SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[<check-mark>] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-20882
STANDARD MANAGEMENT CORPORATION
(Exact name of registrant as specified in its charter)
Indiana No. 35-1773567
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
9100 Keystone Crossing, Indianapolis, Indiana 46240
(Address of principal executive offices) (Zip Code)
(317) 574-6200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days: Yes [<check-mark>] No [ ]
As of November 1, 1999, the Registrant had 7,575,635 shares of Common Stock
outstanding.
<PAGE>
STANDARD MANAGEMENT CORPORATION
INDEX
PAGE NUMBER
Part I.FINANCIAL INFORMATION:
Item 1.Financial Statements
Consolidated Balance Sheets --
September 30, 1999 (Unaudited) and December 31, 1998 (Audited) 3
Consolidated Statements of Income --
For the Three and Nine Months Ended September 30, 1999 and 1998 (Unaudited)4
Consolidated Statements of Shareholders' Equity --
For the Nine Months Ended September 30, 1999 and 1998 (Unaudited) 5
Consolidated Statements of Cash Flows --
For the Nine Months Ended September 30, 1999 and 1998 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7-8
Item 2.Management's Discussion and Analysis of Financial Condition and Results
of Operations 9-18
Item 3.Quantitative and Qualitative Disclosures about Market Risk 18
Part II.OTHER INFORMATION:
Item 6.Exhibits and Reports on Form 8-K 19
SIGNATURES 20
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30 December 31
<S> <C>
1999 1998
(Unaudited) (Audited)
ASSETS
Investments:
Securities available for sale:
Fixed maturity securities, at fair value
(amortized cost: $608,298 in 1999 and $547,115 in 1998) $ 580,134 $ 551,312
Equity securities, at fair value
(cost: $849 in 1999 and $1,498 in 1998) 745 1,316
Mortgage loans on real estate 9,455 8,578
Policy loans 14,670 15,019
Real estate 3,553 3,435
Other invested assets 944 837
Short-term investments 23,364 11,626
Total investments 632,865 592,123
Cash 3,874 13,591
Accrued investment income 10,079 9,563
Amounts due and recoverable from reinsurers 74,225 76,897
Costs of policies produced 60,599 32,946
Costs of policies purchased 29,764 28,793
Goodwill 5,699 5,886
Other assets 5,837 6,105
Assets held in separate accounts 243,195 190,246
Total assets $ 1,066,137 $ 956,150
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Insurance policy liabilities $ 715,358 $ 638,435
Accounts payable and accrued expenses 7,032 12,277
Notes payable 35,000 35,000
Deferred federal income taxes 2,736 7,620
Liabilities related to separate accounts 243,195 190,246
Total liabilities 1,003,321 883,578
Series A convertible redeemable preferred stock, par value $100 per
share;Authorized 130,000;
65,300 issued and outstanding in 1998 and 1999 6,530 6,530
Shareholders' Equity:
Preferred stock, no par value:
Authorized 870,000 shares; none issued and outstanding -- --
Common stock and additional paid in capital, no par value:
Authorized 20,000,000 shares; issued 8,827,313 in 1999 and
8,802,313 in 1998 61,410 60,586
Treasury stock, at cost, 1,251,243 shares in 1999
and 1,160,859 shares in 1998 (6,793) (6,220)
Accumulated other comprehensive income:
Unrealized gain (loss) on securities available for sale, net
taxes (benefits) of :1999 - $(5,721) 1998 - $765 (10,784) 1,660
Unrealized gain on other investments,
net taxes of: 1999 - $6 1998 - $12 11 23
Foreign currency translation adjustment,
net taxes of: 1999 - $0 1998 - $0 (1,132) 4
Retained earnings 13,574 9,989
Total shareholders' equity 56,286 66,042
Total liabilities and shareholders' equity $ 1,066,137 $ 956,150
See accompanying notes to consolidated financial statements.
<PAGE>
STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
<S> <C> <C> <C> <C> <C>
September 30 September 30
1999 1998 1999 1998
Revenues:
Premium income $ 3,314 $ 1,759 $ 9,498 $ 11,658
Net investment income 10,269 8,021 30,994 23,630
Net realized investment gains (losses) (249) 27 (209) 73
Policy income 1,663 1,906 5,176 5,058
Negative goodwill amortization -- 347 -- 1,041
Separate account fees 714 648 2,104 1,318
Fee and other income 1,059 1,278 3,489 2,698
Total revenues 16,770 13,986 51,052 45,476
Benefits and expenses:
Benefits and claims 3,812 2,422 11,066 10,466
Interest credited on interest-sensitive
annuities and other financial products 5,141 4,247 16,723 13,112
Amortization 1,383 1,322 4,455 3,546
Other operating expenses 3,508 3,825 10,681 11,444
Interest expense and financing costs 840 772 2,521 2,201
Total benefits and expenses 14,684 12,588 45,446 40,769
Income before federal income taxes and preferred
stock dividends 2,086 1,398 5,606 4,707
Federal income tax expense 782 260 1,604 1,529
Net income 1,304 1,138 4,002 3,178
Preferred stock dividends (127) (71) (380) (71)
Earnings available to common shareholders $ 1,177 $ 1,067 $ 3,622 $ 3,107
Earnings per share - basic:
Net income $ 0.17 $ 0.16 $ 0.53 $ 0.48
Preferred stock dividends (0.01) (0.01) (0.05) (0.01)
Earnings available to common shareholders $ 0.16 $ 0.15 $ 0.48 $ 0.47
Earnings per share - diluted:
Net income $ 0.16 $ 0.15 $ 0.50 $ 0.44
Preferred stock dividends (0.01) (0.01) (0.04) (0.01)
Earnings available to common shareholders $ 0.15 $ 0.14 $ 0.46 $ 0.43
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Common
stock and Accumulated
additional other
paid-in Treasury comprehensive Retained
Total capital stock income earnings
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $ 43,313 $ 40,646 $ (4,572) $ 1,698 $ 5,541
Comprehensive income:
Net income 3,179 3,179
Other comprehensive income:
Change in unrealized gain (loss) on
securities,net taxes (benefits) of $505 980 980
Change in foreign currency,
net taxes of $0 (147) (147)
Other comprehensive income 833
Comprehensive income 4,012
Issuance of common stock for Savers Life
acquisition 15,024 15,024
Issuance of common stock warrants 30 30
Issuance of common stock in connection
with exercise of stock warrants 233 234 (1)
Treasury stock acquired (274) (274)
Conversion of preferred stock into common stock 4 4
Reissuance of treasury stock in connection
with exercise of stock options (1) 54 (55)
Preferred stock dividends (71) (71)
Balance at September 30, 1998 $ 62,270 $ 55,938 $ (4,792) $ 2,531 $ 8,593
Balance at January 1, 1999 $ 66,042 $ 60,586 $ (6,220) $ 1,687 $ 9,989
Comprehensive income:
Net income 4,002 4,002
Other comprehensive income:
Change in unrealized gain (loss) on
securities, net taxes(benefits)of $(6,492) (12,456) (12,456)
Change in foreign currency,
net taxes of $0 (1,136) (1,136)
Other comprehensive incom (13,592)
Comprehensive income (9,590)
Issuance of common stock warrants 824 824
Treasury stock acquired (573) (573)
Reissuance of treasury stock in connection
with exercise of stock options (37) (37)
Preferred stock dividends (380) (380)
Balance at September 30, 1999 $ 56,286 $ 61,410 $ (6,793) $ (11,905) $ 13,574
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
<S> <C> <C>
September 30
1999 1998
OPERATING ACTIVITIES
Net income $ 4,002 $ 3,179
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of policies produced 2,517 2,014
Deferral of cost of policies produced (19,895) (8,684)
Deferred federal income taxes 1,854 1,529
Depreciation and amortization 2,764 883
Insurance policy liabilities 13,185 (7,442)
Net realized investment gains 209 (73)
Accrued investment income (516) (105)
Amounts due to Savers Life from brokers for security sales
at acquisition date -- 6,519
Other (1,105) 2,880
Net cash provided by operating activities 3,015 700
INVESTING ACTIVITIES
Fixed maturity securities available for sale:
Purchases (177,894) (190,140)
Sales 99,893 128,978
Maturities, calls and redemptions 14,756 15,289
Short-term investments, net (11,738) 36,516
Other investments, net (978) (2,379)
Purchase of Savers Life Insurance Company, less cash acquired
of $518 -- (2,169)
Net cash used by investing activities (75,961) (13,905)
FINANCING ACTIVITIES
Borrowings, net of debt issuance costs of $86 in 1998 300 3,914
Repayments on long term debt and obligations
under capital lease (300) (3,153)
Premiums received on interest-sensitive annuities and other
financial products credited to policyholder account balances,
net of premiums ceded 126,799 53,846
Return of policyholder account balances on interest-sensitive
annuities and other financial products (63,441) (36,007)
Issuance of convertible preferred stock, net of issuance costs
of $120 in 1998 -- 3,610
Reissuance of treasury stock in connection with exercise of
stock options and warrants 824 233
Purchase of common stock for treasury (573) (274)
Dividends on preferred stock (380) (71)
Net cash provided by financing activities 63,229 22,098
Net increase (decrease) in cash (9,717) 8,893
Cash at beginning of period 13,591 4,165
Cash at end of period $ 3,874 $ 13,058
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements.
The results of operations for the interim periods shown in this report are not
necessarily indicative of the results that may be expected for the fiscal year.
This is particularly true in the life insurance industry, where mortality
results in interim periods can vary substantially from such results over a
longer period. In management's opinion, the information contained in this
report reflects all adjustments, of a normal recurring nature, necessary to
fairly present the results of operations for the interim periods. Certain
amounts from prior periods have been reclassified to conform to the 1999
presentation. These reclassifications have no effect on previously reported
shareholders' equity or net income during the periods presented.
The nature of the insurance business of Standard Management Corporation and its
consolidated subsidiaries (the "Company" or "SMC") requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. For example, the Company uses
significant estimates and assumptions in calculating costs of policies produced,
cost of policies purchased, goodwill, future policy benefits and deferred
federal income taxes. If future experience differs materially from these
estimates and assumptions, the Company's financial statements could be
affected.
The consolidated financial statements in this report, include the assets and
liabilities and results of operations of Savers Life Insurance Company ("Savers
Life") and Midwestern National Life Insurance Company of Ohio ("Midwestern
Life") from their acquisition dates of March 12, 1998 and October 30, 1998,
respectively. Savers Life and Midwestern Life were merged into Standard Life
Insurance Company of Indiana ("Standard Life"), a wholly-owned subsidiary of
SMC, effective December 31, 1998.
For further information, refer to the consolidated financial statements and
related footnotes included in the Annual Report on Form 10-K for the year ended
December 31, 1998.
NOTE 2 -- ACQUISITIONS
The following are supplemental unaudited pro forma consolidated results of
operations of the Company as if the acquisitions of Savers Life and Midwestern
Life had occurred on January 1, 1998 (in thousands, except per share amounts).
The following amounts are based upon certain assumptions and estimates that the
Company believes are reasonable and do not reflect any benefit from savings
that might be achieved from combined operations. The amounts are not
necessarily indicative of the results of operations had these transactions
occurred on January 1, 1998, or the results of future operations.
Nine Months Ended
SEPTEMBER 30,1998
Revenues $61,042
Net income 1,262
Earnings per share - basic 0.16
Earnings per share - diluted 0.16
NOTE 3 -- NOTES PAYABLE
Notes payable of the Company are as follows (in thousands):
<TABLE>
<CAPTION>
Interest September 30 December 31
Rate 1999 1998
<S> <C> <C> <C>
Borrowings under revolving credit agreements 8.57%{ (1)} $25,000 $25,000
Senior subordinated convertible notes{ (2)} 10.00% 10,000 10,000
$35,000 $35,000
(1) Current weighted average rate at September 30, 1999.
(2) $4,372 due December 2003, $5,628 due July 2004.
<PAGE>
STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 4 -- NET UNREALIZED GAIN (LOSS) ON SECURITIES AVAILABLE FOR SALE
The components of the balance sheet caption "Unrealized gain (loss) on
securities available for sale" in shareholders' equity are summarized as
follows (in thousands):
</TABLE>
<TABLE>
<CAPTION>
September 30 December 31
<S> <C> <C>
1999 1998
Fair value of securities available for sale $ 580,879 $ 552,628
Amortized cost of securities available for sale 609,147 548,613
Gross unrealized gain (loss) on securities
available for sale (28,268) 4,015
Adjustments for:
Cost of policies produced 9,174 (1,101)
Cost of policies purchased 2,589 (489)
Deferred federal income taxes 5,721 (765)
Net unrealized gain (loss) on securities
available for sale $ (10,784) $ 1,660
</TABLE>
NOTE 5 -- EARNINGS PER SHARE
A reconciliation of income and shares used to calculate basic and diluted
earnings per share is as follows (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
<S> <C> <C> <C> <C>
September 30 September 30
1999 1998 1999 1998
INCOME:
Net income $ 1,304 $ 1,138 $ 4,002 $ 3,178
Preferred stock dividends (127) (71) (380) (71)
Income available to common shareholders for
basic earnings per share 1,177 1,067 3,622 3,107
Effect of dilutive securities:
Interest on subordinated convertible debt 250 250 750 750
Income available to common shareholders for diluted $ 1,427 $ 1,317 $ 4,372 $ 3,857
earnings per share
SHARES:
Weighted average shares outstanding for
basic earnings per share 7,575,635 7,231,217 7,576,159 6,599,428
Effect of dilutive securities:
Stock options 120,880 271,940 147,534 288,833
Stock warrants 108,553 204,700 120,633 236,608
Subordinated convertible debt 1,740,038 1,740,038 1,740,038 1,740,038
Dilutive potential common shares 1,969,471 2,216,678 2,008,205 2,265,479
Weighted average shares outstanding for
diluted earnings per share 9,545,106 9,447,895 9,584,364 8,864,907
</TABLE>
<PAGE>
STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
__________________
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion highlights the material factors affecting the results
of operations and the significant changes in balance sheet items. Changes in
1999 and 1998 balances in the consolidated financial statements are largely
affected by the acquisitions of Savers Life and Midwestern Life and various
financing described in the notes to the consolidated financial statements
included in this report and the notes to the consolidated financial statements
included in the 1998 Form 10-K. This discussion should be read in conjunction
with both sets of consolidated financial statements.
FIRST NINE MONTHS OF 1999 COMPARED WITH THE FIRST NINE MONTHS OF 1998:
The following tables and narratives summarize the results of operations by
operating segment:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
<S> <C> <C> <C> <C>
September 30 September 30
1999 1998 1999 1998
(Dollars in thousands)
Operating income before income taxes:
Domestic operations $ 2,115 $ 779 $ 4,956 $ 3,093
International operations 220 592 859 1,541
Consolidated operating income before income taxes 2,335 1,371 5,815 4,634
Applicable income taxes related to operating income 867 251 1,675 1,504
Consolidated operating income after taxes 1,468 1,120 4,140 3,130
Consolidated realized investment gains (losses)
before income taxes (249) 27 (209) 73
Applicable income taxes (benefits) related to realized
investment gains (losses) (85) 9 (71) 25
Consolidated realized investment gains (losses)
after taxes (benefits) (164) 18 (138) 48
Net income $ 1,304 $ 1,138 $ 4,002 $ 3,178
</TABLE>
CONSOLIDATED RESULTS AND ANALYSIS
SMC's nine month 1999 operating earnings were $4.1 million, or 47 cents per
diluted share, up 32% and 9%, respectively, over the same nine month period of
1998. Operating earnings increased due to i) increased net spread revenue, ii)
economies of scale achieved through the acquisitions of Savers Life and
Midwestern Life and iii) increased administrative fees and policy income
earned. These increases were somewhat offset by i) the elimination of negative
goodwill amortization, a non recurring item, which contributed $1 million or 12
cents per diluted share in the 1998 period, ii) unfavorable mortality and iii)
increased amortization. The percentage increase in operating earnings was
greater than the percentage increase in operating earnings per diluted share
primarily because of a 8% increase in weighted average diluted common shares
or equivalents outstanding during the period. This increase in weighted
average shares outstanding resulted primarily from shares issued in
connection with the acquisition of Savers Life and Midwestern Life.
<PAGE>
STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
__________________
DOMESTIC OPERATIONS:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
<S> <C> <C> <C> <C>
1999 1998 1999 1998
(Dollars in thousands)
Premiums and deposits collected:
Traditional life $ 3,301 $ 1,718 $ 9,461 $ 5,589
Medicare supplement -- -- -- 5,992
Flexible premium deferred annuities ("FPDA's") 26,015 13,589 78,107 38,444
Equity-indexed annuities 13,750 7,143 42,595 9,177
Other annuities and deposits 1,534 2,294 4,401 3,812
Universal and interest-sensitive life 805 738 1,696 2,413
Subtotal - interest-sensitive and other
financial products 42,104 23,764 126,799 53,846
Total premiums and deposits collected $ 45,405 $ 25,482 $ 136,260 $ 65,427
Premium income $ 3,301 $ 1,718 $ 9,461 $ 11,581
Policy income 1,663 1,906 5,176 5,058
Total policy related income 4,964 3,624 14,637 16,639
Net investment income 10,148 7,897 30,609 23,251
Fee and other income 1,059 1,261 3,481 2,345
Total revenues (a) 16,171 12,782 48,727 42,235
Benefits and claims 3,669 2,482 10,944 10,503
Interest credited on interest-sensitive
annuities and other financial products 5,141 4,247 16,723 13,112
Amortization 1,383 1,322 4,455 3,546
Other operating expenses 3,023 3,180 9,128 9,780
Interest expense and financing costs 840 772 2,521 2,201
Total benefits and expenses 14,056 12,003 43,771 39,142
Operating income before income taxes 2,115 779 4,956 3,093
Net realized investment gains (losses) (249) 27 (209) 73
Income before income taxes $ 1,866 $ 806 $ 4,747 $ 3,166
</TABLE>
(a)Revenues exclude net realized investment gains (losses)
<PAGE>
STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
__________________
GENERAL: This segment consists of revenues earned and expenses incurred from
United States operations which includes deposits from annuity products
(primarily FPDA's), equity-indexed products, universal life products and
traditional life products. The profitability for this segment is primarily a
function of its investment spread earned (i.e. the excess of investment
earnings over interest credited on annuity and universal life deposits),
persistency of the in-force business, mortality experience and operating
expenses. Domestic operations include SMC and its U.S. consolidated
subsidiaries.
PREMIUM INCOME consists of premiums earned from i) traditional life insurance,
ii) annuity business that incorporates significant mortality features and iii)
Medicare supplement premiums in the 1998 period.
Life premiums were up $3.9 million or 69% in the first nine months of 1999, to
$9.5 million. The traditional life premium increase was primarily due to
renewal premiums from the insurance blocks of Savers Life and Midwestern Life.
