SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to '240.14a-11(c) or '240.14a-12
STANDARD MANAGEMENT CORPORATION
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11
(Set forth the amount on which the filing fee is calculated and state
how it was determined):
4) Proposed maximum aggregate value of transaction:
[ ] Fee paid previously by written preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
TO THE STOCKHOLDERS OF
STANDARD MANAGEMENT CORPORATION
You are cordially invited to attend the 2000 Annual Meeting of
Stockholders of Standard Management Corporation to be held at 9:30 a.m.,
local time, on Wednesday, June 7, 2000 at the Indianapolis Marriott
North, 3645 River Crossing Parkway, Indianapolis, Indiana 46240.
The matters to be considered at the meeting are described in the
accompanying Notice of Annual Meeting of Stockholders and the Proxy
Statement.
Regardless of your plans for attending in person, it is important that
your shares be represented at the meeting. Therefore, please complete,
sign, date and return the enclosed proxy card in the enclosed, post-paid
envelope or vote by telephone. This will enable you to vote on the
business to be transacted whether or not you attend the meeting.
We look forward to seeing you at the 2000 Annual Meeting.
Sincerely,
Ronald D. Hunter
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
May 4, 2000
<PAGE>
STANDARD MANAGEMENT CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 7, 2000
TO THE STOCKHOLDERS OF
STANDARD MANAGEMENT CORPORATION:
The Annual Meeting of Stockholders (the "Annual Meeting") of Standard
Management Corporation ("SMC" or "the Company") will be held at 9:30 a.m.,
local time, on Wednesday, June 7, 2000, at the Indianapolis Marriott North,
3645 River Crossing Parkway, Indianapolis, Indiana 46240, to consider and vote
on the following matters:
Proposal 1.To elect three Class II directors to the Board of Directors of SMC
for a term of three years.
This item is more fully described in the accompanying Proxy Statement. In
addition, the stockholders will transact such other business as may properly
come before the Annual Meeting or any adjournments or postponements thereof.
Only stockholders of record at the close of business on April 26, 2000 (the
"Record Date") are entitled to notice of , and to vote at, the Annual Meeting
or any adjournments thereof.
Your attention is directed to the accompanying Proxy Statement, proxy card and
the Shareholders Annual Report. Whether or not you plan to attend the Annual
Meeting in person, you are urged to complete, sign, date and return the
enclosed proxy card in the enclosed, post-paid envelope or vote by
telephone. If you attend the Annual Meeting and wish to vote in person, you may
withdraw your proxy and vote your shares personally.
By order of the Board of Directors
Stephen M. Coons
EXECUTIVE VICE PRESIDENT AND SECRETARY
May 4, 2000
Indianapolis, Indiana
<PAGE>
STANDARD MANAGEMENT CORPORATION
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 7, 2000
GENERAL INFORMATION
This Proxy Statement is being furnished to stockholders in connection with the
solicitation of proxies by the Board of Directors (the "Board of Directors") of
Standard Management Corporation ("SMC" or the "Company") for use at its 2000
Annual Meeting of Stockholders (the "Annual Meeting") to be held at 9:30, a. m.
local time, on Wednesday, June 7, 2000 at the Indianapolis Marriott North, 3645
River Crossing Parkway, Indianapolis, Indiana 46240.
Each stockholder of record of Common Stock of the Company (the "Common Stock")
on April 26, 2000 (the "Record Date") is entitled to vote at the Annual Meeting
and will have one vote for each share of Common Stock held at the close of
business on the Record Date. A majority of the shares entitled to vote will
constitute a quorum for purposes of the Annual Meeting. On March 31, 2000
there were 7,785,156 shares of Common Stock outstanding and entitled to vote.
A list of the stockholders of record entitled to vote at the Annual Meeting
will be available for inspection by any stockholder for any purpose germane to
the meeting, during normal business hours, for a period of ten days prior to
the meeting at the principal executive offices of the Company located at 9100
Keystone Crossing, Indianapolis, Indiana 46240. The telephone number at the
address is (317) 574-6224.
If you are unable to attend the Annual Meeting you may vote by proxy. The
proxies will vote your shares according to your instructions. If you return a
properly signed and dated proxy card but do not mark a choice on one or more
items, your shares will be voted in accordance with the recommendations of the
Board of Directors as set forth in this Proxy Statement. The proxy card gives
authority to the proxies to vote your shares in their discretion on any other
matter presented at the Annual Meeting. A proxy may indicate that all or a
portion of the shares represented thereby are not being voted by the
stockholder with respect to a particular matter. Any such non-voted shares
will be considered present for the purpose of determining the presence of a
quorum.
You may revoke your proxy at any time prior to voting at the Annual Meeting by
delivering written notice to Stephen M. Coons, the Secretary of the Company, by
submitting a subsequently dated proxy or by attending the Annual Meeting and
voting in person at the Annual Meeting.
