EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of January 1, 2003,
between STANDARD MANAGEMENT CORPORATION (hereinafter the "Company"), and XXXX
X. ("XXXX") XXXXXXX (hereinafter "Executive").
RECITALS
A. Executive has made, and is expected to continue to
make, major contributions to the profitability, growth and financial strength
of the Company and its affiliates.
B. The Company considers the continued services of the
Executive to be in the best interests 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 any attempt by others to obtain control of the Company or any
of its affiliates.
C. The Company desires to continue to employ Executive
as its President and Chief Financial Officer upon the terms and subject to the
conditions set forth in this Agreement.
D. Executive is willing to remain employed by the
Company upon the terms and subject to the conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants contained in this Agreement, the Company and the Executive
hereby agree as follows:
AGREEMENT
1. Employment. The Company hereby employs Executive,
and Executive hereby accepts employment, upon the terms and subject to the
conditions set forth in this Agreement.
2. Term. The effective date of this Agreement shall be
January 1, 2003 (the "Effective Date"). Subject to the provisions for
termination set forth in Section 9 of this Agreement, the initial term of this
Agreement shall be three (3) years from and after the Effective Date; and it
shall automatically renew annually for successive three (3) year periods on
January 1 of each year thereafter, unless either party elects not to renew this
Agreement by serving written notice of such intention not to renew on the other
party at least one hundred eighty (180) days prior to the succeeding January 1.
If such an election is made, this Agreement shall be in full force and effect
for the remaining portion of the then-current three (3) year period, subject to
the provisions for termination in Section 9 of this Agreement. Any reference in
this Agreement to "the term of this Agreement" means the initial term and any
renewal term, each of which shall be considered a separate term.
3. Duties. Executive's positions with the Company shall
be President and Chief Financial Officer, and such other positions as may be
mutually agreed upon from time to time by Executive and the Board of Directors
of the Company.
4. Extent of Services. Executive, subject to the
direction and control of the Board of Directors of the Company, shall have the
power and authority commensurate with his executive status and necessary to
perform his duties under this Agreement. Executive shall devote substantially
all of his employable time and attention to the business of the Company, and
shall not, without the consent of the Company, during the term of this
Agreement, be actively engaged in any other business activity, whether or not
such business activity is pursued for gain, profit or other pecuniary
advantage; but this shall not be construed as preventing Executive from
investing his assets in such form or manner as will not require any material
services on the part of Executive in the operation of the affairs of the
companies in which such investments are made.
5. Compensation.
(a) As compensation for services under this
Agreement, Executive shall receive during the first year of
this Agreement a base salary of Three Hundred Fifty-Six
Thousand Dollars ($356,000), payable in equal installments in
accordance with the Company's payroll procedures for its
salaried employees. For each succeeding year, Executive's
base salary shall be increased by an amount equal to
Executive's base salary for the previous year multiplied by
the percent change of the Consumer Price Index, now known as
the "United States Department of Labor, Bureau of Labor
Statistics, Consumer Price Index, U.S. City Average for all
Urban Consumers, Seasonally Adjusted, All Items (1982-84 =
100)", or, if no longer published, such similar replacement
index issued by the Department of Labor ("CPI"), during the
immediately preceding calendar year. For example, if the
percent change in the CPI from January 1, 2003, to December
31, 2003, were 5%, Executive's base salary for the second
year under this Agreement would be $373,800. In addition to
the base salary described above, Executive may receive
additional annual salary increases based upon his performance
in his executive and management capacity. The amounts of such
salary increases shall be determined by the Board of
Directors of the Company or the Compensation Committee of the
Board of Directors (the "Compensation Committee").
(b) In addition to base salary, within ninety
(90) days after the end of each fiscal year of the Company,
Executive shall be entitled to receive a bonus equal to two
percent (2%) of the Company's earnings, on a consolidated
basis, before interest and taxes for such fiscal year of the
Company. Provided, however, that in no event shall
Executive's bonus be less than ten (10%) percent of
Executive's annual base salary for the then-current year. The
bonus shall be calculated from the books and records of the
Company and its affiliates, which shall be kept in accordance
with generally accepted accounting principles applied by the
Company in the preparation of its financial statements. In
addition to the
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bonus described above, Executive may receive additional
bonuses based upon his performance in his executive and
management capacity. The amounts of such bonus increases
shall be determined by the Board of Directors of the Company
or the Compensation Committee.
(c) Salary and bonus payments shall be subject
to withholding of taxes and other amounts required to be
withheld by law.
