Document:

2011 Executive Incentive Plan

Background and Objectives

The overall executive compensation strategy of The Edelman Financial Group Inc. (formerly Sanders Morris Harris Group Inc.) (“TEFG” or the “Company”) is to provide key executives with targeted total cash pay opportunities that generally are competitive with median total cash pay opportunities in wealth and asset management companies of similar size.  The two primary elements of the TEFG cash compensation program are base salary and the 2011 Executive Incentive Plan (the “Plan” or “EIP”).  TEFG base salaries are designed to be broadly competitive with industry standards and are used to reward an executive’s job performance over time.  All awards under the Plan are determined and awarded at the sole discretion of the Compensation Committee of the TEFG Board of Directors (the “Committee”).

The Plan provides annual incentive compensation opportunity for key executives for achieving critical financial and other goals of and for TEFG.  The following document defines Plan eligibility, the size of potential award opportunities, performance measurements and, form and timing of award payments, administrative guidelines, and definitions for ongoing Plan management.

The Plan does not include potential equity-based awards, which are covered by the Company’s separate Restricted Stock Unit Plan a sub-plan under the TEFG Long-Term Incentive Plan.

Capitalized terms that are used but not defined in the Plan shall have the meaning ascribed to them in the TEFG Long-Term Incentive Plan.

Eligibility

Employees who are eligible to participate in the Plan (“Participants”) will be proposed by the Chairman of the Board, Chief Executive Officer, President, and Chief Financial Officer of the Company (the “Plan Committee”) and approved by the Compensation Committee at the beginning of each performance/award period.  Generally, Participants will be selected from key executives who primarily are responsible for the annual growth and profitability of TEFG, i.e., generally senior managers and officers.  For 2011, 14 senior officers and executives are proposed as Participants.

Targeted Award Opportunities

At the beginning of each fiscal year, each Participant will be assigned a targeted award opportunity proposed by the Plan Committee and approved by the Committee that can increase or decrease in value, based on actual performance achievement.  Targeted award opportunities for Participants for 2011 are shown in Exhibit 1.  Plan targeted award opportunities may be re-defined from time to time by the Plan Committee, as modifications are made in TEFG’s executive compensation strategy.

On or before March 31, 2012, each Participant’s salary rate at December 31, 2011, will be multiplied by his or her actual EIP award percentage earned (determined by applying the performance measures set forth below) to determine the dollar value of the award for the prior performance cycle.

Performance Measures

Four Plan financial performance measures, totaling 80% by weight of all performance measures, are proposed for the 2011 performance period, as follows:

	
·

	
Adjusted cash flow from operations1 (“ACF”) — weighted 30% (target — 110% of 2011 ACF).

	
·

	
Client investment results — weighted 20% (target — change in adjusted 60/402 in 2011).

 

	
1

	
Cash flow from operations will be adjusted by excluding from the calculation any cash flow items related to (a) discontinued operations of the Company, (b) marketable securities owned, (c) securities sold, not yet purchased, and (d) other non-recurring and extraordinary items.

	
2

	
Investment performance of portfolio invested 60% in Standard & Poors 500 Index and 40% in Barclay’s Capital U.S. Aggregate Bond Index from January 1, 2011 to December 31, 2011, less 50 basis points.

  

 

  

	
Sanders Morris Harris Group

	
Page 2 of 7

	
2011 Executive Incentive Plan

	  

	
·

	
Net new client money — weighted 20% (target— 4% increase over 2011 year-end client assets).

	
·

	
Expenses adjusted for non-recurring and extraordinary items as a percentage of revenue — weighted 10% (target — no greater than 2011

The Plan performance targets will be proposed by the Plan Committee and approved by the Committee as soon as possible after the beginning of each fiscal year.

The final 20% portion of the performance measures will be determined on a discretionary basis by the Committee for the Chief Executive Officer and by the Plan Committee for the other Participants and will be based on the degree to which the executive has mastered the primary duties and responsibilities of his or her present job.

TEFG performance calculations for the Plan shall exclude nonrecurring and extraordinary items, which are defined at the sole discretion of the Committee.  Performance goals for EIP awards may be adjusted during the year if a major change occurs in the Company’s operations or capital structure, e.g., an acquisition or merger.  In addition to the EIP targets, the Committee and the Plan Committee jointly will establish minimum acceptable and outstanding Plan goals, which are currently as follows:

	
·

	
Minimum Acceptable — The TEFG performance level at or below which no incentive will be paid is 75% of the EIP performance measure target;

	
·

	
Target — The TEFG performance level where the Plan adjustment factor is 1X, with “X” equal to the target incentive, is 100% of the EIP performance measure target; and

	
·

	
Outstanding — The TEFG performance level at or above which the Plan adjustment factor is 2X, with “X” equal to the target incentive is 125% of the EIP performance measure target.