The Company will bear the cost of preparing, handling, printing and mailing
this Proxy Statement, the accompanying proxy card and any additional material
which may be furnished to stockholders, and the actual expense incurred by
brokerage houses, fiduciaries and custodians in forwarding such materials to
beneficial owners of Common Stock held in their names. The solicitation of
proxies will be made by the use of the mails and through direct communication
with certain stockholders or their representatives by officers, directors or
employees of the Company who will receive no additional compensation for such
solicitation. This Proxy Statement and the enclosed proxy card were first sent
or given to stockholders on or about May 4, 2000.
<PAGE>
PROPOSAL 1. ELECTION OF DIRECTORS
Under the Company's Bylaws, the Board of Directors consists of nine persons and
is divided into three classes, each of whose members serves for a three-year
term. At the Annual Meeting, stockholders will elect three Class II directors.
The terms of the current Class II Directors expire with this Annual Meeting of
stockholders. Stephen M. Coons, Martial R. Knieser and Paul ("Pete") B. Pheffer
are presently directors of the Company. The nominees for Class II Directors, if
elected, will serve three years until the 2003 Annual Meeting of stockholders
and until their successors have been elected and qualified. The current Class
III and Class I directors will continue in office until the 2001 and 2002
Annual Meetings, respectively.
Unless otherwise instructed, the proxy holders will vote the proxies received
by them FOR the three nominees recommended by the Board of Directors and named
below. Stockholders do not have the right to cumulate votes in the election of
directors. Directors are elected by a plurality of the votes cast at the
Annual Meeting. Thus, assuming a quorum is present, the three persons
receiving the greatest number of votes will be elected to serve as members of
the Board of Directors. Accordingly, non-votes with respect to the election of
directors will not affect the outcome of the election of directors. In the
event that any nominee for the Board of Directors is unable or declines to
serve as a director at the time of the Annual Meeting, the proxies will be
voted for any nominee who shall be designated by the Board of Directors to fill
the vacancy, or the number of directors constituting the full Board of
Directors may be reduced. It is not expected that any nominee will be unable
or will decline to serve as a director.
A stockholder of the Company may nominate a person for election to the Board of
Directors. To do so, such stockholder must give written notice thereof,
containing the information required by the Company's Bylaws, to the Secretary
of the Company. Any such notice must be received at the principal executive
office of the Company not later than the close of business on May 25, 2000. In
the event that additional persons are nominated for election as directors, the
proxy holders intend to vote all proxies received by them FOR the nominees
recommended by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION OF THE FOLLOWING NOMINEES
AS DIRECTORS OF THE COMPANY.
NOMINEES FOR DIRECTORS
CLASS II - SERVING UNTIL 2003 ANNUAL MEETING
STEPHEN M. COONS, age 59, has been a director of the Company since August,
1989. Mr. Coons has been General Counsel and Executive Vice President of the
Company since March 1993 and has been Secretary of the Company since March
1994. He was of counsel to the law firm of Coons, Maddox & Koeller from March
1993 to December 31, 1995. Prior to March 1993, Mr. Coons was a partner with
the law firm of Coons & Saint. He has been practicing law for 29 years. Mr.
Coons served as Indiana Securities Commissioner from 1978 to 1983.
MARTIAL R. KNIESER, age 57, has been a director of the Company since May 1990.
He was Director of Labortories of Community Hospital Indianapolis from 1978 to
1991 and was Medical Director of Stat Laboratory Services from 1989 to 1999.
Dr. Knieser also has been Medical Director of Standard Life since December
1987. Dr. Knieser currently serves as Director of Laboratories of St. Vincent
Mercy Hospital, Elwood, Indiana.
PAUL ("PETE") B. PHEFFER, age 49, has been Executive Vice President and Chief
Financial Officer of the Company since May 1997 and director of the Company
since June 1997. Prior to joining the Company, Mr. Pheffer was Senior Vice
President - Chief Financial Officer and Treasurer of Jackson National Life
Insurance Company from 1994 to 1996 and prior to that was Senior Vice President
- - Chief Financial Officer at Kemper Life Insurance Companies from 1992 to 1994.
Mr. Pheffer, a CPA, received his MBA from the University of Chicago in 1988.
MEMBERS OF BOARD OF DIRECTORS CONTINUING IN OFFICE
CLASS III - SERVING UNTIL 2001 ANNUAL MEETING:
JOHN J. DILLON, age 40, has been a director of the Company since March 1998.
Mr. Dillon has been with Analytical Surveys, Inc. since January 1997, most
recently serving as Chief Administrative Officer. Prior to that, Mr. Dillon
served in various positions for the State of Indiana, including director of the
Hoosier Lottery from July 1993 to January 1997 and Insurance Commissioner from
July 1989 to July 1991.
RONALD D. HUNTER, age 48, has been the Chairman of the Board, Chief Executive
Officer and President of the Company since its formation in June 1989 and the
Chairman of the Board and Chief Executive Officer of Standard Life Insurance
Company of Indiana ("Standard Life") since December 1987. Previously, Mr.
Hunter held several management and sales positions in the life insurance
industry with a number of companies including Conseco, Inc. (1981-1986), and
Aetna Life & Casualty Company (1978-1981).
