise its right of first refusal hereunder, Executive may
proceed to complete the sale of Shares pursuant to the Third Party Offer or in
the open market in accordance with his notification to the Company, but his
failure to complete such sale within two weeks after his notification to the
Company shall reinstate the Company's right of first refusal with respect
thereto and require a new notification to the Company.
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17. Arbitration of Disputes; Injunctive Relief.
(a) Except as provided in paragraph (b) below, any controversy
or claim arising out of or relating to this Agreement or the breach
thereof, shall be settled by binding arbitration in the City of
Indianapolis, Indiana, in accordance with the laws of the State of
Indiana by three arbitrators, one of whom shall be appointed by the
Company, one by Executive and the third of whom shall be appointed by
the first two arbitrators. If the first two arbitrators cannot agree on
the appointment of a third arbitrator, then the third arbitrator shall
be appointed by the Chief Judge of the United States District Court for
the Southern District of Indiana. The arbitration shall be conducted in
accordance with the rules of the American Arbitration Association,
except with respect to the selection of arbitrators which shall be as
provided in this Section. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. In
the event that it shall be necessary or desirable for Executive to
retain legal counsel and/or incur other costs and expenses in
connection with the enforcement of any and all of his rights under this
Agreement, the Company shall pay (or Executive shall be entitled to
recover from he Company, as the case may be) his reasonable attorneys'
fees and costs and expenses in connection with the enforcement of any
arbitration award in court, regardless of the final outcome, unless the
arbitrators shall determine that under the circumstances recovery by
Executive of all or a part of any such fees and costs and expenses
would be unjust.
(b) Executive acknowledges that a breach or threatened breach
by Executive of Sections 8 or 9 of this Agreement will give rise to
irreparable injury to the Company and that money damages will not be
adequate relief for such injury. Notwithstanding paragraph (a) above,
the Company and Executive agree that the Company may seek and obtain
injunctive relief, including, without limitation, temporary restraining
orders, preliminary injunctions and/or permanent injunctions, in a
court of proper jurisdiction to restrain or prohibit a breach or
threatened breach of Section 8 or 9 of this Agreement. Nothing herein
shall be construed as prohibiting the Company from pursuing any other
remedies available to the Company for such breach or threatened breach,
including the recovery of damages from Executive.
18. Notices. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and if sent by registered mail
to his residence, in the case of Executive, or to the business office of its
Chief Executive Officer, in the case of the Company.
19. Waiver of Breach and Severability. The waiver by either party
of a breach of any provision of this Agreement by the other party shall not
operate or be construed as a waiver of any subsequent breach by either party. In
the event any provision of this Agreement is found to be invalid or
unenforceable, it may be severed from the Agreement and the remaining provisions
of the Agreement shall continue to be binding and effective.
20. Entire Agreement. This instrument contains the entire
agreement of the parties and supersedes all prior agreements between them. This
agreement may not be changed orally, but only
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by an instrument in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought.
21. Binding Agreement and Governing Law; Assignment Limited. This
Agreement shall be binding upon and shall inure to the benefit of the parties
and their lawful successors in interest and shall be construed in accordance
with and governed by the laws of the State of Indiana. This Agreement is
personal to each of the parties hereto, and neither party may assign nor
delegate any of its rights or obligations hereunder without the prior written
consent of the other.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CONSECO, INC.
By: /s/ Stephen C. Hilbert
-----------------------
Stephen C. Hilbert
Chairman of the Board
"Company"
/s/ Thomas J. Kilian
-----------------------
Thomas J. Kilian
"Executive"
16
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of the 28th day of July, 1999,
between CONSECO, INC., an Indiana corporation (hereinafter called the
"Company"), and James S. Adams (hereinafter called "Executive").
RECITALS
WHEREAS, Executive has been employed by the Company for a number of
years, and the services of Executive, his managerial and professional
experience, and his knowledge of the affairs of the Company are of great value
to the Company; and
WHEREAS, the Company deems it to be essential for it to have the
benefit and advantage of the services of the Executive for an extended period;
and
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, the parties agree as follows:
1. Employment. The Company hereby employs Executive and Executive
hereby accepts employment upon the terms and conditions hereinafter set forth.
2. Term. The effective date of this Agreement shall be July 28, 1999.
Subject to the provisions for termination as provided in Section 10 hereof, the
term of this Agreement shall be the period beginning July 28, 1999, and ending
December 31, 2002, (hereinafter called the "Basic Employment Period").
3. Duties. Executive is engaged by the Company in an executive capacity
as its chief accounting officer. Executive shall report to the Chief Financial
Officer or, if the Chief Executive Officer so designates from time to time, the
Chief Executive Officer (the officer to whom Executive reports at any time being
referred to as the "Reporting Officer") regarding the performance of his duties
and shall be subject to the direction and control of the Board of Directors of
the Company (sometimes referred to herein as the "Board") and the Reporting
Officer. Executive's position with the Company shall initially be Senior Vice
President and Chief Accounting Officer and such other positions as may be
determined from time to time by the Board.
4. Extent of Services. Executive, subject to the direction and control
of the Reporting Officer and the Board, shall have the power and authority
commensurate with his executive status and necessary to perform his duties
hereunder. The Company agrees to provide to Executive such assistance and work
accommodations as are suitable to the character of his positions with the
Company and adequate for the performance of his duties. Executive shall devote
his entire employable time, attention and best efforts to the business of the
Company, and shall not, without the consent of the Company, during the term of
this Agreement be actively engaged in any other business activity, whether or
not such business activity is pursued for gain, profit or other pecuniary
advantage; but this shall not be construed as preventing Executive from
investing his assets in such form or manner as will not require any services on
the part of Executive in the operation of the affairs of the companies in which
such investments are made. For purposes of this Agreement, full-time employment
shall be the normal work week for individuals in comparable executive positions
with the Company.
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5. Compensation.
(a) As compensation for services hereunder rendered during the term
hereof, Executive shall receive a base salary ("Base Salary") of Two
Hundred Fifty Thousand Dollars ($250,000) per year payable in equal
installments in accordance with the Company's payroll procedure for its
salaried employees. Salary and all other payments made pursuant to this
Agreement shall be subject to withholding of taxes. Executive may
receive increases in his Base Salary from time to time, based upon his
performance in his executive and management capacity. The amounts of
any such salary increases shall be approved by the Board or the
Compensation Committee of the Board upon the recommendation of the
Chief Executive Officer.
(b) In addition to Base Salary, Executive may receive such other
bonuses or incentive compensation as the Compensation Committee or the
Board may approve from time to time, upon the recommendation of the
Chief Executive Officer; provided, that Executive shall receive a cash
bonus of at least Seven Hundred Fifty Thousand Dollars ($750,000) for
each of the first two calendar years (i.e., 1999 and 2000) completed
under this Agreement.
6. Fringe Benefits.
(a) Executive shall be entitled to participate in such existing
employee benefit plans and insurance programs offered by the Company,
or which it may adopt form time to time, for its executive management
or supervisory personnel generally, in accordance with the eligibility
requirements for participation therein. Nothing herein shall be
construed so as to prevent the Company from modifying or terminating
any employee benefit plans or programs, or employee fringe benefits, it
may adopt from time to time.
(b) During the term of this Agreement, the Company shall pay
Executive a monthly automobile allowance in the amount of Six Hundred
Dollars ($600), and the Company shall pay directly or shall reimburse
Executive for the cost of fuel that he incurs in using his automobile.
(c) Executive shall be entitled to four (4) weeks vacation with pay
each year during the term hereof.
(d) Executive may incur reasonable expenses for promoting the
Company's business, including expenses for entertainment, travel, and
similar items. The Company shall reimburse Executive for all such
reasonable expenses upon Executive's periodic presentation of an
itemized account of such expenditures.
(e) The Company shall, upon periodic presentation of satisfactory
evidence and to a maximum of Ten Thousand Dollars ($10,000) per each
year of this Agreement, reimburse Executive for reasonable medical
expenses incurred by Executive and his dependents which are not
otherwise covered by health insurance provided to Executive under
Section 6(a).
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(f) During the term of this Agreement, the Company shall at its
expense maintain a term life insurance policy or policies on the life
of Executive in the face amount of Five Hundred Thousand Dollars
($500,000), payable to such beneficiaries as Executive may designate.
7. Disability. If Executive shall become physically or mentally
disabled during the term of this Agreement to the extent that his ability to
perform his duties and services hereunder is materially and adversely impaired,
his salary, bonus and other compensation provided herein shall continue while he
remains employed by the Company; provided, that if such disability (as confirmed
by competent medical evidence) continues for at least nine (9) consecutive
months, the Company may terminate Executive's employment hereunder in which case
the Company shall immediately pay Executive a lump sum payment equal to
one-quarter of the sum of his annual salary and bonus with respect to the most
recent fiscal year then ended and, provided further, that no such lump sum
payment shall be required if such disability arises primarily from: (a) chronic
depressive use of intoxicants, drugs or narcotics, or (b) intentionally
self-inflicted injury or intentionally self-induced sickness; or (c) a proven
unlawful act or enterprise on the part of Executive.