6. Compensation Guarantee.
(a) All compensation payable to Executive under
Section 5 of this Agreement will be guaranteed (the
"Guaranteed Payments") as of the Effective Date of this
Agreement for the full term of this Agreement, except for any
termination of this Agreement provided for in Sections 9(a),
9(b), 9(c) or 9(e). In particular, upon termination of
Executive's employment for any reason other than pursuant to
Sections 9(a), 9(b), 9(c) or 9(e), the Company shall pay to
Executive a lump-sum payment, and Executive shall be entitled
to receive from the Company not later than ten (10) calendar
days after termination of Executive's employment, (i) a
severance distribution consisting of a cash payment equal to
three (3) times the sum of (A) Executive's then-current base
salary, as determined pursuant to Section 5(a) of this
Agreement for the then-current year of this Agreement in
which such termination occurs, and (B) an amount equal to the
average of his bonuses with respect to the three (3) most
recently completed fiscal years of the Company (including any
fiscal years prior to the Effective Date) and (ii) all other
unpaid amounts pursuant to any other provision of this
Agreement or otherwise; provided that, following a Control
Termination (as defined in Section 11(b)), the Executive
shall be entitled to receive the payments described in
Section 11 (as opposed to the Guaranteed Payments).
(b) None of the Guaranteed Payments described
in this Section 6 shall affect the Executive's right to
receive the payments described in Sections 12, 13 and 14 of
this Agreement.
7. Fringe Benefits.
(a) Executive shall be entitled to participate
in all employee benefit plans and insurance programs offered
by the Company, from time to time for its executive
management or supervisory personnel generally, at such time
as Executive shall have fulfilled the eligibility
requirements for participation therein.
(b) Executive shall be entitled to the greater
of (i) four (4) weeks vacation with pay, for each year during
the term of this Agreement and (ii) the number of paid
vacation and sick leave days to which he would be entitled on
the basis of thirty (30) years of creditable service to the
Company and its affiliates as of the Effective Date in
accordance with the Company's vacation and sick leave
policies.
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(c) Executive may incur reasonable expenses for
promoting the Company's business, including expenses for
entertainment, travel, and similar items. The Company shall
reimburse Executive for all such reasonable expenses upon
Executive's periodic presentation of an itemized account of
such expenditures.
(d) During the term of this Agreement, the
Company shall at its expense maintain a term life insurance
policy or policies on the life of Executive in the face
amount of Three Million Dollars ($3,000,000), payable to such
beneficiaries as Executive may designate. Following
termination or expiration of this Agreement for any reason,
for a period of sixty (60) days following the later of (i)
termination or expiration of this Agreement and (ii) the date
upon which the Company is no longer required to maintain such
insurance for the benefit of Executive, Executive shall have
the option to purchase from the Company the policy of
insurance (other than group insurance) on the life of
Executive. The purchase price of such policy shall be equal
to the applicable portion of any prepaid premium thereon.
(e) During the term of this Agreement, the
Company shall at its expense maintain a disability policy or
policies for the benefit of Executive, with benefits at least
as favorable as those provided by the disability policy
maintained by the Company for the benefit of Executive in
effect as of the Effective Date.
8. Disclosure of Information. As a material inducement
to the Company to enter into this Agreement and to pay to Executive the
compensation set forth in Section 5, as well as any additional benefits set
forth in this Agreement, Executive covenants and agrees that he shall not, at
any time during or following the term of this Agreement, directly or
indirectly, divulge or disclose for any purpose whatsoever, any confidential
information that has been obtained by or disclosed to him as a result of his
employment by the Company, except to the extent that such confidential
information (a) becomes a matter of public record or is published in a
newspaper, magazine or other periodical available to the general public, other
than as a result of any act or omission of Executive, (b) is required to be
disclosed by any law, regulation or order of any court or regulatory
commission, department or agency, provided that Executive gives prompt notice
of such requirement to the Company to enable the Company to seek an appropriate
protective order or (c) is necessary to perform Executive's duties under this
Agreement.
9. Termination. This Agreement shall terminate on the
first to occur of the following:
(a) Expiration of the term of this Agreement;
(b) Termination by the Company for cause (as
defined below), following written notice by the Company's
Board of Directors to Executive specifying the particular
facts and circumstances constituting cause. "Cause" means:
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(i) the persistent failure of or
refusal by Executive, following a reasonable cure
period of at least thirty (30) days, to comply with
the terms of this Agreement or, subject to the terms
of this Agreement, the material orders, policies and
regulations of the Company, as adopted and
promulgated from time to time by the Company's Board
of Directors, and such failure or refusal proves to
be detrimental to the Company;
(ii) any act or acts of fraud or
dishonesty by Executive resulting in or tending to
result in gain or personal enrichment of Executive
at the Company's expense;
(iii) any felony conviction of
Executive; or
(iv) the persistent absence of
Executive from his employment without cause or
explanation;
(c) Executive's death;
(d) Ninety (90) days following Executive's
permanent and total disability, as defined in the long-term
disability policy provided by the Company pursuant to Section
7(e);
(e) Termination by Executive, without cause,
upon ninety (90) days' prior written notice to the Company;
(f) Termination by Executive, for good reason
(as defined in Section 12(c)).
