SENIOR SUBORDINATED CONVERTIBLE NOTE


$4,000,000                         Dated:  November 8, 1996


     FOR  VALUE RECEIVED, the undersigned, STANDARD MANAGEMENT CORPORATION,
an Indiana  corporation  ("Maker" or the "Company"), promises to pay to the
order of GREAT AMERICAN RESERVE  INSURANCE  COMPANY,  a  Texas  corporation
("Lender"),  in immediately available funds at the office of the Lender  at
11825 North Pennsylvania  Street,  Carmel,  Indiana  46032 or at such other
location  as  the  holder  hereof  may  designate from time  to  time,  the
principal amount of Four Million Dollars  ($4,000,000)  as  set  forth in a
Note Agreement by and between Lender and Maker, (the "Agreement")  to which
this is attached and incorporated therein, together with interest from  the
date  hereof  (computed on the basis of a year of 360 days of twelve 30-day
months) on the  outstanding  principal balance, to be fixed at a rate equal
to 12% per annum or 14% per annum, in accordance with the following terms:

     1.   Principal and all unpaid  interest which accrues thereon shall be
payable  in  full  at  December  31,  2003  (hereinafter  the  "Maturity").
Interest on the outstanding principal balance  of  this Note at the rate of
12% per annum, shall be due and payable in cash on a  quarterly  basis,  on
January  1, April 1, July 1 and October 1 (commencing January 1, 1997).  At
its option  until December 31, 2000, the Company may pay quarterly interest
by notifying  the  Lender  in  writing  to  add  the amount of the interest
payment  then  due  and  payable  to  the principal amount  of  this  Note;
PROVIDED, HOWEVER, that for all periods  in  which  the  Company makes such
election  this Note shall bear interest at a rate of 14% per  annum.   This
Note  will bear  interest  on  overdue  principal  (including  any  overdue
prepayment  of  principal) and on any overdue installment of interest at 3%
per annum over the  per  annum  interest provided for hereunder.  Maker may
prepay part or all of the principal  due under this Note in accordance with
Section 2 of the Agreement.

     2.   This Note has been issued pursuant  to,  and  in conjunction with
the Agreement pursuant to which Maker agreed to sell, and  Lender agreed to
purchase,  the Senior Subordinated Convertible Note Due December  31,  2003
evidenced by  this  instrument.   The terms and provisions of the Agreement
shall govern the terms and provisions of this Note and any conflict between
this Note and the Agreement shall be resolved by the Agreement.

     3.   This Note may not be offered  for  sale  or  sold,  or  otherwise
transferred in any transaction which would constitute a sale thereof within
the  meaning  of  the  Securities Act of 1933, as amended (the "1933 Act"),
unless (i) such security  has  been  registered for sale under the 1933 Act
and registered or qualified upon applicable  state securities laws relating
to  the  offer  and  sale  of  securities;  or  (ii)  exemptions  from  the
registration  requirements  of  the  1933  Act  and  the  registration   or
qualification  requirements of all such state securities laws are available
and the Maker shall  have  received  an  opinion of counsel satisfactory to
Maker that the proposed sale or other disposition of such securities may be
effected without registration under the 1933  Act  and  would not result in
any  violation  of  any  applicable state securities laws relating  to  the
registration or qualification  of  securities  for sale, such opinion to be
satisfactory to counsel to Maker.