8. Disclosure of Information. Executive acknowledges that in and as a
result of his employment with the Company, he has been and will be making use
of, acquiring and/or adding to confidential information of the Company of a
special and unique nature and value. As a material inducement to the Company to
enter into this Agreement and to pay to Executive the compensation stated in
Section 5, as well as any additional benefits stated herein, Executive covenants
and agrees that he shall not, at any time during or following the term of his
employment, directly or indirectly, divulge or disclose for any purpose
whatsoever, any confidential information that has been obtained by or disclosed
to him as a result of his employment with the Company, except to the extent that
such confidential information (a) becomes a matter of public record or is
published in a newspaper, magazine or other periodical available to the general
public, other than as a result of any act or omission of Executive, (b) is
required to be disclosed by any law, regulation or order of any court or
regulatory commission, department or agency, provided that Executive gives
prompt notice of such requirement to the Company to enable the Company to seek
an appropriate protective order or confidential treatment, or (c) is necessary
to perform properly Executive's duties under this Agreement. Upon the
termination of this Agreement, Executive shall return all materials obtained
from or belonging to the Company which he may have in his possession or control.
9. Covenants Against Competition and Solicitation. Executive
acknowledges that the services he is to render to the Company are of a special
and unusual character, with a unique value to the Company, the loss of which
cannot adequately be compensated by damages or an action at law. In view of the
unique value to the Company of the services of Executive for which the Company
has contracted hereunder, because of the confidential information to be obtained
by, or disclosed to, Executive as hereinabove set forth, and as a material
inducement to the Company to enter into this Agreement and to pay to Executive
the compensation stated in Section 5, as well as any additional benefits stated
herein, and other good and valuable consideration, Executive covenants and
agrees that throughout the period Executive remains employed hereunder and for
one year thereafter, Executive shall not, directly or indirectly, anywhere in
the United States of America
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(i) render any services, as an agent, independent contractor, consultant or
otherwise, or become employed or compensated by, any other corporation, person
or entity engaged in the business of selling or providing life, accident or
health insurance products or services; (ii) render any services, as an agent,
independent contractor, consultant or otherwise, or become employed or
compensated by, any other corporation, person or entity engaged in the business
of selling or providing any lending or other financial products or services that
are competitive with the lending or other financial products or services sold or
provided by the Company or its subsidiaries, (iii) in any manner compete with
the Company or any of its subsidiaries; (iv) solicit or attempt to convert to
other insurance carriers, finance companies or other corporations, persons or
other entities providing these same or similar products or services provided by
the Company and its subsidiaries, any customers or policyholders of the Company,
or any of its subsidiaries; or (v) solicit for employment or employ any employee
of the Company or any of its subsidiaries. The covenants of Executive in this
Section 9 shall be void and unenforceable in the event of a Control Termination
of this Agreement as defined in Section 10 below. Should any particular covenant
or provision of this Section 9 be held unreasonable or contrary to public policy
for any reason, including, without limitation, the time period, geographical
area, or scope of activity covered by any restrictive covenant or provision, the
Company and Executive acknowledge and agree that such covenant or provision
shall automatically be deemed modified such that the contested covenant or
provision shall have the closest effect permitted by applicable law to the
original form and shall be given effect and enforced as so modified to whatever
extent would be reasonable and enforceable under applicable law.
10. Termination.
(a) Either the Company or Executive may terminate this Agreement at
any time for any reason upon written notice to the other. This
Agreement shall also terminate upon (i) the death of Executive or (ii)
termination by the Company pursuant to Section 7.
(b) In the event this Agreement is terminated by the Company and
such termination is not pursuant to the last sentence of (a) above or
for "just cause" as defined in (e) below and does not constitute a
Control Termination as defined in (d) below, Executive shall be
entitled to receive Executive's Base Salary, as determined pursuant to
Section 5(a) hereof, for the remainder of the Basic Employment Period
(provided, that, if such amount for the remainder of the Basic
Employment Period aggregates less than $1,000,000, Executive shall
receive an aggregate lump sum payment of $1,000,000) and all other
unpaid amounts previously accrued or awarded pursuant to any other
provision of this Agreement.
(c) In the event this Agreement is terminated by the death of
Executive, is terminated by the Company for "just cause" as defined in
(e) below, or is terminated by Executive and such termination does not
constitute a Control Termination as defined in (d) below, Executive
shall be entitled to receive Executive's Base Salary as provided in
Section 5(a) accrued but unpaid as of the date of termination, and all
other unpaid amounts previously accrued or awarded pursuant to any
other provision of this Agreement.
(d) The term "Control Termination" as used herein shall mean (A)
termination of this Agreement by the Company in anticipation of or not
later than two years following a "change
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in control" of the Company (as defined below), or (B) termination of
this Agreement by Executive following "change in control" of the
Company (as defined below) upon the occurrence of any of the following
events:
(i) a significant change in the nature or scope of Executive's
authorities or duties from those in existence immediately prior to
the change in control, a reduction in his total compensation from
that in existence immediately prior to the change in control, or a
breach by the Company of any other provision of this Agreement; or
(ii) the reasonable determination by Executive that, as a
result of a change in circumstances significantly affecting his
position, he is unable to exercise Executive's authorities, powers,
functions or duties in existence immediately prior to the change in
control, or
(iii) the Company's principal executive offices are moved
outside the geographic area comprised of Marion County, Indiana, and
the seven contiguous counties or Executive is required to work at a
location other than the Company's principal executive offices; or
(iv) the giving of notice of termination by Executive during
the 6-month period commencing six (6) months after the change
in control.
The term "change in control" shall mean 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 Securities Exchange Act of 1934 (the "Act")
if such Item 6(e) were applicable to the Company as such Item is in effect on
May 26, 1999; provided that, without limitation,
(x) such a change in control shall be deemed to have occurred if and
when either (A) except as provided in (y) below, any "person" (as such
term is used in Sections 13(d) and 14(d) of the Act) is or becomes a
"beneficial owner" (as such term is defined in Rule 13d-3 promulgated
under the Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's
then outstanding securities entitled to vote with respect to the
election of its Board of Directors or (B) as the result of a tender
offer, merger, consolidation, sale of assets, or contest for election
of directors, or any combination of the foregoing transactions or
events, individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Incumbent Board") cease to constitute at
least a majority of such Board; provided, however, that any individual
who becomes a director of the Company subsequent to the date hereof
whose election was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board, shall be deemed to have
been a member of the Incumbent Board; and provided further, that no
individual who was initially elected as a director of the Company as a
result of an actual or threatened election contest, as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Act, or any
other actual or threatened solicitation of proxies or consents by or on
behalf of any person other than the Board of Directors shall be
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deemed to have been a member of the Incumbent Board, or (C) any
reorganization, merger or consolidation or the issuance of shares of
common stock of the Company in connection therewith unless immediately
after any such reorganization, merger or consolidation (i) more than
60% of the then outstanding shares of common stock of the corporation
surviving or resulting from such reorganization, merger or
consolidation and more than 60% of the combined voting power of the
then outstanding securities of such corporation entitled to vote
generally in the election of directors are then beneficially owned,
directly or indirectly, by all or substantially all of the individuals
or entities who were the beneficial owners, respectively, of the
outstanding shares of common stock of the Company and the outstanding
voting securities of the Company immediately prior to such
reorganization, merger or consolidation and in substantially the same
proportions relative to each other as their ownership, immediately
prior to such reorganization, merger or consolidation, of the
outstanding shares of common stock of the Company and the outstanding
voting securities of the Company, as the case may be, and (ii) at least
a majority of the members of the board of directors of the corporation
surviving or resulting from such reorganization, merger or
consolidation were members of the Board of Directors of the Company at
the time of the execution of the initial agreement or action of the
Board of Directors providing for such reorganization, merger or
consolidation or issuance of shares of common stock of the Company, and
(y) no change of control shall be deemed to have occurred if and
when any such person becomes, with the approval of the Board of
Directors of the Company, the beneficial owner of securities of the
Company representing 25% or more but less than 50% of the combined
voting power of the Company's then outstanding securities entitled to
vote with respect to the election of its Board of Directors and in
connection therewith represents, and at all times continues to
represent, in a filing, as amended, with the Securities and Exchange
Commission on Schedule 13D or Schedule 13G (or any successor Schedule
thereto) that "such person has acquired such securities for investment
and not with the purpose nor with the effect of changing or influencing
the control of the Company, nor in connection with or as a participant
in any transaction having such purpose or effect", or words of
comparable meaning and import. The designation by any such person, with
the approval of the Board of Directors of the Company, of a single
individual to serve as a member of, or observer at meetings of, the
Company's Board of Directors, shall not be considered "changing or
influencing the control of the Company" within the meaning of the
immediately preceding clause (B), so long as such individual does not
constitute at any time more than one-third of the total number of
directors serving on such Board.
Upon the occurrence of a change in control, the Company shall promptly notify
Executive in writing of the occurrence of such event (such notice, the "Change
in Control Notice"). If the Change in Control Notice is not given within 10 days
after the occurrence of a change in control the period specified in clause
(d)(A) of this Section 10 shall be extended until the second anniversary of the
date such Change in Control Notice is given.