EDWARD T. STAHL, age 53, has been Executive Vice President of the Company since
its formation, a Director of the Company since July 1989 and has served as
Director of Corporate Development since June 1993. He was appointed Chief
Administrative Officer in November 1998. Mr. Stahl was Secretary of the
Company from June 1989 to March 1994. Mr. Stahl was President and Chief
Operations Officer of Standard Life from May 1988 to June 1993. He has been a
Director of Standard Life since December 1987, and Executive Vice President and
Secretary since June 1993. Mr. Stahl has served in various capacities in the
insurance industry since 1966 and is a member of several insurance
associations.
CLASS I - SERVING UNTIL 2002 ANNUAL MEETING
ROBERT A. BORNS, age 64, has been a director of the Company since 1996. He has
served as Chairman of Borns Management Corporation (real estate owners and
managers), Indianapolis, Indiana since 1962 and as Chairman of Correctional
Management Company, L.L.C. (privatized correctional facilities), Indianapolis,
Indiana since 1996. Mr. Borns serves on numerous boards, including IPALCO
Enterprises, Inc., Indianapolis Power & Light Company, and Artistic Media
Partners, Inc. He is also a member of the Board of Trustees of Indianapolis
Museum of Art, Indianapolis Symphony Orchestra, Indiana University Foundation
and St. Vincent Hospital Advisory Board.
JERRY E. FRANCIS, age 50, has been a director of the Company since March 1998.
He is currently President of Savers Marketing Corporation. He was Senior Vice
President of Savers Life Insurance Company ("Savers") from 1991 to 1998 . He
was Director of Operations of Savers from 1982 to 1998 and a director of Savers
from 1991 to 1998. Mr. Francis received his MBA from Wake Forest University in
1982.
RAYMOND J. OHLSON, age 49, has served as Executive Vice President and director
of the Company since December 1993. He has served a President and director of
Standard Marketing Corporation ("Standard Marketing") since August 1991. Since
June 1993, Mr. Ohlson has served as President of Standard Life. Mr. Ohlson
entered the life insurance business in 1971 and is a life member of the Million
Dollar Round Table. He earned his CLU designation in 1980.
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors met two times in 1999, each time pursuant to a regularly
scheduled meeting. Directors attended 100% of the meetings of the Board of
Directors or committees on which they served. It is the primary responsibility
of the Board of Directors to oversee the management of the business of the
Company. To assist in carrying out its responsibilities, the Board of
Directors has established four standing committees: the Executive Committee,
the Audit Committee, the Compensation Committee and the Incentive Stock Option
Plan Committee. The latter is a committee of the whole. The Executive
Committee serves as the Nominating Committee.
EXECUTIVE AUDIT COMPENSATION
R. Hunter* J. Dillon* M. Knieser*
S. Coons R. Borns R. Borns
R. Ohlson M. Knieser J. Dillon
P. Pheffer
E. Stahl
___________________
* Chairman
The principal function of the Executive Committee is acting for the Board of
Directors in the management of business when action is required between Board
of Directors meetings. The committee meets as necessary, and all actions by
the committee are reported at the next Board of Directors meeting. The
Executive Committee met four times during 1999.
The Audit Committee reviews the results and scope of the audit and other
services provided by the Company's independent auditors and recommends the
appointment of independent auditors to the Board of Directors. In addition,
the committee also monitors the effectiveness of the audit effort and financial
reporting and the adequacy of financial and operating controls. The Audit
Committee met once during 1999.
The Compensation Committee approves compensation objectives and policy for all
employees and is responsible for developing and making recommendations to the
Board of Directors with respect to the Company's executive compensation
policies. In addition, the Compensation Committee determines periodically and
recommends to the Board of Directors the base cash compensation for the Chief
Executive Officer and other executive officers of the Company. The committee
reports to stockholders on executive compensation items as required by the
Securities and Exchange Commission. The Compensation Committee met once during
1999.
The Incentive Stock Option Committee has responsibility for granting stock
options to eligible members of management under, and otherwise administers the
Amended and Restated 1992 Stock Option Plan (the "Stock Option Plan"). The
Incentive Stock Option Plan Committee met once during 1999.
<PAGE>
COMPENSATION OF DIRECTORS
Each non-employee director of the Company receives an annual cash retainer of
$10,000. Non-employee directors of the Company receive $1,000 per Board of
Directors or Board of Directors Committee meeting attended in person. All non-
employee directors are reimbursed for expenses incurred in connection with
their services as directors. Pursuant to the Stock Option Plan, each non-
employee director is entitled to receive, on the date of each Annual Meeting,
an immediately exercisable option to purchase 500 shares of Common Stock at a
purchase price equal to the fair market value of Common Stock on the date of
the grant. The Board of Directors may vary, from year to year, the number of
shares subject to options granted to each non-employee director, provided that
such number may not be less than 500. Each such option will be exercisable for
ten years and may terminate earlier upon termination of directorship.
Effective June 10, 1999, the Board of Directors granted options to its non-
employee directors as follows: Mr. Borns - 500, Mr. Dillon - 500 and Dr.
Knieser - 500. The Stock Option Plan also provides that each non-employee
director is entitled to receive an option to purchase 500 shares of Common
Stock upon commencement of service as a director. Officers of the Company do
not receive an annual retainer, meeting fees, shares of Common Stock or other
compensation for service as directors of the Company or for service on
Committees of the Board of Directors.