Medicare supplement premiums of $6.0 million are included in the first nine
months of 1998. This business did not contribute to net income and was sold
July, 1998.
NET PREMIUM DEPOSITS consist of FPDA's, equity-indexed annuities, interest-
sensitive annuities and other financial products that do not incorporate
significant mortality features. For GAAP these premium deposits are not shown
as premium income in the income statement. Furthermore, a change in premium
deposits in a single period does not directly cause operating income to change,
although continued increases or decreases in premiums may affect the growth
rate of total assets on which investment spreads are earned.
In the first nine months of 1999 net premium deposits increased $73.0 million
or 135%, to $126.8 million. The increase relates to i) an increase in the
agency base achieved through the recruitment of high volume agents and larger
managing general agencies, ii) continued expansion of geographical
concentration, and iii) the introduction of equity-indexed annuity products
which contributed $42.6 million of premium deposits for the period.
NET INVESTMENT INCOME includes interest earned on invested assets which
fluctuates with changes in i) the amount of average invested assets supporting
insurance liabilities and ii) the yield earned on invested assets.
Net investment income in the first nine months of 1999 increased $7.4 million
or 32%, to $30.6 million. Average invested assets increased by $159.1 million
or 35% compared to the first nine months of 1998 primarily due to the growth in
insurance liabilities from the acquisitions of Savers Life and Midwestern Life
and from premiums and deposits received net of amounts returned of policyholder
account balances. This increase was somewhat offset by a decline in net
investment yields for the period.
The net investment yields earned on average invested assets were 7.13% and
7.54% for the first nine months of 1999 and 1998, respectively.
POLICY INCOME represents mortality charges, administrative fees and surrender
charges related to universal life and annuity policies.
Policy income increased $.1 million or 2%, to $5.2 million in the first nine
months 1999. This increase primarily relates to surrender charges received as
a result of lowering crediting rates on certain FPDA products.
FEE AND OTHER INCOME consists of recurring fee income related to servicing
blocks of business for other insurance companies, experience refunds and
commission income.
In the first nine months of 1999 fee income increased $1.1 million or 48%, to
$3.5 million. This increase relates to fee income received in connection with
a three-year service agreement entered into by Savers Marketing Corporation
("Savers Marketing") in October, 1998.
<PAGE>
STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
__________________
BENEFITS AND CLAIMS include i) paid life insurance claims, ii) benefits from
annuity policies that incorporate significant mortality features, iii) Medicare
supplement benefits in the 1998 period and iv) changes in future policy
reserves. Throughout the Company's history, it has experienced periods of
higher and lower benefit claims. Such volatility is not uncommon in the life
insurance industry and, over extended periods of time, periods of higher claim
experience tend to offset periods of lower claims experience. Changes in
benefits and claims should be analyzed along with changes in premium income.
Benefits and claims in the first nine months of 1999 increased $.4 million, to
$10.9 million due to $5.3 million of life claims and benefits primarily
resulting form the increase of inforce life insurance business of Savers Life
and Midwestern Life. This was somewhat offset by the inclusion of $4.9 million
of benefits and claims in 1998 results related to the Medicare supplement
business that was sold July, 1998.
INTEREST CREDITED ON INTEREST-SENSITIVE ANNUITIES AND OTHER FINANCIAL PRODUCTS
represents interest credited to the FPDA's, equity-indexed annuities, interest
sensitive and other financial products.
In the first nine months of 1999 interest credited increased $3.6 million or
28%, to $16.7 million due to interest credited on the insurance liabilities of
Savers Life and Midwestern Life. This expense was also impacted by interest
credited on insurance liabilities from sales in recent periods and somewhat
offset by a decline in crediting rates.
The weighted average credited rates for the first nine months of 1999 and 1998
were 4.87% and 5.35%, respectively.
AMORTIZATION includes i) amortization related to the present value of polices
purchased, ii) amortization of policies produced and iii) amortization of
goodwill and organizational costs.
Amortization in the first nine months of 1999 increased $.9 million or 26%, to
$4.5 million. This increase relates to additional amortization of the cost of
policies produced and cost of policies purchased for the first nine months
of 1999 due to the recognition of additional profits for the period.
Additional profits were recognized from i) the realization of profits from
increased sales of annuity products in recent periods and ii) the realization
of profits from the purchased insurance business from Savers Life and
Midwestern Life.
OTHER OPERATING EXPENSES consist of recurring general operating expenses and
commission expenses, net of deferrable amounts.
In the first nine months of 1999 other operating expenses declined $ .7 million
or 7%, to $9.1 million. The majority of this decrease relates to efficiencies
achieved through the assimilation of the former insurance operations of Savers
Life, Savers Marketing and Midwestern Life including the elimination of certain
Medicare supplement expenses in connection with the sale of that business.
INTEREST EXPENSE AND FINANCING COSTS represents interest expense incurred and
the amortization of related debt issuance costs.
In the first nine months of 1999 interest expense and financing costs increased
$.3 million or 15%, to $2.5 million primarily due to increased average
borrowings for the period of approximately $6.8 million. This increase was
somewhat offset by a decline in the average interest rate for the period.
<PAGE>
STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
__________________
INTERNATIONAL OPERATIONS:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
<S> <C> <C> <C> <C>
1999 1998 1999 1998
(Dollars in thousands)
Premiums and deposits collected:
Traditional life $ 13 $ 41 $ 37 $ 77
Separate account deposits 17,864 8,780 43,284 28,845
Total premiums and deposits collected $ 17,877 $ 8,821 $ 43,321 $ 28,922
Premium income $ 13 $ 41 $ 37 $ 77
Net investment income 121 124 385 379
Separate account fees 714 648 2,104 1,318
Amortization of negative goodwill -- 347 -- 1,041
Other income -- 17 8 353
Total revenues 848 1,177 2,534 3,168
Benefits and claims 143 (60) 122 (37)
Other operating expenses 485 645 1,553 1,664
Total benefits and expenses 628 585 1,675 1,627
Operating income before income taxes $ 220 $ 592 $ 859 $ 1,541
</TABLE>
<PAGE>
STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
__________________
GENERAL: This segment consists of revenues earned and expenses incurred from
abroad, primarily Europe, and includes fees collected on deposits from separate
account (unit-linked) products. The profitability of this segment primarily
depends on the amount of separate account assets under management, the
management fee charged on those assets and operating expenses. International
operations include Standard Management International, S.A. and its non-
U.S.consolidated subsidiaries ("SMI").
NET INVESTMENT INCOME fluctuates with changes in i) the amount of average
invested assets and ii) the yield earned on invested assets.
Net investment income was $.4 million for each of the nine-month periods of
1999 and 1998 on average invested assets of approximately $11.0 million.
The net investment yields earned on average invested assets were 4.97% and
4.78% for the first nine months of 1999 and 1998, respectively.
FEES FROM SEPARATE ACCOUNTS represents the net fees earned on the various unit-
linked products sold and fluctuate in relationship with account assets and the
return earned on such assets. Fees include initial set up fees on certain
products and annual recurring fees on virtually all products.
Fees from separate accounts for the first nine months of 1999 increased 60%
to $2.1 million. This is due to weighted average assets held in separate
accounts increasing by $49.5 million, or 29% for the period and changes
in deferred acquisition cost methodology, which adversely impacted the 1998
period. Actual separate account assets increased $60.9 million or 33%, to
$243.2 million for the twelve months ending September 30, 1999. Net deposits
from sales of unit-linked products by SMI increased $14.4 million or 50%, to
$43.3 million.
AMORTIZATION OF NEGATIVE GOODWILL is the excess cost of assets acquired over
the purchase price paid for SMI in December, 1993 of $6.9 million.
Negative goodwill was fully amortized at December 31, 1998 and does not
contribute to net income in the 1999 period. Negative goodwill amortization
for the first nine months of 1998 was $1 million.
OTHER INCOME consists of various refunds and other miscellaneous income.
Other income for the first nine months of 1998 includes i) $.2 million of paid
benefits and ii) $.1 million from the sale of an asset fund to a reinsurer.
BENEFITS AND CLAIMS consists of changes in traditional life reserves and
premium deficiency reserves.
Benefits and claims for the first nine months of 1999 include increases due to
strengths of various fund reserves and traditional life reserves compared to
the 1998 period.
FOREIGN CURRENCY TRANSLATION International operations are conducted using
foreign currencies, primarily the Luxembourg franc, which are subsequently
converted into U.S. dollars using a conversion rate. Although the net impact
of this translation is deemed immaterial, individual income statement
components from period to period may be impacted from the strengthening and
destrengthening of the U.S. dollar.
<PAGE>
STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
__________________
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY OF STANDARD MANAGEMENT (PARENT COMPANY)
Standard Management is a life insurance holding company whose liquidity
requirements are met through payments received from its subsidiaries. These
payments include i) interest on surplus debenture, ii) dividends, iii)
management fees and iv) rental income, which are subject to restrictions under
applicable insurance laws and are used to pay operating expenses and meet debt
service obligations. These internal sources of liquidity have been
supplemented in the past by external sources such as revolving credit
agreements and long term debt and equity financing in the capital markets.
GENERAL: On a consolidated GAAP basis SMC reported net cash provided by
operations of $3.0 million for the first nine months of 1999. Although
deposits received on SMC's interest-sensitive annuities and other financial
products are not included in cash flow from operations under GAAP, such funds
are available for use by SMC. Cash provided by operations plus net deposits
received, less net account balances returned to policyholders on interest
sensitive annuities and other financial products, resulted in positive cash
flow of $66.4 million for the first nine months of 1999. Cash generated on a
consolidated basis is available to Standard Management only to the extent that
it is generated at the Standard Management level or is available through
dividends, interest, management fees or other payments from subsidiaries.
SMC instituted a program to repurchase its common stock and at September 30,
1999, Standard Management is authorized to repurchase 1.0 million
additional shares of SMC Common Stock under this program.
At October 31, 1999, Standard Management had "parent company only" cash and
short-term investments of $.5 million. These funds are available to Standard
Management for general corporate purposes. Standard Management's annual "parent
company only" operating expenses (not including interest expense) were $3.1
million and $3.4 million for 1998 and 1997, respectively. In addition,
Standard Management has available $1.0 million from its revolving credit
agreement.
Standard Management anticipates the available cash from its existing working
capital, plus anticipated 1999 dividends, management fees, rental income and
interest payments on its surplus debentures receivable will be more than
adequate to meet its anticipated "parent company only" cash requirements for
1999.
INTEREST OF SURPLUS DEBENTURE. From the funds borrowed by Standard Management
pursuant to the revolving credit agreements ("credit agreement") and the senior
subordinated convertible note agreements ("debt agreement') described in Note
3, $27.0 million was loaned to Standard Life pursuant to unsecured surplus
debenture agreements ("surplus debentures") which requires Standard Life to
make quarterly interest payments to Standard Management at a variable
corporate base rate plus 2% per annum, and annual principal payments of
$1.0 million per year beginning in 2007 and concluding in 2033. The
interest and principal payments are subject to quarterly approval by
the Indiana Department of Insurance, depending upon satisfaction of
certain financial tests relating to levels of Standard Life's capital and
surplus and general approval of the Commissioner of the Indiana Department
of Insurance. Standard Management currently anticipates these quarterly
approvals will be granted. Assuming the approvals are granted and the
September 30, 1999 interest rate of 10.25% continues, Standard Management
will receive interest income of $2.6 million from the surplus debentures
in 1999.
DIVIDENDS. Laws applicable to insurance companies limit dividends from
Standard Life to Standard Management. As an Indiana domiciled insurance
company, Standard Life may pay a dividend or distribution from its surplus
profits, without the prior approval of the Commissioner of the Indiana
Department of Insurance, if the dividend or distribution, together with all
other dividends and distributions paid within the preceding twelve months, does
not exceed the greater of (i) net gain from operations or (ii) 10% of surplus,
in each case as shown in its preceding annual statutory financial statements.
In 1999, Standard Life can pay dividends of approximately $4.4 million without
regulatory approval.
MANAGEMENT FEES. Pursuant to a management services agreement, Standard Life
paid Standard Management $2.3 million for the first nine months of 1999 for
certain management services related to the production of business, investment
of assets and evaluation of acquisitions. In addition, Dixie National Life
Insurance Company ("Dixie Life') paid Standard Life $.7 million in the first
nine months of 1999 for certain management services provided. Both of these
agreements provide that they may be modified or terminated by the Indiana and
Mississippi Departments of Insurance in the event of financial hardship of
Standard Life or Dixie Life.
<PAGE>
STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
__________________
EQUIPMENT RENTAL FEES. Standard Management charged its subsidiaries $.8
million in the first nine months of 1999 for the use of equipment owned by
Standard Management.
LIQUIDITY OF INSURANCE OPERATIONS
U.S. INSURANCE OPERATIONS. The principal liquidity requirements of Standard
Life are its contractual obligations to policyholders, dividend, rent,
management fee and surplus debenture payments to Standard Management and other
operating expenses. The primary source of funding for these obligations has
been cash flow from premium income, net investment income, investment sales and
maturities and sales of FPDA's. These sources of liquidity for Standard Life
significantly exceed scheduled uses. Liquidity is also affected by unscheduled
benefit payments including death benefits and policy withdrawals and
surrenders. The amount of withdrawals and surrenders is affected by a variety
of factors such as renewal interest crediting rates, interest rates for
competing products, general economic conditions, Standard Life's A.M. Best
rating (currently rated "B+") and events in the insurance industry that affect
policyholders' confidence.
The policies and annuities issued by Standard Life contain provisions that
allow policyholders to withdraw or surrender their policies under defined
circumstances. These policies and annuities generally contain provisions that
apply penalties or otherwise restrict the ability of policyholders to make such
withdrawals or surrenders. Standard Life closely monitors the surrender and
policy loan activity of its insurance products and manages the composition of
its investment portfolios, including liquidity, in light of such activity.
Changes in interest rates may affect the incidence of policy surrenders and
other withdrawals. In addition to the potential effect on liquidity,
unanticipated withdrawals in a changing interest rate environment could
adversely affect earnings if SMC were required to sell investments at reduced
values to meet liquidity demands. SMC manages the asset and liability
portfolios in order to minimize the adverse earnings effect of changing market
interest rates. SMC seeks assets that have duration characteristics similar to
the liabilities that they support. SMC also prepares cash flow projections and
performs cash flow tests under various market interest rate scenarios to assist
in evaluating liquidity needs and adequacy. SMC's U.S. insurance subsidiaries
currently expect available liquidity sources and future cash flows to be
adequate to meet the demand for funds.
Statutory surplus is computed according to rules prescribed by the NAIC, as
modified by the Indiana Department of Insurance, or the state in which the
insurance subsidiaries do business. Statutory accounting rules are different
from GAAP and are intended to reflect a more conservative perspective. With
respect to new business, statutory accounting practices require that:
(i) acquisition costs (primarily commissions and policy issue costs) and
(ii) reserves for future guaranteed principal payments and interest in excess
of statutory rates, be expensed in the year the new business is written. These
items cause a reduction in statutory surplus ("surplus strain") in the year
written for many insurance products. SMC designs its products to minimize such
first-year losses, but certain products continue to cause a statutory loss in
the year written. For each product, SMC controls the amount of net new premiums
written to manage the effect of such surplus strain. SMC's long-term growth
goals contemplate continued growth in its insurance businesses. To achieve
these growth goals, SMC's U.S. insurance subsidiaries will need to increase
statutory surplus. Standard Management may secure additional statutory surplus
through various sources such as internally generated statutory earnings,
infusions with funds generated through debt or equity offerings or mergers with
other life insurance companies. If additional capital is not available from one
or more of these sources, SMC believes that it could reduce surplus strain
through the use of reinsurance or through reduced writing of new business.
Management believes that the operational cash flow of Standard Life will be
sufficient to meet its anticipated needs for 1999. As of September 30, 1999,
Standard Life had statutory capital and surplus for regulatory purposes of
$41.8 million. As the life insurance and annuity business produced by Standard
Life increases, Standard Life expects to continue to satisfy statutory capital
and surplus requirements through statutory profits, the continued reinsurance
of a portion of its new business and additional capital contributions by
Standard Management. If the need arises for cash that is not readily
available, additional liquidity could be obtained from the sale of invested
assets.
Effective January 1, 1999 the Company decided to no longer sell new business
through Dixie Life. This decision is not expected to have a material effect on
operations or financial condition of the Company.
<PAGE>
STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
__________________
INTERNATIONAL OPERATIONS. SMI dividends are limited to its accumulated
earnings without regulatory approval and no dividends are anticipated from
these companies in 1999.
IMPACT OF YEAR 2000
The Company updated its main operating computer systems in 1995 with Year 2000
ready systems at a cost of $.5 million. Since that time the Company has
completed modifications or conversions of other portions of its software,
hardware and imbedded chip technology so that its computer systems will
function properly with respect to dates in the year 2000 and thereafter. The
Company believes that with such modifications and conversions, the Year 2000
issue will not pose significant operational problems for its computer systems.
The total cost of the Year 2000 project is $.6 million including the $.5
million previously discussed. These costs are not material to the Company's
financial statements and were funded through operating cash flows.
The Company is currently assessing the risks associated with their external
business relationships, including those with agents, financial institutions,
reinsurers and providers of mission-critical software and systems. Throughout
the remainder of 1999 the Company will continue to monitor the status of
significant business partners which have not provided assurances that their
compliance and remediation plans are complete and modify contingency plans
accordingly.
The Company also assessed what contingency plans will be needed, if any, of its
critical systems or those of external business relationships that are not Year
2000 ready after December 31, 1999. In the event of a business interruption
due to a Year 2000 problem, the Company has committed various resources which
will be deployed as necessary. The effectiveness of any contingency plan,
however, is contingent on the nature and source of the interruption and whether
the correction of any problem is within the Company's control or within the
exclusive control of a business partner.
The failure to correct a Year 2000 problem could result in an interruption, or
failure of, a number of normal business activities or operations. However,
management has concluded that the Year 2000 issue will not materially affect
future financial results, or cause reported financial information to be
nonindicative of future operating results or financial condition.