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(e) For purposes of this Agreement "just cause" shall mean:
(i) a material breach by Executive of this Agreement, the
commission of gross negligence, or willful malfeasance or fraud or
dishonesty of a substantial nature in performing Executive's
services on behalf of the Company, which is in each case (A) willful
and deliberate on Executive's part and committed in bad faith or
without reasonable belief that such breach is in the best interests
of the Company and (B) not remedied by Executive in a reasonable
period of time after receipt of written notice from the Company
specifying such breach;
(ii) Executive's breach of any provisions of this Agreement, or
his use of alcohol or drugs which interferes with the performance of
his duties hereunder or which compromises the integrity and
reputation of the Company, its employees, and products;
(iii) Executive's conviction by a court of law, or admission
that he is guilty, of a felony or other crime involving moral
turpitude; or
(iv) Executive's absence from his employment other than as a
result of Section 7 hereof, for whatever cause, for a period of more
than one (1) month, without prior written consent from the Company.
11. Payments for Control Termination. In the event of a Control
Termination of this Agreement, the Company shall pay Executive and provide him
with the following:
(a) During the remainder of the Basic Employment Period, the Company
shall continue to pay Executive his Base Salary at the same rate as
payable immediately prior to the date of termination plus the estimated
amount of any bonuses to which he would have been entitled had he
remained in the employ of the Company and a change in control of the
Company had not occurred, which estimate shall be reasonable and made
by the Company in good faith.
(b) During the remainder of the Basic Employment Period, Executive
shall continue to be treated as an employee under the provisions of all
incentive compensation arrangements applicable to the Company's
executive employees. In addition, Executive shall continue to be
entitled to all benefits and service credits for benefits under
medical, insurance and other employee benefit plans, programs and
arrangements of the Company as if he were still employed under this
Agreement and a change in control of the Company had not occurred.
(c) If, despite the provisions of paragraph (b) above, benefits
under any employee benefit plan shall not be payable or provided under
any such plan to Executive, or Executive's dependents, beneficiaries
and estate, because he is no longer an employee of the
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Company, the Company itself shall, to the extent necessary to provide
the full value of such benefits and service credits to Executive,
Executive's dependants, beneficiaries and estate, pay or provide for
payment of such benefits and service credits for such benefits to
Executive, his dependents, beneficiaries and estate.
(d) If, despite the provisions of paragraph (b) above, benefits or
the right to accrue further benefits under any stock option or other
incentive compensation arrangement shall not be provided under any such
arrangement to Executive, or his dependents, beneficiaries and estate,
because he is no longer an employee of the Company, the Company shall,
to the extent necessary, pay or provide for payment of such benefits to
Executive, his dependents, beneficiaries and estate.
12. Severance Allowance. In the event of a Control Termination of this
Agreement, Executive may elect, within 60 days after such Control Termination,
to be paid a lump sum severance allowance, in lieu of the termination payments
provided for in Section 11 above, in an amount which is equal to the sum of the
amounts determined in accordance with the following clauses (a) and (b):
(a) an amount equal to the aggregate of salary payments for 60
calendar months at the rate of Base Salary which he would have been
entitled to receive in accordance with Section 5(a); and
(b) an amount equal to the aggregate of 60 calendar months of bonus
at the greater of (i) the monthly rate of the bonus payment for the
annual bonus period immediately prior to this termination date, or (ii)
the monthly rate of the estimated amount of the bonus for the annual
bonus period which includes his termination date.
In the event that Executive makes an election pursuant to this Section
to receive a lump sum severance allowance of the amount described in clauses (a)
and (b), then, in addition to such amount, he shall receive (i) in addition to
the benefits provided under any deferred compensation, retirement or pension
benefit plan maintained by the Company, the benefits he would have accrued under
such benefit plan if he had remained in the employ of the Company and such plan
had remained in effect for 60 calendar months after his termination, which
benefits will be paid concurrently with, and in addition to, the benefits
provided under such benefit plan, and (ii) the employee benefits (including, but
not limited to, coverage under any medical insurance and life insurance
arrangements or programs) to which he would have been entitled under all
employee benefit plans, programs or arrangements maintained by the Company if he
had remained in the employ of the Company and such plans, programs or
arrangements had remained in effect for 60 calendar months after his
termination; or the value of the amounts described in clauses (i) and (ii) next
preceding. The amount of the payments described in the preceding sentence shall
be determined and such payments shall be distributed as soon as it is reasonably
possible.
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13. Tax Indemnity Payments. (a) Anything in this Agreement to the
contrary notwithstanding, in the event it shall be determined that any payment
or distribution by the Company or its affiliated companies to or for the benefit
of Executive, whether paid or payable or distributed or distributable pursuant
to the terms of the Agreement or otherwise but determined without regard to any
additional payments required under this Section 13 (a "Payment"), would be
subject to the excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986 (as amended the "Code"), or any successor provision (collectively,
"Section 4999"), or any interest or penalties are incurred by Executive with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any Federal, state or local income and employment
taxes and Excise Tax (and any interest and penalties imposed with respect to any
such taxes) imposed upon the Gross-Up Payment, Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 13(c), all determinations
required to be made under this Section 13, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by the Company's
public accounting firm (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and Executive within fifteen (15)
business days of the receipt of notice from Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, Executive may appoint another
nationally recognized public accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 13, shall be paid by the Company to Executive within five (5) days of
the receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by Executive, it shall furnish
Executive with a written opinion that failure to report the Excise Tax on
Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and Executive. As a result of
the uncertainty in the application of Section 4999 at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made by
the Company ("Underpayment"), consistent with the calculations required to be
made hereunder. In the event that the Company exhausts its remedies pursuant to
Section 13(c) and Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of Executive.
(c) Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require a payment by the
Company of, or a change in the amount
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of the payment by the Company of, the Gross-Up Payment. Such notification shall
be given as soon as practicable after Executive is informed in writing of such
claim and shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid; provided that the failure to give any
notice pursuant to this Section 13(c) shall not impair Executive's rights under
this Section 13 except to the extent the Company is materially prejudiced
thereby. Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which Executive gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies Executive in writing
prior to the expiration of such period that it desires to contest such claim,
Executive shall:
(1) give the Company any information reasonably requested by the
Company relating to such claim,
(2) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(3) cooperate with the Company in good faith in order effectively to
contest such claim, and
(4) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Executive harmless, on an
after-tax basis, for any Excise Tax or income, employment or other tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 13(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct Executive to pay the tax claimed and sue for a refund
or contest the claim in any permissible manner, and Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided further, that if the Company directs Executive
to pay such claim and sue for a refund, the Company shall advance the amount of
such payment to Executive on an interest-free basis and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income,
employment or other tax (including interest or penalties with respect to any
such taxes) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and provided further, that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable
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hereunder and Executive shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by Executive of an amount advanced by the
Company pursuant to Section 13(c), Executive becomes entitled to receive, and
receives, any refund with respect to such claim, Executive shall (subject to the
Company's complying with the requirements of Section 12(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by Executive of
an amount advanced by the Company pursuant to Section 13(c), a determination is
made that Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify Executive in writing of its intent to
contest such denial of refund prior to the expiration of thirty (30) days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
14. Payment for Options and Stock. In the event of a Control
Termination of this Agreement, Executive may also elect, within sixty (60) days
after such Control Termination, to receive (in addition to any other amounts
owed to Executive under this Agreement) a lump sum payment in cash equal to the
sum of the following: (i) all or any portion of the number of shares of common
stock of the Company which may be acquired pursuant to options granted by the
Company and held by Executive at the time of such election, multiplied, with
respect to shares subject to any such options by the difference between the
Conseco Put Price and the respective exercise price under such option with
respect to such shares; plus (ii) all or any portion of the number of Successor
Securities which may be acquired pursuant to options (which options were granted
to Executive in exchange or substitution for options to acquire the common stock
of the Company) held by Executive at the time of such election, multiplied with
respect to shares subject to any such options relating to Successor Securities,
by the difference between the Successor Security Put Price and the respective
exercise price under such option with respect to such shares; plus (iii) all or
any portion of the number of shares of common stock of the Company held by
Executive at the time of such election, multiplied by the Conseco Put Price;
plus (iv) all or any portion of the number of Successor Securities held by
Executive at the time of such election, multiplied by the Successor Security Put
Price; plus (v) to the extent that any of Executive's deferred compensation
units were not satisfied in cash in connection with the change in control and
were instead payable in shares of common stock of the Company or Successor
Securities, all or any portion of the number of units held by Executive at the
time of such election, multiplied by the Conseco Put Price of the common stock
of the Company or the Successor Security Put Price of the Successor Securities,
as the case may be. For purposes of calculating the above lump sum payment, the
options described in clauses (i) and (ii) shall include all such options,
whether or not then exercisable. The cash payment due from the Company pursuant
to this Section 14 shall be made to Executive within ten (10) days after the
date of such election hereunder, against the execution and delivery by Executive
to the Company of an appropriate agreement confirming the surrender to the
Company of the options and deferred compensation units and the certificates
representing the common stock of the Company or Successor
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Securities, in each case in respect of which the lump sum cash payment is being
made to Executive.
