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 XXXXXXX X. XXXXXXX (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
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
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 XXX (as determined pursuant to clause (iii) below,
the "XXX") for such fiscal year to be at least 15% for such
fiscal year (such amount exceeding the Maximum Bonus and meeting
such 15% XXX 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 XXX 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
(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
4
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
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
6
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 Xxxxxx 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 0000 Xxx) 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
7
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
8
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)
9
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
10
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 xxx 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 xxx for a refund, the Company shall advance the amount of
such payment to Executive on an interest-free
11
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
12
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
13
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
14
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.
15
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CONSECO, INC.
By:/s/ Xxxxxx X. Xxxx /s/ Xxxxxxx X. Xxxxxxx
------------------------- --------------------------
Xxxxxx X. Xxxx Xxxxxxx X. Xxxxxxx
"Company" "Executive"
16