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Report of the Compensation Committee of the Board of Directors
The Compensation Committee of the Board of Directors approves compensation
objectives and policy for all employees and is responsible for developing and
making recommendations to the Board of Directors with respect to the Company's
executive compensation policies. In addition, the Compensation Committee
determines periodically and recommends to the Board of Directors the base cash
compensation for the Chief Executive Officer and other executive officers of
the Company.
EXECUTIVE COMPENSATION PHILOSOPHY.
The objectives of the Company's executive compensation program are to:
Support the achievement of desired Company performance.
Provide compensation that will attract and retain superior talent and reward
performance, which is critical to both the short-term and long-term success of
the Company.
Align the executive officers' interests with the success of the Company by
placing a portion of pay at risk with payout dependent upon corporate
performance.
The executive compensation program provides an overall level of compensation
opportunity believed to be competitive within the life insurance industry, as
well as with a broader group of companies of comparable size and complexity.
Actual compensation levels may be greater or less than average competitive
levels in surveyed companies based upon annual and long-term performance of the
Company as well as individual performance. The Compensation Committee uses its
discretion to set executive compensation at levels warranted in its judgment by
external, internal or individual circumstances.
EXECUTIVE OFFICER COMPENSATION PROGRAM.
The Company's executive officer compensation program is comprised of three
major components, all of which are intended to attract, retain and motivate
highly effective executives.
1. BASE SALARY. Base salary levels for the Company's executive officers are
competitively set relative to companies in the insurance industry and other
comparable companies. In determining salaries, the Committee also takes into
account individual experience and performance and specific issues particular to
the Company. These salaries are embodied in employment agreements negotiated
with the Company's executive officers. See "- Executive Compensation -
Employment Agreements."
2. CASH INCENTIVE COMPENSATION. Cash incentive compensation is designed to
motivate executives to attain short-term and long-term corporate goals. Annual
cash bonuses depend upon attainment of specified business goals. The
Compensation Committee's policy is to have a significant portion of an
executive's total potential cash compensation tied to the Company's overall
expected performance.
3. LONG-TERM INCENTIVE COMPENSATION. Long-term incentive compensation is
provided to executives and other employees through the Stock Option Plan. The
objectives of the Stock Option Plan are to align executive and stockholder
long-term interests by creating a strong and direct link between executive pay
and stockholder return, and to enable executives to develop and maintain a
significant, long-term ownership position in Common Stock.
The Stock Option Plan authorizes a grant of stock options, within the total
number of shares authorized, to eligible officers and other key employees. The
amount of Common Stock subject to any award made under the Stock Option Plan is
a function of salary and position in the Company. As with the determination of
base salaries and cash incentive compensation, the Incentive Stock Option Plan
Committee exercises subjective judgment and discretion in view of its general
policies. The Company's long-term performance ultimately determines
compensation from stock options, since gains from stock option exercise are
entirely dependent on the long-term growth of the Company's stock price.
Awards are made at a level calculated to be competitive within the life
insurance industry as well as a broader group of companies of comparable size
and complexity.
Section 162(m) of the Internal Revenue Code of 1986, as amended, disallows a
public company's compensation deduction with respect to certain highly-
compensated executives in excess of $1,000,000 unless certain conditions are
satisfied. The Company presently believes that this provision is unlikely to
become applicable in the near future to the Company because the levels of base
salary and annual cash incentive compensation of the Company's executive
officers are substantially less than $1,000,000 per annum. Therefore, the
Company has not taken any action to adjust its compensation plans or policies
in response to Section 162(m).
OTHER EXECUTIVE COMPENSATION.
The Company provides programs to the executive officers that are generally
available to all employees of the Company including a 401(k) plan and medical
benefits.
CHIEF EXECUTIVE OFFICER COMPENSATION.
Mr. Hunter was appointed to the position of Chairman of the Board, Chief
Executive Officer and President during 1989. The compensation of Mr. Hunter is
established by the terms of his employment contract. Under his employment
contact, a portion of his cash compensation is tied directly to the
Company's financial performance, because his annual cash bonus is a fixed
percentage (3 percent) of the Company's annual gross operating income.
During 1999, Mr. Hunter's annual base salary rate was increased from $332,755
to $337,746. Mr. Hunter's incentive bonus in 1999 was $356,968 in
accordance with his employment agreement.