EIP awards will be interpolated for actual performance falling closest to the nearest 5% increment between any of the foregoing goals.

Exhibit 2 presents the performance matrix for calculating EIP awards.  This performance matrix may be revised by the Plan Committee with approval of the Committee if the Company’s business strategy and performance focus changes.

Form and Timing of Awards

SEIP award calculations will be finalized on or before Mach 30, 2012.  All SEIP awards will be paid in cash in quarterly installments in the year immediately following a performance cycle, as follows:

	
·

	
50% of the final award on March 31, 2012

	
·

	
25% of the final award on August 15, 2012

	
·

	
25% of the final award on November 30, 2012

In no event will any payment of an award be made subsequent to December 31, 2012.

In the case of a Change in Control (as defined in the Company’s Long-Term Incentive Plan prior to November 15, 2012, all SEIP awards shall be paid in cash on the effective date of such Change in Control.

Administrative Guidelines and Definitions

 

The Plan operates at the discretion of the Committee.  The Committee may exercise considerable discretion and judgment in interpreting the Plan, and adopting, from time to time, rules and regulations that govern the administration of the Plan. Once the Compensation Committee approves Plan participants, award targets, and performance goals, the Plan Committee is delegated authority to administer the Plan. All decisions of the Committee and the Plan Committee are final, conclusive, and binding on all parties, including the Company, its stockholders, and employees.

  

 

  

	
Sanders Morris Harris Group

	
Page 3 of 7

	
2011 Executive Incentive Plan

	  

	
·

	
Employee Termination —

Termination during 2011. Except as expressly set forth below, in the event a Participant’s employment with TEFG terminates for any reason prior to the end of the workday on December 31, 2011, such Participant will be ineligible for any award under the Plan. In other words, if a Participant is employed according to Company records through the end of the workday on December 31, 2011, the Participant will, subject to the following provisions, be eligible for any award earned under the Plan for 2011.

    

Any Participant (or his or her estate) who ceases to be employed by the Company prior to January 1, 2012, due to the Participant’s death, Disability, or Retirement (as such terms are defined in the TEFG Long-Term Incentive Plan), subject to the Participant’s execution of a waiver and release of claims in a form and manner satisfactory to the Company, will be eligible to receive a EIP award based on an adjusted annual base salary amount, but otherwise in the same manner, to the same extent, and at the same time as the Participant would have received such EIP award if such Participant’s employment had continued through December 31, 2011 (i.e., based on achievement of applicable performance measures).  The Participant’s annual base salary will be the result of the following formula: X × Y/12, where:

X = the Participant’s annual base salary as in effect as of the date of termination of employment; and

Y = the number of calendar months the Participant was actively employed by the Company during 2011, rounded up for any partial month.

Termination on or after January 1, 2011. Except as expressly set forth below, a Participant who ceases to be employed by TEFG for any reason on or after January 1, 2012, will forfeit any unpaid EIP award.  Any Participant (or his or her estate) who ceases to be employed by the Company subsequent to December 31, 2011, but prior to November 30, 2011, due to the Participant’s death, Disability, or Retirement, subject to the Participant’s execution of a waiver and release of claims in a form and manner satisfactory to the Company, will be eligible to be paid all unpaid EIP awards in the same manner, to the same extent, and at the same time as the Participant would have been paid such EIP awards if such Participant’s employment had continued through November 30, 2012.

	
·

	
New Hires — Employees must have a minimum of six months of service to be eligible for an award, unless waived by the Plan Committee.  EIP awards for new hires are earned on a pro-rata basis, based on their date of employment.

	
·

	
Base Salary Rate — Base salary for EIP award calculations shall be the annualized base rate in effect on December 31, 2011.

	
·

	
Support Documentation — The Chief Financial Officer of the Company shall be responsible for maintaining all necessary support documentation regarding performance and bonus calculations under the Plan.

Amendment

The Committee may at any time suspend, terminate, modify, waive, or amend any or all of the provisions of this Plan; provided, however, that no such action shall, without the written consent of the affected Participants, reduce the Company’s obligation for the payment of any outstanding awards under the Plan with respect to such Participants, or further defer the payment of such awards, or accelerate the payment of such awards in a manner that subjects such awards to the tax imposed under Section 409A of the Internal Revenue Code of 1986, as amended and the regulations thereunder (“Section 409A”).

 

Governing Law

The Plan is governed by the laws of the State of Texas.

Withholding Taxes

The Company has the right to make such provisions as it deems necessary or appropriate to satisfy any obligations it may have under law to withhold federal, state or local income or other taxes incurred by reason of payments pursuant to the Plan.