10. Effect of Termination.
(a) Upon termination of this Agreement pursuant
to Section 9(a), 9(b), 9(c) or 9(e), Executive (or his
estate) shall be entitled to (i) any unpaid salary with
respect to periods prior to the date of termination, (ii) a
pro rata share of the bonus provided for in Section 5(b),
based upon the number of months during which he performed
duties under this Agreement in the year during which such
termination occurs (regardless of whether the Company's
results for such year would have resulted in a bonus being
paid to Executive) and (iii) any termination, disability, or
death benefits to which he is entitled under any of the
Company's employee benefit plans in effect at the time of
such termination.
(b) In all events of termination other than
pursuant to Section 9(a), 9(b), 9(c) or 9(e), Executive shall
be entitled to receive the Guaranteed Payments described in
Section 6.
(c) In addition to the payments Executive shall
be entitled to receive under Sections 6 or 11, as applicable,
and this Section 10, in the event of any
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expiration or termination of this Agreement, the Company
agrees to pay to Executive the benefits set forth in Sections
12, 13 and 14, as applicable.
(d) The benefits payable to Executive under
this Agreement upon expiration or termination of this
Agreement, shall be payable to Executive regardless of any
determination by the Company's accountants that such payments
are or would be non-deductible by the Company for federal
income tax purposes for any reason, including but not limited
to Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code").
11. Change in Control; Payments for Control Termination.
(a) The term "change in control" as used in
this Agreement shall mean a change in control of a nature
that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934 (the "1934 Act") if such Item
6(e) were applicable to the Company as such Item 6(e) is in
effect as of the Effective Date; provided that, without
limitation, such a change in control shall be deemed to have
occurred if and when (i) any "person" (as such term is used
in Sections 13(d) and 14(d)(2) of the 0000 Xxx) is or becomes
a beneficial owner, directly or indirectly, of securities of
the Company representing fifteen percent (15%) or more of the
combined voting power of the Company's then-outstanding
securities or (ii) in connection with or as a result of a
tender offer, merger, consolidation, sale of assets or
contest for election of directors, or any combination of the
foregoing transactions or events, individuals who, as of the
date of this Agreement, constitute the Board of Directors of
the Company (the "Incumbent Board") cease to constitute at
least a majority of such Board; provided, however, that any
individual who becomes a director of the Company subsequent
to the date of this Agreement whose election was approved by
a vote of at least a majority of the directors then
comprising the Incumbent Board, shall be deemed to have been
a member of the Incumbent Board; and provided further, that
no individual who was initially elected as a director of the
Company as a result of an actual or threatened election
contest, as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Act, or any other actual or
threatened solicitation of proxies or consents by or on
behalf of any person other than the Board of Directors shall
be deemed to have been a member of the Incumbent Board or
(iii) any reorganization, merger or consolidation or the
issuance of shares of common stock of the Company in
connection therewith unless immediately after any such
reorganization, merger or consolidation (A) more than sixty
percent (60%) of the then-outstanding shares of common stock
of the corporation surviving or resulting from such
reorganization, merger or consolidation and more than sixty
percent (60%) of the combined voting power of the
then-outstanding securities of such corporation entitled to
vote generally in the election of directors are then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals or entities who were the
beneficial owners, respectively, of the outstanding shares of
common stock of the Company and the outstanding voting
securities of the Company immediately prior
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to such reorganization, merger or consolidation and in
substantially the same proportions relative to each other as
their ownership, immediately prior to such reorganization,
merger or consolidation, of the outstanding shares of common
stock of the Company and the outstanding voting securities of
the Company, as the case may be and (B) at least a majority
of the members of the board of directors of the corporation
surviving or resulting from such reorganization, merger or
consolidation were members of the Board of Directors of the
Company at the time of the execution of the initial agreement
or action of the Board of Directors providing for such
reorganization, merger or consolidation or issuance of shares
of common stock of the Company or (iv) the Board of Directors
of the Company approves a plan of complete liquidation of the
Company or an agreement for the sale or disposition of all or
substantially all of the assets of the Company or an
agreement for the sale or disposition of the stock or assets
of a subsidiary or division of the Company representing at
least fifteen percent (15%) of the value of the Company on a
consolidated basis at the time of such approval. Upon the
occurrence of a change in control, the Company shall promptly
notify Executive in writing of the occurrence of such event
(such notice, the "Change in Control Notice"). If the Change
in Control Notice is not given within ten (10) days after the
occurrence of a change in control the period specified in
clause (b)(i) of this Section 11 shall be extended until the
third anniversary of the date such Change in Control Notice
is given.