Martial R. Knieser, Chairman
Robert A. Borns
John J. Dillon
Members of the Compensation Committee
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and certain other components of the
compensation paid to Mr. Hunter, Chairman, Chief Executive Officer and
President of the Company, and the four other highest-paid executive officers of
the Company during fiscal year 1999 (the "Named Executive Officers") for the
Company's last three fiscal years:
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
AWARDS
FISCAL SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER (1) UNDERLYING OPTIONS COMPENSATION (2)
<S> <C> <C> <C> <C> <C> <C>
Ronald D. Hunter 1999 $337,746 $356,968 $45,570 180,000 $30,892
Chairman of the Board 1998 332,755 306,221 45,579 -- 29,045
CEO and President 1997 325,911 184,724 9,997 105,000 40,042
Raymond J. Ohlson 1999 231,243 178,484 -- 67,500 22,993
Executive Vice President and 1998 227,826 153,111 -- -- 21,240
Chief Marketing Officer 1997 223,140 92,362 -- 65,000 18,130
Paul B. Pheffer 1999 231,243 178,484 -- 142,500 19,874
Executive Vice President and 1998 204,200 153,111 -- -- 15,658
Chief Financial Officer 1997 133,333 -- -- 150,000 4,500
Stephen M. Coons 1999 203,000 178,484 -- 67,500 13,191
Executive Vice President, 1998 200,000 153,111 -- -- 10,897
General Counsel and Secretary1997 167,355 92,362 -- 60,000 --
Edward T. Stahl 1999 157,325 178,484 -- 67,500 12,400
Executive Vice President and 1998 128,219 153,111 -- -- 10,856
Chief Administrative Officer 1997 125,582 92,362 -- 60,000 6,000
</TABLE>
_____________________
(1)Amounts include imputed interest on an interest-free loan made to Mr. Hunter
in 1997. The balance of the loan at December 31, 1999 is $778,000.
(2)Amounts reported for fiscal year 1999 were as follows: (i) matching
contributions by the Company to the 401(k) plan (Mr. Hunter $6,400, Mr. Ohlson
$6,400, Mr. Pheffer $6,400, Mr. Coons $6,400, Mr. Stahl $6,400); (ii) key man
life insurance premiums paid by the Company (Mr. Hunter $5,537, Mr. Ohlson
$5,138, Mr. Pheffer $930); (iii) disability income insurance premiums paid by
the Company (Mr. Hunter $6,955, Mr. Ohlson $5,455, Mr. Pheffer $6,544, Mr.
Coons $791); and (iv) travel allowance paid by the Company (Mr. Hunter $12,000,
Mr. Ohlson $6,000, Mr. Pheffer $6,000, Mr. Coons $6,000, Mr. Stahl $6,000).
<PAGE>
OPTION GRANTS IN 1999
The following table provides information on stock options granted under the
Stock Option Plan in 1999 to the Named Executive Officers. All options granted
in 1999 were non-qualified stock options, and the Company has not issued any
Stock Appreciation Rights ("SARs").
<TABLE>
<CAPTION>
PERCENT OF TOTAL PER
NUMBER OF SECURITIES OPTIONS GRANTED TO SHARE
UNDERLYING OPTIONS EMPLOYEES IN EXERCISE EXPIRATION GRANT DATE
GRANTED(1) FISCAL YEAR PRICE DATE PRESENT
VALUE (2)
<S> <C> <C> <C> <C> <C>
Ronald D. Hunter 180,000 28.56% $ 6.06 6/10/09 $702,000
Raymond J. Ohlson 67,500 10.71 6.06 6/10/09 263,250
Paul B. Pheffer 142,500 22.61 6.06 6/10/09 555,570
Stephen M. Coons 67,500 10.71 6.06 6/10/09 263,250
Edward T. Stahl 67,500 10.71 6.06 6/10/09 263,250
</TABLE>
________________
(1)Options are exercisable with respect to the first third of the aggregate
number of shares subject thereto on their grant date (June 10, 1999); will
become exercisable with respect to the second third of the aggregate number of
shares subject thereto on June 10, 2000 and will become exercisable with
respect to all the remaining shares subject thereto on June 10, 2001.
(2)In accordance with Securities and Exchange Commission rules, there values
were established using the Black-Scholes stock option valuation model that was
adapted for use in valuing executive stock options. Assumptions used to
calculate the Grant Date Present Value were: Stock price volatility .583 and
interest rate 5.76%. The valuation model was not adjusted for non-
transferability, risk of forfeiture or the vesting restrictions of the options.
The Company does not believe that the Black-Scholes model, whether modified or
not modified, or any other valuation model, is a reliable method of computing
the present value of the Company's employee stock options. The value
ultimately realized, if any, will depend on the amount that the market price of
the stock exceeds the exercise price on the date of exercise.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
No stock options were exercised by Named Executive Officers during fiscal year
1999. The following table sets forth information with respect to Named
Executive Officers concerning unexercised options held as of the end of fiscal
year 1999.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE MONEY
OPTIONS AT FY-END (#) OPTIONS AT FY-END($)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
Ronald D. Hunter 568,095 120,000 31,668 --
Raymond J. Ohlson 304,955 45,000 19,488 --
Paul B. Pheffer 257,500 95,000 -- --
Stephen M. Coons 220,260 45,000 15,834 --
Edward T. Stahl 152,070 45,000 15,834 --
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Messrs. Hunter, Ohlson, Pheffer,
Coons and Stahl, which provide that, if their employment is terminated due to
certain acts, for a period of one year thereafter, each shall not (i) sell or
attempt to sell, within Indiana, any type of products marketed by the Company,
(ii) sell or attempt to sell any types of products marketed by the Company to
any customer of the Company and (iii) within Indiana, own, be employed by, or
be connected in any manner with any business similar to the type of business of
the Company. Messrs. Hunter, Ohlson, Pheffer, Coons and Stahl also agree that
during the employment term and for a period of six months thereafter, each will
assign to SMC or its nominees all of his right, title and interest in and to
all technical information that each makes, develops or conceives.