"Successor Securities" means any securities of any person received by
the holders of the common stock of the Company in exchange, substitution or
payment for, or upon conversion of, the common stock of the Company in
connection with a change in control.
"Conseco Put Price" means the greater of (i) the Change in Control
Price or (ii) the Current Market Price of the common stock of the Company.
"Successor Security Put Price" means the greater of (i) the Change in
Control Price divided by the Exchange Ratio or (ii) the Current Market Price of
the Successor Securities.
"Current Market Price" for any security means the average of the daily
Prices per security for the twenty (20) consecutive trading days ending on the
trading day which is immediately prior to Executive's election under this
Section 14.
"Price" for any security means the average of the highest and lowest
sales price of such security (regular way) on a trading day as shown on the
Composite Tape of the New York Stock Exchange (or, if such security is not
listed or admitted to trading on the New York Stock Exchange, on the principal
national securities exchange on which such security is listed or admitted to
trading) or, in case no sales take place on such day, the average of the closing
bid and asked prices on the New York Stock Exchange (or, if such security is not
listed or admitted to trading on the New York Stock Exchange, on the principal
national securities exchange on which such security is listed or admitted to
trading) or, if it is not listed or admitted to trading on any national
securities exchange, the average of the highest and lowest sales prices of such
security on such day as reported by the NASDAQ Stock Market, or in case no sales
take place on such day, the average of the closing bid and asked prices as
reported by NASDAQ, or if such security is not so reported, the average of the
closing bid and asked prices as furnished by any securities broker-dealer of
recognized national standing selected from time to time by the Company (or its
successor in interest) for that purpose.
"Change in Control Price" means (i) in the case of a change in control
which occurs solely as a result of a change in the composition of the Board of
Directors of the Company or which occurs in a transaction, or series of related
transactions, in which the same consideration is paid or delivered to all of the
holders of common stock of the Company (or, in the event of an election by
holders of the common stock of the Company of different forms of consideration,
if the same election is offered to all of the holders of common stock of the
Company), the Price per share of the common stock of the Company on the date on
which the change in control occurs, or if such date is not a trading day, then
the trading day immediately prior to such date, or (ii) in the case of a change
in control effected through a series of related transactions, or in a single
transaction in which less than all of the outstanding shares of common stock of
the Company is acquired, the highest price paid to the holders of common stock
of the Company in the transaction or series of related transactions whereby the
change in control takes place. In determining the highest price paid to the
holders pursuant to clause (ii) of the immediately preceding sentence, in the
case of Successor
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Securities paid or delivered to the holders of common stock of the Company in
exchange, payment or substitution for, or upon conversion of, the common stock
of the Company, the price paid to such holders shall be the Price of such
security at the time or times paid or delivered to such holders.
"Exchange Ratio" means, in connection with a change in control, the
number of Successor Securities to be paid or delivered to the holders of common
stock of the Company in exchange, payment or substitution for, or upon
conversion of, each share of such common stock.
15. Character of Termination Payments. The amounts payable to Executive
upon any termination of this Agreement shall be considered severance pay in
consideration of past services rendered on behalf of the Company and his
continued service from the date hereof to the date he becomes entitled to such
payments. Executive shall have no duty to mitigate his damages by seeking other
employment and, should Executive actually receive compensation from any such
other employment, the payments required hereunder shall not be reduced or offset
by any such other compensation.
16. Right of First Refusal to Purchase Stock. Executive agrees that the
Company shall have throughout the Basic Employment Period the right of first
refusal to purchase all or any portion of the shares of the Company's common
stock owned by him (the "Shares") at the following price:
(a) in the event of a bona fide offer for the Shares, or any part
thereof, received by Executive from any other person (a "Third Party
Offer"), the price to be paid by the Company shall be the price set
forth in such Third Party Offer; and
(b) in the event Executive desires to sell the Shares, or any part
thereof, in the public securities market, the price to be paid by the
Company shall be the last sale price quoted on the New York Stock
Exchange (or any other exchange or national market system upon which
price quotations for the Company's common stock are regularly
available) for the Company's common stock on the last business day
preceding the date on which Executive notifies the Company of such
desire.
In the event Executive shall receive a Third Party Offer which he
desires to accept, he shall deliver to the Company a written notification of the
terms thereof and the Company shall have a period of 48 hours after such
delivery in which to notify Executive of its desire to exercise its right of
first refusal hereunder.
In the event Executive desires to sell any portion of the Shares in the
public market he shall deliver to the Company a written notification of the
amount of Shares he desires to sell, and the Company shall have a period of 24
hours after such delivery to notify Executive of its desire to exercise its
right of first refusal hereunder with respect to such amount of Shares.
Upon each exercise by the Company of its right of first refusal
hereunder, it shall make payment to Executive for the Shares in accordance with
standard practice in the securities brokerage
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industry. After each failure by the Company to exercise its right of first
refusal hereunder, Executive may proceed to complete the sale of Shares pursuant
to the Third Party Offer or in the open market in accordance with his
notification to the Company, but his failure to complete such sale within two
weeks after his notification to the Company shall reinstate the Company's right
of first refusal with respect thereto and require a new notification to the
Company.
17. Arbitration of Disputes; Injunctive Relief.
(a) Except as provided in paragraph (b) below, any controversy or
claim arising out of or relating to this Agreement or the breach
thereof, shall be settled by binding arbitration in the City of
Indianapolis, Indiana, in accordance with the laws of the State of
Indiana by three arbitrators, one of whom shall be appointed by the
Company, one by Executive and the third of whom shall be appointed by
the first two arbitrators. If the first two arbitrators cannot agree on
the appointment of a third arbitrator, then the third arbitrator shall
be appointed by the Chief Judge of the United States District Court for
the Southern District of Indiana. The arbitration shall be conducted in
accordance with the rules of the American Arbitration Association,
except with respect to the selection of arbitrators which shall be as
provided in this Section. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. In
the event that it shall be necessary or desirable for Executive to
retain legal counsel and/or incur other costs and expenses in
connection with the enforcement of any and all of his rights under this
Agreement, the Company shall pay (or Executive shall be entitled to
recover from he Company, as the case may be) his reasonable attorneys'
fees and costs and expenses in connection with the enforcement of any
arbitration award in court, regardless of the final outcome, unless the
arbitrators shall determine that under the circumstances recovery by
Executive of all or a part of any such fees and costs and expenses
would be unjust.
(b) Executive acknowledges that a breach or threatened breach by
Executive of Sections 8 or 9 of this Agreement will give rise to
irreparable injury to the Company and that money damages will not be
adequate relief for such injury. Notwithstanding paragraph (a) above,
the Company and Executive agree that the Company may seek and obtain
injunctive relief, including, without limitation, temporary restraining
orders, preliminary injunctions and/or permanent injunctions, in a
court of proper jurisdiction to restrain or prohibit a breach or
threatened breach of Section 8 or 9 of this Agreement. Nothing herein
shall be construed as prohibiting the Company from pursuing any other
remedies available to the Company for such breach or threatened breach,
including the recovery of damages from Executive.
18. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by registered mail to
his residence, in the case of Executive, or to the business office of its Chief
Executive Officer, in the case of the Company.
19. Waiver of Breach and Severability. The waiver by either party of a
breach of any provision of this Agreement by the other party shall not operate
or be construed as a waiver of any
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subsequent breach by either party. In the event any provision of this Agreement
is found to be invalid or unenforceable, it may be severed from the Agreement
and the remaining provisions of the Agreement shall continue to be binding and
effective.
20. Entire Agreement. This instrument contains the entire agreement of
parties and supersedes all prior agreements between them. This agreement may not
be changed orally, but only by an instrument in writing signed by the party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
21. Binding Agreement and Governing Law; Assignment Limited. This
Agreement shall be binding upon and shall inure to the benefit of the parties
and their lawful successors in interest and shall be construed in accordance
with and governed by the laws of the State of Indiana. This Agreement is
personal to each of the parties hereto, and neither party may assign nor
delegate any of its rights or obligations hereunder without the prior written
consent of the other.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CONSECO, INC.
By: /s/ Stephen C. Hilbert
----------------------
Stephen C. Hilbert
Chairman of the Board
"Company"
/s/ James S. Adams
----------------------
James S. Adams
"Executive"
15
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of the 28th day of July, 1999,
between CONSECO, INC., an Indiana corporation (hereinafter called the
"Company"), and Maxwell E. Bublitz (hereinafter called "Executive").
RECITALS
WHEREAS, Executive has been employed by the Company for a number of
years, and the services of Executive, his managerial and professional
experience, and his knowledge of the affairs of the Company are of great value
to the Company; and
WHEREAS, the Company deems it to be essential for it to have the
benefit and advantage of the services of the Executive for an extended period;
and
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, the parties agree as follows:
1. Employment. The Company hereby employs Executive and Executive
hereby accepts employment upon the terms and conditions hereinafter set forth.
