Exhibit 10.6
AGREEMENT
AGREEMENT made as of this 18th day of June, 2003, (the "Agreement"),
by and between Conseco, Inc., a Delaware corporation (the "Company") and R.
Glenn Hilliard (the "Director").
WHEREAS Conseco, Inc., an Indiana corporation ("Old Conseco") filed a
voluntary petition under the provisions of Chapter 11 of Title 11 of the United
States Code (the "Bankruptcy Code") with the United States Bankruptcy Court for
the Northern District of Illinois (the "Bankruptcy Court") on or about December
17, 2002; and
WHEREAS, the Company wishes to appoint the Director as non-executive
Chairman of the Board of Directors of the Company (the "Board") and enter into
an agreement with the Director with respect to such appointment; and
WHEREAS, the Director wishes to accept such appointment and to serve
the Company on the terms set forth herein, and in accordance with, the
provisions of this Agreement; and
WHEREAS the retention of the Director as Non-Executive Chairman of the
Board of Directors of the Company is vital to the success of the reorganization;
and
WHEREAS, the Director brings valuable experience in the insurance
industry to the Company, and the Director would not have been willing to enter
into this Agreement in the absence of the various promises made by the Company
in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
1. Term. The effective date of this Agreement shall be the "Effective
Date" (the "Effective Date") as defined in the document commonly known as
"Reorganizing Debtors' Second Amended Joint Plan of Reorganization Pursuant to
Chapter 11 of the United States Bankruptcy Code", dated March 18, 2003, as
amended, as filed in the bankruptcy case of Old Conseco (the "Bankruptcy Plan").
If the Effective Date does not occur, this Agreement shall be null and void and
have no force or effect, and the Director shall have no rights hereunder and
shall have no claims against the Company relating to this Agreement or arising
out of or relating to the failure of the Agreement to become effective;
provided, however, that the Director shall remain entitled to the Pre-Effective
Date Compensation specified in Section 6 herein regardless of whether the
Effective Date occurs. Subject to earlier termination as provided in Section 8,
the term of the Director's service under this Agreement shall be the period
beginning on the Effective Date, and ending on the fourth anniversary of the
Effective Date (the "Term").
2. Position. Subject to the terms and provisions of this Agreement,
the Company shall cause the Director to be appointed, as of the Effective Date,
as non-executive Chairman of the Board ("Non-Executive Chairman") and the
Director hereby agrees to serve the Company in that position upon the terms and
conditions hereinafter set forth. The Director shall
initially be appointed as a Class II Director as defined in Article Ten, Section
1 of the Company's Amended and Restated Certificate of Incorporation.
3. Duties. During the Term, the Director shall serve as Non-Executive
Chairman, and the Director shall regularly attend and preside at Board meetings,
serve on and preside over appropriate committees as reasonably requested by the
Board, set meeting schedules and agendas, manage information flow to the Board
to assure appropriate understanding of and discussion regarding matters of
interest or concern to the Board, make himself available to the Company at
mutually convenient times and places, attend external meetings and
presentations, as appropriate and convenient, and perform such duties, services
and responsibilities and have the authority commensurate to such position. In
addition, during the Term the Director's duties shall include the following:
(a) Consulting with the Company's Chief Executive Officer (the
"CEO") regarding the corporate strategy of the Company and its divisions and
subsidiaries and monitoring that strategy on an ongoing basis;
(b) Consulting with the CEO on how to improve the operating and
financial performance of the Company and its divisions and subsidiaries
(including but not limited to the development of appropriate incentive
compensation policies);
(c) Consulting with the CEO regarding the Company's business plan
(it being understood that, consistent with the CEO's employment agreement, the
CEO will present and recommend the business plan to the Board but will consult
with the Director in developing the same);
(d) In consultation with the CEO, taking an active role in the
exploring the development of opportunities (both internal and external) for
growing the Company's businesses;
(e) Consulting with the CEO regarding the identification and
recruitment of candidates for senior management positions (consistent with the
CEO's employment agreement);
(f) Assisting the CEO, in any manner that the CEO believes to be
advisable, in managing the Company's relationship with regulatory and financial
rating agencies; and
(g) Consulting with the CEO regarding the Company's capital
management, capital allocation and debt management plans as developed by the
CEO.