     4.   The indebtedness evidenced by this Note  is  subordinated  to the
prior  payment when  due of the principal of, premium, if any, and interest
on all "Senior  Indebtedness" (as defined below) of Maker.  Therefore, upon
any distribution of its assets in a liquidation or dissolution of Maker, or
in  bankruptcy,  reorganization,   insolvency,   receivership   or  similar
proceedings  relating  to  Maker,  Lender  will  not be entitled to receive
payment of the indebtedness evidenced by this Debenture  until  the holders
of Senior Indebtedness are paid in full.  Upon the occurrence of  an "Event
of  Default"  with  respect  to  any Senior Indebtedness, as such Event  of
Default  may  be  defined  in  such  instrument   evidencing   the   Senior
Indebtedness,  to  the extent such Event of Default permits the holders  of
such Senior Indebtedness  to  accelerate  the  maturity  thereof, then upon
written  notice  thereof  given  to  Maker  by  any  holder of such  Senior
Indebtedness or their representative, no payment shall  be made by Maker in
respect  to this Note until Maker has cured such Event of  Default  to  the
satisfaction   of   the  holders  of  such  Senior  Indebtedness.   "Senior
Indebtedness" means the  indebtedness  outstanding  under  the  Amended and
Restated Revolving Line of Credit between the Maker and Fleet National Bank
dated as of November 8, 1996.

     5.   The Agreement contains a statement of the events of default under
this Note.

     6.   The unpaid principal of this Note is convertible at the option of
the  Lender,  in  whole  or  in  part,  upon  surrender of this Note at the
principal  office of the Company, into restricted  shares  of  the  Maker's
common stock  at a conversion price ("Conversion Price") equal to $5.75 per
share of the Company's  common stock; PROVIDED, however that if the Company
delivers a notice providing for the prepayment of the entire amount due and
owing under the Note issue  to  the  Lender  or its affiliate within twelve
(12) months of the date hereof, the Conversion  Price  shall  be  equal  to
$6.00  per  share.   If  the  Company  delivers  a notice providing for the
prepayment of the amount due, the notice shall contain an indication in the
form  of  a  bank commitment, registration statement  or  other  indication
satisfactory to  the  Lender that the Company has the ability to prepay the
amount due.  Upon such  conversion, all principal due under this Note shall
be discharged and the Company  released  from  all  obligations thereunder,
however, accrued interest shall be paid to the date of  conversion.  At the
option of the Lender, accrued interest may also be subject to conversion in
the  same  manner as principal.  The conversion price of the  Note  may  be
subject to adjustment in the manner provided at Paragraph 7.

     The shares of the Company's common stock issuable upon the exercise of
the conversion  feature  shall  be  "restricted securities" as that term is
defined under Rule 144 of the 1933 Act  and,  as  a consequence, may not be
sold  or  otherwise transferred except pursuant to registration  under  the
1933 Act or an available exemption therefrom.

     7.   The  number  of  shares issuable to the Lender upon conversion of
this Note is subject to adjustment from time to time as follows:

     7.1  Reorganization, Merger  or  Sale of Assets.  If at any time while
this Note, or any portion thereof, is outstanding  there  shall  be  (i)  a
reorganization  (other  than  a  combination, reclassification, exchange or
subdivision of shares otherwise provided  for  herein),  (ii)  a  merger or
consolidation with or into another corporation in which the Company  is not
the  surviving  entity, or a reverse triangular merger in which the Company
is the surviving  entity  but  the  shares  of  the Company's capital stock
outstanding immediately prior to the merger are converted  by virtue of the
merger  into  other  property, whether in the form of securities,  cash  or
otherwise, or (iii) a  sale  or  transfer  of  the Company's properties and
assets as, or substantially as, an entirety to any  other  person, then, as
part  of  such  reorganization,  merger,  consolidation, sale or  transfer,
lawful  provision  shall be made so that the  holder  of  this  Note  shall
thereafter be entitled to receive upon conversion of the Note the number of
shares  of  stock  or  other  securities  or   property  of  the  successor
corporation resulting from such reorganization, merger, consolidation, sale
or transfer that a holder of the shares deliverable upon conversion of this
Note  would  have  been  entitled   to   receive  in  such  reorganization,
consolidation, merger, sale or transfer if  this  Note  had  been converted
immediately  before  such  reorganization, merger, consolidation,  sale  or
transfer, all subject to further  adjustment as provided in this Section 7.
The  foregoing provisions of this Section  7.1  shall  similarly  apply  to
successive  reorganizations,  consolidations,  mergers, sales and transfers
and to the stock or securities of any other corporation  that  are  at  the
time  receivable  upon  the  conversion  of  this  Note.   If the per share
consideration  payable  to  Lender for shares in connection with  any  such
transaction is in a form other than cash or marketable securities, then the
value of such consideration shall  be  determined  in  good  faith  by  the
Company's  Board  of  Directors.  In all events, appropriate adjustment (as
determined in good faith by the Company's Board of Directors) shall be made
in the application of the  provisions  of  this  Note  with  respect to the
rights  and interest of Lender after the transaction, to the end  that  the
provisions  of  this  Note shall be applicable after that event, as near as
reasonably may be, in relation  to any shares or other property deliverable
after that event upon conversion of this Note.