  

 

  

	
Sanders Morris Harris Group

	
Page 4 of 7

	
2011 Executive Incentive Plan

	  

Section 409A

Notwithstanding anything to the contrary contained herein, this Plan is intended to satisfy the requirements of Section 409A.  Accordingly, all provisions herein, or incorporated by reference, shall be construed and interpreted to satisfy the requirements of Section 409A.  Further, for purposes of Section 409A, each payment of compensation under this Agreement shall be treated as a separate payment of compensation.

Non-transferability of Awards

No award under this Plan, and no rights or interests therein, will be assignable or transferable by a Participant (or legal representative).

Effective Date

This Plan is effective as of January 1, 2011, and continues until terminated, suspended, modified, or amended by the Committee.

  

 

  

	
Sanders Morris Harris Group

	
Page 5 of 7

	
2011 Executive Incentive Plan

	  

Exhibit 1

Proposed 2011 Participants and Award Targets

	
Title

	
Targeted Award 

	
TEFG Legal Counsel

	
40% of salary

	
EFS Chief Financial Officer (w/Division responsibility)

	
40% of salary

	
TEFG Chief Compliance Officer

	
50% of salary

	
EFS Chief Compliance Officer

	
50% of salary

	
TEFG Controller

	
40% of salary

	
VP Information Technology

	
35% of salary

	
Chief Technology Officer

	
35% of salary

	
Director, Financial Reporting

	
35% of salary

	
SVP Operations

	
20% of salary

	
VP Operations

	
20% of salary

	
VP Marketing Communications

	
30% of salary

	
VP Human Resources

	
20% of salary

	
VP Human Resources/Training

	
20% of salary

	
TEFG Administrative Manager

	
20% of salary

  

 

  

	
Sanders Morris Harris Group

	
Page 6 of 7

	
2011 Executive Incentive Plan

	  

Exhibit 2

Proposed 2011 Performance Goals and Weights

Versus Award Opportunity Earned

	
Level of

Performance

Achievement

	 	
Adjusted

Cash Flow

from

Operations

	 	 	
Client

Investment

Results

	 	 	
Net New

Client

Money

	 	 	
Expenses

as

Percentage

of Revenue

	 	 	
% of Target

Award Earned

	 	 	
Discretionary

	 
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
(Weight)

	 	 	(30	)%	 	 	(20	)%	 	 	(20	)%	 	 	(10	)%	 	 	 	 	 	(20	)%
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Outstanding

	 	 	125	%	 	 	125	%	 	 	125	%	 	 	75	%	 	 	200	%	 	 	100	%
	  	 	 	120	%	 	 	120	%	 	 	120	%	 	 	80	%	 	 	180	%	 	 		 
	  	 	 	115	%	 	 	115	%	 	 	115	%	 	 	85	%	 	 	160	%	 	 	 
	  	 	 	110	%	 	 	110	%	 	 	110	%	 	 	90	%	 	 	140	%	 	 	 
	  	 	 	105	%	 	 	105	%	 	 	105	%	 	 	95	%	 	 	120	%	 	 	 
	
Target

	 	 	100	%	 	 	100	%	 	 	100	%	 	 	100	%	 	 	100	%	 	 	 
	  	 	 	95	%	 	 	95	%	 	 	95	%	 	 	105	%	 	 	80	%	 	 	 
	  	 	 	90	%	 	 	90	%	 	 	90	%	 	 	110	%	 	 	60	%	 	 	 
	  	 	 	85	%	 	 	85	%	 	 	85	%	 	 	115	%	 	 	40	%	 	 	 
	  	 	 	80	%	 	 	80	%	 	 	80	%	 	 	120	%	 	 	30	%	 	 	 
	
Min Acceptable

	 	 	75	%	 	 	75	%	 	 	75	%	 	 	125	%	 	 	20	%	 	 	 
	  	 	
>75

	% 	 	
>75

	% 	 	
>75

	% 	 	
<125

	% 	 	 	0	%	 	 	0	%

  

 

  

	
Sanders Morris Harris Group

	
Page 7 of 7

	
2011 Executive Incentive Plan

	  

Exhibit 3

Sample Award Calculation

Assumptions:

Executive’s current salary is $200,000.

Targeted Plan award is 40% of salary or 80,000.

Targeted TEFG performance goals achieved:

•      110% of Cash Flow target, providing 140% of targeted award segment;

•      100% of Client Investment Results target, providing 100% of targeted award segment;

•      90% of Net New Client Money target, providing 60% of targeted award segment;

•      90% of Expenses as Percentage of Revenue target, providing 140% of targeted award segment; and

•      Plan Committee awards 100% of targeted amount based on personal goal achievement;

•      ROE as adjusted is 9.1%.