The Company and the Director agrees that final approval of the business plan and
corporate strategy and other decisions relating to items (a) through (g) rest
with the full Board, it being understood that the Director is authorized and
expected to have a leading and active role in these matters independent of the
Board and to organize and lead the Board in discussing and deciding these
issues. It is expected, subject to the formal approval by the Board, that the
Director will serve in a
2
leadership role on the key committees of the Board. The Company and the Director
agree that the Director shall be permitted to engage in other business, civic
and charitable activities (subject to the restrictions in Section 11), as long
as such activities do not materially interfere with the performance of his
duties hereunder. Notwithstanding the foregoing, the Director agrees that he
shall not commence full-time employment outside of the Company during the
18-month period beginning on the Effective Date.
4. Monetary Remuneration.
(a) Fees and Compensation.
(i) During the first two years of the Term, the Director
shall be entitled to receive an annual director's fee of One Million Dollars
($1,000,000), payable in advance in equal quarterly installments beginning as
soon as practicable following the Effective Date.
(ii) After the second anniversary of the Effective Date, to
the extent that the Term is then in effect, the Director shall receive
director's fees. Such fees shall be comparable to the director's fees paid to
similarly situated non-executive Chairmen of other corporations as determined by
the Board.
(b) Retention Bonuses. As soon as practicable following the first
anniversary of the Effective Date, the Company shall pay to the Director a
retention bonus of One Million Five Hundred Thousand Dollars ($1,500,000) so
long as the Director has continuously remained in the service of the Company as
Non-Executive Chairman through that date (the "First Year Retention Bonus"). As
soon as practicable following the second anniversary of the Effective Date, the
Company shall pay to the Director a retention bonus of Seven Hundred Fifty
Thousand Dollars ($750,000) so long as the Director has continuously remained in
the service of the Company as Non-Executive Chairman through that date (the
"Second Year Retention Bonus").
(c) Expense Reimbursements. During the Term, the Company shall
reimburse the Director for all reasonable out-of-pocket expenses incurred by the
Director in carrying out the Director's duties, services and responsibilities
under this Agreement (including, without limitation, commuting expenses to and
from the Company's offices) so long as the Director complies with the generally
applicable policies, practices and procedures of the Company for submission of
expense reports, receipts or similar documentation of such expenses.
(d) Status. The Director's status during the Term shall be that
of an independent contractor and not, for any purpose, that of an employee or
agent with authority to bind the Company in any respect. All payments and other
consideration made or provided to the Director under this Agreement shall be
made or provided without withholding or deduction of any kind, and the Director
shall have sole responsibility for discharging all of his tax or other
obligations associated therewith.
3
(e) No Other Compensation. The Director agrees and acknowledges
that, during the Term and thereafter, he will not be entitled to any
compensation and/or benefits from the Company other than those items
specifically provided for under this Agreement.
5. Equity Awards.
(a) Signing Bonus. On the Effective Date, the Company shall grant
to the Director a number of shares of fully vested common stock of the Company
that would have been distributed to the Director under Old Conseco's Plan of
Reorganization if the Director at that time held One Million Four Hundred Forty
Nine Thousand Dollars ($1,449,000) in principal amount of exchanged bonds and
One Million Three Hundred Thirteen Thousand Dollars ($1,313,000) in principal
amount of unexchanged bonds.
(b) First Year Awards. As soon as practicable following the
Effective Date, the Company shall grant the Director the right and option (the
"First Year Option") to purchase one-half of one percent (0.5%) of the common
equity of the Company issued and outstanding immediately after the consummation
of Old Conseco's Plan of Reorganization (determined without regard to any
options or restricted stock granted on the Effective Date), with an exercise
price equal to the average trading price (based on all trades) of the Company's
common equity over the first ten (10) days following the Effective Date. In
addition, as soon as practicable following the Effective Date, the Company shall
grant the Director a number of shares of restricted stock (the "First Year
Restricted Stock") equal to one-half of one percent (0.5%) of the common equity
of the Company issued and outstanding immediately after the consummation of Old
Conseco's Plan of Reorganization (determined without regard to any options or
restricted stock granted on the Effective Date).