     7.2  Reclassification.  If the  Company,  at any time while this Note,
or  any  portion  thereof,  remains  outstanding,  by  reclassification  of
securities  or otherwise, shall change any of the securities  as  to  which
conversion rights under this Note exist into the same or a different number
of securities  of  any  other  class or classes, this Note shall thereafter
represent the right to acquire such  number and kind of securities as would
have  been  issuable  as the result of such  change  with  respect  to  the
securities that were subject  to  the  conversion  rights  under  this Note
immediately  prior  to  such  reclassification  or  other  change  and  the
Conversion Price or number of shares received upon such conversion shall be
appropriately  adjusted,  all  subject to further adjustment as provided in
this Section 7.

     7.3  Split, Subdivision or  Combination  of Shares.  If the Company at
any time while this Note, or any portion thereof, remains outstanding shall
split, subdivide or combine the securities as to  which  conversion  rights
under  this  Note  exist, into a different number of securities of the same
class,  the  number  of   shares   issuable   upon   conversion   shall  be
proportionately  decreased  in  the  case  of  a  split  or  subdivision or
proportionately increased in the case of a combination.

     7.4  Adjustments  for  Dividends  in  Stock  or  Other  Securities  or
Property.   If  while  this Note or any portion hereof, remains outstanding
and unexpired the holders  of  the securities as to which conversion rights
under this Note exist at the time  shall have received, or, on or after the
record date fixed for the determination  of  eligible  stockholders,  shall
have  become  entitled  to  receive,  without  payment  therefor,  other or
additional  stock or other securities or property (other than cash) of  the
Company by way  of  dividend,  then  and  in  each  case,  this  Note shall
represent  the right to acquire upon conversion, in addition to the  number
of shares of  the  security  receivable  upon  conversion of this Note, and
without payment of any additional consideration  therefor,  the  amount  of
such  other or additional stock or other securities or property (other than
cash) of  the  Company  that  such  holder  would  hold on the date of such
conversion had it been the holder of record of the security receivable upon
conversion of this Note on the date hereof and had thereafter,  during  the
period  from  the date hereof to and including the date of such conversion,
retained such shares and/or all other additional stock, other securities or
property available  by  this  Note  as aforesaid during such period, giving
effect to all adjustments called for  during  such period by the provisions
of this Section 7.

     7.5  Issuance of Shares Below Conversion Price.

     (a)  If while this Note, or any portion hereof,  remains  outstanding,
the  Company  shall  offer  and sell Additional Shares of Common Stock  (as
hereinafter defined) for consideration  per  share less than the Conversion
Price in effect immediately prior to the issuance of such Additional Shares
of Common Stock, the Conversion Price in effect  immediately  prior to each
such  issuance  shall forthwith be adjusted upon such issuance to  a  price
equal to the price  paid  per  share  for  such Additional Shares of Common
Stock.