FORWARD-LOOKING STATEMENTS
All statements, trend analyses, and other information contained in this
quarterly report on Form 10-Q or any document incorporated by reference herein
relative to markets for the Company's products and trends in the Company's
operations or financial results, as well as other statements including words
such as "anticipate," "believe," "plan," "estimate," "expect," "intend," and
other similar expressions, constitute forward-looking statements under the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to known and unknown risks, uncertainties and other
factors which may cause actual results to be materially different from those
contemplated by the forward-looking statements. Such factors include, but are
not limited to: (i) general economic conditions and other factors, including
prevailing interest rate levels, stock market performance and health care
inflation, which may affect the ability of the Company to sell its products,
the market value of the Company's investments and the lapse rate and
profitability of the Company's policies; (ii) the Company's ability to achieve
anticipated levels of operational efficiencies at recently acquired companies,
as well as through other cost-saving initiatives; (iii) customer response to
new products, distribution channels and marketing initiatives; (iv) mortality,
morbidity, usage of health care services and other factors which may affect the
profitability of the Company's insurance products; (v) changes in the Federal
income tax laws and regulation which may affect the relative tax advantages of
some of the Company's products; (vi) increasing competition in the sale of the
Company's products; (vii) regulatory changes or actions, including those
relating to regulation of financial services affecting bank sales and
underwriting of insurance products, regulation of the sale, underwriting and
pricing of insurance products, and health care regulation affecting the
Company's supplemental health insurance products; (viii) the availability and
terms of future acquisitions; and (ix) the risk factors or uncertainties listed
from time to time in any document incorporated by reference herein.
<PAGE>
STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
__________________
Subsequent Event
On October 25, 1999 Standard Life entered into an agreement to sell its
ownership in Dixie Life for approximately $10.4 million in cash. The sale is
expected to close in early 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risks and the way they are managed are summarized in
management's discussion and analysis of financial condition and results of
operations as of December 31, 1998, included in the Company's December 31, 1998
Form 10-K. There have been no material changes in 1999 to these risks or the
management of such risks.
<PAGE>
STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
___________________
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits
10.54 Employment Agreement between Standard Management Corporation and
Paul B. Pheffer dated and effective July 1, 1999.
10.55 Third Amended and Restated Employment Contract by and between
Standard Management Corporation and Edward T. Stahl, dated and
effective, as amended July 1, 1999.
10.56 Third Amended and Restated Employment Contract by and between
Standard Management Corporation and Ronald D. Hunter, dated and
effective, as amended, July 1, 1999.
10.57 Third Amended and Restated Employment Contract by and between
Standard Management Corporation and Raymond J. Ohlson, dated and
effective, as amended, July 1, 1999.
10.58 Second Amended and Restated Employment Contract by and between
Standard Management Corporation and Stephen M. Coons, dated and
effective, as amended, July 1, 1999.
Exhibit 27 Financial Data Schedule, which is submitted electronically
pursuant to Regulation S-K to the Securities and Exchange
Commission (the "Commission")for information only and not filed.
(b) Reports ON FORM 8-K
No reports on Form 8-K were filed with the Commission in the third
quarter of 1999.
<PAGE>
STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
____________________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 5, 1999
STANDARD MANAGEMENT CORPORATION
(Registrant)
By: RONALD D. HUNTER
Ronald D. Hunter
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
By: GERALD R. HOCHGESANG
Gerald R. Hochgesang
Senior Vice President and Treasurer
(Chief Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<DEBT-HELD-FOR-SALE> 580,134
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 745
<MORTGAGE> 9,455
<REAL-ESTATE> 3,553
<TOTAL-INVEST> 632,865
<CASH> 3,874
<RECOVER-REINSURE> 74,225
<DEFERRED-ACQUISITION> 90,363<F1>
<TOTAL-ASSETS> 1,066,137
<POLICY-LOSSES> 715,358
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 35,000
6,530
0
<COMMON> 54,617
<OTHER-SE> 1,669<F2>
<TOTAL-LIABILITY-AND-EQUITY> 1,066,137
9,498
<INVESTMENT-INCOME> 30,994
<INVESTMENT-GAINS> (209)
<OTHER-INCOME> 7,280<F3>
<BENEFITS> 27,789<F4>
<UNDERWRITING-AMORTIZATION> 4,455
<UNDERWRITING-OTHER> 10,681
<INCOME-PRETAX> 5,606
<INCOME-TAX> 1,604
<INCOME-CONTINUING> 4,002
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,002
<EPS-BASIC> .53<F5>
<EPS-DILUTED> .50<F5>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Includes $29,764 of cost of policies purchased.
<F2>Includes retained earnings of $13,574 and other comprehensive income of
($11,905).
<F3>Includes policy charges of $5,176 and fees from separate accounts of $2,104.
<F4>Includes benefits and claims of $11,066 and interest credited on financial
products of $16,723.
<F5>EPS data does not include reductions for preferred stock dividends.
</FN>
</TABLE>
EMPLOYMENT CONTRACT
THIS CONTRACT OF EMPLOYMENT (hereinafter "Contract") is made in Indianapolis,
Indiana, dated July 1, 1999 and effective July 1, 1999, by and between
STANDARD MANAGEMENT CORPORATION, an Indiana Corporation, and all wholly owned
subsidiaries of the above named corporations (hereinafter the "Company"), and
PAUL B. ("PETE") PHEFFER (hereinafter "Executive").
RECITALS
A.Executive has and is expected to continue to make a major contribution to the
profitability, growth and financial strength of the Company.
B.The Company considers the continued services of the Executive to be in the
best interest of the Company and its shareholders and desires to assure the
services of the Executive on behalf of the Company on an objective and
impartial basis and without distraction or conflict of interest in the event of
an attempt to obtain control of the Company.
C.Executive is willing to remain in the employ of the Company under the terms
and conditions hereof and upon the understanding that the Company will provide
him with the income security herein if his employment is terminated by the
Company or if he voluntarily terminates his employment for good reason.
NOW, THEREFORE, in consideration of the mutual agreements contained herein, the
parties to this Contract hereby agree as follows:
AGREEMENT
1.EMPLOYMENT. The Company hereby agrees to employ Executive as Executive Vice
President and Chief Financial Officer of the Company. Executive accepts such
employment and agrees to be subject to the general supervision, orders, advice
and direction of the President and Chief Executive Officer and the Board of
Directors of the Company in a manner consistent with the Articles of
Incorporation and By-Laws of the Company.
2.TERMS OF EMPLOYMENT AND COMPENSATION. Executive's term of employment (the
"Employment Term") hereunder shall start on the date first written above and
continue until such employment terminates pursuant to Section 7 hereof.
3.SALARY AND BONUS. Executive's salary for the first year hereunder shall be
$231,243.00 per year. Thereafter during the Employment Term, Executive's
salary shall be increased each year by an amount equal to Executive's salary
for the previous year multiplied by the percent change of the Consumer Price
Index for all Urban Consumers (the "CPI") (published by the Bureau of Labor
Statistics, United States Department of Labor) during the immediately preceding
calendar year. For example, if the percent change in the CPI from January 1,
1999 to December 31, 1999 were 5%, Executive's salary for the second year
hereunder would be $242,805.00. Executive's salary shall be payable on the
Company's regular salary payment dates. In addition, within 90 days after the
end of each fiscal year during the Employment Term, Executive shall receive a
bonus. The bonus paid to Executive shall be one and one-half percent (1-1/2%)
of the annual gross operating income of the Company paid within ninety (90)
days after the close of each calendar year covered hereunder. Provided,
however, that in no event shall said bonus be less than ten percent (10%) of
the annual salary of Executive for the year in consideration.
The salary and bonus payments hereunder shall be subject to withholding and any
other applicable tax law.
4.SALARY GUARANTEE. All salaries payable to the Executive under the Agreement
will be guaranteed (the "Guaranteed Payments") as of the effective date of the
Agreement for the full Employment Term of the Agreement except for terminations
for violations found in Section 7(b) (c) (d) or (e) hereof.
(a)After the initial three year Employment Term of Guaranteed Payments, any
additional one year extensions made pursuant to the terms of Section 7(a) will
be guaranteed once the notice period for the extension or termination period
found in Section 7(a) has passed.
(b)None of the Guaranteed Payments described in this Section shall prevent the
Executive from receiving the Termination Benefits described in Section 13 of
the Agreement.
(c)All Guaranteed Payments described in this Section and payable to the
Executive shall be payable to the Estate of Paul B. Pheffer in the event of
death of the Executive.
(d)In the event of any mental disability which renders the Executive unable to
fulfill his duties pursuant to Section 1 of this Agreement, all Guaranteed
Payments shall be made to Paul B. Pheffer's spouse, his attorney in fact, his
personal representative, his guardian, or any other such person legally
specifically listed, to whomever is legally authorized to receive monetary
payments due and owing to Paul B. Pheffer.
(e)In the event of any physical disability which renders the Executive unable
or unwilling to fulfill his duties pursuant to Section 1 of this Agreement, all
Guaranteed Payments shall be made directly to the Executive.
(f)Upon the termination of Executive=s employment for any reason other than
pursuant to Section 7(b), (d) or (e) hereof, the Company shall pay to Executive
in a lump-sum payment, within thirty (30) calendar days after such termination,
the salary received by him on the date of such termination in an amount equal
to two (2) years of annual salary.
5.REIMBURSEMENT FOR EXPENSES. The Company shall, during the Employment Term,
reimburse Executive for all reasonable travel, business entertainment and other
business expenses incurred by Executive in rendering services under this
Contract. Such reimbursement shall be subject to compliance with the
applicable policies and procedures established by the Company. During the
Employment Term, Executive shall be entitled to an automobile allowance of
$500.00 per month.
6.FRINGE BENEFITS. During the Employment Term, Executive shall be entitled to
participate in the Company's corporate, medical and disability insurance plans.
The Company shall also provide Executive with term life insurance in the amount
of $500,000. Executive shall be entitled to all other fringe benefits
generally provided for salaried employees of the Company upon attaining
eligibility as provided under such fringe benefit programs. Executive shall be
entitled to four (4) weeks vacation per year.
7.TERMINATION. The Employment Term shall terminate on the first to occur of
the following events:
(a)the third anniversary of the date on which the Employment Term become
effective; provided, however, that after such third anniversary, the Employment
Term shall be extended each year thereafter for an additional one year period
unless either party gives the other written notice at least 90 days before such
extension of its intention not to renew the Contract;
(b)termination by the Company for cause, upon written notice (specifying the
particulars) to Executive from the Company's Board of Directors, which cause
shall be limited to:
(i) the persistent failure of or refusal by Executive to comply with the
material orders, advice, directions, policies, standard and regulations of the
Company and its President or Board of Directors, as promulgated from time to
time, or with the provisions of this Contract, which failure or refusal is
detrimental to the Company;
(ii) an act or acts of fraud or dishonesty by Executive resulting in or
tending to result in gain to or personal enrichment of Executive at the
Company's expense;
(iii) any felony conviction of Executive or material tort which is detrimental
to the Company; or
(iv) the persistent absence of Executive from his employment without cause or
explanation;
(c)the death of Executive;
(d)the 90th day after notice from the Company to Executive that Executive is
considered to be permanently disabled due to his inability to perform his
duties or fulfill his responsibilities hereunder, which inability existed for a
period of 90 days or more before such notice; or
(e)termination by Executive, at his option, after 90 days prior written notice
to the Company.
Upon termination of Executive's employment pursuant to Section 7(b) (c) (d) or
(e), Executive (or his estate) shall receive (i) any unpaid salary payments
with respect to periods prior to the date of termination, and (ii) any
termination, disability or death benefits to which he is entitled under any
employee benefit plan of the Company which is in effect at the time of the
termination of his employment. In all other events of termination, Executive
shall continue to receive the Guaranteed Payments.
8.AGREEMENT NOT TO COMPETE. Executive agrees that if his employment is
terminated by the Company pursuant to Subsection 7(b) hereof he shall not, for
a period of one year from the date his employment hereunder terminates, (x)
directly or indirectly sell or attempt to sell, within Indiana, on behalf of
himself or any other person, corporation or entity, any type of product
marketed by the Company at the time his employment is terminated, (y) directly
or indirectly sell or attempt to sell any type of product marketed by the
Company at the time his employment is terminated to any person, corporation or
other entity that is a customer of the Company at the time his employment is
terminated, and (z) within Indiana, directly or indirectly, own, manage,
operate, control, be employed by, participate in, or be connected in any manner
with the ownership, management, operation, or control of any business similar
to the type of business conducted by the Company at the time of termination of
Executive's employment hereunder; provided, however, that Executive may be a
shareholder of less than 5% of the outstanding shares of voting stock of any
company listed on a recognized stock exchange or traded in the NASD over-the-
counter market.
9.TECHNICAL INFORMATION. Executive covenants and agrees that during the
Employment Term and for a period of six months after termination of the
Employment Term (regardless of whether Executive is terminated or defaults
under any other provision of this Contract) he will assign to the Company or
its nominees all of his right, title and interest in and to all "Technical
Information" (as hereinafter defined) which he makes, develops or conceives,
either alone or in conjunction with others; he will disclose promptly to the
Company all such Technical Information; and he will cooperate with the Company
in its efforts to protect its rights of ownership in such Technical
Information. For purposes of this Contract, "Technical Information" shall mean
and include, but not be limited to, all software, processes, devices,
trademarks, trade names, copyrights, marketing plans, improvements, and ideas
relating to the business of the Company, and all goodwill associated with any
such item.
10.COVENANT AGAINST DISCLOSURE OF TECHNICAL AND CONFIDENTIAL INFORMATION.
Executive agrees that while he is employed by the Company and thereafter he
shall not, directly or indirectly, disclose or use to the detriment of the
Company or for the benefit of any other person, corporation or other entity,
any confidential information or trade secret (including, but not limited to,
the identity and needs of any customer of the Company, the method and
techniques of any of the business of the Company, the marketing, sales, costs
and pricing plans and objectives of the Company, the problems, developments,
research records, and Technical Information) of the Company, or any of the
affiliates of the Company. Furthermore, Executive shall deliver promptly to
the Company upon termination of his employment, or at any time the Company may
so request, all memoranda, notes, records, reports, manuals, software, models,
designs, and other documents and computer records (and all copies thereof)
relating to the business of the Company, and all property associated therewith,
which he may then possess or have under his control. This Contract supplements
and does not supersede Executive's obligations under statute or the common law
to protect the Company's trade secrets and confidential information.
11.REMEDY. Executive acknowledges that the restrictions contained in Sections
8 through 10 of this Contract are reasonable and that the legal remedies for
breach of the covenants which are contained in Sections 8 through 10 of this
Contract may be inadequate and, therefore, agrees that, in the event of any
actual or threatened breach of any such covenant, in addition to any other
right or remedy which the Company may have, the Company may: (a) seek specific
enforcement of any such covenant through injunction or other equitable relief,
and (b) recover from Executive an amount equal to (i) all sums paid by the
Company to him after commencement of the breach, plus (ii) all costs and
expenses (including attorneys' fees) incurred by the Company in enforcement of
the covenant, plus (iii) all other damages to which the Company may be legally
entitled.
12.UNDERTAKING TO PAY TERMINATION BENEFITS. In addition to the payments
Executive shall receive under Section 4 hereof in the event of the termination
of his employment, the Company agrees to pay to the Executive the Termination
Benefits specified in Section 13 hereof if (a) control of the Company is
acquired (as defined in paragraph 14(a) hereof) and (b) within three years
after the acquisition of control occurs (i) the Company terminates the
employment of Executive for any reason other than pursuant to Section 7(b),
7(c) or 7(d) hereof, or (ii) Executive voluntarily terminates his employment
for good reason (as defined in Section 14(b) hereof).
13.TERMINATION BENEFITS. If Executive is entitled to termination benefits
pursuant to paragraph 12 hereof, the Company agrees to pay to Executive as
termination compensation in a lump-sum payment within five calendar days of the
termination of Executive's employment an amount to be computed by multiplying
(a) Executive's average annual compensation payable by the Company which is
includable in the gross income of Executive for the most recent five complete
calendar years ending coincident with or immediately before the date on which
control of the Company is acquired (or such portion of such period during which
Executive was an employee of the Company, by (b) 299%. For purposes of this
Contract, employment and compensation paid by an direct or indirect subsidiary
of the Company, if any will be deemed to be employment and compensation paid by
the Company.
(a)The Termination Benefits described in this section are payable to the
Executive regardless of any determination by the Company's independent public
accountants that payments made pursuant to this section are or would be non-
deductible by the Company for federal income tax purposes because of Section
280G of the Internal Revenue Code of 1986 or any subsequent revisions in the
Internal Revenue Code.
14.DEFINITIONS.
(a)As used in this Contract, the "acquisition of control": means (i) attaining
ownership of 25% or more of the shares of voting stock of the Company by any
person or group (other than a person or group including Executive or with whom
or which Executive is affiliated), or (ii) the occurrence of a "change of
control" required to be described under the proxy disclosure rules of the
Securities and Exchange Commission.
(b)As used in this Contract, the term "good reason" means, without Executive's
written consent, (i) a change in Executive's status, position or
responsibilities which, in his reasonable judgment, does not represent a
promotion from his status, position or responsibilities as in effect
immediately prior to the change in control; the assignment to Executive of any
duties or responsibilities which, in his reasonable judgment, are inconsistent
with such status, position or responsibilities; or any removal of Executive
from or failure to reappoint or reelect him to any of such positions, except in
connection with the termination of his employment for total and permanent
disability, death or pursuant to Subsection 7(ii) or 7(iii) herein or by him
other than for good reason; (ii) a breach by the Company of its covenants under
this Contract after a change in control; (iii) the relocation of the Company's
principal executive offices to a location outside the Indianapolis, Indiana
metropolitan area or the Company's requiring him to be based at any place other
than the location at which he performed his duties prior to a change in control
except for required travel on the Company's business to an extent substantially
consistent with his business travel obligations at the time of a change in
control; (iv) the failure by the Company to continue to provide Executive with
benefits substantially similar to those enjoyed by him or to which he was
entitled under any of the Company's pension, profit sharing, life insurance,
medical, dental, health and accident, or disability plans in which he was
participating at the time of a change in control, the taking of any action by
the Company which would directly or indirectly materially reduce any of such
benefits or deprive him of any material fringe benefit enjoyed by him or to
which he was entitled at the time of the change in control, or the failure by
the Company to provide him with the number of paid vacation and sick leave days
to which he is entitled on the basis of years of service with the Company in
accordance with the Company's normal vacation and sick leave policies and
consistent with Section 6 of this Contract; (v) the failure of the Company to
obtain a satisfactory agreement from any successor or assign of the Company to
assume and agree to perform this Contract; (vi) any purported termination of
Executive's employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Subsection 15(c) hereof (and, if
applicable, Subsection 7(b) hereof); and for purposes of this Contract, no such
purported termination shall be effective; or (vii) any request by the Company
that Executive participate in an unlawful act or take any action constituting a
breach of Executive's professional standard of conduct.
Notwithstanding anything in this paragraph 14(b) to the contrary, Executive's
right to terminate his employment pursuant to paragraph 12 herein shall not be
affected by his incapacity due to physical or mental illness.
15.ADDITIONAL PROVISIONS RELATING TO TERMINATION.