Calculations:

Current Salary:      $200,000

Incentive Target Percent:  x .40

Incentive Target Amount:  $80,000

	
A.   Component for TEFG Cash Flow:

	 	 	 	 	 	 	 	 	 
	
Incentive Target:

	 	$	80,000	 	 	 	 	 	 	 
	
Cash Flow Performance Adjustment:

	 	 	x 1.40	 	 	 	 	 	 	 
	
Non-weighted Cash Flow Allocation:

	 	 	 	 	 	$	112,000	 	 	 	 
	
Cash Flow Weighting:

	 	 	 	 	 	 	x .30	 	 	 	 
	
Weighted TEFG Cash Flow Component:

	 	 	 	 	 	 	 	 	 	$	33,600	 
	  	 	 	 	 	 	 	 	 	 	 	 	 
	
B.   Component for Client Investment Results (CIR):

	 	 	 	 	 	 	 	 	 	 	 	 
	
Incentive Target:

	 	$	80,000	 	 	 	 	 	 	 	 	 
	
CIR Performance Adjustment:

	 	 	x 1.00	 	 	 	 	 	 	 	 	 
	
Non-weighted CIR Allocation:

	 	 	 	 	 	$	80,000	 	 	 	 	 
	
CIR Weighting:

	 	 	 	 	 	 	x .20	 	 	 	 	 
	
Weighted CIR Component:

	 	 	 	 	 	 	 	 	 	$	16,000	 
	  	 	 	 	 	 	 	 	 	 	 	 	 
	
C.   Component for Net New Client Money:

	 	 	 	 	 	 	 	 	 	 	 	 
	
Incentive Target:

	 	$	80,000	 	 	 	 	 	 	 	 	 
	
New Client Money Performance Adjustment:

	 	 	x .60	 	 	 	 	 	 	 	 	 
	
Non-weighted New Client Money Allocation:

	 	 	 	 	 	$	48,000	 	 	 	 	 
	
New Client Money Weighting:

	 	 	 	 	 	 	x .20	 	 	 	 	 
	
Weighted Net New Client Money Component:

	 	 	 	 	 	 	 	 	 	$	9,600	 
	  	 	 	 	 	 	 	 	 	 	 	 	 
	
D.   Component for Non-Recurring & Extraordinary Item (NREI) Expense Ratio:

	 	 	 	 	 	 	 	 	 	 	 	 
	
Incentive Target:

	 	$	80,000	 	 	 	 	 	 	 	 	 
	
NREI Performance Adjustment:

	 	 	x 1.40	 	 	 	 	 	 	 	 	 
	
Non-weighted NREI Allocation:

	 	 	 	 	 	$	112,000	 	 	 	 	 
	
NREI Weighting:

	 	 	 	 	 	 	x .10	 	 	 	 	 
	
Weighted NREI Expense Ratio Component:

	 	 	 	 	 	 	 	 	 	$	11,200	 
	  	 	 	 	 	 	 	 	 	 	 	 	 
	
E.    Component for Personal Goal (PG) Achievement:

	 	 	 	 	 	 	 	 	 	 	 	 
	
Incentive Target:

	 	$	80,000	 	 	 	 	 	 	 	 	 
	
PG Performance Adjustment:

	 	 	x 1.00	 	 	 	 	 	 	 	 	 
	
Non-weighted PG Allocation:

	 	 	 	 	 	$	80,000	 	 	 	 	 
	
PG Weighting:

	 	 	 	 	 	 	x .20	 	 	 	 	 
	
Weighted Personal Goal Component:

	 	 	 	 	 	 	 	 	 	$	16,000	 
	  	 	 	 	 	 	 	 	 	 	 	 	 
	
F.    Total Plan Award:

	 	 	 	 	 	 	 	 	 	$	86,400	 
	  	 	 	 	 	 	 	 	 	 	 	 	 
	
H.   Payout Schedule:

	 	 	 	 	 	 	 	 	 	 	 	 
	
First Installment on March 31, 2012

	 	 	 	 	 	$	41,300	 	 	 	 	 
	
Second Installment on August 15, 2012:

	 	 	 	 	 	$	21,600	 	 	 	 	 
	
Third Installment on November 30, 2012:

	 	 	 	 	 	$	21,600	 	 	 	 	 
	  	 	 	 	 	 	 	 	 	 	$	86,4002011 EXECUTIVE AND KEY MANAGER RESTRICTED STOCK UNIT SUB-PLAN

(Effective January 1, 2011)

This 2011 Executive and Key Manager Restricted Stock Unit Sub-Plan (“Sub-Plan”) of The Edelman Financial Group Inc., a Texas corporation (the “Company”), sets forth the rules and regulations adopted by the Committee for issuance of Restricted Stock Unit Awards under Section 3 of the Long-Term Incentive Plan (“Plan”). These rules and regulations shall apply to Awards granted effective on and after January 1, 2011. In the event of any conflict between this Sub-Plan and the Plan, the terms and conditions of the Plan shall control.