     (b)  For the purpose of the calculations provided in this Section 7.5,
if at any time or from time to time after the date hereof the Company shall
issue  any  rights  or  options  of the purchase  of,  or  stock  or  other
securities convertible into, Additional Shares of Common Stock (such Common
Stock  or  securities  being  hereinafter   referred   to  as  "Convertible
Securities"),  then,  and  in  each  case,  if  the  Effective  Price   (as
hereinafter  defined)  of  such  rights,  options or Convertible Securities
shall be less than the Conversion Price, the  Company  shall  be  deemed to
have  issued  at  the  time  of  the  issuance of such rights or options or
Convertible Securities the maximum number  of  Additional  Shares of Common
Stock issuable upon exercise or conversion thereof and to have  received as
consideration for the issuance of such shares an amount equal to  the total
amount  of  the consideration, if any, payable to the Company upon exercise
or conversion  of such options or rights.  "Effective Price" shall mean the
quotient determined  by  dividing the total of all of such consideration by
such maximum number of Additional  Shares  of  Common  Stock.   No  further
adjustment  shall  be made as a result of the actual issuance of Additional
Shares of Common Stock on the exercise of any such rights or options or the
conversion of any such  Convertible Securities.  In the case of Convertible
Securities which have a conversion  price  which  is  based, in whole or in
part, upon a discount of the market price or value of the  Company's common
stock,  then  for  the  purposes  of  calculating the Effective Price,  the
consideration  shall  be deemed to include  the  minimum  conversion  price
payable to Company.

     If any such rights  or options or the conversion privilege represented
by any such Convertible Securities  shall  expire  prior  to  the  Maturity
hereof  without  having  been  exercised,  the  adjustment to the number of
shares  available hereunder upon the issuance of such  rights,  options  or
Convertible  Securities  shall  be  readjusted to the number of shares that
would have been in effect had an adjustment been made on the basis that the
only Additional Shares of Common Stock so issued were the Additional Shares
of Common Stock, if any, actually issued  or  sold  on the exercise of such
rights  or options or rights of conversion of such Convertible  Securities,
and such Additional Shares of Common Stock, if any, were issued or sold for
the consideration  actually received by the Company for the granting of all
such rights or options,  whether  or  not exercised, plus the consideration
received  for  issuing  or  selling  the  Convertible  Securities  actually
converted plus the consideration, if any, actually  received by the Company
on the conversion of such Convertible Securities.

     (c)  For the purpose of the calculations provided  for in this Section
7.5, if at any time or from time to time after the date hereof  the Company
shall  issue  any  rights  or  options  for  the  purchase  of  Convertible
Securities, then, in each such case, if the Effective Price thereof is less
than the then Conversion Price, the Company shall be deemed to have  issued
at the time of the issuance of such rights or options the maximum number of
Additional  Shares  of  Common  Stock issuable upon conversion of the total
amount of Convertible Securities  covered  by such rights or options and to
have received as consideration for the issuance  of  such Additional Shares
of  Common  Stock an amount equal to the amount of consideration,  if  any,
received by the  Company  for  the issuance of such rights or options, plus
the consideration, if any, payable  to  the  Company upon the conversion of
such Convertible Securities.  "Effective Price"  shall  mean  the  quotient
determined  by  dividing  the  total  amount  of such consideration by such
maximum number of Additional Shares of Common Stock.  No further adjustment
of  such  Conversion Price adjusted upon the issuance  of  such  rights  or
options shall be made as a result of the actual issuance of the Convertible
Securities  upon  the exercise of such rights or options or upon the actual
issuance of Additional  Shares  of Common Stock upon the conversion of such
Convertible Securities.

     The provisions of subsection  (b)  above  for  readjustment  upon  the
expiration  of rights or options or the rights of conversion of Convertible
Securities, shall  apply  mutatis  mutandis  to  the  rights,  options  and
Convertible Securities referred to in this subsection (c).