Mr. Hunter's employment agreement terminates on July 1, 2004. His salary under
his employment agreement for 1999 was $337,746 per year and is increased each
year by the percent change of the Consumer Price Index ("CPI"). In addition,
Mr. Hunter receives a bonus equal to 3% of the annual gross operating income of
the Company, but not less than 10% of his annual salary. Following a
termination of his employment with the Company in the event of a change-in-
control, Mr. Hunter will also be entitled to receive a lump sum payment equal
to the amount determined by multiplying the number of shares of Common Stock
subject to unexercised stock options previously granted by the Company and held
by Mr. Hunter on the date of termination, whether or not such options are then
exercisable, and the highest per share fair market value of the Common Stock on
any day during the six-month period ending on the date of termination. Upon
payment of such amount, such unexercised stock options will be deemed to be
surrendered and canceled. In the event of a change-in-control of the Company
whereby Mr. Hunter's employment is terminated, Mr. Hunter is entitled to a lump
sum payment equal to his average annual compensation times 299%.
Mr. Ohlson's employment agreement terminates on July 1, 2002. His salary under
his employment agreement for 1999 was $231,243 per year, and is increased each
year by the percent change of the CPI. In addition, Mr. Ohlson receives a
bonus equal to 1 1/2 % of the annual gross operating income of the Company but
not less than 10% of his annual salary. Following a termination of his
employment with the Company in the event of a change-in-control, Mr. Ohlson
will also be entitled to receive a lump sum payment equal to the amount
determined by multiplying the number of shares of Common Stock subject to
unexercised stock options previously granted by the Company and held by Mr.
Ohlson on the date of termination, whether or not such options are then
exercisable, and the highest per share fair market value of the Common Stock on
any day during the six month period ending on the date of termination. Upon
payment of such amount, such unexercised stock options will be deemed to be
surrendered and canceled. In the event of a change-in-control of the Company
whereby Mr. Ohlson's employment is terminated, Mr. Ohlson is entitled to a lump
sum payment equal to his average annual compensation times 299%.
Mr. Pheffer's employment agreement terminates on July 1, 2002. His salary
under this employment agreement for 1999 was $231,243 and is increased each
year by the percent change of the CPI. Mr. Pheffer received an increase in
salary of $23,626 in 1999 in connection with his initial employment agreement.
In addition, Mr. Pheffer receives a bonus equal to 1 1/2 % of the annual gross
operating income of the Company, but not less than 10% of his annual salary.
Following a termination of his employment with the Company in the event of a
change-in-control, Mr. Pheffer will also be entitled to receive a lump sum
payment equal to the amount determined by multiplying the number of shares of
Common Stock subject to unexercised stock options previously granted by the
Company and held by Mr. Pheffer on the date of termination, whether or not such
options are then exercisable, and the highest per share fair market value of
the Common Stock on any day during the six month period ending on the date of
termination. Upon payment of such amount, such unexercised stock options will
be deemed to be surrendered and canceled. In the event of a change-in-control
of the Company whereby Mr. Pheffer's employment is terminated, Mr. Pheffer is
entitled to a lump sum payment equal to his average annual compensation times
299%.
Mr. Coons' employment agreement terminates on July 1, 2002. His salary under
his employment agreement for 1999 was $203,000 per year, and is increased each
year by the percent change of the CPI. In addition, Mr. Coons receives a bonus
equal to 1 1/2 % of the annual gross operating income of the Company but not
less than 10% of his annual salary. Following a termination of his employment
with the Company in the event of a change-in-control, Mr. Coons will also be
entitled to receive a lump sum payment equal to the amount determined by
multiplying the number of shares of Common Stock subject to unexercised stock
options previously granted by the Company and held by Mr. Coons on the date of
termination, whether or not such options are then exercisable, and the highest
per share fair market value of the Common Stock on any day during the six month
period ending on the date of termination. Upon payment of such amount, such
unexercised stock options will be deemed to be surrendered and canceled. In
the event of a change-in-control of the Company whereby Mr. Coons' employment
is terminated, Mr. Coons is entitled to a lump sum payment equal to his average
annual compensation times 299%.
Mr. Stahl's employment agreement terminates on July 1, 2002. His salary under
this employment agreement for 1999 was $157,325 and is increased each year by
the percent change of the CPI. Mr. Stahl received an increase in salary of
$27,183 in 1999 in connection with additional responsibilities assumed as Chief
Administrative Officer of the Company. In addition, Mr. Stahl receives a bonus
equal to 1 1/2 % of the annual gross operating income of the Company, but not
less than 10% of his annual salary. Following a termination of his employment
with the Company in the event of a change-in-control, Mr. Stahl will also be
entitled to receive a lump sum payment equal to the amount determined by
multiplying the number of shares of Common Stock subject to unexercised stock
options previously granted by the Company and held by Mr. Stahl on the date of
termination, whether or not such options are then exercisable, and the highest
per share fair market value of the Common Stock on any day during the six month
period ending on the date of termination. Upon payment of such amount, such
unexercised stock options will be deemed to be surrendered and canceled. In
the event of a change-in-control of the Company whereby Mr. Stahl's employment
is terminated, Mr. Stahl is entitled to a lump sum payment equal to his average
annual compensation times 299%.