2. Term. The effective date of this Agreement shall be July 28, 1999.
Subject to the provisions for termination as provided in Section 10 hereof, the
term of this Agreement shall be the period beginning July 28, 1999, and ending
December 31, 2002, (hereinafter called the "Basic Employment Period").
3. Duties. Executive is engaged by the Company in an executive capacity
as the head of Conseco Capital Management, Inc. ("CCM"). Executive shall report
to the Chief Financial Officer or, if the Chief Executive Officer so designates
from time to time, the Chief Executive Officer (the officer to whom Executive
reports at any time being referred to as the "Reporting Officer") regarding the
performance of his duties and shall be subject to the direction and control of
the Board of Directors of the Company (sometimes referred to herein as the
"Board") and the Reporting Officer. Executive's position with the Company shall
initially be Senior Vice President, Investments and President of CCM and such
other positions as may be determined from time to time by the Board.
4. Extent of Services. Executive, subject to the direction and control
of the Reporting Officer and the Board, shall have the power and authority
commensurate with his executive status and necessary to perform his duties
hereunder. The Company agrees to provide to Executive such assistance and work
accommodations as are suitable to the character of his positions with the
Company and adequate for the performance of his duties. Executive shall devote
his entire employable time, attention and best efforts to the business of the
Company, and shall not, without the consent of the Company, during the term of
this Agreement be actively engaged in any other business activity, whether or
not such business activity is pursued for gain, profit or other pecuniary
advantage; but this shall not be construed as preventing Executive from
investing his assets in such form or manner as will not require any services on
the part of Executive in the operation of the affairs of the companies in which
such investments are made. For purposes of this Agreement, full-
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time employment shall be the normal work week for individuals in comparable
executive positions with the Company.
5. Compensation.
(a) As compensation for services hereunder rendered during the term
hereof, Executive shall receive a base salary ("Base Salary") of Two
Hundred Fifty Thousand Dollars ($250,000) per year payable in equal
installments in accordance with the Company's payroll procedure for its
salaried employees. Salary and all other payments made pursuant to this
Agreement shall be subject to withholding of taxes. Executive may
receive increases in his Base Salary from time to time, based upon his
performance in his executive and management capacity. The amounts of
any such salary increases shall be approved by the Board or the
Compensation Committee of the Board upon the recommendation of the
Chief Executive Officer.
(b) In addition to Base Salary, Executive may receive such other
bonuses or incentive compensation as the Compensation Committee or the
Board may approve from time to time, upon the recommendation of the
Chief Executive Officer; provided, that Executive shall receive a cash
bonus of at least Seven Hundred Fifty Thousand Dollars ($750,000) for
each of the first two calendar years (i.e., 1999 and 2000) completed
under this Agreement.
6. Fringe Benefits.
(a) Executive shall be entitled to participate in such existing
employee benefit plans and insurance programs offered by the Company,
or which it may adopt form time to time, for its executive management
or supervisory personnel generally, in accordance with the eligibility
requirements for participation therein. Nothing herein shall be
construed so as to prevent the Company from modifying or terminating
any employee benefit plans or programs, or employee fringe benefits, it
may adopt from time to time.
(b) During the term of this Agreement, the Company shall pay
Executive a monthly automobile allowance in the amount of Six Hundred
Dollars ($600), and the Company shall pay directly or shall reimburse
Executive for the cost of fuel that he incurs in using his automobile.
(c) Executive shall be entitled to four (4) weeks vacation with pay
each year during the term hereof.
(d) Executive may incur reasonable expenses for promoting the
Company's business, including expenses for entertainment, travel, and
similar items. The Company shall reimburse Executive for all such
reasonable expenses upon Executive's periodic presentation of an
itemized account of such expenditures.
(e) The Company shall, upon periodic presentation of satisfactory
evidence and to a maximum of Ten Thousand Dollars ($10,000) per each
year of this Agreement, reimburse
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Executive for reasonable medical expenses incurred by Executive and his
dependents which are not otherwise covered by health insurance provided
to Executive under Section 6(a).
(f) During the term of this Agreement, the Company shall at its
expense maintain a term life insurance policy or policies on the life
of Executive in the face amount of Five Hundred Thousand Dollars
($500,000), payable to such beneficiaries as Executive may designate.
7. Disability. If Executive shall become physically or mentally
disabled during the term of this Agreement to the extent that his ability to
perform his duties and services hereunder is materially and adversely impaired,
his salary, bonus and other compensation provided herein shall continue while he
remains employed by the Company; provided, that if such disability (as confirmed
by competent medical evidence) continues for at least nine (9) consecutive
months, the Company may terminate Executive's employment hereunder in which case
the Company shall immediately pay Executive a lump sum payment equal to
one-quarter of the sum of his annual salary and bonus with respect to the most
recent fiscal year then ended and, provided further, that no such lump sum
payment shall be required if such disability arises primarily from: (a) chronic
depressive use of intoxicants, drugs or narcotics, or (b) intentionally
self-inflicted injury or intentionally self-induced sickness; or (c) a proven
unlawful act or enterprise on the part of Executive.
8. Disclosure of Information. Executive acknowledges that in and as a
result of his employment with the Company, he has been and will be making use
of, acquiring and/or adding to confidential information of the Company of a
special and unique nature and value. As a material inducement to the Company to
enter into this Agreement and to pay to Executive the compensation stated in
Section 5, as well as any additional benefits stated herein, Executive covenants
and agrees that he shall not, at any time during or following the term of his
employment, directly or indirectly, divulge or disclose for any purpose
whatsoever, any confidential information that has been obtained by or disclosed
to him as a result of his employment with the Company, except to the extent that
such confidential information (a) becomes a matter of public record or is
published in a newspaper, magazine or other periodical available to the general
public, other than as a result of any act or omission of Executive, (b) is
required to be disclosed by any law, regulation or order of any court or
regulatory commission, department or agency, provided that Executive gives
prompt notice of such requirement to the Company to enable the Company to seek
an appropriate protective order or confidential treatment, or (c) is necessary
to perform properly Executive's duties under this Agreement. Upon the
termination of this Agreement, Executive shall return all materials obtained
from or belonging to the Company which he may have in his possession or control.
9. Covenants Against Competition and Solicitation. Executive
acknowledges that the services he is to render to the Company are of a special
and unusual character, with a unique value to the Company, the loss of which
cannot adequately be compensated by damages or an action at law. In view of the
unique value to the Company of the services of Executive for which the Company
has contracted hereunder, because of the confidential information to be obtained
by, or disclosed to, Executive as hereinabove set forth, and as a material
inducement to the Company to enter into this Agreement and to pay to Executive
the compensation stated in Section 5, as well as any additional benefits stated
herein, and other good and valuable consideration, Executive
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<PAGE>
covenants and agrees that throughout the period Executive remains employed
hereunder and for one year thereafter, Executive shall not, directly or
indirectly, anywhere in the United States of America (i) render any services, as
an agent, independent contractor, consultant or otherwise, or become employed or
compensated by, any other corporation, person or entity engaged in the business
of selling or providing life, accident or health insurance products or services;
(ii) render any services, as an agent, independent contractor, consultant or
otherwise, or become employed or compensated by, any other corporation, person
or entity engaged in the business of selling or providing any lending or other
financial products or services that are competitive with the lending or other
financial products or services sold or provided by the Company or its
subsidiaries, (iii) render any services, as an agent, independent contractor,
consultant or otherwise, or become employed or compensated by, any other
corporation, person or entity engaged in the business of providing investment
management or advisory services; (iv) in any manner compete with the Company or
any of its subsidiaries; (v) solicit or attempt to convert to other insurance
carriers, finance companies or other corporations, persons or other entities
(including, without limitation, investment management or advisory firms)
providing these same or similar products or services provided by the Company and
its subsidiaries, any customers or policyholders of the Company, or any of its
subsidiaries; or (vi) solicit for employment or employ any employee of the
Company or any of its subsidiaries. The covenants of Executive in this Section 9
shall be void and unenforceable in the event of a Control Termination of this
Agreement as defined in Section 10 below. Should any particular covenant or
provision of this Section 9 be held unreasonable or contrary to public policy
for any reason, including, without limitation, the time period, geographical
area, or scope of activity covered by any restrictive covenant or provision, the
Company and Executive acknowledge and agree that such covenant or provision
shall automatically be deemed modified such that the contested covenant or
provision shall have the closest effect permitted by applicable law to the
original form and shall be given effect and enforced as so modified to whatever
extent would be reasonable and enforceable under applicable law.
10. Termination.
(a) Either the Company or Executive may terminate this Agreement at
any time for any reason upon written notice to the other. This
Agreement shall also terminate upon (i) the death of Executive or (ii)
termination by the Company pursuant to Section 7.