(c) Second Year Awards. As soon as practicable following the
first anniversary of the Effective Date, the Company shall grant the Director
the right and option (the "Second Year Option") to purchase one-quarter of one
percent (0.25%) of the common equity of the Company issued and outstanding on
such date, with an exercise price equal to the closing price of the Company's
common equity on the date of grant. In addition, as soon as practicable
following the first anniversary of the Effective Date, the Company shall grant
the Director a number of shares of restricted stock (the "Second Year Restricted
Stock") equal to one-quarter of one percent (0.25%) of the common equity of the
Company issued and outstanding on such date.
(d) Terms of Options and Restricted Stock. The First Year Option,
the First Year Restricted Stock, the Second Year Option and the Second Year
Restricted Stock shall be granted to the Director under, and governed by the
terms and conditions of, the 2003 Long-Term Equity Incentive Plan; provided that
the options under the First Year Option shall vest and the restrictions on the
First Year Restricted Stock shall lapse in equal increments on each of the first
three anniversaries of the Effective Date, and the options under the Second Year
Option shall vest and the restrictions on the Second Year Restricted Stock shall
lapse in equal increments on each of the first three anniversaries of the first
anniversary of the Effective Date, in each case so long as the Director has
continuously remained in the service of the Company as Non-Executive Chairman
through each such anniversary; and provided further that the vesting of options
and lapsing of restrictions shall be subject to the provisions of Sections 8
hereof.
4
(e) Other Equity Awards. After the second anniversary of the
Effective Date, to the extent that the Term is then in effect, the Director
shall receive the same equity-based compensation (at the same time and on the
same terms and conditions) as other non-employee members of the Board.
(f) Effect of Change in Duties. In the event that the Board
and/or the CEO request that the Director's duties materially expand from those
described in Section 3, the Director will automatically be deemed to have
resigned from his position on the Compensation Committee of the Board (if he is
a member thereof), and the Compensation Committee and the Director will
negotiate in good faith as to reasonable compensation arrangements for the
Director in light of such expansion.
6. Pre-Effective Date Compensation. The Company or Old Conseco shall
pay the Director the lump sum of Sixty Thousand Dollars ($60,000) per month
(pro-rated for partial months) for each month of services performed by him for
Old Conseco during the period beginning on May 15, 2003 and ending on the
Effective Date; provided, that, if the Effective Date has not occurred by
December 31, 2003, either party may terminate the obligations under this Section
6 upon written notice to the other party. The Company and the Official Committee
of Unsecured Creditors (the "Committee") believe that the Director is not a
"professional" as contemplated by Section 327 of the Bankruptcy Code and that
the Company may incur the obligations of this Section 6 in the ordinary course
of business. If required, however, by the Bankruptcy Court, Old Conseco, with
the support of the Committee, will file an appropriate motion (in form and
substance reasonably satisfactory to the Director) to retain the Director in
accordance with Section 327 of the Bankruptcy Code retroactive to May 15, 2003.
7. Office Space/Assistant. During the Term, the Company will provide
the Director with a monthly allowance for office space in Atlanta, Georgia and
related expenses in the initial amount of Three Thousand Dollars ($3,000) per
month, subject to upward modification by the Board. In addition, during the
Term, at the Company's expense, the Company shall provide the Director with an
assistant who shall be an employee of the Company.
8. Termination. The Director's service with the Company as
Non-Executive Chairman and the Term shall terminate upon the expiration of the
Term or upon the earlier occurrence of any of the following events:
(a) The death of the Director.