<PAGE>
TEN-YEAR OPTION REPRICING
The following table sets forth certain information concerning the repricing of
stock options held by any executive officer during the five completed fiscal
years since the Company became a reporting company under the Exchange Act. The
Company has not issued any SARs.
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF ORIGINAL
SECURITIES MARKET EXERCISE OPTION TERM
UNDERLYING PRICE PRICE AT REMAINING
OPTIONS/ OF STOCK AT TIME OF AT
SARS TIME OF REPRICING NEW DATE OF
REPRICED OR REPRICING OR OR EXERCISE REPRICING OR
DATE AMENDED AMENDMENT AMENDMENT PRICE AMENDMENT
<S> <C> <C> <C> <C> <C> <C>
Ronald D. Hunter 5/1/96 105,000 $4.375 $9.41 $7.238 86 months
Chairman of the Board 99,645 4.375 7.62 7.238 91 months
CEO and President
Raymond J. Ohlson 5/1/96 26,250 4.375 12.38 7.238 82 months
Executive Vice President and 39,375 4.375 9.41 7.238 86 months
Chief Marketing Officer 37,380 4.375 7.62 7.238 91 months
Stephen M. Coons 5/1/96 26,250 4.375 9.41 7.238 86 months
Executive Vice President, 24,885 4.375 7.62 7.238 91 months
General Counsel and Secretary
Edward T. Stahl 5/1/96 22,050 4.375 9.41 7.238 86 months
Executive Vice President and 20,895 4.375 7.62 7.238 91 months
Chief Administrative Officer
</TABLE>
<PAGE>
PERFORMANCE GRAPH
The following performance graph reflects a five-year comparison of cumulative
total shareholder return on the assumption that $100 was invested on December
31, 1994 in each of i) the Company's common stock, ii) the Russell 2000 index
and iii) the NASDAQ Insurance Stock Index.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company Charter and Bylaws provide for indemnification of its officers and
directors to the maximum extent permitted under the Indiana Business
Corporation Law ("IBCL"). In addition, the Company has entered into separate
indemnification agreements with some of its directors which may require the
Company, among other things, to indemnify them against certain liabilities that
may arise by reason of their status or service as directors to the maximum
extent permitted under the IBCL.
On October 28, 1997, the Company made an interest free loan to Mr. Hunter,
Chairman of the Board of the Company, in the amount of $778,000. The loan is
repayable within 10 days of Mr. Hunter's voluntary termination or resignation
as Chairman and CEO of the Company. In the event of a termination of Mr.
Hunter's employment with the Company following a change in control, the loan is
deemed to be forgiven.
SMC issued Series A convertible redeemable preferred stock ("Series A Preferred
Stock") during 1998. Certain officers and directors purchased 26,000 shares of
the Series A Preferred Stock. Purchases were financed by personal loans to the
participants from a bank. Such loans were collateralized by the Series A
Preferred Stock purchased. The Company guaranteed the loans, but has recourse
to the participants if it incurs a loss under the guarantee. A total of 10
directors and officers of the Company and its subsidiaries elected to purchase
Series A Preferred Stock. At December 31, 1999, the bank loans guaranteed by
the Company totaled $2,600,000. At December 31, 1999, the outstanding
principal balances of the bank loans to the directors and named officers which
are guaranteed by the Company were as follows: Mr. Hunter, $500,000; Mr.
Ohlson, $500,000; Mr. Pheffer, $100,000; Mr. Coons, $200,000; Mr. Stahl,
$100,000; Mr. Borns, $500,000; and Mr. Francis, $100,000.
<PAGE>
COMMON STOCK OWNERSHIP OF DIRECTORS, DIRECTOR NOMINEES, EXECUTIVE OFFICERS AND
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock; (i) by each stockholder known by the Company to own
beneficially more than five percent (5%) of the outstanding Common Stock; (ii)
by each of the Company's directors; (iii) by each of the Company's Named
Executive Officers and (iv) by all directors and Named Executive Officers of
the Company as a group. This information is as of March 31, 2000 based upon
Schedules 13-G filed with the Securities and Exchange Commission.
