1
Exhibit 10.1.2
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of January 1, 1998, as amended and restated
as of May 26, 1999, and as further amended and restated as of December 15, 1999
and April 6, 2000, 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 and as amended and restated as of May 26, 1999 and December 15, 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 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.
2
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 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
2
3
the computation of Income from Continuing Operations, (x) income taxes
and (y) bonuses to Executive and the Company's Executive Vice
Presidents. "Income from Continuing Operations" shall mean the
Company's income from continuing operations, which shall exclude for
this computation the effect (in each case net of applicable tax) of
(i) extraordinary items, (ii) discontinued operations and (iii) the
cumulative effects of changes in accounting principles.
(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
4
(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
4
5
Price and the denominator of which shall be $50. A portion of the
resulting payment 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
6
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
7
defined in (d) below, Executive shall be entitled to receive not later than
ten (10) days after termination of Executive's employment (i) a severance
distribution consisting of (A) the assignment, without any warranty (except
as to good title) or recourse, by the Company to the Executive or his
designee of all of its interest in (1) the Promissory Note made by
Executive to the order of Company dated April 6, 2000 (the "Note"), (2) all
indebtedness (unpaid principal, interest and expenses) evidenced by the
Note at the time (the "Debt"), and (3) all documents executed to secure
repayment of the Note (the "Collateral Documents") (and all rights
thereunder) or, if the Debt exceeds the Nominal Section 9 Severance (as
defined below) an undivided fractional interest (determined as described
below), on a "last out" participation basis in (1) the Note, (2) the Debt,
and (3) Collateral Documents, and (B) a cash payment by the Company to the
Executive equal to the positive difference, if any, of (x) an amount 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) (the "Nominal Section 9 Severance") minus (y) the amount
of the Debt assigned to Executive and (ii) all other unpaid amounts
previously accrued or awarded pursuant to any other provision of this
Agreement. For purposes of determining the "undivided fractional interest"
in sub-section (i)(A) above the numerator will be the dollar amount of the
Nominal Section 9 Severance and the denominator will be the dollar amount
of the Debt.
(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
7
8
(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 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
8
9
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 (the "Section 10 Termination Payments").
Notwithstanding the foregoing, if Executive does not make the Election
provided for in Section 11 the Company may assign to the Executive or his
designee, without any warranty (except as to good title) or recourse, all
of its interest in (1) the Note, (2) the Debt, and (3) the Collateral
Documents or, if the then existing Debt exceeds the amount of the Section
10 Termination Payments, an undivided fractional interest (determined as
described below), on a "last out" participation basis, in (1) the Note, (2)
the Debt, and (3) the Collateral Documents; in which case the amount of the
Debt assigned to Executive or the undivided fractional interest in the Debt
assigned shall serve as a credit against any such Section 10 Termination
Payments otherwise payable. For purposes of determining the "undivided
fractional interest" above the numerator will be the dollar amount of the
Section 10 Termination Payments and the denominator will be the dollar
amount of the Debt.
(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 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.
9
10
11. Severance Allowance. In the event of a Control Termination of this
Agreement, Executive may elect (the "Election"), within 60 days after such
Control Termination, to receive a distribution as a severance allowance, in
lieu of the termination payments provided for in Section 10 above,
consisting of:
(a) the assignment, without any warranty (except as to good title) or
recourse, by the Company to the Executive or his designee of all of its
interest in (1) the Note, (2) the Debt, and (3) the Collateral Documents
or, if the then existing Debt exceeds the Nominal Section 11 Severance (as
defined below), an undivided fractional interest (determined as described
below), on a "last out" participation basis, in (1) the Note, (2) the Debt,
and (3) the Collateral Documents; and
(b) A lump sum payment equal to the positive difference, if any, of
(A) the sum of (x) an amount equal to the aggregate of the salary payments
for 60 calendar months at the rate which Executive 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 (y) an amount equal to five
times the greater of (aa) 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 (bb) 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 (with such sum of (x)
and (y) being referred to as the "Nominal Section 11 Severance") minus (B)
the amount of the Debt assigned to Executive.
For purposes of determining the "undivided fractional interest" in
sub-section (a) above the numerator will be the dollar amount of the
Nominal Section 11 Severance and the denominator will be the dollar amount
of the Debt.
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) 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.
10
11
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 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
11
12
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 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
12
13
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. 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 options for 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. 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 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.
13
14
"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 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
14
15
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
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.
15
16
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.
16
17
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"
17