(a)The Company is aware that the Board of Directors or shareholders of the
Company may then cause or attempt to cause the Company to refuse to comply with
its obligations under this Contract, or may cause or attempt to cause the
Company to institute, or may institute litigation seeking to have this Contract
declared unenforceable, or may take or attempt to take action to deny Executive
the benefits intended under this Contract. In these circumstances, the purpose
of this Contract could be frustrated. It is the intent of the Company that
Executive not be required to incur the expenses associated with the enforcement
of his rights under this Contract by litigation or other legal action, nor be
bound to negotiate any settlement of his rights hereunder, because the cost and
expense of such legal action or settlement would substantially detract from the
benefits intended to be extended to Executive hereunder. Accordingly, if
following a change in control, if it should appear to Executive that the
Company has failed to comply with any of its obligations under this Contract or
in the event that the Company or any other person takes any action to declare
this Contract void or unenforceable, or institutes any litigation or other
legal action designed to deny, diminish or to recover from Executive the
benefits entitled to be provided to Executive hereunder, and that Executive has
complied with all of his obligations under this Contract, the Company
irrevocably authorizes Executive from time to time to retain counsel of his
choice, at the expense of the Company as provided in this Subsection 15(a), to
represent Executive in connection with the initiation or defense of any
litigation or other legal action, whether such action is by or against the
Company or any director, officer, shareholder, or other person affiliated with
the Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the Company
irrevocably consents to Executive entering into an attorney-client relationship
with such counsel, and in that connection the Company and Executive agree that
a confidential relationship shall exist between Executive and such counsel.
The reasonable fees and expenses of counsel selected from time to time by
Executive as hereinabove provided shall be paid or reimbursed to Executive by
the Company on a regular, periodic basis upon presentation by Executive of a
statement or statements prepared by such counsel in accordance with its
customary practices, up to a maximum aggregate amount of $50,000.00. Any legal
expenses incurred by the Company by reason of any dispute between the parties
as to enforceability of or the terms contained in this Contract,
notwithstanding the outcome of any such dispute, shall be the sole
responsibility of the Company, and the Company shall not take any action to
seek reimbursement from Executive for such expenses.
(b) The amounts payable to Executive under this Contract shall not be treated
as damages but as severance compensation to which Executive is entitled by
reason of termination of his employment in the circumstances contemplated by
this Contract. The Company shall not be entitled to set off against the
amounts payable to Executive of any amounts earned by Executive in other
employment after termination of his employment with the Company, or any amounts
which might have been earned by Executive in other employment had he sought
such other employment.
(c)Any purported termination by the Company or by Executive shall be
communicated by written Notice of Termination to the other party hereto in
accordance with Section 22 hereof. For purposes of this Contract, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Contract relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of his
employment under the provision so indicated. For purposes of this Contract, no
such purported termination shall be effective without such Notice of
Termination.
(d)In addition to any payments, termination benefits or any other benefits
Executive is entitled to receive hereunder, in the event of a change or
acquisition of control, the Company agrees to pay the Payment Amount (as
hereinafter defined) to the Executive in a lump-sum payment within thirty (30)
calendar days after the termination of Executive=s employment for any reason,
including, without limitation, termination of employment by the Company,
termination of employment by the Executive and termination of employment by
reason of death. The APayment Amount@ shall be the product, determined as of
the date of Executive=s termination of employment, determined by (i)
multiplying the number of shares of common stock of the Company then subject to
unexercised options (AUnexercised Options@) held by the Executive which were
granted by the Company or an affiliate of the Company by (ii) the highest per
share fair market value of the common stock on any day during the period
beginning six (6) months prior to the date of Executive=s termination of
employment. For purposes of this provision, Unexercised Options shall include
all outstanding options whether or not they are exercisable at the time of the
election by Executive hereunder. There shall be no deduction of Executive=s
exercise price per share for each Unexercised Option from the amount to be
received by him pursuant to this subsection (d). Upon payment by the Company
of the Payment Amount in accordance with this subsection (d), the Unexercised
Options shall be deemed to be surrendered by the Executive and cancelled by the
Company. Such cancellation shall be effective regardless of whether the
Executive surrenders an agreement relating to any Unexercised Option.
16.ENTIRE AGREEMENT. This Contract contains the entire agreement of the
parties relating to the employment of Executive by the Company, superseding any
and all prior such agreements, and cannot be amended, modified, or supplemented
in any respect except by subsequent written agreement entered into by the
parties.
17.BENEFIT. Executive acknowledges that the services to be rendered to him are
unique and personal; accordingly, Executive may not assign any of his rights or
delegate any of his duties or obligations under this Contract. The rights and
obligations of the Company under this Contract shall inure to the benefit of,
and be binding upon, the legal representatives, successors and assigns of the
Company.
18.NO WAIVER. No failure on the part of either party at any time to require
the performance by the other party of any term of this Contract shall be taken
or held to be a waiver of such term or in any way affect such party's right to
enforce such term, and no waiver on the part of either party of any term in
this Contract shall be taken or held to be a waiver of any other term hereof or
the breach thereof.
19.SEVERABILITY. The provisions of Sections 8 through 11 hereof are severable,
and the invalidity or unenforceability of any particular provision of Sections
8 through 11 shall not affect or limit the enforceability of the other
provisions. If any provision in Sections 8 through 11 hereof is held
unenforceable for any reason, including the time period, geographic area, or
scope of activity covered, then such provision shall be enforced to whatever
extent is reasonable and enforceable.
20.GOVERNING LAW. This Contract shall be governed and construed in accordance
with the law of the State of Indiana (other than the provisions relating to
choice of law). The Contract may be brought in any state or federal court of
record in Indianapolis, Indiana and the parties hereto waive any right to
question the jurisdiction of such court over their person or the property of
such venue.
21.CAPTIONS. The captions in this Contract are for convenience and
identification purposes only, and not an integral part of this Contract, and
are not to be considered in the interpretation of any part hereof.
22.NOTICES. All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given if in writing and personally
delivered to the party to whom notice should be given or if sent by registered
or certified mail, postage prepaid, addressed to the addresses set forth below,
or to such other addresses as shall be furnished in writing by either party to
the other:
Paul B. Pheffer
8651 Jaffa Court E. Dr., #17
Indianapolis, IN 46260
To the Company:
Standard Management Corporation
9100 Keystone Crossing, Suite 600
Indianapolis, IN 46240
Attn: Ronald D. Hunter, Chairman
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Contract to be executed on its
behalf by its duly authorized officer and Executive has hereunto set his hand
as of the date and year first above written.
STANDARD MANAGEMENT CORPORATION
AND ALL WHOLLY OWNED SUBSIDIARIES
By:
Ronald D. Hunter,
Chairman, President and Chief Executive Officer
Attest:
Stephen M. Coons,
Secretary
EXECUTIVE
Paul B. ("Pete") Pheffer
H:\Jamescar\DOCS\EMPLOY\Original.PBP.wpd
THIRD AMENDED AND RESTATED EMPLOYMENT CONTRACT
THIS THIRD AMENDED AND RESTATED CONTRACT OF EMPLOYMENT (hereinafter "Contract")
is made in Indianapolis, Indiana, dated and effective as amended July 1, 1999,
by and between STANDARD MANAGEMENT CORPORATION, an Indiana Corporation, and all
wholly owned subsidiaries of the above named corporations (hereinafter the
"Company"), and Edward T. Stahl (hereinafter "Executive").
RECITALS
A.Executive has participated in the organization of the Company and its
business.
B.Executive has and is expected to continue to make a major contribution to the
profitability, growth and financial strength of the Company.
C.The Company considers the continued services of the Executive to be in the
best interest of the Company and its shareholders and desires to assure the
continued services of the Executive on behalf of the Company on an objective
and impartial basis and without distraction or conflict of interest in the
event of an attempt to obtain control of the Company.
D.Executive is willing to remain in the employ of the Company under the terms
and conditions hereof and upon the understanding that the Company will provide
him with the income security herein if his employment is terminated by the
Company or if he voluntarily terminates his employment for good reason.
NOW, THEREFORE, in consideration of the mutual agreements contained herein, the
parties to this Contract hereby agree as follows:
AGREEMENT
1.EMPLOYMENT. The Company hereby agrees to employ Executive as Executive Vice
President - Administration of the Company. Executive accepts such employment
and agrees to be subject to the general supervision, orders, advice and
direction of the President and Chief Executive Officer and the Board of
Directors of the Company in a manner consistent with the Articles of
Incorporation and By-Laws of the Company.
2.TERMS OF EMPLOYMENT AND COMPENSATION. Executive's term of employment (the
"Employment Term") hereunder shall start on July 1, 1999 and continue until
such employment terminates pursuant to Section 7 hereof.
3.SALARY AND BONUS. Executive's salary for the first year hereunder shall be
$157,325.00 per year. Thereafter during the Employment Term, Executive's
salary shall be increased each year by an amount equal to Executive's salary
for the previous year multiplied by the percent change of the Consumer Price
Index for all Urban Consumers (the "CPI") (published by the Bureau of Labor
Statistics, United States Department of Labor) during the immediately preceding
calendar year. For example, if the percent change in the CPI from January 1,
1999 to December 31, 1999 were 5%, Executive's salary for the second year
hereunder would be $165,191.00. Executive's salary shall be payable on the
Company's regular salary payment dates. In addition, within 90 days after the
end of each fiscal year during the Employment Term, Executive shall receive a
bonus. The bonus paid to Executive shall be one and one-half percent (1-1/2%)
of the annual gross operating income of the Company paid within ninety (90)
days after the close of each fiscal year covered hereunder. Provided, however,
that in no event shall said bonus be less than ten percent (10%) of the annual
salary of Executive for the year in consideration.
The salary and bonus payments hereunder shall be subject to withholding and any
other applicable tax law.
4.SALARY GUARANTEE. All salaries payable to the Executive under the Agreement
will be guaranteed (the "Guaranteed Payments") as of the effective date of the
Agreement for the full Employment Term of the Agreement except for terminations
for violations found in Section 7(b) (c) (d) or (e) hereof.
(a)After the initial three year Employment Term of Guaranteed Payments, any
additional one year extensions made pursuant to the terms of Section 7(a) will
be guaranteed once the notice period for the extension or termination period
found in Section 7(a) has passed.
(b)None of the Guaranteed Payments described in this Section shall prevent the
Executive from receiving the Termination Benefits described in Section 13 of
the Agreement.
(c)All Guaranteed Payments described in this Section and payable to the
Executive shall be payable to the Estate of Edward T. Stahl in the event of
death of the Executive.
(d)In the event of any mental disability which renders the Executive unable to
fulfill his duties pursuant to Section 1 of this Agreement, all Guaranteed
Payments shall be made to Edward T. Stahl's spouse, his attorney in fact, his
personal representative, his guardian, or any other such person legally
specifically listed, to whomever is legally authorized to receive monetary
payments due and owing to Edward T. Stahl.
(e)In the event of any physical disability which renders the Executive unable
or unwilling to fulfill his duties pursuant to Section 1 of this Agreement, all
Guaranteed Payments shall be made directly to the Executive.
(f)Upon the termination of Executive=s employment for any reason other than
pursuant to Section 7(b), (d) or (e) hereof, the Company shall pay to Executive
in a lump-sum payment, within thirty (30) calendar days after such termination,
the salary received by him on the date of such termination in an amount equal
to two (2) years of annual salary.
5.REIMBURSEMENT FOR EXPENSES. The Company shall, during the Employment Term,
reimburse Executive for all reasonable travel, business entertainment and other
business expenses incurred by Executive in rendering services under this
Contract. Such reimbursement shall be subject to compliance with the
applicable policies and procedures established by the Company. During the
Employment Term, Executive shall be entitled to an automobile allowance of
$500.00 per month.
6.FRINGE BENEFITS. During the Employment Term, Executive shall be entitled to
participate in the Company's corporate, medical and disability insurance plans.
The Company shall also provide Executive with term life insurance in the amount
of $200,000. Executive shall be entitled to all other fringe benefits
generally provided for salaried employees of the Company upon attaining
eligibility as provided under such fringe benefit programs. Executive shall be
entitled to four (4) weeks vacation per year.
7.TERMINATION. The Employment Term shall terminate on the first to occur of
the following events:
(a)the third anniversary of the date on which the Employment Term become
effective; provided, however, that after such third anniversary, the Employment
Term shall be extended each year thereafter for an additional one year period
unless either party gives the other written notice at least 90 days before such
extension of its intention not to renew the Contract;
(b)termination by the Company for cause, upon written notice (specifying the
particulars) to Executive from the Company's Board of Directors, which cause
shall be limited to:
(i) the persistent failure of or refusal by Executive to comply with the
material orders, advice, directions, policies, standard and regulations of the
Company and its President or Board of Directors, as promulgated from time to
time, or with the provisions of this Contract, which failure or refusal is
detrimental to the Company;
(ii) an act or acts of fraud or dishonesty by Executive resulting in or
tending to result in gain to or personal enrichment of Executive at the
Company's expense;
(iii) any felony conviction of Executive or material tort which is detrimental
to the Company; or
(iv) the persistent absence of Executive from his employment without cause or
explanation;
(c)the death of Executive;
(d)the 90th day after notice from the Company to Executive that Executive is
considered to be permanently disabled due to his inability to perform his
duties or fulfill his responsibilities hereunder, which inability existed for a
period of 90 days or more before such notice; or
(e)termination by Executive, at his option, after 90 days prior written notice
to the Company.
Upon termination of Executive's employment pursuant to Section 7(b) (c) (d) or
(e), Executive (or his estate) shall receive (i) any unpaid salary payments
with respect to periods prior to the date of termination, and (ii) any
termination, disability or death benefits to which he is entitled under any
employee benefit plan of the Company which is in effect at the time of the
termination of his employment. In all other events of termination, Executive
shall continue to receive the Guaranteed Payments.
8.AGREEMENT NOT TO COMPETE. Executive agrees that if his employment is
terminated by the Company pursuant to Subsection 7(b) hereof he shall not, for
a period of one year from the date his employment hereunder terminates, (x)
directly or indirectly sell or attempt to sell, within Indiana, on behalf of
himself or any other person, corporation or entity, any type of product
marketed by the Company at the time his employment is terminated, (y) directly
or indirectly sell or attempt to sell any type of product marketed by the
Company at the time his employment is terminated to any person, corporation or
other entity that is a customer of the Company at the time his employment is
terminated, and (z) within Indiana, directly or indirectly, own, manage,
operate, control, be employed by, participate in, or be connected in any manner
with the ownership, management, operation, or control of any business similar
to the type of business conducted by the Company at the time of termination of
Executive's employment hereunder; provided, however, that Executive may be a
shareholder of less than 5% of the outstanding shares of voting stock of any
company listed on a recognized stock exchange or traded in the NASD over-the-
counter market.
9.TECHNICAL INFORMATION. Executive covenants and agrees that during the
Employment Term and for a period of six months after termination of the
Employment Term (regardless of whether Executive is terminated or defaults
under any other provision of this Contract) he will assign to the Company or
its nominees all of his right, title and interest in and to all "Technical
Information" (as hereinafter defined) which he makes, develops or conceives,
either alone or in conjunction with others; he will disclose promptly to the
Company all such Technical Information; and he will cooperate with the Company
in its efforts to protect its rights of ownership in such Technical
Information. For purposes of this Contract, "Technical Information" shall mean
and include, but not be limited to, all software, processes, devices,
trademarks, trade names, copyrights, marketing plans, improvements, and ideas
relating to the business of the Company, and all goodwill associated with any
such item.
10.COVENANT AGAINST DISCLOSURE OF TECHNICAL AND CONFIDENTIAL INFORMATION.
Executive agrees that while he is employed by the Company and thereafter he
shall not, directly or indirectly, disclose or use to the detriment of the
Company or for the benefit of any other person, corporation or other entity,
any confidential information or trade secret (including, but not limited to,
the identity and needs of any customer of the Company, the method and
techniques of any of the business of the Company, the marketing, sales, costs
and pricing plans and objectives of the Company, the problems, developments,
research records, and Technical Information) of the Company, or any of the
affiliates of the Company. Furthermore, Executive shall deliver promptly to
the Company upon termination of his employment, or at any time the Company may
so request, all memoranda, notes, records, reports, manuals, software, models,
designs, and other documents and computer records (and all copies thereof)
relating to the business of the Company, and all property associated therewith,
which he may then possess or have under his control. This Contract supplements
and does not supersede Executive's obligations under statute or the common law
to protect the Company's trade secrets and confidential information.
11.REMEDY. Executive acknowledges that the restrictions contained in Sections
8 through 10 of this Contract are reasonable and that the legal remedies for
breach of the covenants which are contained in Sections 8 through 10 of this
Contract may be inadequate and, therefore, agrees that, in the event of any
actual or threatened breach of any such covenant, in addition to any other
right or remedy which the Company may have, the Company may: (a) seek specific
enforcement of any such covenant through injunction or other equitable relief,
and (b) recover from Executive an amount equal to (i) all sums paid by the
Company to him after commencement of the breach, plus (ii) all costs and
expenses (including attorneys' fees) incurred by the Company in enforcement of
the covenant, plus (iii) all other damages to which the Company may be legally
entitled.
12.UNDERTAKING TO PAY TERMINATION BENEFITS. In addition to the payments
Executive shall receive under Section 4 hereof in the event of the termination
of his employment, the Company agrees to pay to the Executive the Termination
Benefits specified in Section 13 hereof if (a) control of the Company is
acquired (as defined in paragraph 14(a) hereof) and (b) within three years
after the acquisition of control occurs (i) the Company terminates the
employment of Executive for any reason other than pursuant to Section 7(b),
7(c) or 7(d) hereof, or (ii) Executive voluntarily terminates his employment
for good reason (as defined in Section 14(b) hereof).
13.TERMINATION BENEFITS. If Executive is entitled to termination benefits
pursuant to paragraph 12 hereof, the Company agrees to pay to Executive as
termination compensation in a lump-sum payment within five calendar days of the
termination of Executive's employment an amount to be computed by multiplying
(a) Executive's average annual compensation payable by the Company which is
includable in the gross income of Executive for the most recent five calendar
years ending coincident with or immediately before the date on which control of
the Company is acquired (or such portion of such period during which Executive
was an employee of the Company, by (b) 299%. For purposes of this Contract,
employment and compensation paid by an direct or indirect subsidiary of the
Company, if any will be deemed to be employment and compensation paid by the
Company.
(a)The Termination Benefits described in this section are payable to the
Executive regardless of any determination by the Company's independent public
accountants that payments made pursuant to this section are or would be non-
deductible by the Company for federal income tax purposes because of Section
280G of the Internal Revenue Code of 1986 or any subsequent revisions in the
Internal Revenue Code.
14.DEFINITIONS.
(a)As used in this Contract, the "acquisition of control": means (i) attaining
ownership of 25% or more of the shares of voting stock of the Company by any
person or group (other than a person or group including Executive or with whom
or which Executive is affiliated), or (ii) the occurrence of a "change of
control" required to be described under the proxy disclosure rules of the
Securities and Exchange Commission.