     (d)  The term "Additional Shares of Common Stock" as used herein shall
mean  all  shares  of  common  stock issued or deemed issued by the Company
after the date hereof, other than  (i)  securities issued pursuant to or in
connection with the terms of the Agreement  and  this  Note; (ii) shares of
the Company's common stock issued upon conversion of convertible securities
or  the exercise of common stock purchase warrants outstanding  as  of  the
date  hereof;  (iii)  shares  of  the  Company's  common  stock issuable to
employees,  officers  or directors pursuant to the Company's  stock  option
plan; and (iv) shares of  the  Company's  common stock issued in connection
with the acquisition of a subsidiary.

     7.6  No Impairment.  Maker will not, by any voluntary action, avoid or
seek to avoid the observance or performance  of  any  of  the  terms  to be
observed  or  performed  hereunder  by Maker, but will at all times in good
faith assist in the carrying out of all  the  provisions  of this Section 7
and in the taking of all such action as may be necessary or  appropriate in
order to protect the rights of Lender against impairment.

     8.   Lender, by acceptance hereof, acknowledges that this Note and the
shares  to be issued upon conversion hereof are being acquired  solely  for
Lender's  own  account  and  not  as  nominee  for any other party, and for
investment, and that Lender will not offer, sell  or  otherwise  dispose of
this  Note  or any shares to be issued upon conversion hereof except  under
circumstances that will not result in a violation of applicable federal and
state securities  laws.   Upon  exercise  of  this  Note,  Lender shall, if
requested  by Maker, confirm in writing, in a form satisfactory  to  Maker,
that the shares  so  purchased  are  being acquired solely for Lender's own
account and not as a nominee for any other  party,  for investment, and not
with a view toward distribution or resale.

     All shares issued upon exercise hereof shall be  stamped  or imprinted
with  a  legend  in  substantially  the following form (in addition to  any
legend required by state securities laws):

THE SECURITIES REPRESENTED HEREBY HAVE  BEEN  ACQUIRED  FOR  INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.  SUCH SECURITIES
AND ANY SECURITIES OR SHARES ISSUED UPON CONVERSION THEREOF MAY NOT BE SOLD
OR  TRANSFERRED  IN  THE  ABSENCE  OF  SUCH  REGISTRATION  OR  AN EXEMPTION
THEREFROM UNDER SAID ACT.

     9.   Maker   covenants   that  during  the  term  that  this  Note  is
outstanding, Maker will reserve  from  its  authorized  and unissued Common
Stock  a  sufficient  number of shares to provide for the issuance  of  the
shares upon the conversion  of  this Note, from time to time, will take all
steps   necessary   to  amend  its  Certificate   of   Incorporation   (the
"Certificate") to provide  sufficient  reserves  of  shares of Common Stock
issuable upon the conversion of the Note.  Maker further covenants that all
shares that may be issued upon the conversion of this  Note  and payment of
the Conversion Price, all as set forth herein, will be free from all taxes,
liens  and  charges  in respect of the issue thereof (other than  taxes  in
respect of any transfer  occurring contemporaneously or otherwise specified
herein).  Maker agrees that its issuance of this Note shall constitute full
authority to its officers  who are charged with the duty of executing stock
certificates to execute the issue the necessary certificates for the shares
upon the conversion of this Note.

     10.  Whenever the number  of  shares  issuable or the Conversion Price
hereunder shall be adjusted pursuant to Section 7 hereof, the Company shall
issue a certificate signed by its Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment,  the  amount  of the
adjustment,  the  method  by  which such adjustment was calculated, and the
Conversion Price and number of  shares  purchasable  hereunder after giving
effect to such adjustment, and shall cause a copy of such certificate to be
mailed  (by  first-class  mail, postage prepaid) to Lender.   All  notices,
advices and communications  under  this  Note  shall be deemed to have been
given, if notice is given as specified in Section 9.7 of the Agreement.

     11.  Lender shall be entitled to the registration  rights set forth in
a  certain  Registration  Rights  Agreement  of even date herewith  by  and
between Maker and Lender.