(b) The term "Control Termination" as used in
this Agreement shall mean (i) termination of this Agreement
by the Company in anticipation of or within three (3) years
for any reason other than pursuant to Sections 9(a), 9(b),
9(c), 9(d) or 9(e) following a "change in control" of the
Company (as defined above), or (ii) termination of this
Agreement by Executive for good reason (as defined in Section
12(c)) within three (3) years following a "change in control"
of the Company (as defined above).
(c) In the event of a Control Termination of
this Agreement, the Company shall:
(i) Within ten (10) days following the
Control Termination, the Company shall make a
lump-sum payment to Executive equal to three (3)
times the sum of (A) Executive's then-current base
salary, as determined pursuant to Section 5(a) and
(B) the average amount of the bonuses paid to
Executive pursuant to Section 5(b) for the three (3)
preceding fiscal years.
(ii) For a period of thirty-six (36)
months following termination of this Agreement,
Executive shall continue to be entitled to all
benefits and service credit for benefits under
medical, insurance and other employee benefit plans,
programs and arrangements of the Company as if he
were still employed under this Agreement and a
change in control of the Company had not occurred.
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(d) If, despite the provisions of paragraph (c)
above, benefits under any employee benefit plan shall not be
payable or provided under any such plan to Executive, or
Executive's dependents, beneficiaries and estate, because he
is no longer an employee of the Company, the Company itself
shall, to the extent necessary to provide the full value of
such benefits and service credits to Executive, Executive's
dependents, beneficiaries and estate, pay or provide for
payment of such benefits and service credit for such benefits
to Executive, his dependents, beneficiaries and estate.
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12. Additional Provisions Relating to Termination.
(a) The Company is aware that it is possible
that the Board of Directors or shareholders of the Company
may at some time in the future cause or attempt to cause the
Company (i) to fail or refuse to comply with its obligations
under this Agreement, (ii) to institute litigation seeking to
have this Agreement declared unenforceable or (iii) to take
action to deny Executive the benefits intended by this
Agreement. In any such circumstance, the parties acknowledge
and agree that the purposes of this Agreement would be
frustrated. It is the Company's intent that Executive neither
be required to incur any costs or expenses associated with
enforcement of this Agreement by litigation or other legal
action, nor be bound to negotiate any settlement of his
rights under this Agreement, because the costs and expenses
of any such legal action or settlement would detract from the
benefits intended to be provided to Executive under this
Agreement. Accordingly, if (x) the Company has failed or
refused to comply with any of its obligations under this
Agreement whatsoever, (y) any person institutes litigation
seeking to have this Agreement declared unenforceable or (z)
any person takes action to deny, diminish or recover any
benefits intended to be provided or provided to Executive by
this Agreement, and Executive has complied with all of his
material obligations under the terms of this Agreement, the
Company irrevocably authorizes Executive from time to time to
retain legal counsel of his choice, at the sole cost and
expense of the Company, as provided in this Section 12(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. The reasonable fees and expenses of such
legal counsel selected by Executive from time to time shall
be paid or reimbursed by the Company on a regular periodic
basis upon presentation by Executive of a statement or
statements prepared by such counsel, up to a maximum
aggregate amount of $250,000. Any costs and expenses incurred
by the Company by reason of any dispute between the parties
with respect to any dispute related to this Agreement,
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 payment or reimbursement from
Executive (or his estate) for any such costs and expenses.
(b) The amounts payable to Executive upon any
termination or expiration of this Agreement shall be
considered severance pay in consideration of past services
rendered on behalf of the Company and his continued service
from the Effective Date of this Agreement to the date he
becomes entitled to such payments, and the parties
acknowledge and agree that all such compensation constitutes
wage payments under the Indiana Wage Payment Statute.
Executive shall have no duty to mitigate his damages by
seeking other employment and, should Executive actually
receive compensation from any such other employment, the
payments required under this Agreement shall not be reduced
or offset by any such other compensation.