(b) The Director becomes Disabled. For the purposes of this
Agreement, the Director will be deemed to be "Disabled" if, due to a physical or
mental disability, his ability to perform his duties and services hereunder is
materially and adversely impaired and such disability (as confirmed by competent
medical evidence) continues for at least nine (9) consecutive months.
(c) The removal of the Director from the Board pursuant to the
Company's by-laws and/or certificate of incorporation other than for Cause (as
defined below).
5
(d) The termination of the Director by the Company for Cause.
Termination of the Director for "Cause" shall mean termination based on: (i) the
Director's conviction of, or plea of guilty or nolo contendere to, any felony,
(ii) the Director's willful misconduct in the performance of the duties set
forth in Section 3, or (iii) the Director's material breach of this Agreement
which breach is not cured within fifteen (15) days of receipt of written notice
from the Board specifying the actions constituting Cause.
(e) The resignation by the Director from the Board.
(f) The failure of the Company's shareholders to approve the
reelection of the Director to the Board as set forth in the Company's by-laws
and/or certificate of incorporation.
9. Effect of Termination.
(a) Upon the termination of the Director's service with the
Company as Non-Executive Chairman (whether voluntary or involuntary), the
Director shall be deemed to have voluntarily resigned from the Board and from
all other positions that the Director may then hold with the Company and any of
its subsidiaries, effective upon the date of termination of the Director's
service as Non-Executive Chairman (the "Termination Date").
(b) If the Director's service with the Company as Non-Executive
Chairman is terminated pursuant to Section, 8(d) (termination for Cause) or 8(e)
(resignation), the obligation of the Company to make any future payments
pursuant to Section 4 of this Agreement shall cease; provided that the Director
will be entitled to receive payment of all unpaid amounts to which the Director
has become entitled under this Agreement. In addition, no restrictions that
remain as to any shares of restricted stock shall lapse after the Termination
Date, and the Director shall forfeit any still-restricted shares to the Company,
and no option previously awarded but not yet vested shall vest after the
Termination Date.
(c) If the Director's service with the Company as Non-Executive
Chairman is terminated pursuant to Section 8(a) (death), Section 8(b)
(disability), Section 8(c) (removal) or 8(f) (failure to re-elect) (each a
"Qualifying Termination"), the obligation of the Company to make any future
payments pursuant to Section 4 of this Agreement shall cease; provided that the
Director will be entitled to receive payment of all unpaid amounts to which the
Director has become entitled under this Agreement, and provided further that (i)
if the Qualifying Termination occurs before the first anniversary of the
Effective Date, the Director shall be entitled to a pro-rata portion of the
First Year Retention Bonus determined by multiplying the amount of such
retention bonus by a fraction, the numerator of which is the number of days
after the Effective Date through the Termination Date and the denominator of
which is three hundred sixty-five (365), and (ii) if the Qualifying Termination
occurs on or after the first anniversary of the Effective Date, but before the
second anniversary of the Effective Date, the Director shall be entitled to (x)
the First Year Retention Bonus, to the extent not already paid, and (y) a
pro-rata portion of the Second Year Retention Bonus determined by multiplying
the amount of such retention bonus by a fraction, the numerator of which is the
number of days after the first anniversary of the Effective Date through the
Termination Date and the denominator of which is
6
three hundred sixty-five (365). In addition, upon a Qualifying Termination (i)
the restrictions remaining as to any shares of the First Year Restricted Stock
and the Second Year Restricted Stock (if already granted prior to the
Termination Date) shall lapse as if the Termination Date had occurred on the day
after the next anniversary of the Effective Date, but no other restrictions that
remain as to any shares of restricted stock shall lapse after the Termination
Date, and the Director shall forfeit any other still-restricted shares to the
Company, and (ii) a portion of any outstanding unvested First Year Options or
Second Year Options (if already granted prior to the Termination Date) shall
vest as if the Termination Date had occurred on the day after the next
anniversary of the Effective Date, but no other options previously awarded but
not yet vested shall vest after the Termination Date.