Section 1.           Incorporation of Plan; Capitalized Terms.

 

The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise expressly set forth herein, this Sub-Plan  shall be construed in accordance with the provisions of the Plan and any capitalized terms not otherwise defined in this Sub-Plan shall have the definitions set forth in the Plan. In the event of any conflict between this Sub-Plan and the Plan, the terms and conditions of the Plan shall control. The Committee shall have final authority to interpret and construe the Plan and this Sub-Plan and to make any and all determinations thereunder, and its decision shall be binding and conclusive upon all Participants and their legal representatives in respect of any questions arising under the Plan or this Sub-Plan.

Section 2.           Definitions

When used in this Sub-Plan, the following terms shall have the meanings as set forth below, and are in addition to the definitions set forth in the Plan.

2.1       “Account” means the account used to record and track the number of Restricted Stock Units granted to each Participant as provided in Section 3.4.

2.2       “Award” as used in this Sub-Plan means each aggregate award of Restricted Stock Units as provided in Section 3.2.

2.3       “Date of Grant” means March 15, 2012.

2.4       “Performance Period” for purposes of this Sub-Plan means January 1, 2011 to December 31, 2011.

2.5       “Performance Schedule” means Attachment 1 to this Sub-Plan, which sets forth the Performance Measures applicable to this Sub-Plan.

 

2.6       “Restricted Stock Unit” for purposes of this Sub-Plan means each unit of an Award granted to a Participant that is denominated in Shares, each of which represents a right to receive the value of a Share (or percentage of such value, which percentage may be higher than 100%) on the terms and conditions set forth in the Plan and the Sub-Plan.

 

  

  

  

2.7       “Salary” means the regular base rate of compensation payable by the Company to a Participant on an annual basis. Salary does not include bonuses, if any, or incentive compensation, if any. Such compensation shall not be reduced by any deferrals made under any other plans or programs maintained by the Company.

2.8       “Section 409A” means Section 409A of the Code, or any successor section under the Code, as amended and as interpreted by final or proposed regulations promulgated thereunder from time to time.

2.9       “Year” means a calendar year.

Section 3.           Participation and Awards

3.1       Participant Selection. Participants under this Sub-Plan shall be selected by the Committee in its sole discretion.

3.2       Awards. Subject to any adjustments to be made under Section 3.5, the Compensation Committee may, in its sole discretion, grant Awards to some or all of the Participants in the form of a specific number of Restricted Stock Units. The target as a percentage of Salary of the Awards granted for 2011 are as set forth on Attachment 2 hereto. The performance measures for the Sub-Plan are the same as the performance measures for the 2011 Executive Incentive Plan of the Company.

 

3.3       Award Valuation at Grant. In calculating the value of an Award for purposes of Section 3.2, the value of each Restricted Stock Unit shall be equal to the closing price of a share of Stock on the last trading day on the Date of Grant.  The Participant’s Salary shall be determined as of the January 1 preceding the date the Award is granted, or such other time as is determined in the discretion of the Committee. Each Award is deemed to be granted on the day that it is approved by the Committee.

3.4       Accounting and Adjustment of Awards. The number of Restricted Stock Units awarded to a Participant shall be recorded in a separate Account for each Participant. The number of Restricted Stock Units recorded in a Participant’s Account shall be adjusted to reflect any splits or other adjustments in the Shares. Restricted Stock Units are bookkeeping entries only. A Participant shall have no rights as a stockholder of the Company, no dividend rights and no voting rights with respect to the Restricted Stock Units. No adjustments shall be made to any outstanding Awards for cash dividends paid on Shares during or after the Performance Period.

3.5       Restriction Period, Vesting. A Participant’s rights with respect to the Restricted Stock Units shall remain subject to forfeiture at all times prior to the date(s) on which the Restricted Stock Units vests pursuant to the Section 3.5. Except as provided in Section 4, Restricted Stock Units subject to the Award shall vest and become non-forfeitable as follows:

250% on the date of Grant;

50% on the first anniversary of the Date of Grant;

75% on the second anniversary of the Date of Grant; and

 

  

2

  

100% on the third anniversary of the Date of Grant.