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(c) "Good reason," as used in this Agreement,
shall mean the occurrence of any of the following events,
without Executive's prior written consent:
(i) a change in Executive's status,
position or the nature or scope of Executive's
responsibilities and authorities that, in the
reasonable judgment of Executive, do not represent a
promotion from his status, position or
responsibilities and authorities in existence
immediately prior to the termination of this
Agreement (with respect to Section 9(f)) or change
in control (with respect to Section 11(b)), as
applicable;
(ii) the assignment to Executive of any
duties or responsibilities that, in the reasonable
judgment of Executive, are inconsistent with his
status, position or responsibilities and
authorities;
(iii) any removal of Executive from or
failure to reappoint or reelect Executive to any
positions held by him immediately prior to the
termination of this Agreement (with respect to
Section 9(f)) or change in control (with respect to
Section 11(b)), as applicable;
(iv) any breach by the Company of any
provision of this Agreement;
(v) with respect to a change in
control, the reasonable determination by Executive
that, as a result of a change in circumstances
significantly affecting his position, he is unable
to exercise his authorities, powers, functions or
duties in existence immediately prior to the change
in control;
(vi) the Company's principal executive
offices are moved outside the geographic area
consisting of Xxxxxxxx County, Indiana, and the
counties contiguous to Xxxxxxxx, County, Indiana, or
Executive's office is located at any location other
than the Company's principal executive offices;
(vii) with respect to any change in
control, any substantial increase in required travel
for the Company's business in excess of Executive's
travel obligations prior to the change in control;
(viii) 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;
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(ix) with respect to a change in
control, the Company's failure to obtain a
satisfactory agreement from any successor of the
Company to agree to perform all of the terms of this
Agreement; or
(x) any request by the Company that
Executive participate in an unlawful act or take any
action or omit to take any action constituting a
breach of Executive's professional standard of
conduct.
(d) In addition to any payments, termination
benefits or any other benefits Executive is entitled to
receive under this Agreement, upon the expiration of this
Agreement or in the event that this Agreement is terminated
for any reason other than pursuant to Section 9(b), 9(c) or
9(e) or a Control Termination (which is addressed in Section
11), the Company agrees to pay the Payment Amount (as defined
below) to the Executive in a lump-sum payment within thirty
(30) days after the termination of this Agreement. The
"Payment Amount" means the amount, as of the date of
termination of Executive's employment, determined by
multiplying (i) the number of shares of common stock of the
Company then subject to unexercised options ("Unexercised
Options") held by the Executive that were granted by the
Company or an affiliate of the Company by (ii) the result of
subtracting the option price for such shares from the
Termination Market Price of such shares (as defined below).
For purposes of this Section 12(d), Unexercised Options shall
include all outstanding options whether or not they are
exercisable at the time of the election by Executive. Upon
payment by the Company of the Payment Amount in accordance
with this Section 12(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. For purposes of this Section 12(d),
"Termination Market Price" for the shares means the greater
of (A) the highest sales price of the shares during the
preceding six (6) month period, (B) the book value per share
of the shares (diluted and as reported) and (C) the book
value per share of the shares (diluted and excluding
unrealized gain (loss) on securities).
(e) Notwithstanding anything in this Agreement
to the contrary, Executive's (or his legal representative's)
right to terminate this Agreement as provided in Section
12(c) and (d) shall not be affected by Executive's mental or
physical incapacity.
13. Tax Indemnity Payments.
(a) Notwithstanding anything in this Agreement
to the contrary, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit
of Executive, whether paid or payable or distributed or
distributable pursuant to the terms of the Agreement or
otherwise but determined without regard to any additional
payments required under this Section 13 (a "Payment"), would
be subject to the excise tax imposed by Section 4999 of the
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Code, or any successor provision (collectively, "Section
4999"), or any interest or penalties are incurred by
Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"),
then Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that, after
payment by Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including,
without limitation, any Federal, state or local income and
employment taxes and Excise Tax (and any interest and
penalties imposed with respect to any such taxes) imposed
upon the Gross-Up Payment, Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(b) Subject to the provisions of Section 13(c),
all determinations required to be made under this Section 13,
including whether and when a Gross-Up Payment is required and
the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by
the Company's public accounting firm (the "Accounting Firm"),
which shall provide detailed supporting calculations both to
the Company and Executive within fifteen (15) business days
of the receipt of notice from Executive that there has been a
Payment, or such earlier time as is requested by the Company.
In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group
effecting the Change in Control, Executive shall appoint
another nationally recognized public accounting firm to make
the determinations required under this Agreement (which
accounting firm shall then be referred to as the Accounting
Firm under this Agreement). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 13,
shall be paid by the Company to Executive within five (5)
days of the receipt of the Accounting Firm's determination.