(d) If the Director's service with the Company as Non-Executive
Chairman is terminated pursuant to Section 8(c) (removal) or 8(f) (failure to
re-elect), the Director shall receive the lesser of (i) the office allowance as
provided for in Section 7 until the next following expiration date of the lease
and (ii) a payment in respect of the three months immediately following the
Termination Date.
10. Director's Representation and Acknowledgment. The Director
represents to the Company that his execution and performance of this Agreement
shall not be in violation of any agreement or obligation (whether or not
written) that he may have with or to any person or entity, including without
limitation, any prior employer.
11. Director Covenants.
(a) Unauthorized Disclosure. The Director acknowledges that in
and as a result of his service with the Company as Non-Executive Chairman, he
will be making use of, acquiring and/or adding to confidential information of
the Company and its subsidiaries of a special and unique nature and value. As a
material inducement to the Company to enter into this Agreement and to pay to
the Director the compensation stated in Sections 4 and 5, the Director covenants
and agrees that he shall not, at any time while he is Non-Executive Chairman or
at any time thereafter, directly or indirectly, divulge or disclose for any
purpose whatsoever, any confidential information (whether or not specifically
labeled or identified as "confidential information"), in any form or medium,
that has been obtained by or disclosed to him as a result of his service with
the Company and which the Company or any of its subsidiaries has taken
appropriate steps to safeguard, 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 the Director, (b) is required to be
disclosed by any law, regulation or order of any court or regulatory commission,
department or agency, in which event the Director shall give prompt notice of
such requirement to the Company to enable the Company to seek an appropriate
protective order or confidential treatment, or (c) must be disclosed to enable
the Director properly to perform his duties under this Agreement. Upon the
termination of the Director's service with the Company as Non-Executive
Chairman, the Director shall return such information (in whatever form) obtained
from or belonging to the Company or any of its subsidiaries which he may have in
his possession or control.
7
(b) Covenants Against Competition and Solicitation. The Director
acknowledges that the services he is to render to the Company and its
subsidiaries are of a special and unusual character, with a unique value to the
Company and its subsidiaries, the loss of which cannot adequately be compensated
by damages or an action at law. In view of the unique value to the Company and
its subsidiaries of the services of the Director for which the Company has
contracted hereunder, because of the confidential information to be obtained by,
or disclosed to, the Director as set forth in Section 11(a) above, and as a
material inducement to the Company to enter into this Agreement and to pay to
the Director the compensation stated in Sections 4 and 5 hereof, as well as any
additional benefits stated herein, and other good and valuable consideration,
the Director covenants and agrees that throughout the Term and for one year
thereafter, the Director shall not, directly or indirectly, anywhere in the
United States of America (i) render any services, as an agent, independent
contractor, consultant or otherwise, or become employed or compensated by, any
other corporation, person or entity that derives a material portion of its
revenue from any Restricted Business (as defined below); (ii) solicit any
customers or policyholders of the Company or any of its subsidiaries with whom
the Director had material business contact as the result of his service as
Non-Executive Chairman of the Company, for the purpose of offering insurance
products or services competitive with those offered by the Company; or (iii)
solicit for employment or employ any employee of the Company or any of its
subsidiaries. For the purposes of this agreement, the term "Restricted Business"
shall mean the businesses of selling or providing annuity, life, health, or
accident insurance products or services directed primarily at the senior market,
except that "Restricted Business" on any date shall not include any of the
foregoing lines of business to the extent that the Company is no longer actively
involved in such business line on such date.