(b)As used in this Contract, the term "good reason" means, without Executive's
written consent, (i) a change in Executive's status, position or
responsibilities which, in his reasonable judgment, does not represent a
promotion from his status, position or responsibilities as in effect
immediately prior to the change in control; the assignment to Executive of any
duties or responsibilities which, in his reasonable judgment, are inconsistent
with such status, position or responsibilities; or any removal of Executive
from or failure to reappoint or reelect him to any of such positions, except in
connection with the termination of his employment for total and permanent
disability, death or pursuant to Subsection 7(ii) or 7(iii) herein or by him
other than for good reason; (ii) a breach by the Company of its covenants under
this Contract after a change in control; (iii) the relocation of the Company's
principal executive offices to a location outside the Indianapolis, Indiana
metropolitan area or the Company's requiring him to be based at any place other
than the location at which he performed his duties prior to a change in control
except for required travel on the Company's business to an extent substantially
consistent with his business travel obligations at the time of a change in
control; (iv) the failure by the Company to continue to provide Executive with
benefits substantially similar to those enjoyed by him or to which he was
entitled under any of the Company's pension, profit sharing, life insurance,
medical, dental, health and accident, or disability plans in which he was
participating at the time of a change in control, the taking of any action by
the Company which would directly or indirectly materially reduce any of such
benefits or deprive him of any material fringe benefit enjoyed by him or to
which he was entitled at the time of the change in control, or the failure by
the Company to provide him with the number of paid vacation and sick leave days
to which he is entitled on the basis of years of service with the Company in
accordance with the Company's normal vacation and sick leave policies and
consistent with Section 6 of this Contract; (v) the failure of the Company to
obtain a satisfactory agreement from any successor or assign of the Company to
assume and agree to perform this Contract; (vi) any purported termination of
Executive's employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Subsection 15(c) hereof (and, if
applicable, Subsection 7(b) hereof); and for purposes of this Contract, no such
purported termination shall be effective; or (vii) any request by the Company
that Executive participate in an unlawful act or take any action constituting a
breach of Executive's professional standard of conduct.
Notwithstanding anything in this paragraph 14(b) to the contrary, Executive's
right to terminate his employment pursuant to paragraph 12 herein shall not be
affected by his incapacity due to physical or mental illness.
15.ADDITIONAL PROVISIONS RELATING TO TERMINATION.
(a)The Company is aware that the Board of Directors or shareholders of the
Company may then cause or attempt to cause the Company to refuse to comply with
its obligations under this Contract, or may cause or attempt to cause the
Company to institute, or may institute litigation seeking to have this Contract
declared unenforceable, or may take or attempt to take action to deny Executive
the benefits intended under this Contract. In these circumstances, the purpose
of this Contract could be frustrated. It is the intent of the Company that
Executive not be required to incur the expenses associated with the enforcement
of his rights under this Contract by litigation or other legal action, nor be
bound to negotiate any settlement of his rights hereunder, because the cost and
expense of such legal action or settlement would substantially detract from the
benefits intended to be extended to Executive hereunder. Accordingly, if
following a change in control, if it should appear to Executive that the
Company has failed to comply with any of its obligations under this Contract or
in the event that the Company or any other person takes any action to declare
this Contract void or unenforceable, or institutes any litigation or other
legal action designed to deny, diminish or to recover from Executive the
benefits entitled to be provided to Executive hereunder, and that Executive has
complied with all of his obligations under this Contract, the Company
irrevocably authorizes Executive from time to time to retain counsel of his
choice, at the expense of the Company as provided in this Subsection 15(a), to
represent Executive in connection with the initiation or defense of any
litigation or other legal action, whether such action is by or against the
Company or any director, officer, shareholder, or other person affiliated with
the Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the Company
irrevocably consents to Executive entering into an attorney-client relationship
with such counsel, and in that connection the Company and Executive agree that
a confidential relationship shall exist between Executive and such counsel.
The reasonable fees and expenses of counsel selected from time to time by
Executive as hereinabove provided shall be paid or reimbursed to Executive by
the Company on a regular, periodic basis upon presentation by Executive of a
statement or statements prepared by such counsel in accordance with its
customary practices, up to a maximum aggregate amount of $50,000.00. Any legal
expenses incurred by the Company by reason of any dispute between the parties
as to enforceability of or the terms contained in this Contract,
notwithstanding the outcome of any such dispute, shall be the sole
responsibility of the Company, and the Company shall not take any action to
seek reimbursement from Executive for such expenses.
(b) The amounts payable to Executive under this Contract shall not be treated
as damages but as severance compensation to which Executive is entitled by
reason of termination of his employment in the circumstances contemplated by
this Contract. The Company shall not be entitled to set off against the
amounts payable to Executive of any amounts earned by Executive in other
employment after termination of his employment with the Company, or any amounts
which might have been earned by Executive in other employment had he sought
such other employment.
(c)Any purported termination by the Company or by Executive shall be
communicated by written Notice of Termination to the other party hereto in
accordance with Section 22 hereof. For purposes of this Contract, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Contract relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of his
employment under the provision so indicated. For purposes of this Contract, no
such purported termination shall be effective without such Notice of
Termination.
(d)In addition to any payments, termination benefits or any other benefits
Executive is entitled to receive hereunder, in the event of a change or
acquisition of control, the Company agrees to pay the Payment Amount (as
hereinafter defined) to the Executive in a lump-sum payment within thirty (30)
calendar days after the termination of Executive=s employment for any reason,
including, without limitation, termination of employment by the Company,
termination of employment by the Executive and termination of employment by
reason of death. The APayment Amount@ shall be the product, determined as of
the date of Executive=s termination of employment, determined by (i)
multiplying the number of shares of common stock of the Company then subject to
unexercised options (AUnexercised Options@) held by the Executive which were
granted by the Company or an affiliate of the Company by (ii) the highest per
share fair market value of the common stock on any day during the period
beginning six (6) months prior to the date of Executive=s termination of
employment. For purposes of this provision, Unexercised Options shall include
all outstanding options whether or not they are exercisable at the time of the
election by Executive hereunder. There shall be no deduction of Executive=s
exercise price per share for each Unexercised Option from the amount to be
received by him pursuant to this subsection (d). Upon payment by the Company
of the Payment Amount in accordance with this subsection (d), the Unexercised
Options shall be deemed to be surrendered by the Executive and cancelled by the
Company. Such cancellation shall be effective regardless of whether the
Executive surrenders an agreement relating to any Unexercised Option.
16.ENTIRE AGREEMENT. This Contract contains the entire agreement of the
parties relating to the employment of Executive by the Company, superseding any
and all prior such agreements, and cannot be amended, modified, or supplemented
in any respect except by subsequent written agreement entered into by the
parties. The Second Amended and Restated Employment Contract dated and
effective January 1, 1990 shall terminate in all respects on July 1, 1999.
17.BENEFIT. Executive acknowledges that the services to be rendered to him are
unique and personal; accordingly, Executive may not assign any of his rights or
delegate any of his duties or obligations under this Contract. The rights and
obligations of the Company under this Contract shall inure to the benefit of,
and be binding upon, the legal representatives, successors and assigns of the
Company.
18.NO WAIVER. No failure on the part of either party at any time to require
the performance by the other party of any term of this Contract shall be taken
or held to be a waiver of such term or in any way affect such party's right to
enforce such term, and no waiver on the part of either party of any term in
this Contract shall be taken or held to be a waiver of any other term hereof or
the breach thereof.
19.SEVERABILITY. The provisions of Sections 8 through 11 hereof are severable,
and the invalidity or unenforceability of any particular provision of Sections
8 through 11 shall not affect or limit the enforceability of the other
provisions. If any provision in Sections 8 through 11 hereof is held
unenforceable for any reason, including the time period, geographic area, or
scope of activity covered, then such provision shall be enforced to whatever
extent is reasonable and enforceable.
20.GOVERNING LAW. This Contract shall be governed and construed in accordance
with the law of the State of Indiana (other than the provisions relating to
choice of law). The Contract may be brought in any state or federal court of
record in Indianapolis, Indiana and the parties hereto waive any right to
question the jurisdiction of such court over their person or the property of
such venue.
21.CAPTIONS. The captions in this Contract are for convenience and
identification purposes only, and not an integral part of this Contract, and
are not to be considered in the interpretation of any part hereof.
22.NOTICES. All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given if in writing and personally
delivered to the party to whom notice should be given or if sent by registered
or certified mail, postage prepaid, addressed to the addresses set forth below,
or to such other addresses as shall be furnished in writing by either party to
the other:
Edward T. Stahl
Standard Management Corporation
9100 Keystone Crossing, Suite 600
Indianapolis, IN 46240
To the Company:
Standard Management Corporation
9100 Keystone Crossing, Suite 600
Indianapolis, IN 46240
Attn: Ronald D. Hunter, Chairman
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Contract to be executed on its
behalf by its duly authorized officer and Executive has hereunto set his hand
as of the 1st day of July, 1999.
STANDARD MANAGEMENT CORPORATION
AND ALL WHOLLY OWNED SUBSIDIARIES
By:
Ronald D. Hunter
Chairman, President and Chief Executive
Officer
Attest:
Stephen M. Coons
Secretary
EXECUTIVE
Edward T. Stahl
H:\Jamescar\DOCS\Employ\3rdamen.ETS.wpd
THIRD AMENDED AND RESTATED EMPLOYMENT CONTRACT
THIS THIRD AMENDED AND RESTATED CONTRACT OF EMPLOYMENT (hereinafter "Contract")
is made in Indianapolis, Indiana, dated and effective as amended July 1, 1999,
by and between STANDARD MANAGEMENT CORPORATION, an Indiana Corporation,
STANDARD LIFE INSURANCE COMPANY, an Indiana Corporation, and all wholly owned
subsidiaries of the above named corporations (hereinafter the "Company"), and
RONALD D. HUNTER (hereinafter "Executive").
RECITALS
A.Executive has participated in the organization of the Company and its
business.
B.Executive has and is expected to continue to make a major contribution to the
profitability, growth and financial strength of the Company.
C.The Company considers the continued services of the Executive to be in the
best interest of the Company and its shareholders and desires to assure the
continued services of the Executive on behalf of the Company on an objective
and impartial basis and without distraction or conflict of interest in the
event of an attempt to obtain control of the Company.
D.Executive is willing to remain in the employ of the Company under the terms
and conditions hereof and upon the understanding that the Company will provide
him with the income security herein if his employment is terminated by the
Company without cause or if he voluntarily terminates his employment for good
reason.
NOW, THEREFORE, in consideration of the mutual agreements contained herein, the
parties to this Contract hereby agree as follows:
AGREEMENT
1.EMPLOYMENT. The Company hereby agrees to employ Executive as Chief Executive
Officer and President of the Company. Executive accepts such employment and
agrees to be subject to the general supervision, orders, advice and direction
of the Board of Directors of the Company in a manner consistent with the
Articles of Incorporation and By-Laws of the Company.
2.TERMS OF EMPLOYMENT AND COMPENSATION. Executive's term of employment (the
"Employment Term") hereunder shall start on the date first written above and
continue until such employment terminates pursuant to Section 7 hereof. In
consideration for providing services hereunder Executive shall be compensated
through the salary and bonus provisions of Section 3.
3.SALARY AND BONUS. Executive's salary commencing July 1, 1999 shall be
$337,746 per year. Thereafter during the Employment Term, Executive's salary
shall be increased each year by an amount equal to Executive's salary for the
previous year multiplied by the percent change of the Consumer Price Index for
all Urban Consumers (the "CPI") (published by the Bureau of Labor Statistics,
United States Department of Labor) during the immediately preceding calendar
year. For example, if the percent change in the CPI from January 1, 1999 to
December 31, 1999 were 5%, Executive's salary for the next year hereunder would
be $354,633.00. Executive's salary shall be payable on the Company's regular
salary payment dates. In addition, within 90 days after the end of each fiscal
year during the Employment Term, Executive shall receive a bonus. The bonus
paid to Executive shall be three percent (3%) of the annual gross operating
income of the Company paid within ninety (90) days after the close of each
fiscal year covered hereunder. Provided, however, that in no event shall said
bonus be less than ten per cent (10%) of the annual salary of Executive for the
year in consideration. Provided further that the Board of Directors of the
Company shall pay Executive an additional bonus in an amount determined by the
value of the stock of the Company at the time of any public offering for the
Company and the length of time from the date of execution hereof to the date
the offering takes place.
The salary and bonus payments hereunder shall be subject to withholding and any
other applicable tax law.
4.SALARY GUARANTEE. All salaries payable to the Executive under the Agreement
will be guaranteed ("the Guaranteed Payments") as of the effective date of the
Agreement for the full Employment Term of the Agreement except for terminations
for violations found in Section 7(b) (ii) and (iii) relating to acts of fraud
or dishonesty for personal enrichment, or conviction of any felony or material
tort which is detrimental to the Company.
(a)After the initial five year Employment Term of Guaranteed Payments, any
additional one year extensions made pursuant to the terms of Section 7(a) will
be guaranteed once the notice period for the extension or termination period
found in Section 7(a) has passed.
(b)None of the Guaranteed Payments described in this Section shall prevent the
Executive from receiving the Termination Benefits described in Section 13 of
the Agreement.
(c)All guaranteed Payments described in this Section and payable to the
Executive shall be payable to the Estate of Ronald D. Hunter in the event of
death of the Executive.
(d)In the event of any mental disability which renders the Executive unable to
fulfill his duties pursuant to Section 1 of this Agreement, all Guaranteed
Payments shall be made to Ronald D. Hunter's spouse, his attorney in fact, his
personal representative, his guardian, or any other such person legally
specifically listed, to whomever is legally authorized to receive monetary
payments due and owing to Ronald D. Hunter.
(e)In the event of any physical disability which renders the Executive unable
or unwilling to fulfill his duties pursuant to Section 1 of this Agreement, all
Guaranteed Payments shall be made directly to the Executive.
(f)Upon the termination of Executive's employment for any reason other than
pursuant to Section 7(b), (d) or (e) hereof, the Company shall pay to Executive
in a lump-sum payment, within thirty (30) calendar days after such termination,
the salary received by him on the date of such termination in an amount equal
to three (3) years of annual salary.
5.REIMBURSEMENT FOR EXPENSES. The Company shall, during the Employment Term,
reimburse Executive for all reasonable travel, business entertainment and other
business expenses incurred by Executive in rendering services under this
Contract. Such reimbursement shall be subject to compliance with the
applicable policies and procedures established by the Company. During the
Employment Term, Executive shall be entitled to an automobile allowance of
$1,000.00 per month.
6.FRINGE BENEFITS. During the Employment Term, Executive shall be entitled to
participate in the Company's corporate, medical and disability insurance plans.
The Company shall also provide Executive with term life insurance in the amount
of $1,000,000.00, membership in the Indianapolis, Indiana, Columbia Club and
four weeks vacation per year. Executive shall be entitled to all other fringe
benefits generally provided for salaried employees of the Company upon
obtaining eligibility as provided under such fringe benefit programs and shall
be the beneficiary of the executive disability and pension plan, paid for by
the Company.
7.TERMINATION. The Employment Term shall terminate on the first to occur of
the following events:
(a)the fifth anniversary of the date on which the Employment Term became
effective; provided, however, that after such fifth anniversary, the Employment
Term shall be extended each year thereafter for an additional one year period
unless either party gives the other written notice at least 90 days before such
extension of its intention not to renew the Contract;
(b)termination by the Company for cause, upon written notice (specifying the
particulars) to Executive from the Company's Board of Directors, which cause
shall be limited to:
(i) the persistent failure of or refusal by Executive to comply with the
material orders, advice, directions, policies, standard and regulations of the
Company and its Board of Directors, as promulgated from time to time, or with
the provisions of this Contract, which failure or refusal is detrimental to the
Company;
(ii) an act or acts of fraud or dishonesty by Executive resulting in or
tending to result in gain to or personal enrichment of Executive at the
Company's expense;
(iii) any felony conviction of Executive or material tort which is
detrimental to the Company;
(iv) the persistent absence by Executive from his employment without cause
or explanation;
(c)the death of Executive;
(d)the 90th day after notice from the Company to Executive that Executive is
considered to be permanently disabled due to his inability to perform his
duties or fulfill his responsibilities hereunder, which inability existed for a
period of 90 days or more before such notice; or
(e)termination by Executive, at his option, after 90 days prior written notice
to the Company.
Upon termination of Executive's employment pursuant to Subsection 7(b)(ii) and
7(b)(iii), Executive (or his estate) shall receive (i) any unpaid salary
payments with respect to periods prior to the date of termination, and (ii) any
termination, disability or death benefits to which he is entitled under any
employee benefit plan of the Company which is in effect at the time of the
termination of his employment. In all other events of termination, Hunter
shall continue to receive the Guaranteed Payments.
8.AGREEMENT NOT TO COMPLETE. Executive agrees that if his employment is
terminated (a) by the Company pursuant to Subsection 7(b) hereof or (b) by
Executive pursuant to Subsection 7(e) hereof, unless such termination is for
"good reason" as defined in Subsection 14(b) hereof, he shall not, for a period
of two years from the date his employment hereunder terminates, (x) directly or
indirectly sell or attempt to sell, within Indiana, on behalf of himself or
any other person, corporation or entity, any type of product marketed by the
Company at the time his employment is terminated, (y) directly or indirectly
sell or attempt to sell any type of product marketed by the Company at the time
his employment is terminated to any person, corporation or other entity that is
a customer of the Company at the time his employment is terminated, and (z)
within Indiana, directly or indirectly, own manage, operate, control, be
employed by, participate in, or be connected in any manner with the ownership,
management, operation, or control of any business similar to the type of
business conducted by the Company at the time of termination of Executive's
employment hereunder; provided, however, that Executive may be a shareholder of
less than 5% of the outstanding shares of voting stock of any company listed on
a recognized stock exchange or traded in the NASD over-the-counter market.
9.TECHNICAL INFORMATION. Executive covenants and agrees that during the
Employment Term and for a period of six months after termination of the
Employment Term (regardless of whether Executive is terminated or defaults
under any other provision of this Contract) he will assign to the Company or
its nominees all of his right, title and interest in and to all "Technical
Information" (as hereinafter defined) which he makes, develops or conceives,
either alone or in conjunction with others; he will disclose promptly to the
Company all such Technical Information; and he will cooperate with the Company
in its efforts to protect its rights of ownership in such Technical
Information. For purposes of this Contract, "Technical Information" shall mean
and include, but not be limited to, all software, processes, devices,
trademarks, trade names, copyrights, marketing plans, improvements, and ideas
relating to the business of the Company, and all goodwill associated with any
such item.