If the Accounting Firm determines that no Excise Tax is
payable by Executive, it shall furnish Executive with a
written opinion that failure to report the Excise Tax on
Executive's applicable federal income tax return would not
result in the imposition of a negligence or similar penalty.
Any determination by the Accounting Firm shall be binding
upon the Company and Executive. As a result of the
uncertainty in the application of Section 4999 at the time of
the initial determination by the Accounting Firm, it is
possible that Gross-Up Payments that will not have been made
by the Company should have been made by the Company
("Underpayment"), consistent with the calculations required
to be made under this Agreement. In the event that the
Company exhausts its remedies pursuant to Section 13(c) and
Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of
the Underpayment that has occurred and any such Underpayment
shall be promptly paid by the Company to or for the benefit
of Executive.
(c) Executive shall notify the Company in
writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of, or
result in a change in the amount of the payment by the
Company
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of, the Gross-Up Payment. Such notification shall be given as
soon as practicable after Executive is informed in writing of
such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to
be paid; provided that the failure to give any notice
pursuant to this Section 13(c) shall not impair Executive's
rights under this Section 13 except to the extent the Company
is materially prejudiced thereby. Executive shall not pay
such claim prior to the expiration of the 30-day period
following the date on which Executive gives such notice to
the Company (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If
the Company notifies Executive in writing prior to the
expiration of such period that it desires to contest such
claim, Executive shall: (i) give the Company any information
reasonably requested by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company, (iii) cooperate with the
Company in good faith in order to contest such claim and (iv)
permit the Company to participate in any proceedings relating
to such claim; provided, however, that the Company shall bear
and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such
contest and shall indemnify and hold Executive harmless, on
an after-tax basis, for any Excise Tax or income, employment
or other tax (including interest and penalties with respect
thereto) imposed as a result of such representation and
payment of costs and expenses.
(d) If, after the receipt by Executive of an
amount advanced by the Company pursuant to Section 13(c),
Executive becomes entitled to receive, and receives, any
refund with respect to such claim, Executive shall (subject
to the Company's complying with the requirements of Section
13(c)) promptly pay to the Company the amount of such refund.
14. Payment for Options.
(a) In the event of a Control Termination of
this Agreement, Executive may elect, within sixty (60) days
after such Control Termination, to receive (in addition to
any other amounts owed to Executive under this Agreement) a
lump-sum payment in cash equal to the sum of the following:
(i) all or any portion of the number of shares of common
stock of the Company which may be acquired pursuant to
options granted by the Company and held by Executive at the
time of such election, multiplied by the Standard Management
Put Price; plus (ii) all or any portion of the number of
Successor Securities which may be acquired pursuant to
options (which options were granted to Executive in exchange
or substitution for options to acquire the common stock of
the Company) held by Executive at the time of such election,
multiplied by the Successor Security Put Price; plus (iii)
the number of shares of common stock of the Company which
were acquired pursuant to options granted by the Company
which were exercised, or which were discharged and satisfied
by the payment to
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Executive of cash or other property (other than options for
Successor Securities), in connection with the change in
control subsequent to the first public announcement of the
transaction or event which led to the change in control,
multiplied by the respective per share exercise prices of
such exercised or discharged options. For purposes of
calculating the above lump-sum payment, the options described
in clauses (i) and (ii) shall include all such options,
whether or not then exercisable, and, to compensate Executive
for the loss of the potential future speculative value of
unexercised options, there shall not be any deduction of the
respective per share exercise prices for any of the options
described in such clauses (i) and (ii). The cash payment due
from the Company pursuant to this Section 13 shall be made to
Executive within ten (10) days after the date of such
election under this Agreement, against the execution and
delivery by Executive to the Company of an appropriate
agreement confirming the surrender to the Company of the
options in respect of which the lump-sum cash payment is
being made to Executive.