3.6       Timing and Manner of Payment of Restricted Stock Units. As soon as practicable after the date any Restricted Stock Units subject to the Award become non-forfeitable (the “Payment Date”), such Restricted Stock Units shall be paid, at the Company’s option, (a) in a lump sum cash payment equal in the aggregate to the Fair Market Value of a Share on the Payment Date multiplied by the number of such Restricted Stock Units that become non-forfeitable upon that Payment Date or (b) by the Company delivering to the Participant a number of Shares equal to the number of Restricted Stock Units that become non-forfeitable upon that Payment Date. If the Restricted Stock Units are paid in Shares, the Company shall issue the Shares either (i) in certificate form or (ii) in book entry form, registered in the name of the Participant. Delivery of any certificates will be made to the Participant’s last address reflected on the books of the Company and its Subsidiaries unless the Company is otherwise instructed in writing. Neither the Participant nor any of the Participant’s successors, heirs, assigns or personal representatives shall have any further rights or interests in any Restricted Stock Units that are so paid. Notwithstanding anything herein to the contrary, the Company shall have no obligation to issue Shares in payment of the Restricted Stock Units unless such issuance and such payment shall comply with all relevant provisions of law and the requirements of any stock exchange upon which Shares are listed. Delivery of any certificates will be made to the Participant’s last address reflected on the books of the Company unless the Company is otherwise instructed in writing

3.7       Termination of Employment. Excepts as otherwise provided in Section 4, in the event of the termination of a Participant’s employment or service with the Company for any reason prior to the lapsing of the restrictions in accordance with Section 3.5 hereof with respect to any of the Restricted Stock Units granted hereunder, such portion of the Restricted Stock Units held by the Participant shall be automatically forfeited by the Participant as of the date of termination. Neither the Participant nor any of the Participant’s successors, heirs, assigns, or personal representatives shall have any rights or interests in any Restricted Stock Units that are so forfeited.

Section 4.           Early Vesting and Forfeiture

4.1       Termination during 2011. Except as expressly set forth below, in the event a Participant’s employment with SMH terminates for any reason prior to the end of the workday on December 31, 2011, such Participant will be ineligible for any Award under the Sub-Plan. In other words, if a Participant is employed according to Company records through the end of the workday on December 31, 2011, the Participant will, subject to the following provisions, be eligible for any award earned under the Sub-Plan for 2011.

    

Any Participant (or his or her estate) who ceases to be employed by the Company prior to January 1, 2012, due to the Participant’s death, Disability, or Retirement (as such terms are defined in the Plan), subject to the Participant’s execution of a waiver and release of claims in a form and manner satisfactory to the Company, will be eligible to receive an Award based on an adjusted annual base salary amount, but otherwise in the same manner, to the same extent, and at the same time as the Participant would have received such Award if such Participant’s employment had continued through December 31, 2011 (i.e., based on achievement of applicable performance measures).  The Participant’s annual base salary will be the result of the following formula: X × Y/12, where:

 

  

3

  

	 	
X =

	
the Participant’s annual base salary as in effect as of the date of termination of employment; and

	 	
Y =

	
the number of calendar months the Participant was actively employed by the Company during 2011, rounded up for any partial month.

4.2       Termination on or after January 1, 2012. Except as expressly set forth below, a Participant who ceases to be employed by SMH for any reason on or after January 1, 2012, will forfeit any unvested Award.  If any Participant (or his or her estate) who ceases to be employed by the Company subsequent to December 31, 2011, but prior to expiration of the Restriction Period, due to the Participant’s death, Disability, or Retirement, subject to the Participant’s execution of a waiver and release of claims in a form and manner satisfactory to the Company, any outstanding Awards of the Participant shall immediately become vested. The Company shall issue to the Participant all of the Shares remaining subject to the Restricted Stock Unit Award to the extent such Shares have vested in accordance with this Section 4.2, upon the earliest of the following:

(i)        as soon as practicable but no later than 30 days following a Change in Control,

 

(ii)       as soon as practicable but no later than 90 days following the Participant’s death, or

 

(iii)      the first business day of the seventh month following the date of the Participant’s Retirement.

 

4.3       Change in Control. In the case of a Change in Control prior to February 15, 2012, the Company shall, subject to the restrictions in this Section 4.3 and Section 6.7 of the Plan, irrevocably set aside Shares in one or more such grantor trusts in an amount that is sufficient to pay each Participant employed by the Company, the net present value as of the date on which the Change in Control occurs, of the earned benefits to which Participants would be entitled pursuant to the terms of the Sub-Plan. Any such trust shall be subject to the claims of the general creditors of the Company in the event of bankruptcy or insolvency of the Company. Notwithstanding the foregoing provisions of this Section 4.3, the Company shall establish no such trust if the assets thereof shall be includable in the income of Participants thereby pursuant to Section 409A(b). In the case of a Change in Control on of after February 1, 2012, all of the restrictions and conditions of all Restricted Stock units then outstanding shall be deemed satisfied, and the Restriction Period with respect thereto shall be deemed to have expired.