     12.  Any term of this Note may be amended  with the written consent of
the Company and the Holder.  Any amendment effected in accordance with this
Section 12 shall be binding upon the Holder, each  future  holder  and  the
Company.  No waivers of, or exceptions to, any term, condition or provision
of  this  Note,  in  any  one  or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.

     13.  Maker and any other party now or hereafter liable for the payment
of  this  Note in whole or in part,  hereby  severally  (i)  waive  demand,
presentment  for payment, notice of nonpayment, protest, notice of protest,
notice of intent  to  accelerate,  notice  of  acceleration  and  all other
notice, filing of suit and diligence in collecting this Note, (ii) agree to
release  of  any party primarily or secondarily liable hereon, (iii)  agree
that the Lender  shall  not  be required first to institute suit or exhaust
its remedies hereon against Maker  or  others  liable  or  to become liable
hereon  or  to  enforce  its rights against them, and (iv) consent  to  any
extension or postponement  of time of payment of this Note and to any other
indulgence with respect hereto without notice thereof to any of them.

     14.  This Note will not  be  transferable  at  any time on or prior to
Maturity  except for transfers to affiliates, successors  to  the  ultimate
parent of the  Lender,  by operation of law, pursuant to a merger of Lender
into another entity or pursuant  to the sale of all or substantially all of
the assets of Lender that are in compliance  with  all  Federal  and  State
securities laws with respect to this Note.

     15.  This  Note  shall  bind Maker and its successors and assigns, and
the benefits hereof shall inure to the benefit of Lender and its successors
and assigns.  All references herein to "Maker" and "Lender" shall be deemed
to  apply  to  Maker and Lender,  respectively,  and  to  their  respective
successors and assigns.

     16.  The corporate law of the State of Indiana shall govern all issues
and questions concerning  the  relative  rights  of  the  Company  and  its
stockholders.   All  other questions concerning the construction, validity,
interpretation  and  enforceability  of  the  Note  and  the  exhibits  and
schedules hereto shall  be  governed  by, and construed in accordance with,
the laws of the State of Indiana, without  giving  effect  to any choice of
law or conflict of law rules or provisions (whether of the State of Indiana
or any other jurisdiction) that would cause the application  of the laws of
any jurisdiction other than the State of Indiana.

     17.  The Lender and the Maker agree to submit to personal jurisdiction
and  to waive any objection as to venue in the federal or state  courts  in
Hamilton  County, State of Indiana.  Service of process on the Maker or the
Lender in any  action  arising  out  of  or  relating to this Note shall be
effective  if  mailed to such party at the address  listed  in  Section  10
hereof.

                                   STANDARD MANAGEMENT CORPORATION



                         BY:  /S/ JOHN J. QUINN

                         TITLE: EXECUTIVE VICE PRESIDENT AND
                                CHIEF FINANCIAL OFFICER


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<PAGE>
                              FORM OF
                       NOTICE OF CONVERSION



TO:  STANDARD MANAGEMENT CORPORATION



     (1)  The undersigned  hereby  elects  to  purchase           shares of
Common  Stock  of STANDARD MANAGEMENT CORPORATION pursuant to the terms  of
the attached Note,  and  tenders herewith payment of the purchase price for
such shares in full.

     (2)  In converting this  Note,  the  undersigned  hereby  confirms and
acknowledges  that  the shares of Common Stock to be issued upon conversion
thereof are being acquired  solely  for  the account of the undersigned and
not as a nominee for any other party, and  for  investment,  and  that  the
undersigned will not offer, sell or otherwise dispose of any such shares of
Common Stock except under circumstances that will not result in a violation
of the Securities Act of 1933, as amended, or any state securities laws.

     (3)  Please  issue  a  certificate  or  certificates representing said
shares of Common Stock in the name of the undersigned or in such other name
as is specified below:



                                                           (Name)

     (4)  Please  issue  a  new  Note for the unexercised  portion  of  the
attached Note in the name of the undersigned  or  in  such other name as is
specified below:



                              (Name)





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