10.COVENANT AGAINST DISCLOSURE OF TECHNICAL AND CONFIDENTIAL INFORMATION.
Executive agrees that while he is employed by the Company and thereafter he
shall not, directly or indirectly, disclose or use to the detriment of the
Company or for the benefit of any other person, corporation or other entity,
any confidential information or trade secret (including, but not limited to,
the identity and needs of any customer of the Company, the method and
techniques of any of the business of the Company, the marketing, sales, costs
and pricing plans and objectives of the Company, the problems, developments,
research records, and Technical Information), of the Company or of any of the
affiliates of the Company. Furthermore, Executive shall deliver promptly to
the Company upon termination of his employment, or at any time the Company may
so request, all memoranda, notes, records, reports, manuals, software, models,
designs, and other documents and computer records (and all copies thereof)
relating to the business of the Company, and all property associated therewith,
which he may then possess or have under his control. This Contract supplements
and does not supersede Executive's obligations under statute or the common law
to protect the Company's trade secrets and confidential information.
11.REMEDY. Executive acknowledges that the restrictions contained in Sections
8 through 10 of this Contract are reasonable and that the legal remedies for
breach of the covenants which are contained in Sections 8 through 10 of this
Contract may be inadequate and, therefore, agrees that, in the event of any
actual or threatened breach of any such covenant, in addition to any other
right or remedy which the Company may have, the Company may: (a) seek
specific enforcement of any such covenant through injunction or other equitable
relief, and (b) recover from Executive an amount equal to (i) all sums paid
by the Company to him after commencement of the breach, plus (ii) all costs
and expenses (including attorneys' fees) incurred by the Company in enforcement
of the covenant, plus (iii) all other damages to which the Company may be
legally entitled.
12.UNDERTAKING TO PAY TERMINATION BENEFITS. In addition to the payments
Executive shall receive under Section 4 hereof in the event of the termination
of his employment, the Company agrees to pay to the Executive the Termination
Benefits specified in Section 13 hereof if (a) control of the Company is
acquired (as defined in paragraph 14(a) hereof) and (b) within three years
after the acquisition of control occurs (i) the Company terminates the
employment of Executive for any reason other than cause (as defined in
Subsection 7(b)(ii) and 7(b)(iii) or 7(c) hereof), and permanent and total
disability, or (ii) Executive voluntary terminates his employment for good
reason (as defined in Section 14 (b) hereof).
13.TERMINATION BENEFITS. If Executive is entitled to termination benefits
pursuant to paragraph 12 hereof, the Company agrees to pay to Executive as
termination compensation in a lump-sum payment within five calendar days of the
termination of Executive's employment an amount to be computed by multiplying
(a) Executive's average annual compensation payable by the Company which was
includable in the gross income of Executive for the most recent five calendar
years ending coincident with or immediately before the date on which control of
the Company is acquired (or such portion of such period during which Executive
was an employee of the Company), by (b) 299%. For purposes of this Contract,
employment and compensation paid by any direct or indirect subsidiary of the
Company, if any will be deemed to be employment and compensation paid by the
Company.
(a)The Termination Benefits described in this section are payable to the
Executive regardless of any determination by the Company's independent public
accountants that payments made pursuant to this section are or would be
non-deductible by the Company for federal income tax purposes because of
Section 280G of the Internal Revenue Code of 1986 or any subsequent revisions
in the Internal Revenue Code.
14.DEFINITIONS.
(a)As used in this Contract, the "acquisition of control": means (i) attaining
ownership of 25% or more of the shares of voting stock of the Company by any
person or group (other than a person or group including Executive or with whom
or which Executive is affiliated), or (ii) the occurrence of a "change of
control" required to be described under the proxy disclosure rules of the
Securities and Exchange Commission.
(b)As used in this Contract, the term "good reason" means, without Executive's
written consent, (i) a change in Executive's status, position or
responsibilities which, in his reasonable judgment, does not represent a
promotion from his status, position or responsibilities as in effect
immediately prior to the change in control; the assignment to Executive of any
duties or responsibilities which, in his reasonable judgment, are inconsistent
with such status, position or responsibilities; or any removal of Executive
from or failure to reappoint or reelect him to any of such positions, except in
connection with the termination of his employment for total and permanent
disability, death or pursuant to Subsection 7(ii) or 7(iii) herein or by him
other than for good reason; (ii) a breach by the Company of its covenants under
this Contract after a change in control; (iii) the relocation of the Company's
principal executive offices to a location outside the Indianapolis, Indiana
metropolitan area or the Company's requiring him to be based at any place other
than the location at which he performed his duties prior to a change in control
except for required travel on the Company's business to an extent substantially
consistent with his business travel obligations at the time of a change in
control; (iv) the failure by the Company to continue to provide Executive with
benefits substantially similar to those enjoyed by him or to which he was
entitled under any of the Company's pension, profit sharing, life insurance,
medical, dental, health and accident, or disability plans in which he was
participating at the time of a change in control, the taking of any action by
the Company which would directly or indirectly materially reduce any of such
benefits or deprive him of any material fringe benefit enjoyed by him or to
which he was entitled at the time of the change in control, or the failure by
the Company to provide him with the number of paid vacation and sick leave days
to which he is entitled on the basis of years of service with the Company in
accordance with the Company's normal vacation and sick leave policies and
consistent with Section 6 of this Contract, (v) the failure of the Company to
obtain a satisfactory agreement from any successor or assign of the Company to
assume and agree to perform this Contract; (vi) any purported termination of
Executive's employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Subsection 15(c) hereof (and, if
applicable, Subsection 7(b) hereof); and for purposes of this Contract, no such
purported termination shall be effective; or (vii) any request by the Company
that Executive participate in an unlawful act or take any action constituting a
breach of Executive's professional standard of conduct.
Notwithstanding anything in this paragraph 14(b) to the contrary, Executive's
right to terminate his employment pursuant to paragraph 12 herein shall not be
affected by his incapacity due to physical or mental illness.
15.ADDITIONAL PROVISIONS RELATING TO TERMINATION.
(a)The Company is aware that upon the occurrence of a change in control the
Board of Directors or a shareholder of the Company may then cause or attempt to
cause the Company to refuse to comply with its obligations under this Contract,
or may cause or attempt to cause the Company to institute, or may institute
litigation seeking to have this Contract declared unenforceable, or may take
or attempt to take action to deny Executive the benefits intended under this
Contract. In these circumstances, the purpose of this Contract could be
frustrated. It is the intent of the Company that Executive not be required to
incur the expenses associated with the enforcement of his rights under this
Contract by litigation or other legal action, nor be bound to negotiate any
settlement of his rights hereunder, because the cost and expense of such legal
action or settlement would substantially detract from the benefits intended to
be extended to Executive hereunder. Accordingly, if following a change in
control it should appear to Executive that the Company has failed to comply
with any of its obligations under this Contract or in the event that the
Company or any other person takes any action to declare this Contract void or
unenforceable, or institutes any litigation or other legal action designed to
deny, diminish or to recover from Executive the benefits entitled to be
provided to Executive hereunder, and that Executive has complied with all of
his obligations under this Contract, the Company irrevocably authorizes
Executive from time to time to retain counsel of his choice, at the expense of
the Company as provided in this Subsection 15(a), to represent Executive in
connection with the initiation or defense of any litigation or other legal
action, whether such action is by or against the Company or any director,
officer, shareholder, or other person affiliated with the Company, in any
jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to Executive entering into an attorney-client relationship with such
counsel, and in that connection the Company and Executive agree that a
confidential relationship shall exist between Executive and such counsel. The
reasonable fees and expenses of counsel selected from time to time by Executive
as herein above provided shall be paid or reimbursed to Executive by the
Company on a regular, periodic basis upon presentation by Executive of a
statement or statements prepared by such counsel in accordance with its
customary practices, up to a maximum aggregate amount of $500,000.00. Any
legal expenses incurred by the Company by reason of any dispute between the
parties as to enforceability of or the terms contained in this Contract,
notwithstanding the outcome of any such dispute, shall be the sole
responsibility of the Company, and the Company shall not take any action to
seek reimbursement from Executive for such expenses.
(b)The amounts payable to Executive under this Contract shall not be treated as
damages but as severance compensation to which Executive is entitled by reason
of termination of his employment in the circumstances contemplated by this
Contract. The Company shall not be entitled to set off of any amounts earned
by Executive in other employment after termination of his employment with the
Company, or any amounts which might have been earned by Executive in other
employment had he sought such other employment.
(c)Any purported termination by the Company or by Executive shall be
communicated by written Notice of Termination to the other party hereto in
accordance with Section 22 hereof. For purposes of this Contract, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Contract relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of his
employment under the provision so indicated. For purposes of this Contract, no
such purported termination shall be effective without such Notice of
Termination.
(d)In addition to any payments, termination benefits or any other benefits
Executive is entitled to receive hereunder, in the event of a change or
acquisition of control, the Company agrees to pay the Payment Amount (as
hereinafter defined) to the Executive in a lump-sum payment within thirty (30)
calendar days after the termination of Executive=s employment for any reason,
including, without limitation, termination of employment by the Company,
termination of employment by the Executive and termination of employment by
reason of death. The APayment Amount@ shall be the product, determined as of
the date of Executive=s termination of employment, determined by (i)
multiplying the number of shares of common stock of the Company then subject to
unexercised options (AUnexercised Options@) held by the Executive which were
granted by the Company or an affiliate of the Company by (ii) the highest per
share fair market value of the common stock on any day during the period
beginning six (6) months prior to the date of Executive=s termination of
employment. For purposes of this provision, Unexercised Options shall include
all outstanding options whether or not they are exercisable at the time of the
election by Executive hereunder. There shall be no deduction of Executive=s
exercise price per share for each Unexercised Option from the amount to be
received by him pursuant to this subsection (d). Upon payment by the Company
of the Payment Amount in accordance with this subsection (d), the Unexercised
Options shall be deemed to be surrendered by the Executive and canceled by the
Company. Such cancellation shall be effective regardless of whether the
Executive surrenders an agreement relating to any Unexercised Option.
16.ENTIRE AGREEMENT. This Contract contains the entire agreement of the
parties relating to the employment of Executive by the Company, superseding any
and all prior such agreements, and cannot be amended, modified, or supplemented
in any respect by subsequent written agreement entered into by the parties.
The Second Amended and Restated Employment Contract dated and effective January
1, 1990 shall terminate in all respects on July 1, 1999.
17.BENEFIT. Executive acknowledges that the services to be rendered by him are
unique and personal; accordingly, Executive may not assign any of his rights or
delegate any of his duties or obligations under this Contract. The rights and
obligations of the Company shall inure to the benefit of, and be binding upon,
the legal representatives, successors and assigns of the Company.
18.NO WAIVER. No failure on the part of either party at any time to require
the performance by the other party of any term of this Contract shall be taken
or held to be a waiver of such term or in any way affect such party's right to
enforce such term, and no waiver on the part of either party of any term in
this Contract shall be taken or held to be a waiver of any other term hereof or
the breach thereof.
19.SEVERABILITY. The provisions of Sections 8 through 11 hereof are severable,
and the invalidity or unenforceability of any particular provision of Sections
8 through 11 shall not affect or limit the enforceability of the other
provisions. If any provision in Sections 8 through 11 hereof is held
unenforceable for any reason, including the time period, geographic area, or
scope of activity covered, then such provision shall be enforced to whatever
extent is reasonable and enforceable.
20.GOVERNING LAW. This Contract shall be governed and construed in accordance
with the law of the State of Indiana (other than the provisions relating to
choice of law). The parties hereto agree that any legal action arising from
this Contract may be brought in any state or federal court of record in
Indianapolis, Indiana and the parties hereto waive any right to question the
jurisdiction of such court over their person or the propriety of such venue.
21.CAPTIONS. The captions in this Contract are for convenience and
identification purposes only, and not an integral part of this Contract, and
are not to be considered in the interpretation of any part hereof.
22.NOTICES. All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given if in writing and personally
delivered to the party to whom notice should be given or if sent by registered
or certified mail, postage prepaid, addressed to the addresses set forth below,
or to such other addresses as shall be furnished in writing by either party to
the other:
Ronald D. Hunter
9100 Keystone Crossing, Ste. #600
Indianapolis, Indiana 46240
The Company:
Standard Management Corporation
9100 Keystone Crossing, Ste. #600
Indianapolis, Indiana 46240
Attn: Stephen M. Coons, Secretary
IN WITNESS WHEREOF, the Company has caused this Amended and Restated Contract
to be executed on its behalf by its duly authorized officer and Executive has
hereunto set his hand as of the 1st day of July, 1999.
STANDARD MANAGEMENT CORPORATION
AND ALL WHOLLY OWNED SUBSIDIARIES
By:
Stephen M. Coons
Secretary
Attest:
Edward T. Stahl
Executive Vice President
EXECUTIVE
Ronald D. Hunter
H:\Jamescar\DOCS\EMPLOY\RDH.redline.wpd
THIRD AMENDED AND RESTATED EMPLOYMENT CONTRACT
THIS THIRD AMENDED AND RESTATED CONTRACT OF EMPLOYMENT (hereinafter "Contract")
is made in Indianapolis, Indiana, dated and effective as amended July 1, 1999,
by and between STANDARD MANAGEMENT CORPORATION, an Indiana corporation, and all
wholly owned subsidiaries of the above named corporation (hereinafter the
"Company"), and RAYMOND J. OHLSON (hereinafter "Executive").
RECITALS
A.Executive has participated in the organization of the Company and its
business.
B.Executive has and is expected to continue to make a major contribution to the
profitability, growth and financial strength of the Company.
C.The Company considers the continued services of the Executive to be in the
best interest of the Company and its shareholders and desires to assure the
continued services of the Executive on behalf of the Company on an objective
and impartial basis and without distraction or conflict of interest in the
event of an attempt to obtain control of the Company.
D.Executive is willing to remain in the employ of the Company under the terms
and conditions hereof and upon the understanding that the Company will provide
him with the income security herein if his employment is terminated by the
Company or if he voluntarily terminates his employment for good reason.
NOW, THEREFORE, in consideration of the mutual agreements contained herein, the
parties to this Contract hereby agree as follows:
AGREEMENT
1.EMPLOYMENT. The Company hereby agrees to employ Executive as President of
Standard Marketing Corporation and President of Standard Life Insurance Company
of Indiana. Executive accepts such employment and agrees to be subject to the
general supervision, orders, advice and direction of the President and Chief
Executive Officer and the Board of Directors of the Company in a manner
consistent with the Articles of Incorporation and By-Laws of the Company.
2.TERMS OF EMPLOYMENT AND COMPENSATION. Executive's term of employment (the
"Employment Term") hereunder shall start on July 1, 1999 and continue until
such employment terminates pursuant to Section 7 hereof.
3.SALARY AND BONUS. Executive's salary for the first year hereunder shall be
$231,243.00 per year. Thereafter during the Employment Term, Executive's
salary shall be increased each year by an amount equal to Executive's salary
for the previous year multiplied by the percent change of the Consumer Price
Index for all Urban Consumers (the "CPI") (published by the Bureau of Labor
Statistics, United States Department of Labor) during the immediately preceding
calendar year. For example, if the percent change in the CPI from January 1,
1999 to December 31, 1999 were 5%, Executive's salary for the second year
hereunder would be $242,805.00. Executive's salary shall be payable on the
Company's regular salary payment dates. In addition, within 90 days after the
end of each fiscal year during the Employment Term, Executive shall receive a
bonus. The bonus paid to Executive shall be one and one-half percent (1-1/2%)
of the annual gross operating income of the Company paid within ninety (90)
days after the close of each fiscal year covered hereunder. Provided, however,
that in no event shall said bonus be less than ten percent (10%) of the annual
salary of Executive for the year in consideration. The Executive shall be
entitled to participate in any key management bonus or incentive compensation
program instituted by the Board of Directors of the Company, in the sole
discretion of the Compensation Committee of said Board of Directors.
The salary and bonus payments hereunder shall be subject to withholding and any
other applicable tax law.
4.SALARY GUARANTEE. All salaries payable to the Executive under the Agreement
will be guaranteed (the "Guaranteed Payments") as of the effective date of the
Agreement for the full Employment Term of the Agreement except for terminations
for violations found in Section 7(b), (d) or (e) hereof.
(a)After the initial three year Employment Term of Guaranteed Payments, any
additional one year extensions made pursuant to the terms of Section 7(a) will
be guaranteed once the notice period for the extension or termination period
found in Section 7(a) has passed.
(b)None of the Guaranteed Payments described in this Section shall prevent the
Executive from receiving the Termination Benefits described in Section 13 of
the Agreement.
(c)All Guaranteed Payments described in this Section and payable to the
Executive shall be payable to the Estate of Raymond J. Ohlson in the event of
death of the Executive.
(d)In the event of any mental disability which renders the Executive unable to
fulfill his duties pursuant to Section 1 of this Agreement, all Guaranteed
Payments shall be made to Raymond J. Ohlson's spouse, his attorney in fact, his
personal representative, his guardian, or any other such person legally
specifically listed, to whomever is legally authorized to receive monetary
payments due and owing to Raymond J. Ohlson.
(e)In the event of any physical disability which renders the Executive unable
or unwilling to fulfill his duties pursuant to Section 1 of this Agreement, all
Guaranteed Payments shall be made directly to the Executive.
(f)Upon the termination of Executive=s employment for any reason other than
pursuant to Section 7(b), (d) or (e) hereof, the Company shall pay to Executive
in a lump-sum payment, within thirty (30) calendar days after such termination,
the salary received by him on the date of such termination in an amount equal
to two (2) years of annual salary.
5.REIMBURSEMENT FOR EXPENSES. The Company shall, during the Employment Term,
reimburse Executive for all reasonable travel, business entertainment and other
business expenses incurred by Executive in rendering services under this
Contract. Such reimbursement shall be subject to compliance with the
applicable policies and procedures established by the Company. The Company
shall reimburse Executive for up to $500.00 per year for Woodland Country Club
dues. During the Employment Term, Executive shall be entitled to an automobile
allowance of $500.00 per month.
6.FRINGE BENEFITS. During the Employment Term, Executive shall be entitled to
participate in the Company's corporate, medical and disability insurance plans.
Executive shall be entitled to all other fringe benefits generally provided for
salaried employees of the Company upon attaining eligibility as provided under
such fringe benefit programs. The Executive shall be entitled to purchase and
payment of premiums by the Company of a $500,000 term life insurance policy
naming the Executive's wife as primary beneficiary, during the Employment Term.
Executive shall be entitled to four (4) weeks vacation per year.