(b) "Change in Control Price" means (i) in the
case of a change in control which occurs solely as a result
of a change in the composition of the Board of Directors of
the Company or which occurs in a transaction, or series of
related transactions, in which the same consideration is paid
or delivered to all of the holders of common stock of the
Company (or, in the event of an election by holders of the
common stock of the Company of different forms of
consideration, if the same election is offered to all of the
holders of common stock of the Company) or which occurs as a
result of the Board of Directors' approval of a plan of
complete liquidation or an agreement for the sale or
disposition of all or substantially all of the assets of the
Company or an agreement for the sale or disposition of the
stock or assets of a subsidiary or division of the Company
representing at least fifteen percent (15%) of the value of
the Company on a consolidated basis at the time of such
approval, the Price per share of the common stock of the
Company on the date on which the change in control occurs, or
if such date is not a trading day, then the trading day
immediately prior to such date, or (ii) in the case of a
change in control effected through a series of related
transactions, or in a single transaction in which less than
all of the outstanding shares of common stock of the Company
is acquired, the highest price paid to the holders of common
stock of the Company in the transaction or series of related
transactions whereby the change in control takes place. In
determining the highest price paid to the holders pursuant to
clause (ii) of the immediately preceding sentence, in the
case of Successor Securities paid or delivered to the holders
of common stock of the Company in exchange, payment or
substitution for, or upon conversion of, the common stock of
the Company, the price paid to such holders shall be the
Price of such security at the time or times paid or delivered
to such holders.
(c) "Current Market Price" for any security
means the highest sales price of such security during the six
(6) month period prior to the termination of this Agreement.
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(d) "Exchange Ratio" means, in connection with
a change in control, the number of Successor Securities to be
paid or delivered to the holders of common stock of the
Company in exchange, payment or substitution for, or upon
conversion of, each share of such common stock.
(e) "Price" for any security means the average
of the highest and lowest sales price of such security on a
trading day as shown on the Composite Tape of the New York
Stock Exchange (or, if such security is not listed or
admitted to trading on the New York Stock Exchange, on the
principal national securities exchange on which such security
is listed or admitted to trading) or, in case no sales take
place on such day, the average of the closing bid and asked
prices on the New York Stock Exchange (or, if such security
is not listed or admitted to trading on the New York Stock
Exchange, on the principal national securities exchange on
which such security is listed or admitted to trading) or, if
it is not listed or admitted to trading on any national
securities exchange, the average of the highest and lowest
sales prices of such security on such day as reported by the
NASDAQ Stock Market, or in case no sales take place on such
day, the average of the closing bid and asked prices as
reported by NASDAQ, or if such security is not so reported,
the average of the closing bid and asked prices as furnished
by any securities broker-dealer of recognized national
standing selected from time to time by the Company (or its
successor in interest) for that purpose.
(f) "Standard Management Put Price" means the
greater of (i) the Change in Control Price or (ii) the
Current Market Price of the common stock of the Company.
(g) "Successor Security Put Price" means the
greater of (i) the Change in Control Price divided by the
Exchange Ratio or (ii) the Current Market Price of the
Successor Securities.
(h) "Successor Securities" means any securities
of any person received by the holders of the common stock of
the Company in exchange, substitution or payment for, or upon
conversion of, the common stock of the Company in connection
with a change in control.
15. Covenant Against Competition. Executive acknowledges
that the services he is to render to the Company are of a special and unusual
character, with a unique value to the Company, the loss of which cannot
adequately be compensated by damages or an action at law. In view of the
confidential information to be obtained by, or disclosed by the Company to,
Executive, and as a material inducement to the Company to enter into this
Agreement, Executive covenants and agrees that during the term of this
Agreement and for two (2) years thereafter, Executive shall not, directly or
indirectly, anywhere within the State of Indiana (i) render any services, as an
agent, independent contractor, consultant or otherwise, or become employed or
compensated by, any other corporation, person or entity engaged in the business
of selling or providing life, accident or health insurance products or
services; (ii) render any services, as an
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agent, independent contractor, consultant or otherwise, or become employed or
compensated by, any other corporation, person or entity engaged in the business
of selling or providing any lending or other financial products or services
that are competitive with the lending or other financial products or services
sold or provided by the Company or its subsidiaries, (iii) in any manner
compete with the Company or any of its subsidiaries; or (iv) solicit or attempt
to convert to other insurance carriers, finance companies or other
corporations, persons or other entities providing these same or similar
products or services provided by the Company and its subsidiaries, any
customers or policyholders of the Company, or any of its subsidiaries;
provided, however, that Executive may be a shareholder of less than five (5%)
percent 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. The
covenants of Executive in this Section 15 shall be void and unenforceable if
this Agreement is terminated pursuant to a Control Termination as defined in
Section 11(b). In addition, the covenants of Executive in this Section 15 shall
be void and unenforceable if the Company terminates this Agreement without
cause or Employee terminates this Agreement with good reason. Should any
particular covenant or provision of this Section 15 be held unreasonable or
contrary to public policy for any reason, including without limitation, the
time period, geographical area, or scope of activity covered by any restrictive
covenant or provision, the Company and Executive acknowledge and agree that
such covenant or provision shall automatically be deemed modified such that the
contested covenant or provision shall have the closest effect permitted by
applicable law to the original form and shall be given effect and enforced as
so modified to whatever extent would be reasonable and enforceable under
applicable law.