NUMBER OF SHARES
NAME OWNED (1) PERCENT (2)
Ronald D. Hunter 840,805(3) 10.00%
9100 Keystone Crossing
Indianapolis, Indiana 46240
Martial R. Knieser 393,778(4) 4.99
Raymond J. Ohlson 389,075 4.77
Stephen M. Coons 270,939(5) 3.37
Edward T. Stahl 260,995 3.26
Paul B. Pheffer 187,729 2.36
Robert A. Borns 137,823 1.75
Jerry E. Francis 59,058 __*
John J. Dillon 16,000 __*
All directors and Named
Executive Officers as a group
(nine persons) 2,556,202 26.53
Conseco Group 1,740,038(6) 18.27
11815 N. Pennsylvania Street
Carmel, Indiana 46032
Dimensional Fund Advisors, Inc. 450,185(7) 5.47
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
_____________________________
* Less than one percent
<PAGE>
(1)Except as otherwise noted below, each person named in the table possesses
sole voting and sole investment power with respect to all shares of common
stock listed in the table as owned by such person. Shares beneficially owned
include shares that may be acquired pursuant to the exercise of outstanding
options, warrants or convertible securities that are exercisable within 60 days
of March 31, 2000 as follows: Mr. Hunter - 626,918, Dr. Knieser - 102,423, Mr.
Ohlson - 363,778, Mr. Coons - 243,789, Mr. Stahl - 223,834, Mr. Pheffer -
184,264, Mr. Borns - 80,323, Mr. Francis - 14,264, Mr. Dillon - 11,000,
directors and Named Executive Officers as a group -1,850,593.
(2)Percentage of total outstanding shares is calculated separately for each
person on the basis of the actual number of outstanding shares as of March 31,
2000 and assumes, for purposes of the calculation, that shares issuable upon
exercise of options or warrants exercisable and securities convertible within
60 days held by such person (but no other stockholders) had been issued as of
such date. Percentages less than 1% are not indicated.
(3) Includes 336 shares beneficially owned by Mr. Hunter's child, as to which
Mr. Hunter disclaims beneficial ownership.
(4)Includes 8,043 shares beneficially owned by Dr. Knieser's spouse and
children, as to which shares Dr. Knieser disclaims beneficial ownership.
(5)Includes 2,100 shares beneficially owned by Mr. Coons' child, as to which
shares Mr. Coons disclaims beneficial ownership.
(6)Includes 760,670 shares issuable upon conversion of a $4,371,573 convertible
note with Conseco Variable Insurance Company, 631,360 shares issuable upon
conversion of a $3,628,427 convertible note with Conseco Health Insurance
Company, and 348,008 shares issuable upon conversion of a $2,000,000
convertible note with Conseco Senior Health Insurance Company, all of which are
convertible at any time. Information with respect to Conseco Variable Insurance
Company, Conseco Health Insurance Company and Conseco Senior Health Insurance
Company ("Conseco Group") is based solely on a review of statements on Schedule
13G filed by such entities with the Securities and Exchange Commission. All of
these entities are beneficially owned by Conseco, Inc. All of the shares, when
issued, will be subject to a Voting Trust Agreement by and among the Conseco
Group, the Company and two voting trustees appointed by the Company and the
Conseco Group. It is anticipated that Mr. Hunter will be the Company Trustee.
(7) Information with respect to Dimensional Fund Advisors, Inc. is based solely
on a review of statements on Schedule 13G filed by such entity with the
Securities and Exchange Commission.
<PAGE>
RELATIONSHIP WITH INDEPENDENT AUDITORS
Subject to its discretion to appoint alternative auditors, the Board of
Directors has retained Ernst and Young, LLP as auditors for the current fiscal
year. This firm has been employed by the Company in that capacity continuously
since the Company's formation in 1989. Representatives of Ernst & Young LLP are
expected to be present at the Annual Meeting, will be given an opportunity
to make a statement if they so desire and will be available to respond to
appropriate questions relating to the audit of the Company's 1999 consolidated
financial statements.
STOCKHOLDER PROPOSALS
A stockholder of the Company may bring business before the Annual Meeting. To
do so, such stockholder must give written notice thereof, containing the
information required by the Company's Bylaws, to the Secretary of the Company.
Any such notice must be received at the principal executive office of the
Company not later than the close of business on May 25, 2000.
The Company's 2001 Annual Meeting is expected to be held on or about May 16,
2001. In order to be considered for inclusion in the Company's Proxy Statement
for its 2001 Annual Meeting, a stockholder's proposal must be received by the
Company within a reasonable time before solicitation of proxies for such
meeting is made. Such proposals may be included in next year's Proxy Statement
if they comply with certain rules and regulations promulgated by the Securities
and Exchange Commission.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who own more than ten percent
(10%) of the Common Stock ("Reporting Persons"), to file reports of ownership
and changes in ownership with the Securities and Exchange Commission.
Reporting Persons are required by the Securities and Exchange Commission
regulations to furnish the Company with copies of all Section 16(a) reports
they file. Based solely on its review of the copies of such forms received by
it and written representations from certain Reporting Persons, the Company
believes that during fiscal 1999 its Reporting Persons complied with all filing
requirements applicable to them.
ANNUAL REPORT
The Company's Annual Report and Form 10K for 1999 is being mailed to the
stockholders with this Proxy Statement, but is not part of the proxy
solicitation material.
<PAGE>
OTHER BUSINESS
The Board of Directors knows of no other matters, other than those stated
above, to be presented at the Annual Meeting, but if any other matters should
properly come before the meeting, it is intended that the persons named in the
accompanying proxy card will vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors
Stephen M. Coons
Executive Vice President and Secretary