7.TERMINATION. The Employment Term shall terminate on the first to occur of
the following events:
(a)the third anniversary of the date on which the Employment Term becomes
effective; provided, however, that after such third anniversary, the Employment
Term shall be extended each year thereafter for an additional one year period
unless either party gives the other written notice at least 90 days before such
extension of its intention not to renew the Contract;
(b)termination by the Company for cause, upon written notice (specifying the
particulars) to Executive from the Company's Board of Directors, which cause
shall be limited to:
(i) the persistent failure of or refusal by Executive to comply with the
material orders, advice, directions, policies, standard and regulations of the
Company and its President or Board of Directors, as promulgated from time to
time, or with the provisions of this Contract, which failure or refusal is
detrimental to the Company;
(ii) an act or acts of fraud or dishonesty by Executive resulting in or
tending to result in gain to or personal enrichment of Executive at the
Company's expense;
(iii) any felony conviction of Executive or material tort which is detrimental
to the Company;
(iv) the persistent absence by Executive from his employment without cause or
explanation;
(c)the death of Executive;
(d)the 90th day after notice from the Company to Executive that Executive is
considered to be permanently disabled due to his inability to perform his
duties or fulfill his responsibilities hereunder, which inability existed for a
period of 90 days or more before such notice; or
(e)termination by Executive, at his option, after 90 days prior written notice
to the Company.
Upon termination of Executive's employment pursuant to Section 7(b), (c), (d)
or (e), Executive (or his estate) shall receive (i) any unpaid salary payments
with respect to periods prior to the date of termination, and (ii) any
termination, disability or death benefits to which he is entitled under any
employee benefit plan of the Company which is in effect at the time of the
termination of his employment. In all other events of termination, Executive
shall continue to receive the Guaranteed Payments.
8.AGREEMENT NOT TO COMPETE. Executive agrees that if his employment is
terminated by the Company pursuant to Subsection 7(b) hereof he shall not, for
a period of one year from the date his employment hereunder terminates, (x)
directly or indirectly sell or attempt to sell, within Indiana, on behalf of
himself or any other person, corporation or entity, any type of product
marketed by the Company at the time his employment is terminated, (y) directly
or indirectly sell or attempt to sell any type of product marketed by the
Company at the time his employment is terminated to any person, corporation or
other entity that is a customer of the Company at the time his employment is
terminated, and (z) within Indiana, directly or indirectly, own manage,
operate, control, be employed by, participate in, or be connected in any manner
with the ownership, management, operation, or control of any business similar
to the type of business conducted by the Company at the time of termination of
Executive's employment hereunder; provided, however, that Executive may be a
shareholder of less than 5% of the outstanding shares of voting stock of any
company listed on a recognized stock exchange or traded in the NASD
over-the-counter market.
9.TECHNICAL INFORMATION. Executive covenants and agrees that during the
Employment Term and for a period of six months after termination of the
Employment Term (regardless of whether Executive is terminated or defaults
under any other provision of this Contract) he will assign to the Company or
its nominees all of his right, title and interest in and to all "Technical
Information" (as hereinafter defined) which he makes, develops or conceives,
either alone or in conjunction with others; he will disclose promptly to the
Company all such Technical Information; and he will cooperate with the Company
in its efforts to protect its rights of ownership in such Technical
Information. For purposes of this Contract, "Technical Information" shall mean
and include, but not be limited to, all software, processes, devices,
trademarks, trade names, copyrights, marketing plans, improvements, and ideas
relating to the business of the Company, and all goodwill associated with any
such item.
10.COVENANT AGAINST DISCLOSURE OF TECHNICAL AND CONFIDENTIAL INFORMATION.
Executive agrees that while he is employed by the Company and thereafter he
shall not, directly or indirectly, disclose or use to the detriment of the
Company or for the benefit of any other person, corporation or other entity,
any confidential information or trade secret (including, but not limited to,
the identity and needs of any customer of the Company, the method and
techniques of any of the business of the Company, the marketing, sales, costs
and pricing plans and objectives of the Company, the problems, developments,
research records, and Technical Information) of the Company or of any of the
affiliates of the Company. Furthermore, Executive shall deliver promptly to
the Company upon termination of his employment, or at any time the Company may
so request, all memoranda, notes, records, reports, manuals, software, models,
designs, and other documents and computer records (and all copies thereof)
relating to the business of the Company, and all property associated therewith,
which he may then possess or have under his control. This Contract supplements
and does not supersede Executive's obligations under statute or the common law
to protect the Company's trade secrets and confidential information.
11.REMEDY. Executive acknowledges that the restrictions contained in Sections
8 through 10 of this Contract are reasonable and that the legal remedies for
breach of the covenants which are contained in Sections 8 through 10 of this
Contract may be inadequate and, therefore, agrees that, in the event of any
actual or threatened breach of any such covenant, in addition to any other
right or remedy which the Company may have, the Company may: (a) seek specific
enforcement of any such covenant through injunction or other equitable relief,
and (b) recover from Executive an amount equal to (i) all sums paid by the
Company to him after commencement of the breach, plus (ii) all costs and
expenses (including attorneys' fees) incurred by the Company in enforcement of
the covenant, plus (iii) all other damages to which the Company may be legally
entitled.
12,UNDERTAKING TO PAY TERMINATION BENEFITS. In addition to the payments
Executive shall receive under Section 4 hereof in the event of the termination
of his employment, the Company agrees to pay to the Executive the Termination
Benefits specified in Section 13 hereof if (a) control of the Company is
acquired (as defined in paragraph 14(a) hereof) and (b) within three years
after the acquisition of control occurs (i) the Company terminates the
employment of Executive for any reason other than pursuant to Section 7(b),
7(c) or 7(d) hereof, or (ii) Executive voluntarily terminates his employment
for good reason (as defined in Section 14(b) hereof).
13.TERMINATION BENEFITS. If Executive is entitled to termination benefits
pursuant to paragraph 12 hereof, the Company agrees to pay to Executive as
termination compensation in a lump-sum payment within five calendar days of the
termination of Executive's employment an amount to be computed by multiplying
(a) Executive's average annual compensation payable by the Company which was
includable in the gross income of Executive for the most recent five calendar
years ending coincident with or immediately before the date on which control of
the Company is acquired (or such portion of such period during which Executive
was an employee of the Company), by (b) 299%. For purposes of this Contract,
employment and compensation paid by any direct or indirect subsidiary of the
Company, if any will be deemed to be employment and compensation paid by the
Company
(a)The Termination Benefits described in this section are payable to the
Executive regardless of any determination by the Company's independent public
accountants that payments made pursuant to this section are or would be
non-deductible by the Company for federal income tax purposes because of
Section 280G of the Internal Revenue Code of 1986 or any subsequent revisions
in the Internal Revenue Code.
14.DEFINITIONS.
(a)As used in this Contract, the "acquisition of control": means (i) attaining
ownership of 25% or more of the shares of voting stock of the Company by any
person or group (other than a person or group including Executive or with whom
or which Executive is affiliated), or (ii) the occurrence of a "change of
control" required to be described under the proxy disclosure rules of the
Securities and Exchange Commission.
(b)As used in this Contract, the term "good reason" means, without Executive's
written consent, (i) a change in Executive's status, position or
responsibilities which, in his reasonable judgment, does not represent a
promotion from his status, position or responsibilities as in effect
immediately prior to the change in control; the assignment to Executive of any
duties or responsibilities which, in his reasonable judgment, are inconsistent
with such status, position or responsibilities; or any removal of Executive
from or failure to reappoint or reelect him to any of such positions, except in
connection with the termination of his employment for total and permanent
disability, death or pursuant to Subsection 7(ii) or 7(iii) herein or by him
other than for good reason; (ii) a breach by the Company of its covenants under
this Contract after a change in control; (iii) the relocation of the Company's
principal executive offices to a location outside the Indianapolis, Indiana
metropolitan area or the Company's requiring him to be based at any place other
than the location at which he performed his duties prior to a change in control
except for required travel on the Company's business to an extent substantially
consistent with his business travel obligations at the time of a change in
control; (iv) the failure by the Company to continue to provide Executive with
benefits substantially similar to those enjoyed by him or to which he was
entitled under any of the Company's pension, profit sharing, life insurance,
medical, dental, health and accident, or disability plans in which he was
participating at the time of a change in control, the taking of any action by
the Company which would directly or indirectly materially reduce any of such
benefits or deprive him of any material fringe benefit enjoyed by him or to
which he was entitled at the time of the change in control, or the failure by
the Company to provide him with the number of paid vacation and sick leave days
to which he is entitled on the basis of years of service with the Company in
accordance with the Company's normal vacation and sick leave policies and
consistent with Section 6 of this Contract; (v) the failure of the Company to
obtain a satisfactory agreement from any successor or assign of the Company to
assume and agree to perform this Contract; (vi) any purported termination of
Executive's employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Subsection 15(c) hereof (and, if
applicable, Subsection 7(b) hereof); and for purposes of this Contract, no such
purported termination shall be effective; or (vii) any request by the Company
that Executive participate in an unlawful act or take any action constituting a
breach of Executive's professional standard of conduct.
Notwithstanding anything in this paragraph 14(b) to the contrary, Executive's
right to terminate his employment pursuant to paragraph 12 herein shall not be
affected by his incapacity due to physical or mental illness.
15.ADDITIONAL PROVISIONS RELATING TO TERMINATION.
(a)The Company is aware that the Board of Directors or shareholders of the
Company may then cause or attempt to cause the Company to refuse to comply with
its obligations under this Contract, or may cause or attempt to cause the
Company to institute, or may institute litigation seeking to have this Contract
declared unenforceable, or may take or attempt to take action to deny Executive
the benefits intended under this Contract. In these circumstances, the purpose
of this Contract could be frustrated. It is the intent of the Company that
Executive not be required to incur the expenses associated with the enforcement
of his rights under this Contract by litigation or other legal action, nor be
bound to negotiate any settlement of his rights hereunder. Accordingly, if
following a change in control, if it should appear to Executive that the
Company has failed to comply with any of its obligations under this Contract of
in the event that the Company or any other person takes any action to declare
this Contract void or unenforceable, or institutes any litigation or other
legal action designed to deny, diminish or to recover from Executive the
benefits entitled to be provided to Executive, hereunder, and that Executive
has complied with all of his obligations under this Contract, the Company
irrevocably authorizes Executive from time to time to retain counsel of his
choice, at the expense of the Company as provided in this Subsection 15(a), to
represent Executive in connection with the initiation or defense of any
litigation or other legal action, whether such action is by or against the
Company or any director, officer, shareholder, or other person affiliated with
the Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the Company
irrevocably consents to Executive entering into an attorney-client relationship
with such counsel, and in that connection the Company and Executive agree that
a confidential relationship shall exist between Executive and such counsel.
The reasonable fees and expenses of counsel selected from time to time by
Executive as hereinabove provided shall be paid or reimbursed to Executive by
the Company on a regular, periodic basis upon presentation by Executive of a
statement or statements prepared by such counsel, in accordance with its
customary practices, up to a maximum aggregate amount of $50,000.00.
Any legal expenses incurred by the Company by reason of any dispute between the
parties as to enforceability of or the terms contained in this Contract,
notwithstanding the outcome of any such dispute, shall be the sole
responsibility of the Company, and the Company shall not take any action to
seek reimbursement from Executive for such expenses.
(b)The amounts payable to Executive under this Contract shall not be treated as
damages but as severance compensation to which Executive is entitled by reason
of termination of his employment in the circumstances contemplated by this
Contract. The Company shall not be entitled to set off against the amounts
payable to Executive of any amounts earned by Executive in other employment
after termination of his employment with the Company, or any amounts which
might have been earned by Executive in other employment had he sought such
other employment.
(c)Any purported termination by the Company or by Executive shall be
communicated by written Notice of Termination to the other party hereto in
accordance with Section 22 hereof. For purposes of this Contract, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Contract relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of his
employment under the provision so indicated. For purposes of this Contract, no
such purported termination shall be effective without such Notice of
Termination.
(d)In addition to any payments, termination benefits or any other benefits
Executive is entitled to receive hereunder, in the event of a change or
acquisition of control, the Company agrees to pay the Payment Amount (as
hereinafter defined) to the Executive in a lump-sum payment within thirty (30)
calendar days after the termination of Executive=s employment for any reason,
including, without limitation, termination of employment by the Company,
termination of employment by the Executive and termination of employment by
reason of death. The APayment Amount@ shall be the product, determined as of
the date of Executive=s termination of employment, determined by (i)
multiplying the number of shares of common stock of the Company then subject to
unexercised options (AUnexercised Options@) held by the Executive which were
granted by the Company or an affiliate of the Company by (ii) the highest per
share fair market value of the common stock on any day during the period
beginning six (6) months prior to the date of Executive=s termination of
employment. For purposes of this provision, Unexercised Options shall include
all outstanding options whether or not they are exercisable at the time of the
election by Executive hereunder. There shall be no deduction of Executive=s
exercise price per share for each Unexercised Option from the amount to be
received by him pursuant to this subsection (d). Upon payment by the Company
of the Payment Amount in accordance with this subsection (d), the Unexercised
Options shall be deemed to be surrendered by the Executive and cancelled by the
Company. Such cancellation shall be effective regardless of whether the
Executive surrenders an agreement relating to any Unexercised Option.
16.ENTIRE AGREEMENT. This Contract contains the entire agreement of the
parties relating to the employment of Executive by the Company, superseding any
and all prior such agreements, and cannot be amended, modified, or supplemented
in any respect by subsequent written agreement entered into by the parties.
The Second Amended and Restated Employment Contract heretofore entered into
between the Executive and the Company dated and effective June 16, 1993 shall
terminate in all respects on July 1, 1999.
17.BENEFIT. Executive acknowledges that the services to be rendered by him are
unique and personal; accordingly, Executive may not assign any of his rights or
delegate any of his duties or obligations under this Contract. The rights and
obligations of the Company under this Contract shall inure to the benefit of,
and be binding upon, the legal representatives, successors and assigns of the
Company.
18.NO WAIVER. No failure on the part of either party at any time to require
the performance by the other party of any term of this Contract shall be taken
or held to be a waiver of such term or in any way affect such party's right to
enforce such term, and no waiver on the part of either party of any term in
this Contract shall be taken or held to be a waiver of any other term hereof or
the breach thereof.
19.SEVERABILITY. The provisions of Sections 8 through 11 hereof are severable,
and the invalidity or unenforceability of any particular provision of Sections
8 through 11 shall not affect or limit the enforceability of the other
provisions. If any provision in Sections 8 through 11 hereof is held
unenforceable for any reason, including the time period, geographic area, or
scope of activity covered, then such provision shall be enforced to whatever
extent is reasonable and enforceable.
20.GOVERNING LAW. This Contract shall be governed and construed in accordance
with the law of the State of Indiana (other than the provisions relating to
choice of law). The parties hereto agree that nay legal action arising from
this Contract may be brought in any state or federal court of record in
Indianapolis, Indiana and the parties hereto waive any right to question the
jurisdiction of such court over their person or the propriety of such venue.
21.CAPTIONS. The captions in this Contract are for convenience and
identification purposes only, and not an integral part of this Contract, and
are not to be considered in the interpretation of any part hereof.
22.NOTICES. All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given if in writing and personally
delivered to the party to whom notice should be given or if sent by registered
or certified mail, postage prepaid, addressed to the addresses set forth below,
or to such other addresses as shall be furnished in writing by either party to
the other:
Raymond J. Ohlson
9100 Keystone Crossing, Suite 600
Indianapolis IN 46240
The Company:
Standard Management Corporation
9100 Keystone Crossing, Suite 600
Indianapolis IN 46240
Attn.: Ronald D. Hunter, Chairman
IN WITNESS WHEREOF, the Company has caused this Amended and Restated
Employment Contract to be executed on its behalf by its duly authorized
officer and Executive has hereunto set his hand as of the 1st day of July,
1999.
STANDARD MANAGEMENT CORPORATION
AND ALL WHOLLY OWNED SUBSIDIARIES
By:
Ronald D. Hunter
Chairman, President and Chief Executive Officer
Attest:
Stephen M. Coons
Secretary
EXECUTIVE
Raymond J. Ohlson
H:\JAMESCAR\DOCS\EMPLOY\3RDAMEN.RJO.WPD
SECOND AMENDED AND RESTATED EMPLOYMENT CONTRACT
THIS SECOND AMENDED AND RESTATED CONTRACT OF EMPLOYMENT (hereinafter
"Contract") is made in Indianapolis, Indiana, dated and effective as amended
July 1, 1999, by and between STANDARD MANAGEMENT CORPORATION, an Indiana
Corporation, and all wholly owned subsidiaries of the above named corporations
(hereinafter the "Company"), and STEPHEN M. COONS (hereinafter "Executive").
RECITALS
A.Executive has participated in the organization of the Company and its
business.
B.Executive has and is expected to continue to make a major contribution to the
profitability, growth and financial strength of the Company.
C.The Company considers the continued services of the Executive to be in the
best interest of the Company and its shareholders and desires to assure the
continued services of the Executive on behalf of the Company on an objective
and impartial basis and without distraction or conflict of interest in the
event of an attempt to obtain control of the Company.
D.Executive is willing to remain in the employ of the Company under the terms
and conditions hereof and upon the understanding that the Company will provide
him with the income security herein if his employment is terminated by the
Company or if he voluntarily terminates his employment for good reason.
NOW, THEREFORE, in consideration of the mutual agreements contained herein, the
parties to this Contract hereby agree as follows:
AGREEMENT
1.EMPLOYMENT. The Company hereby agrees to employ Executive as Executive Vice
President, Secretary and General Counsel of the Company. Executive accepts
such employment and agrees to be subject to the general supervision, orders,
advice and direction of the President and Chief Executive Officer and the Board
of Directors of the Company in a manner consistent with the Articles of
Incorporation and By-Laws of the Company. The Executive shall be permitted to
maintain his personal representation of selected corporate clients not adverse
to the interests of the Company.
2.TERMS OF EMPLOYMENT AND COMPENSATION. Executive's term of employment (the
"Employment Term") hereunder shall start on July 1, 1999 and continue until
such employment terminates pursuant to Section 7 hereof.
3.SALARY AND BONUS. Executive's salary for the first year hereunder shall be
$203,000.00 per year. Thereafter during the Employment Term, Executive's
salary shall be increased each year by an amount equal to Executive's salary
for the previous year multiplied by the percent change of the Consumer Price
Index for all Urban Consumers (the "CPI") (published by the Bureau of Labor
Statistics, United States Department of Labor) during the immediately preceding
calendar year. For example, if the percent change in the CPI from January 1,
1999 to December 31, 1999 were 5%, Executive's salary for the second year
hereunder would be $213,150.00. Executive's salary shall be payable on the
Company's regular salary payment dates. In addition, within 90 days after the
end of each fiscal year during the Employment Term, Executive shall receive a
bonus. The bonus paid to Executive shall be one and one-half percent (1-1/2%)
of the annual gross operating income of the Company paid within ninety (90)
days after the close of each fiscal year covered hereunder. Provided, however,
that in no event shall said bonus be less than ten percent (10%) of the annual
salary of Executive for the year in consideration.