(b) In the event this Agreement is terminated by the Company and
such termination is not pursuant to the last sentence of (a) above or
for "just cause" as defined in (e) below and does not constitute a
Control Termination as defined in (d) below, Executive shall be
entitled to receive Executive's Base Salary, as determined pursuant to
Section 5(a) hereof, for the remainder of the Basic Employment Period
(provided, that, if such amount for the remainder of the Basic
Employment Period aggregates less than $1,000,000, Executive shall
receive an aggregate lump sum payment of $1,000,000) and all other
unpaid amounts previously accrued or awarded pursuant to any other
provision of this Agreement.
(c) In the event this Agreement is terminated by the death of
Executive, is terminated by the Company for "just cause" as defined in
(e) below, or is terminated by Executive and such termination does not
constitute a Control Termination as defined in (d) below,
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Executive shall be entitled to receive Executive's Base Salary as
provided in Section 5(a) accrued but unpaid as of the date of
termination, and all other unpaid amounts previously accrued or awarded
pursuant to any other provision of this Agreement.
(d) The term "Control Termination" as used herein shall mean (A)
termination of this Agreement by the Company in anticipation of or not
later than two years following a "change in control" of the Company (as
defined below), or (B) termination of this Agreement by Executive
following "change in control" of the Company (as defined below) upon
the occurrence of any of the following events:
(i) a significant change in the nature or scope of Executive's
authorities or duties from those in existence immediately prior to
the change in control, a reduction in his total compensation from
that in existence immediately prior to the change in control, or a
breach by the Company of any other provision of this Agreement; or
(ii) the reasonable determination by Executive that, as a
result of a change in circumstances significantly affecting his
position, he is unable to exercise Executive's authorities, powers,
functions or duties in existence immediately prior to the change in
control, or
(iii) the Company's principal executive offices are moved
outside the geographic area comprised of Marion County, Indiana, and
the seven contiguous counties or Executive is required to work at a
location other than the Company's principal executive offices; or
(iv) the giving of notice of termination by Executive during
the 6-month period commencing six (6) months after the change in
control.
The term "change in control" shall mean 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 Securities Exchange Act of 1934 (the "Act")
if such Item 6(e) were applicable to the Company as such Item is in effect on
May 26, 1999; provided that, without limitation,
(x) such a change in control shall be deemed to have occurred if and
when either (A) except as provided in (y) below, any "person" (as such
term is used in Sections 13(d) and 14(d) of the Act) is or becomes a
"beneficial owner" (as such term is defined in Rule 13d-3 promulgated
under the Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's
then outstanding securities entitled to vote with respect to the
election of its Board of Directors or (B) as the result of a tender
offer, merger, consolidation, sale of assets, or contest for election
of directors, or any combination of the foregoing transactions or
events, individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Incumbent Board") cease to constitute at
least a majority of such Board; provided, however, that any individual
who becomes a director of the Company subsequent to the date hereof
whose election was
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approved by a vote of at least a majority of the directors then
comprising the Incumbent Board, shall be deemed to have been a member
of the Incumbent Board; and provided further, that no individual who
was initially elected as a director of the Company as a result of an
actual or threatened election contest, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Act, or any other actual
or threatened solicitation of proxies or consents by or on behalf of
any person other than the Board of Directors shall be deemed to have
been a member of the Incumbent Board, or (C) any reorganization, merger
or consolidation or the issuance of shares of common stock of the
Company in connection therewith unless immediately after any such
reorganization, merger or consolidation (i) more than 60% of the then
outstanding shares of common stock of the corporation surviving or
resulting from such reorganization, merger or consolidation and more
than 60% of the combined voting power of the then outstanding
securities of such corporation entitled to vote generally in the
election of directors are then beneficially owned, directly or
indirectly, by all or substantially all of the individuals or entities
who were the beneficial owners, respectively, of the outstanding shares
of common stock of the Company and the outstanding voting securities of
the Company immediately prior to such reorganization, merger or
consolidation and in substantially the same proportions relative to
each other as their ownership, immediately prior to such
reorganization, merger or consolidation, of the outstanding shares of
common stock of the Company and the outstanding voting securities of
the Company, as the case may be, and (ii) at least a majority of the
members of the board of directors of the corporation surviving or
resulting from such reorganization, merger or consolidation were
members of the Board of Directors of the Company at the time of the
execution of the initial agreement or action of the Board of Directors
providing for such reorganization, merger or consolidation or issuance
of shares of common stock of the Company, and
(y) no change of control shall be deemed to have occurred if and
when any such person becomes, with the approval of the Board of
Directors of the Company, the beneficial owner of securities of the
Company representing 25% or more but less than 50% of the combined
voting power of the Company's then outstanding securities entitled to
vote with respect to the election of its Board of Directors and in
connection therewith represents, and at all times continues to
represent, in a filing, as amended, with the Securities and Exchange
Commission on Schedule 13D or Schedule 13G (or any successor Schedule
thereto) that "such person has acquired such securities for investment
and not with the purpose nor with the effect of changing or influencing
the control of the Company, nor in connection with or as a participant
in any transaction having such purpose or effect", or words of
comparable meaning and import. The designation by any such person, with
the approval of the Board of Directors of the Company, of a single
individual to serve as a member of, or observer at meetings of, the
Company's Board of Directors, shall not be considered "changing or
influencing the control of the Company" within the meaning of the
immediately preceding clause (B), so long as such individual does not
constitute at any time more than one-third of the total number of
directors serving on such Board.
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Upon the occurrence of a change in control, the Company shall promptly notify
Executive in writing of the occurrence of such event (such notice, the "Change
in Control Notice"). If the Change in Control Notice is not given within 10 days
after the occurrence of a change in control the period specified in clause
(d)(A) of this Section 10 shall be extended until the second anniversary of the
date such Change in Control Notice is given.
(e) For purposes of this Agreement "just cause" shall mean:
(i) a material breach by Executive of this Agreement, the
commission of gross negligence, or willful malfeasance or fraud or
dishonesty of a substantial nature in performing Executive's
services on behalf of the Company, which is in each case (A) willful
and deliberate on Executive's part and committed in bad faith or
without reasonable belief that such breach is in the best interests
of the Company and (B) not remedied by Executive in a reasonable
period of time after receipt of written notice from the Company
specifying such breach;
(ii) Executive's breach of any provisions of this Agreement, or
his use of alcohol or drugs which interferes with the performance of
his duties hereunder or which compromises the integrity and
reputation of the Company, its employees, and products;
(iii) Executive's conviction by a court of law, or admission
that he is guilty, of a felony or other crime involving moral
turpitude; or
(iv) Executive's absence from his employment other than as a
result of Section 7 hereof, for whatever cause, for a period of more
than one (1) month, without prior written consent from the Company.
11. Payments for Control Termination. In the event of a Control
Termination of this Agreement, the Company shall pay Executive and provide him
with the following:
(a) During the remainder of the Basic Employment Period, the Company
shall continue to pay Executive his Base Salary at the same rate as
payable immediately prior to the date of termination plus the estimated
amount of any bonuses to which he would have been entitled had he
remained in the employ of the Company and a change in control of the
Company had not occurred, which estimate shall be reasonable and made
by the Company in good faith.
(b) During the remainder of the Basic Employment Period, Executive
shall continue to be treated as an employee under the provisions of all
incentive compensation arrangements applicable to the Company's
executive employees. In addition, Executive shall continue to be
entitled to all benefits and service credits for benefits under
medical, insurance and other employee benefit plans, programs and
arrangements of the Company as if he were
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still employed under this Agreement and a change in control of the
Company had not occurred.
(c) If, despite the provisions of paragraph (b) above, benefits
under any employee benefit plan shall not be payable or provided under
any such plan to Executive, or Executive's dependents, beneficiaries
and estate, because he is no longer an employee of the Company, the
Company itself shall, to the extent necessary to provide the full value
of such benefits and service credits to Executive, Executive's
dependants, beneficiaries and estate, pay or provide for payment of
such benefits and service credits for such benefits to Executive, his
dependents, beneficiaries and estate.
(d) If, despite the provisions of paragraph (b) above, benefits or
the right to accrue further benefits under any stock option or other
incentive compensation arrangement shall not be provided under any such
arrangement to Executive, or his dependents, beneficiaries and estate,
because he is no longer an employee of the Company, the Company shall,
to the extent necessary, pay or provide for payment of such benefits to
Executive, his dependents, beneficiaries and estate.
12. Severance Allowance. In the event of a Control Termination of this
Agreement, Executive may elect, within 60 days after such Control Termination,
to be paid a lump sum severance allowance, in lieu of the termination payments
provided for in Section 11 above, in an amount which is equal to the sum of the
amounts determined in accordance with the following clauses (a) and (b):
(a) an amount equal to the aggregate of salary payments for 60
calendar months at the rate of Base Salary which he would have been
entitled to receive in accordance with Section 5(a); and
(b) an amount equal to the aggregate of 60 calendar months of bonus
at the greater of (i) the monthly rate of the bonus payment for the
annual bonus period immediately prior to this termination date, or (ii)
the monthly rate of the estimated amount of the bonus for the annual
bonus period which includes his termination date.