(c) Remedies. The Director agrees that any breach of the terms of
this Section 11 would result in irreparable injury and damage to the Company for
which the Company would have no adequate remedy at law; the Director therefore
also agrees that in the event of said breach or any threat of breach, the
Company shall be entitled to an immediate injunction and restraining order to
prevent such breach and/or threatened breach and/or continued breach by the
Director and/or any and all entities acting for and/or with the Director,
without having to prove damages, in addition to any other remedies to which the
Company may be entitled at law or in equity. The terms of this paragraph shall
not prevent the Company from pursuing any other available remedies for any
breach or threatened breach hereof, including but not limited to the recovery of
damages from the Director. The Director acknowledges that the Company would not
have entered into this Agreement had the Director not agreed to the provisions
of this Section 11. The Director and the Company agree that the provisions of
the covenant not to compete set forth in this Section 11 are reasonable. Should
a court or arbitrator determine, however, that any provision of the covenant not
to compete is unreasonable or unenforceable, either in period of time,
geographical area, or otherwise, the parties hereto agree that the covenant
should be interpreted and enforced to the maximum extent possible in accordance
with law.
12. Tax Indemnity Payments.
(a) Anything in this Agreement to the contrary notwithstanding,
in the event that it shall be determined that the aggregate payments or
distributions by the Company or its affiliated companies to or for the benefit
of the Director, whether paid or payable or
8
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"), constitute "parachute payments" (as such term is
defined under Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code") or any successor provision, and the regulations promulgated thereunder
(collectively, "Section 280G")) which exceed three times the Director's "base
amount" (as such term is defined under Section 280G) by at least One Hundred
Thousand Dollars ($100,000) and are therefore subject to the excise tax imposed
by Section 4999 of the Code or any successor provision (collectively, "Section
4999") or any interest or penalties with respect to such excise tax (the total
excise tax, together with any interest and penalties, are hereinafter
collectively referred to as the "Excise Tax")), then the Director shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Director of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any Federal, state or local income and self-employment taxes and Excise Tax (and
any interest and penalties imposed with respect to any such taxes) imposed upon
the Gross-Up Payment, the Director 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) hereof, 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 the Director
within fifteen (15) business days of the receipt of notice from the Director
that there has been a Payment, or such earlier time as is requested by the
Company. 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 the Director within five (5) days of the receipt
of the Accounting Firm's determination (it being understood, however, that the
Gross Up Payment may, if permitted by law, be paid directly to the applicable
taxing authorities). If the Accounting Firm determines that no Excise Tax is
payable by the Director, it shall furnish the Director with a written opinion
that failure to report the Excise Tax on the Director'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 the Director. As a result of the uncertainty in the application of
Section 4999 at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made by the Company ("Underpayment"), or that
Gross-Up Payments will have been made by the Company which should not have been
made ("Overpayment"), consistent with the calculations required to be made
hereunder. In either such event, the Accounting Firm shall determine the amount
of the Underpayment or Overpayment that has occurred. In the event that the
Company exhausts its remedies pursuant to Section 12(c) and the Director
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 the
Director. In the case of an Overpayment, the Director shall, at the direction
and expense of the Company, take such steps as are reasonably necessary
(including, if reasonable, the filing of returns and claims for refund), and
otherwise reasonably
9
cooperate with the Company to correct such Overpayment; provided, however, that
(i) the Director shall not in any event be obligated to return to the Company an
amount greater than the net after-tax portion of the Overpayment that he has
retained or has recovered as a refund from the applicable taxing authorities and
(ii) this provision shall be interpreted in a manner consistent with the intent
of Section 12(a) hereof to make the Director whole, on an after-tax basis, from
the application of Section 4999.