The salary and bonus payments hereunder shall be subject to withholding and any
other applicable tax law.
4.SALARY GUARANTEE. All salaries payable to the Executive under the Agreement
will be guaranteed (the "Guaranteed Payments") as of the effective date of the
Agreement for the full Employment Term of the Agreement except for terminations
for violations found in Section 7(b) (c) (d) or (e) hereof.
(a)After the initial three year Employment Term of Guaranteed Payments, any
additional one year extensions made pursuant to the terms of Section 7(a) will
be guaranteed once the notice period for the extension or termination period
found in Section 7(a) has passed.
(b)None of the Guaranteed Payments described in this Section shall prevent the
Executive from receiving the Termination Benefits described in Section 13 of
the Agreement.
(c)All Guaranteed Payments described in this Section and payable to the
Executive shall be payable to the Estate of Stephen M. Coons in the event of
death of the Executive.
(d)In the event of any mental disability which renders the Executive unable to
fulfill his duties pursuant to Section 1 of this Agreement, all Guaranteed
Payments shall be made to Stephen M. Coons's attorney in fact, his personal
representative, his guardian, or any other such person legally specifically
listed, to whomever is legally authorized to receive monetary payments due and
owing to Stephen M. Coons.
(e)In the event of any physical disability which renders the Executive unable
or unwilling to fulfill his duties pursuant to Section 1 of this Agreement, all
Guaranteed Payments shall be made directly to the Executive.
(f)Upon the termination of Executive=s employment for any reason other than
pursuant to Section 7(b), (d) or (e) hereof, the Company shall pay to Executive
in a lump-sum payment, within thirty (30) calendar days after such termination,
the salary received by him on the date of such termination in an amount equal
to two (2) years of annual salary.
5.REIMBURSEMENT FOR EXPENSES. The Company shall, during the Employment Term,
reimburse Executive for all reasonable travel, business entertainment and other
business expenses incurred by Executive in rendering services under this
Contract. Such reimbursement shall be subject to compliance with the
applicable policies and procedures established by the Company. During the
Employment Term, Executive shall be entitled to an automobile allowance of
$500.00 per month.
6.FRINGE BENEFITS. During the Employment Term, Executive shall be entitled to
participate in the Company's corporate, medical and disability insurance plans.
The Company shall also provide Executive with term life insurance in the amount
of $500,000. Executive shall be entitled to all other fringe benefits
generally provided for salaried employees of the Company upon attaining
eligibility as provided under such fringe benefit programs. Executive shall be
entitled to four (4) weeks vacation per year.
7.TERMINATION. The Employment Term shall terminate on the first to occur of
the following events:
(a)the third anniversary of the date on which the Employment Term become
effective; provided, however, that after such third anniversary, the Employment
Term shall be extended each year thereafter for an additional one year period
unless either party gives the other written notice at least 90 days before such
extension of its intention not to renew the Contract;
(b)termination by the Company for cause, upon written notice (specifying the
particulars) to Executive from the Company's Board of Directors, which cause
shall be limited to:
(i) the persistent failure of or refusal by Executive to comply with the
material orders, advice, directions, policies, standard and regulations of the
Company and its President or Board of Directors, as promulgated from time to
time, or with the provisions of this Contract, which failure or refusal is
detrimental to the Company;
<PAGE>
(ii) an act or acts of fraud or dishonesty by Executive resulting in or
tending to result in gain to or personal enrichment of Executive at the
Company's expense;
(iii) any felony conviction of Executive or material tort which is detrimental
to the Company; or
(iv) the persistent absence of Executive from his employment without cause or
explanation;
(c)the death of Executive;
(d)the 90th day after notice from the Company to Executive that Executive is
considered to be permanently disabled due to his inability to perform his
duties or fulfill his responsibilities hereunder, which inability existed for a
period of 90 days or more before such notice; or
(e)termination by Executive, at his option, after 90 days prior written notice
to the Company.
Upon termination of Executive's employment pursuant to Section 7(b) (c) (d) or
(e), Executive (or his estate) shall receive (i) any unpaid salary payments
with respect to periods prior to the date of termination, and (ii) any
termination, disability or death benefits to which he is entitled under any
employee benefit plan of the Company which is in effect at the time of the
termination of his employment. In all other events of termination, Executive
shall continue to receive the Guaranteed Payments.
8.AGREEMENT NOT TO COMPETE. Executive agrees that if his employment is
terminated by the Company pursuant to Subsection 7(b) hereof he shall not, for
a period of one year from the date his employment hereunder terminates, (x)
directly or indirectly sell or attempt to sell, within Indiana, on behalf of
himself or any other person, corporation or entity, any type of product
marketed by the Company at the time his employment is terminated, (y) directly
or indirectly sell or attempt to sell any type of product marketed by the
Company at the time his employment is terminated to any person, corporation or
other entity that is a customer of the Company at the time his employment is
terminated, and (z) within Indiana, directly or indirectly, own, manage,
operate, control, be employed by, participate in, or be connected in any manner
with the ownership, management, operation, or control of any business similar
to the type of business conducted by the Company at the time of termination of
Executive's employment hereunder; provided, however, that Executive may be a
shareholder of less than 5% of the outstanding shares of voting stock of any
company listed on a recognized stock exchange or traded in the NASD over-the-
counter market.
9.TECHNICAL INFORMATION. Executive covenants and agrees that during the
Employment Term and for a period of six months after termination of the
Employment Term (regardless of whether Executive is terminated or defaults
under any other provision of this Contract) he will assign to the Company or
its nominees all of his right, title and interest in and to all "Technical
Information" (as hereinafter defined) which he makes, develops or conceives,
either alone or in conjunction with others; he will disclose promptly to the
Company all such Technical Information; and he will cooperate with the Company
in its efforts to protect its rights of ownership in such Technical
Information. For purposes of this Contract, "Technical Information" shall mean
and include, but not be limited to, all software, processes, devices,
trademarks, trade names, copyrights, marketing plans, improvements, and ideas
relating to the business of the Company, and all goodwill associated with any
such item.
10.COVENANT AGAINST DISCLOSURE OF TECHNICAL AND CONFIDENTIAL INFORMATION.
Executive agrees that while he is employed by the Company and thereafter he
shall not, directly or indirectly, disclose or use to the detriment of the
Company or for the benefit of any other person, corporation or other entity,
any confidential information or trade secret (including, but not limited to,
the identity and needs of any customer of the Company, the method and
techniques of any of the business of the Company, the marketing, sales, costs
and pricing plans and objectives of the Company, the problems, developments,
research records, and Technical Information) of the Company, or any of the
affiliates of the Company. Furthermore, Executive shall deliver promptly to
the Company upon termination of his employment, or at any time the Company may
so request, all memoranda, notes, records, reports, manuals, software, models,
designs, and other documents and computer records (and all copies thereof)
relating to the business of the Company, and all property associated therewith,
which he may then possess or have under his control. This Contract supplements
and does not supersede Executive's obligations under statute or the common law
to protect the Company's trade secrets and confidential information.
11.REMEDY. Executive acknowledges that the restrictions contained in Sections
8 through 10 of this Contract are reasonable and that the legal remedies for
breach of the covenants which are contained in Sections 8 through 10 of this
Contract may be inadequate and, therefore, agrees that, in the event of any
actual or threatened breach of any such covenant, in addition to any other
right or remedy which the Company may have, the Company may: (a) seek specific
enforcement of any such covenant through injunction or other equitable relief,
and (b) recover from Executive an amount equal to (i) all sums paid by the
Company to him after commencement of the breach, plus (ii) all costs and
expenses (including attorneys' fees) incurred by the Company in enforcement of
the covenant, plus (iii) all other damages to which the Company may be legally
entitled.
12.UNDERTAKING TO PAY TERMINATION BENEFITS. In addition to the payments
Executive shall receive under Section 4 hereof in the event of the termination
of his employment, the Company agrees to pay to the Executive the Termination
Benefits specified in Section 13 hereof if (a) control of the Company is
acquired (as defined in paragraph 14(a) hereof) and (b) within three years
after the acquisition of control occurs (i) the Company terminates the
employment of Executive for any reason other than pursuant to Section 7(b),
7(c) or 7(d) hereof, or (ii) Executive voluntarily terminates his employment
for good reason (as defined in Section 14(b) hereof).
13.TERMINATION BENEFITS. If Executive is entitled to termination benefits
pursuant to paragraph 12 hereof, the Company agrees to pay to Executive as
termination compensation in a lump-sum payment within five calendar days of the
termination of Executive's employment an amount to be computed by multiplying
(a) Executive's average annual compensation payable by the Company which is
includable in the gross income of Executive for the most recent five calendar
years ending coincident with or immediately before the date on which control of
the Company is acquired (or such portion of such period during which Executive
was an employee of the Company, by (b) 299%. For purposes of this Contract,
employment and compensation paid by an direct or indirect subsidiary of the
Company, if any will be deemed to be employment and compensation paid by the
Company.
(a)The Termination Benefits described in this section are payable to the
Executive regardless of any determination by the Company's independent public
accountants that payments made pursuant to this section are or would be non-
deductible by the Company for federal income tax purposes because of Section
280G of the Internal Revenue Code of 1986 or any subsequent revisions in the
Internal Revenue Code.
14.DEFINITIONS.
(a)As used in this Contract, the "acquisition of control": means (i) attaining
ownership of 25% or more of the shares of voting stock of the Company by any
person or group (other than a person or group including Executive or with whom
or which Executive is affiliated), or (ii) the occurrence of a "change of
control" required to be described under the proxy disclosure rules of the
Securities and Exchange Commission.
(b)As used in this Contract, the term "good reason" means, without Executive's
written consent, (i) a change in Executive's status, position or
responsibilities which, in his reasonable judgment, does not represent a
promotion from his status, position or responsibilities as in effect
immediately prior to the change in control; the assignment to Executive of any
duties or responsibilities which, in his reasonable judgment, are inconsistent
with such status, position or responsibilities; or any removal of Executive
from or failure to reappoint or reelect him to any of such positions, except in
connection with the termination of his employment for total and permanent
disability, death or pursuant to Subsection 7(ii) or 7(iii) herein or by him
other than for good reason; (ii) a breach by the Company of its covenants under
this Contract after a change in control; (iii) the relocation of the Company's
principal executive offices to a location outside the Indianapolis, Indiana
metropolitan area or the Company's requiring him to be based at any place other
than the location at which he performed his duties prior to a change in control
except for required travel on the Company's business to an extent substantially
consistent with his business travel obligations at the time of a change in
control; (iv) the failure by the Company to continue to provide Executive with
benefits substantially similar to those enjoyed by him or to which he was
entitled under any of the Company's pension, profit sharing, life insurance,
medical, dental, health and accident, or disability plans in which he was
participating at the time of a change in control, the taking of any action by
the Company which would directly or indirectly materially reduce any of such
benefits or deprive him of any material fringe benefit enjoyed by him or to
which he was entitled at the time of the change in control, or the failure by
the Company to provide him with the number of paid vacation and sick leave days
to which he is entitled on the basis of years of service with the Company in
accordance with the Company's normal vacation and sick leave policies and
consistent with Section 6 of this Contract; (v) the failure of the Company to
obtain a satisfactory agreement from any successor or assign of the Company to
assume and agree to perform this Contract; (vi) any purported termination of
Executive's employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Subsection 15(c) hereof (and, if
applicable, Subsection 7(b) hereof); and for purposes of this Contract, no such
purported termination shall be effective; or (vii) any request by the Company
that Executive participate in an unlawful act or take any action constituting a
breach of Executive's professional standard of conduct.
Notwithstanding anything in this paragraph 14(b) to the contrary, Executive's
right to terminate his employment pursuant to paragraph 12 herein shall not be
affected by his incapacity due to physical or mental illness.
15.ADDITIONAL PROVISIONS RELATING TO TERMINATION.
(a)The Company is aware that the Board of Directors or shareholders of the
Company may then cause or attempt to cause the Company to refuse to comply with
its obligations under this Contract, or may cause or attempt to cause the
Company to institute, or may institute litigation seeking to have this Contract
declared unenforceable, or may take or attempt to take action to deny Executive
the benefits intended under this Contract. In these circumstances, the purpose
of this Contract could be frustrated. It is the intent of the Company that
Executive not be required to incur the expenses associated with the enforcement
of his rights under this Contract by litigation or other legal action, nor be
bound to negotiate any settlement of his rights hereunder, because the cost and
expense of such legal action or settlement would substantially detract from the
benefits intended to be extended to Executive hereunder. Accordingly, if
following a change in control, if it should appear to Executive that the
Company has failed to comply with any of its obligations under this Contract or
in the event that the Company or any other person takes any action to declare
this Contract void or unenforceable, or institutes any litigation or other
legal action designed to deny, diminish or to recover from Executive the
benefits entitled to be provided to Executive hereunder, and that Executive has
complied with all of his obligations under this Contract, the Company
irrevocably authorizes Executive from time to time to retain counsel of his
choice, at the expense of the Company as provided in this Subsection 15(a), to
represent Executive in connection with the initiation or defense of any
litigation or other legal action, whether such action is by or against the
Company or any director, officer, shareholder, or other person affiliated with
the Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the Company
irrevocably consents to Executive entering into an attorney-client relationship
with such counsel, and in that connection the Company and Executive agree that
a confidential relationship shall exist between Executive and such counsel.
The reasonable fees and expenses of counsel selected from time to time by
Executive as hereinabove provided shall be paid or reimbursed to Executive by
the Company on a regular, periodic basis upon presentation by Executive of a
statement or statements prepared by such counsel in accordance with its
customary practices, up to a maximum aggregate amount of $50,000.00. Any legal
expenses incurred by the Company by reason of any dispute between the parties
as to enforceability of or the terms contained in this Contract,
notwithstanding the outcome of any such dispute, shall be the sole
responsibility of the Company, and the Company shall not take any action to
seek reimbursement from Executive for such expenses.
(b) The amounts payable to Executive under this Contract shall not be treated
as damages but as severance compensation to which Executive is entitled by
reason of termination of his employment in the circumstances contemplated by
this Contract. The Company shall not be entitled to set off against the
amounts payable to Executive of any amounts earned by Executive in other
employment after termination of his employment with the Company, or any amounts
which might have been earned by Executive in other employment had he sought
such other employment.
(c)Any purported termination by the Company or by Executive shall be
communicated by written Notice of Termination to the other party hereto in
accordance with Section 22 hereof. For purposes of this Contract, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Contract relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of his
employment under the provision so indicated. For purposes of this Contract, no
such purported termination shall be effective without such Notice of
Termination.
(d)In addition to any payments, termination benefits or any other benefits
Executive is entitled to receive hereunder, in the event of a change or
acquisition of control, the Company agrees to pay the Payment Amount (as
hereinafter defined) to the Executive in a lump-sum payment within thirty (30)
calendar days after the termination of Executive=s employment for any reason,
including, without limitation, termination of employment by the Company,
termination of employment by the Executive and termination of employment by
reason of death. The APayment Amount@ shall be the product, determined as of
the date of Executive=s termination of employment, determined by (i)
multiplying the number of shares of common stock of the Company then subject to
unexercised options (AUnexercised Options@) held by the Executive which were
granted by the Company or an affiliate of the Company by (ii) the highest per
share fair market value of the common stock on any day during the period
beginning six (6) months prior to the date of Executive=s termination of
employment. For purposes of this provision, Unexercised Options shall include
all outstanding options whether or not they are exercisable at the time of the
election by Executive hereunder. There shall be no deduction of Executive=s
exercise price per share for each Unexercised Option from the amount to be
received by him pursuant to this subsection (d). Upon payment by the Company
of the Payment Amount in accordance with this subsection (d), the Unexercised
Options shall be deemed to be surrendered by the Executive and cancelled by the
Company. Such cancellation shall be effective regardless of whether the
Executive surrenders an agreement relating to any Unexercised Option.
16.ENTIRE AGREEMENT. This Contract contains the entire agreement of the
parties relating to the employment of Executive by the Company, superseding any
and all prior such agreements, and cannot be amended, modified, or supplemented
in any respect except by subsequent written agreement entered into by the
parties. The First Amended and Restated Employment Contract dated and
effective March 1, 1993 shall terminate in all respects on July 1, 1999.
17.BENEFIT. Executive acknowledges that the services to be rendered to him are
unique and personal; accordingly, Executive may not assign any of his rights or
delegate any of his duties or obligations under this Contract. The rights and
obligations of the Company under this Contract shall inure to the benefit of,
and be binding upon, the legal representatives, successors and assigns of the
Company.
18.NO WAIVER. No failure on the part of either party at any time to require
the performance by the other party of any term of this Contract shall be taken
or held to be a waiver of such term or in any way affect such party's right to
enforce such term, and no waiver on the part of either party of any term in
this Contract shall be taken or held to be a waiver of any other term hereof or
the breach thereof.
19.SEVERABILITY. The provisions of Sections 8 through 11 hereof are severable,
and the invalidity or unenforceability of any particular provision of Sections
8 through 11 shall not affect or limit the enforceability of the other
provisions. If any provision in Sections 8 through 11 hereof is held
unenforceable for any reason, including the time period, geographic area, or
scope of activity covered, then such provision shall be enforced to whatever
extent is reasonable and enforceable.
20.GOVERNING LAW. This Contract shall be governed and construed in accordance
with the law of the State of Indiana (other than the provisions relating to
choice of law). The Contract may be brought in any state or federal court of
record in Indianapolis, Indiana and the parties hereto waive any right to
question the jurisdiction of such court over their person or the property of
such venue.
21.CAPTIONS. The captions in this Contract are for convenience and
identification purposes only, and not an integral part of this Contract, and
are not to be considered in the interpretation of any part hereof.
22.NOTICES. All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given if in writing and personally
delivered to the party to whom notice should be given or if sent by registered
or certified mail, postage prepaid, addressed to the addresses set forth below,
or to such other addresses as shall be furnished in writing by either party to
the other:
Stephen M. Coons
9100 Keystone Crossing, Suite 600
Indianapolis, IN 46240
To the Company:
Standard Management Corporation
9100 Keystone Crossing, Suite 600
Indianapolis, IN 46240
Attn: Ronald D. Hunter, Chairman
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Contract to be executed on its
behalf by its duly authorized officer and Executive has hereunto set his hand
as of the 1st day of July, 1999.
STANDARD MANAGEMENT CORPORATION
AND ALL WHOLLY OWNED SUBSIDIARIES
By:
Ronald D. Hunter,
Chairman, President and Chief Executive Officer
Attest:
Edward T. Stahl,
Executive Vice President
EXECUTIVE
Stephen M. Coons
H:\Jamescar\Docs\EMPLOY\2ndamen.SMC.wpd