4.4       Termination of Employment. In the event that a Participant’s employment with the Company terminates for any reason other than as provided in this Section 4, any Award made to the Participant which has not vested as provided in Section 3 shall be forfeited.

 

  

4

  

Section 5.           Non-Assignability of Awards

The Awards and any right to receive payment under the Plan and this Sub-Plan may not be sold, assigned, transferred, alienated, pledged, encumbered, otherwise disposed of, or subject to any charge or legal process, except by will or the laws of descent and distribution, and if any attempt is made to do so, or a Participant becomes bankrupt, then in the sole discretion of the Committee, any Award made to the Participant which has not vested as provided in Sections 2 and 3 shall be forfeited.. Any attempt to dispose of any Restricted Stock Units in contravention of the above restriction shall be null and void and without effect.

 

Section 6.           No Right to Continued Employment.

 

Nothing in the Plan or in this Sub-Plan shall (a) confer on the Participant any right to continue in the employ of the Company; (b) affect the right of the Participant or the Company to terminate the employment relationship at any time; (c) be deemed a waiver or modification of any provision contained in any agreement between the Participant and the Company; (b) be construed as part of the Participant’s entitlement to remuneration or benefit pursuant to a contract of employment or otherwise or as compensation for past services rendered; (e) afford the Participant any rights or additional rights to compensation or damages as a consequence of the loss or termination of his or her employment; or (f) entitle the Participant to any compensation or damages for any loss or potential loss he or she may suffer by reason of being or becoming unable to vest in the Restricted Stock Units as a consequence of the loss or termination of his or her employment with the Company.

Section 7.           Adjustments.

 

In the event of a recapitalization, reorganization, stock split, stock dividend, merger, consolidation, combination of shares or other change affecting the Shares of the Company, the Committee shall make appropriate adjustments, if any, in the terms of this Sub-Plan, provided that such adjustments shall be made in a manner that complies with the requirements of Section 409A of the Code.  Any such adjustments shall be made in accordance with the provisions of the Plan and shall be effective, final, binding and conclusive for all purposes of the Plan and this Sub-Plan.

 

  

5

  

 

Section 8.           Withholding of Taxes.

 

The Company shall be entitled to take any of the following actions in order to satisfy tax withholding obligations arising on account of amounts accrued or payable under this Sub-Plan: (a) deduct from any amount accrued or payable under this Sub-Plan an amount equal to the federal, state, and local income taxes and other amounts as may be required by law to be withheld with respect thereto, including withholding Shares issued in payment of the Restricted Stock Units having a Fair Market Value equal to the taxes that the Company determines it is required to withhold under applicable tax laws with respect to the Restricted Stock Units (with such withholding obligation determined based on any applicable minimum statutory withholding rates, (b) require the Participant to pay to the Company such withholding taxes, or (c) deduct from any other compensation payable to the Participant the amount of any withholding obligations with respect to amounts accrued or payable under this Sub-Plan.  The Committee shall determine in its discretion which of the above actions shall be taken in order to satisfy tax withholding obligations arising on account of amounts accrued or payable under this Sub-Plan, including but not limited to withholding from amounts not otherwise payable at such time or attributable to Shares not otherwise issuable at such time by accelerating the issuance of Shares, as permitted under Treasury Regulation Section 1.409A-3(j)(4)(vi); provided, however, that in furtherance of satisfying such withholding obligations, the Participant shall have the right (by delivering written notice to the Chief Financial Officer of the Company at the time and in the manner prescribed by the Committee) to have a number of whole Shares withheld by the Company from the Shares to be issued upon distribution with a value not to exceed the statutory minimum tax withholding obligation.  The Participant and/or his or her beneficiary (including his or her estate) shall bear all taxes on amounts paid under the Plan to the extent no taxes are withheld, irrespective of whether withholding is required. For these purposes, the Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined.

 

Section 9.           Amendment and Termination

This Sub-Plan shall be subject to amendment, suspension, or termination as provided in the Plan. No action to amend, suspend or terminate this Sub-Plan shall permit the acceleration of the time or schedule of the payment of any Award granted under this Sub- Plan (except as provided in regulations under Section 409A).

Section 10.         Unfunded Award.

 

The Restricted Stock Unit Awards represent an unfunded, unsecured right to receive Shares and cash in accordance with the terms of this Sub-Plan, and the Company shall not be required to segregate any assets with respect to any amounts or Share issuances due in connection with this Sub-Plan.