16. Arbitration of Disputes; Injunctive Relief. Any
controversy or claim arising out of or relating to this Agreement or the breach
thereof, shall be settled by binding arbitration in the City of Indianapolis,
Indiana, in accordance with the laws of the State of Indiana by three
arbitrators, one of whom shall be appointed by the Company, one by Executive
and the third of whom shall be appointed by the first two arbitrators. If the
first two arbitrators cannot agree on the appointment of a third arbitrator,
then the third arbitrator shall be appointed by the Chief Judge of the United
States District Court for the Southern District of Indiana. The arbitration
shall be conducted in accordance with the rules of the American Arbitration
Association, except with respect to the selection of arbitrators, which shall
be as provided in this Section. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. In the
event that it shall be necessary or desirable for Executive to retain legal
counsel and/or incur other costs and expenses in connection with the
enforcement of any and all of his rights under this Agreement, the Company
shall pay (or Executive shall be entitled to recover from the Company, as the
case may be) his reasonable attorneys' fees and costs and expenses in
connection with such rights, regardless of the final outcome, unless the
arbitrators shall determine that under the circumstances recovery by Executive
of all or a part of any such fees and costs and expenses would be unjust.
17. Notices. Any notice required or permitted to be
given under this Agreement shall be sufficient if in writing and if sent by
certified or registered mail, postage prepaid, return receipt requested, to the
addresses below, or to such other address as a party may from time to time
indicate in writing to the other:
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If to Executive:
Xxxx X. ("Xxxx") Xxxxxxx
000 Xxxxx Xxxxxx
Xxxxxx, XX 00000
If to the Company:
Standard Management Corp.
00000 Xxxxx Xxxxxxxxxxxx
Xxxxxxxxxxxx, XX 00000-0000
Attention: Chairman
Any notice of termination provided by a party to the other party must indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances alleged to provide the
basis for termination.
18. Waiver of Breach and Severability. The waiver by
either party of a breach of any provision of this Agreement by the other party
shall not operate or be construed as a waiver of any subsequent breach by
either party. In the event any provision of this Agreement is found to be
invalid or unenforceable, it may be severed from the Agreement and the
remaining provisions of the Agreement shall continue to be binding and
effective.
19. Entire Agreement. This instrument contains the
entire agreement of the parties. It may not be changed orally, but only by an
agreement in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought. This Agreement
supersedes and replaces all prior employment and compensation agreements,
understandings and arrangements between Executive and the Company. This
Agreement shall have no effect upon any existing stock option agreements
between Executive and the Company.
20. Binding Agreement; Governing Law; Assignment. This
Agreement shall be binding upon and shall insure to the benefit of the parties
and their successors in interest and shall be construed in accordance with and
governed by the laws of the State of Indiana. This Agreement is personal to
each of the parties to this Agreement, and neither party may assign or delegate
any of its rights or obligations under this Agreement without the prior written
consent of the other party.
21. Survival. Sections 6 (Compensation Guarantee), 8
(Disclosure of Information), 10 (Effect of Termination), 11 (Change in Control;
Payments for Control Termination), 12 (Additional Provisions Relating to
Termination), 13 (Tax Indemnity Payments), 14 (Payments for Options), 15
(Covenant Against Competition), 16 (Arbitration of Disputes; Injunctive
Relief), 17 (Notices), 20 (Binding Agreement; Governing Law; Assignment).and 21
(Survival) of this Agreement shall survive any termination or expiration of
this Agreement.
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22. Joint Drafting. This Agreement has been prepared
jointly by the parties and their respective advisors and legal counsel and
shall not be strictly construed against either party.
23. Advisors Consulted. Each party hereby acknowledges
and agrees that each (a) has read this Agreement in its entirety prior to
executing it, (b) understands the provisions and effects of this Agreement and
(c) has consulted with such advisors as each has deemed appropriate in
connection with its or his respective execution of the Agreement.
[SIGNATURES ON FOLLOWING PAGE
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
"Company" "Executive"
STANDARD MANAGEMENT CORPORATION
By:/s/ Martial X. Xxxxxxx, M.D. /s/ Xxxx X. ("Xxxx") Xxxxxxx
-------------------------------------- ----------------------------------
Martial X. Xxxxxxx, M.D., Xxxx X. ("Xxxx") Xxxxxxx
Chairman, Compensation Committee
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