In the event that Executive makes an election pursuant to this Section
to receive a lump sum severance allowance of the amount described in clauses (a)
and (b), then, in addition to such amount, he shall receive (i) in addition to
the benefits provided under any deferred compensation, retirement or pension
benefit plan maintained by the Company, the benefits he would have accrued under
such benefit plan if he had remained in the employ of the Company and such plan
had remained in effect for 60 calendar months after his termination, which
benefits will be paid concurrently with, and in addition to, the benefits
provided under such benefit plan, and (ii) the employee benefits (including, but
not limited to, coverage under any medical insurance and life insurance
arrangements or programs) to which he would have been entitled under all
employee benefit plans, programs or arrangements maintained by the Company if he
had remained in the employ of the Company and
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such plans, programs or arrangements had remained in effect for 60 calendar
months after his termination; or the value of the amounts described in clauses
(i) and (ii) next preceding. The amount of the payments described in the
preceding sentence shall be determined and such payments shall be distributed as
soon as it is reasonably possible.
13. Tax Indemnity Payments. (a) Anything in this Agreement to the
contrary notwithstanding, in the event it shall be determined that any payment
or distribution by the Company or its affiliated companies to or for the benefit
of Executive, whether paid or payable or distributed or distributable pursuant
to the terms of the Agreement or otherwise but determined without regard to any
additional payments required under this Section 13 (a "Payment"), would be
subject to the excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986 (as amended the "Code"), or any successor provision (collectively,
"Section 4999"), or any interest or penalties are incurred by Executive with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any Federal, state or local income and employment
taxes and Excise Tax (and any interest and penalties imposed with respect to any
such taxes) imposed upon the Gross-Up Payment, Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 13(c), all determinations
required to be made under this Section 13, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by the Company's
public accounting firm (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and Executive within fifteen (15)
business days of the receipt of notice from Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, Executive may appoint another
nationally recognized public accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 13, shall be paid by the Company to Executive within five (5) days of
the receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by Executive, it shall furnish
Executive with a written opinion that failure to report the Excise Tax on
Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and Executive. As a result of
the uncertainty in the application of Section 4999 at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made by
the Company ("Underpayment"), consistent with the calculations required to be
made hereunder. In the event that the Company exhausts its remedies pursuant to
Section 13(c) and Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall
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<PAGE>
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
Executive.
(c) Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require a payment by the
Company of, or a change in the amount of the payment by the Company of, the
Gross-Up Payment. Such notification shall be given as soon as practicable after
Executive is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid; provided that the failure to give any notice pursuant to this Section
13(c) shall not impair Executive's rights under this Section 13 except to the
extent the Company is materially prejudiced thereby. Executive shall not pay
such claim prior to the expiration of the 30-day period following the date on
which Executive gives such notice to the Company (or such shorter period ending
on the date that any payment of taxes with respect to such claim is due). If the
Company notifies Executive in writing prior to the expiration of such period
that it desires to contest such claim, Executive shall:
(1) give the Company any information reasonably requested by the
Company relating to such claim,
(2) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(3) cooperate with the Company in good faith in order effectively to
contest such claim, and
(4) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Executive harmless, on an
after-tax basis, for any Excise Tax or income, employment or other tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 13(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct Executive to pay the tax claimed and sue for a refund
or contest the claim in any permissible manner, and Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided further, that if the Company directs Executive
to pay such claim and sue for a refund, the Company shall advance the amount of
such payment to Executive on an interest-free basis and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income,
employment or other tax (including interest or penalties with respect to any
such taxes)
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imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and provided further, that any extension of the statute
of limitations relating to payment of taxes for the taxable year of Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and Executive shall be entitled to settle or contest,
as the case may be, any other issue raised by the Internal Revenue Service or
any other taxing authority.
(d) If, after the receipt by Executive of an amount advanced by the
Company pursuant to Section 13(c), Executive becomes entitled to receive, and
receives, any refund with respect to such claim, Executive shall (subject to the
Company's complying with the requirements of Section 12(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by Executive of
an amount advanced by the Company pursuant to Section 13(c), a determination is
made that Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify Executive in writing of its intent to
contest such denial of refund prior to the expiration of thirty (30) days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
14. Payment for Options and Stock. In the event of a Control
Termination of this Agreement, Executive may also elect, within sixty (60) days
after such Control Termination, to receive (in addition to any other amounts
owed to Executive under this Agreement) a lump sum payment in cash equal to the
sum of the following: (i) all or any portion of the number of shares of common
stock of the Company which may be acquired pursuant to options granted by the
Company and held by Executive at the time of such election, multiplied, with
respect to shares subject to any such options by the difference between the
Conseco Put Price and the respective exercise price under such option with
respect to such shares; plus (ii) all or any portion of the number of Successor
Securities which may be acquired pursuant to options (which options were granted
to Executive in exchange or substitution for options to acquire the common stock
of the Company) held by Executive at the time of such election, multiplied with
respect to shares subject to any such options relating to Successor Securities,
by the difference between the Successor Security Put Price and the respective
exercise price under such option with respect to such shares; plus (iii) all or
any portion of the number of shares of common stock of the Company held by
Executive at the time of such election, multiplied by the Conseco Put Price;
plus (iv) all or any portion of the number of Successor Securities held by
Executive at the time of such election, multiplied by the Successor Security Put
Price; plus (v) to the extent that any of Executive's deferred compensation
units were not satisfied in cash in connection with the change in control and
were instead payable in shares of common stock of the Company or Successor
Securities, all or any portion of the number of units held by Executive at the
time of such election, multiplied by the Conseco Put Price of the common stock
of the Company or the Successor Security Put Price of the Successor Securities,
as the case may be. For purposes of calculating the above lump sum payment, the
options described in clauses (i) and (ii) shall include all such options,
whether or not then exercisable. The cash payment due from the
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Company pursuant to this Section 14 shall be made to Executive within ten (10)
days after the date of such election hereunder, against the execution and
delivery by Executive to the Company of an appropriate agreement confirming the
surrender to the Company of the options and deferred compensation units and the
certificates representing the common stock of the Company or Successor
Securities, in each case in respect of which the lump sum cash payment is being
made to Executive.
"Successor Securities" means any securities of any person received by
the holders of the common stock of the Company in exchange, substitution or
payment for, or upon conversion of, the common stock of the Company in
connection with a change in control.
"Conseco Put Price" means the greater of (i) the Change in Control
Price or (ii) the Current Market Price of the common stock of the Company.
"Successor Security Put Price" means the greater of (i) the Change in
Control Price divided by the Exchange Ratio or (ii) the Current Market Price of
the Successor Securities.
"Current Market Price" for any security means the average of the daily
Prices per security for the twenty (20) consecutive trading days ending on the
trading day which is immediately prior to Executive's election under this
Section 14.
"Price" for any security means the average of the highest and lowest
sales price of such security (regular way) on a trading day as shown on the
Composite Tape of the New York Stock Exchange (or, if such security is not
listed or admitted to trading on the New York Stock Exchange, on the principal
national securities exchange on which such security is listed or admitted to
trading) or, in case no sales take place on such day, the average of the closing
bid and asked prices on the New York Stock Exchange (or, if such security is not
listed or admitted to trading on the New York Stock Exchange, on the principal
national securities exchange on which such security is listed or admitted to
trading) or, if it is not listed or admitted to trading on any national
securities exchange, the average of the highest and lowest sales prices of such
security on such day as reported by the NASDAQ Stock Market, or in case no sales
take place on such day, the average of the closing bid and asked prices as
reported by NASDAQ, or if such security is not so reported, the average of the
closing bid and asked prices as furnished by any securities broker-dealer of
recognized national standing selected from time to time by the Company (or its
successor in interest) for that purpose.
"Change in Control Price" means (i) in the case of a change in control
which occurs solely as a result of a change in the composition of the Board of
Directors of the Company or which occurs in a transaction, or series of related
transactions, in which the same consideration is paid or delivered to all of the
holders of common stock of the Company (or, in the event of an election by
holders of the common stock of the Company of different forms of consideration,
if the same election is offered to all of the holders of common stock of the
Company), the Price per share of the common stock of the Company on the date on
which the change in control occurs, or if such date is not a trading day, then
the trading day immediately prior to such date, or (ii) in the case of a change
in control effected through a series of related transactions, or in a single
transaction in which
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less than all of the outstanding shares of common stock of the Company is
acquired, the highest price paid to the holders of common stock of the Company
in the transaction or series of related transactions whereby the change in
control takes place. In determining the highest price paid to the holders
pursuant to clause (ii) of the immediately preceding sentence, in the case of
Successor Securities paid or delivered to the holders of common stock of the
Company in exchange, payment or substitution for, or upon conversion of, the
common stock of the Company, the price paid to such holders shall be the Price
of such security at the time or times paid or delivered to such holders.
"Exchange Ratio" means, in connection with a change in control, the
number of Successor Securities to be paid or delivered to the holders of common
stock of the Company in exchange, payment or substitution for, or upon
conversion of, each share of such common stock.
15. Character of Termination Payments. The amounts payable to Executive
upon any termination of this Agreement shall be considered severance pay in
consideration of past services rendered on behalf of the Company and his
continued service from the date hereof to the date he becomes entitled to such
payments. Executive shall have no duty to mitigate his damages by seeking other
employment and, should Executive actually receive compensation from any such
other employment, the payments required hereunder shall not be reduced or offset
by any such other compensation.