 

Section 11.         Compliance with Code Section 409A.

 

Notwithstanding anything to the contrary contained herein, this Sub-Plan is intended to be in full compliance with the requirements of, and thereby avoid any tax arising pursuant to, Section 409A of the Code.  Accordingly, all provisions herein, or incorporated by reference, shall be construed and interpreted in a manner consistent with such intent.

 

Section 12.         Miscellaneous

12.1     Notices. Any and all notices, designations, consents, offers, acceptances and any other communications provided for herein shall be given in writing and shall be delivered either personally or by registered or certified mail, postage prepaid, which shall be addressed, in the case of the Company to both the Chief Financial Officer and the General Counsel of the Company at the principal office of the Company and, in the case of a Participant, to the Participant’s address appearing on the books of the Company or to the Participant’s residence or to such other address as may be designated in writing by the Participant.

 

  

6

  

12.2     Successors. The terms of this Sub-Plan shall be binding upon and inure to the benefit of the Company, its successors and assigns, and of each Participant and the beneficiaries, executors, administrators, heirs, and successors of the Participant.

12.3     Invalid Provision. The invalidity or unenforceability of any particular provision thereof shall not affect the other provisions hereof, and this Sub-Plan shall be construed in all respects as if such invalid or unenforceable provision had been omitted.

12.4     Governing Law. This Sub-Plan and the rights of the Participant hereunder shall be construed and determined in accordance with the laws of the State of Texas.

12.5     Headings. The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for interpretation or construction, and shall not constitute a part, of this Sub-Plan.

12.6     Resolution of Disputes.  Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be resolved by the Committee.  Any resolution made hereunder by the Committee shall be effective, final, binding and conclusive on the Participant and the Company for all purposes.

 

  

7

  

 

Attachment 1

 

Proposed 2011 Performance Goals and Weights

Versus Award Opportunity Earned

	
Level of 

Performance 

Achievement

	 	
Adjusted 

Cash Flow 

from 

Operations

	 	 	
Client 

Investment 

Results

	 	 	
Net New 

Client 

Money

	 	 	
Expenses 

as 

Percentage 

of Revenue

	 	 	
% of Target 

Award Earned

	 	 	
Discretionary

	 
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
(Weight)

	 	 	(30	)%	 	 	(20	)%	 	 	(20	)%	 	 	(10	)%	 	 	 	 	 	(20	)%
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Target

	 	 	100	%	 	 	100	%	 	 	100	%	 	 	100	%	 	 	100	%	 	 	100	%
	  	 	 	95	%	 	 	95	%	 	 	95	%	 	 	105	%	 	 	80	%	 	 		 
	  	 	 	90	%	 	 	90	%	 	 	90	%	 	 	110	%	 	 	60	%	 
	  	 	 	85	%	 	 	85	%	 	 	85	%	 	 	115	%	 	 	40	%	 
	  	 	 	80	%	 	 	80	%	 	 	80	%	 	 	120	%	 	 	30	%	 
	
Min Acceptable

	 	 	75	%	 	 	75	%	 	 	75	%	 	 	125	%	 	 	20	%	 
	  	 	
<75

	% 	 	
<75

	% 	 	
<75

	% 	 	
>125

	% 	 	 	0	%	 	 	0	%

 

  

8

  

 

Attachment 2

  

Proposed 2011 Participants and Award Targets

 

	
Title

	
Targeted Award

	
Chairman/Chief Executive Officer

	
175% of salary

175% of salary

	
President

	
EFS Chairman/Chief Executive Officer

	
175% of EFS salary

	
SMH EVP High Net Worth

	
150% of salary

	
Corporate Chief Financial Officer

	
150% of salary

	
Chief Information Officer

	
150% of salary

	
Chief Operations

	
150% of salary

	
EVP Corporate

	
150% of salary

	
Legal Counsel

	
120% of salary

	
SMH Controller

	
40% of salary

	
EFS Chief Financial Officer (with Division responsibility)

	
40% of salary

	
SMH Chief Compliance Officer

	
35% of salary

35% of salary

	
EFS Chief Compliance Officer

	
Vice President Information Technology

	
35% of salary

	
Chief Technology Officer

	
35% of salary

	
Director, Financial Reporting

	
35% of salary

	
SVP Operations

	
20% of salary

20% of salary

20% of salary

	
SMH Administrative Manager

	
VP Human Resources

	
VP Human Resources/Training

	
20% of salary

	
VP Marketing & Communication

	
30% of salary

	
SVP Operations

	
20% of salary

	
VP Operations

	
20% of salary

	
Administrative Manager

	
20% of salary

  

9

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00190-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00190-of-00352.parquet"}]]