(c) The Director shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require a payment by
the Company, or a change in the amount of the payment by the Company of, the
Gross-Up Payment. Such notification shall be given as soon as practicable after
the Director 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 the Director's rights under this Section 12 except to the
extent the Company is materially prejudiced thereby. The Director shall not pay
such claim prior to the expiration of the 30-day period following the date on
which the Director 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 the Director in writing prior to the expiration of such
period that it desires to contest such claim, the Director shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) 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,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) 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 the
Director harmless, on an after-tax basis, for any Excise Tax or income,
self-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)
hereof, 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 the Director to
pay the tax claimed and sue for a refund or contest the claim in any permissible
manner, and the Director 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 the Director to pay such claim and sue for a refund,
the Company shall advance the amount of such payment to the Director on an
interest-free basis
10
and shall indemnify and hold the Director harmless, on an after-tax basis, from
any Excise Tax or income, self-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 the Director 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 the
Director 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 the Director of an amount advanced
by the Company pursuant to Section 12(c) hereof, the Director becomes entitled
to receive, and receives, any refund with respect to such claim, the Director
shall (subject to the Company's complying with the requirements of Section 12(c)
hereof) 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 the Director of an amount advanced by the Company pursuant to Section
12(c), a determination is made that the Director shall not be entitled to any
refund with respect to such claim and the Company does not notify the Director
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. Indemnification. The Company agrees to indemnify the Director for
his activities as a director and non-executive Chairman of the Company to the
fullest extent permitted by law. The Company shall use commercially reasonable
efforts to seek and obtain directors and officers liability insurance (which
includes a six (6) year "discovery period" following the Director's service as a
director for the Company) under which the Director will be a covered person
throughout the Director's service as a director for the Company. Such liability
insurance shall be obtained prior to the Effective Date, and the terms and
policy limits of such coverage shall be subject to approval by the Board.
14. Non-Waiver of Rights. The failure to enforce at any time the
provisions of this Agreement or to require at any time performance by the other
party of any of the provisions hereof shall in no way be construed to be a
waiver of such provisions or to affect either the validity of this Agreement or
any part hereof, or the right of either party to enforce each and every
provision in accordance with its terms. No waiver by either party hereto of any
breach by the other party hereto of any provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions at that time or at any prior or subsequent time.
15. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by registered mail to
his residence, in the case of the Director, or to the business office of its
General Counsel, in the case of the Company.
16. Binding Effect/Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
executors, personal
11
representatives, estates, successors (including, without limitation, by way of
merger) and assigns. Notwithstanding the provisions of the immediately preceding
sentence, neither the Director nor the Company shall assign all or any portion
of this Agreement without the prior written consent of the other party.
17. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements, written or oral, between them as to such
subject matter.
18. Severability. If any provision of this Agreement, or any
application thereof to any circumstances, is invalid, in whole or in part, such
provision or application shall to that extent be severable and shall not affect
other provisions or applications of this Agreement.
19. Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Indiana, without reference
to the principles of conflict of laws.
20. Arbitration of Disputes. Except as set forth in Section 11(c), the
parties hereto agree that 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, who shall be selected in accordance with the
then-current arbitrator selection procedures of the American Arbitration
Association. The arbitration shall be conducted in accordance with the
commercial arbitration rules of the American Arbitration Association. 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
the Director 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 the Director shall be entitled to recover
from the Company, as the case may be) his reasonable attorneys' fees and costs
and expenses in connection with the enforcement of any arbitration award in
court, regardless of the final outcome, unless the arbitrators shall determine
that under the circumstances recovery by the Director of all or a part of any
such fees and costs and expenses would be unjust.
21. Expenses of the Director. The Company agrees to reimburse the
Director for all reasonable attorneys' fees he incurred in connection with the
preparation of this Agreement, up to Twenty-Five Thousand Dollars ($25,000).
22. Modifications. Neither this Agreement nor any provision hereof may
be modified, altered, amended or waived except by an instrument in writing duly
signed by the party to be charged.
23. Tense and Headings. Whenever any words used herein are in the
singular form, they shall be construed as though they were also used in the
plural form in all cases where they would so apply. The headings contained
herein are solely for the purposes of reference, are not part of this Agreement,
and shall not in any way affect the meaning or interpretation of this Agreement.
12
24. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
[signature page follows]
13
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written, effective as of the Effective Date.
THE COMPANY (Conseco, Inc., a
Delaware Corporation)
By:/s/William J. Shea
--------------------------------------
Name: William J. Shea
Title: President
OLD CONSECO (Conseco, Inc., an Indiana
Corporation) (for purposes of only
Section 6 hereof)
By:/s/William J. Shea
--------------------------------------
Name: William J. Shea
Title: President
THE DIRECTOR
/s/R. Glenn Hilliard
-----------------------------------------
R. Glenn Hilliard