16. Right of First Refusal to Purchase Stock. Executive agrees that the
Company shall have throughout the Basic Employment Period the right of first
refusal to purchase all or any portion of the shares of the Company's common
stock owned by him (the "Shares") at the following price:
(a) in the event of a bona fide offer for the Shares, or any part
thereof, received by Executive from any other person (a "Third Party
Offer"), the price to be paid by the Company shall be the price set
forth in such Third Party Offer; and
(b) in the event Executive desires to sell the Shares, or any part
thereof, in the public securities market, the price to be paid by the
Company shall be the last sale price quoted on the New York Stock
Exchange (or any other exchange or national market system upon which
price quotations for the Company's common stock are regularly
available) for the Company's common stock on the last business day
preceding the date on which Executive notifies the Company of such
desire.
In the event Executive shall receive a Third Party Offer which he
desires to accept, he shall deliver to the Company a written notification of the
terms thereof and the Company shall have a period of 48 hours after such
delivery in which to notify Executive of its desire to exercise its right of
first refusal hereunder.
In the event Executive desires to sell any portion of the Shares in the
public market he shall deliver to the Company a written notification of the
amount of Shares he desires to sell, and the
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Company shall have a period of 24 hours after such delivery to notify Executive
of its desire to exercise its right of first refusal hereunder with respect to
such amount of Shares.
Upon each exercise by the Company of its right of first refusal
hereunder, it shall make payment to Executive for the Shares in accordance with
standard practice in the securities brokerage industry. After each failure by
the Company to exercise its right of first refusal hereunder, Executive may
proceed to complete the sale of Shares pursuant to the Third Party Offer or in
the open market in accordance with his notification to the Company, but his
failure to complete such sale within two weeks after his notification to the
Company shall reinstate the Company's right of first refusal with respect
thereto and require a new notification to the Company.
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17. Arbitration of Disputes; Injunctive Relief.
(a) Except as provided in paragraph (b) below, any controversy or
claim arising out of or relating to this Agreement or the breach
thereof, shall be settled by binding arbitration in the City of
Indianapolis, Indiana, in accordance with the laws of the State of
Indiana by three arbitrators, one of whom shall be appointed by the
Company, one by Executive and the third of whom shall be appointed by
the first two arbitrators. If the first two arbitrators cannot agree on
the appointment of a third arbitrator, then the third arbitrator shall
be appointed by the Chief Judge of the United States District Court for
the Southern District of Indiana. The arbitration shall be conducted in
accordance with the rules of the American Arbitration Association,
except with respect to the selection of arbitrators which shall be as
provided in this Section. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. In
the event that it shall be necessary or desirable for Executive to
retain legal counsel and/or incur other costs and expenses in
connection with the enforcement of any and all of his rights under this
Agreement, the Company shall pay (or Executive shall be entitled to
recover from he Company, as the case may be) his reasonable attorneys'
fees and costs and expenses in connection with the enforcement of any
arbitration award in court, regardless of the final outcome, unless the
arbitrators shall determine that under the circumstances recovery by
Executive of all or a part of any such fees and costs and expenses
would be unjust.
(b) Executive acknowledges that a breach or threatened breach by
Executive of Sections 8 or 9 of this Agreement will give rise to
irreparable injury to the Company and that money damages will not be
adequate relief for such injury. Notwithstanding paragraph (a) above,
the Company and Executive agree that the Company may seek and obtain
injunctive relief, including, without limitation, temporary restraining
orders, preliminary injunctions and/or permanent injunctions, in a
court of proper jurisdiction to restrain or prohibit a breach or
threatened breach of Section 8 or 9 of this Agreement. Nothing herein
shall be construed as prohibiting the Company from pursuing any other
remedies available to the Company for such breach or threatened breach,
including the recovery of damages from Executive.
18. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by registered mail to
his residence, in the case of Executive, or to the business office of its Chief
Executive Officer, in the case of the Company.
19. Waiver of Breach and Severability. The waiver by either party of a
breach of any provision of this Agreement by the other party shall not operate
or be construed as a waiver of any subsequent breach by either party. In the
event any provision of this Agreement is found to be invalid or unenforceable,
it may be severed from the Agreement and the remaining provisions of the
Agreement shall continue to be binding and effective.
20. Entire Agreement. This instrument contains the entire agreement of
the parties and supersedes all prior agreements between them. This agreement may
not be changed orally, but only
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by an instrument in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought.
21. Binding Agreement and Governing Law; Assignment Limited. This
Agreement shall be binding upon and shall inure to the benefit of the parties
and their lawful successors in interest and shall be construed in accordance
with and governed by the laws of the State of Indiana. This Agreement is
personal to each of the parties hereto, and neither party may assign nor
delegate any of its rights or obligations hereunder without the prior written
consent of the other.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CONSECO, INC.
By: /s/ Stephen C. Hilbert
-------------------------------
Stephen C. Hilbert
Chairman of the Board
"Company"
/s/ Maxwell E. Bublitz
-------------------------------
Maxwell E. Bublitz
"Executive"
15
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges,
Preferred Dividends and Distributions on Company-Obligated Mandatorily
Redeemable Preferred Securities of Subsidiary Trusts
for the six months ended June 30, 1999 and the year ended December 31, 1998
(Dollars in millions)
Six months
ended Year ended
June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Pretax income from operations:
Net income........................................................... $ 594.6 $ 467.1
Add income tax expense............................................... 359.5 445.6
Add extraordinary charge on extinguishment of debt................... - 42.6
Add minority interest................................................ 60.5 90.4
-------- --------
Pretax income from operations.............................. 1,014.6 1,045.7
-------- --------
Add fixed charges:
Interest expense on corporate debt, including amortization........... 85.3 165.4
Interest expense on finance debt..................................... 122.4 209.8
Interest expense on investment borrowings............................ 28.4 65.3
Other................................................................ .2 .5
Portion of rental(1)................................................. 7.4 14.6
-------- --------
Fixed charges................................................... 243.7 455.6
-------- --------
Adjusted earnings............................................... $1,258.3 $1,501.3
======== ========
Ratio of earnings to fixed charges.............................. 5.16X 3.30X
===== ======
Ratio of earnings to fixed charges, excluding interest
expense on debt related to finance receivables and
other investments........................................... 11.92X 6.79X
====== =====
Fixed charges................................................... $ 243.7 $ 455.6
Add dividends on preferred stock, including dividends on
preferred stock of subsidiaries (divided by the rate of
income before minority interest and extraordinary charge
to pretax income)........................................... .9 13.6
Add distributions on Company-obligated mandatorily
redeemable preferred securities of subsidiary trusts........ 93.1 139.1
------- --------
Fixed charges................................................... $ 337.7 $ 608.3
======= ========
Adjusted earnings............................................... $1,258.3 $1,501.3
======== ========
Ratio of earnings to fixed charges, preferred dividends and
distributions on Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts................... 3.73X 2.47X
======= ========
Ratio of earnings to fixed charges, preferred dividends and
distributions on Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts, excluding interest
expense on debt related to finance receivables and other
investments................................................... 5.93X 3.68X
====== ======
<FN>
(1) Interest portion of rental is assumed to be 33 percent.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 22,385,500
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 474,400
<MORTGAGE> 1,243,400
<REAL-ESTATE> 0
<TOTAL-INVEST> 29,651,800
<CASH> 0
<RECOVER-REINSURE> 966,000
<DEFERRED-ACQUISITION> 4,228,700 <F1>
<TOTAL-ASSETS> 45,532,500
<POLICY-LOSSES> 23,911,600
<UNEARNED-PREMIUMS> 378,200
<POLICY-OTHER> 1,121,700
<POLICY-HOLDER-FUNDS> 287,100
<NOTES-PAYABLE> 6,003,300 <F2>
2,100,200
0
<COMMON> 2,940,500
<OTHER-SE> 2,416,100 <F3>
<TOTAL-LIABILITY-AND-EQUITY> 45,532,500
2,027,400
<INVESTMENT-INCOME> 1,355,500
<INVESTMENT-GAINS> (21,900)
<OTHER-INCOME> 658,400 <F4>
<BENEFITS> 1,810,200
<UNDERWRITING-AMORTIZATION> 249,600 <F5>
<UNDERWRITING-OTHER> 317,800
<INCOME-PRETAX> 1,014,600
<INCOME-TAX> 359,500
<INCOME-CONTINUING> 655,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 594,600
<EPS-BASIC> 1.84
<EPS-DILUTED> 1.80
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1> Includes $2,453,200 of cost of policies purchased.
<F2> Includes $3,103,700 related to finance debt.
<F3> Includes retained earnings of $2,963,400 and accumulated other
comprehensive losses of $547,300.
<F4> Includes gain on sale of finance receivables of $425,800 and fee revenue
and other income of $232,600.
<F5> Includes amortization of cost of policies purchased of $154,600 and
amortization of cost of policies produced of $95,000.
</FN>
</TABLE>
