Document:

EX-10.1 REDEMPTION AGREEMENT

 

Exhibit 10.1

REDEMPTION AGREEMENT

     This REDEMPTION AGREEMENT (this “Agreement”) dated as of June 29, 2006, is entered into by and
between Standard Management Corporation, and Indiana corporation (“Seller”) and Capital Assurance
Corporation, a Delaware corporation (“Buyer”).

W
I T N E S S E T H

     WHEREAS, Seller and Buyer entered into that certain Stock and Asset Purchase Agreement dated
as of February 9, 2005 (the “Purchase Agreement”) whereby Buyer issued to Seller 5,000 shares of
Series A Preferred Stock with an initial aggregate liquidation preference of $5,000,000 (the
“Preferred Shares”) as part of the Purchase Price (capitalized terms not otherwise defined hereby
shall have the meanings set forth in the Purchase Agreement); and

     WHEREAS, as set forth in the Purchase Agreement, Seller and Buyer mutually agreed to negotiate
in good faith to resolve all issues with respect to the calculation of the Final Cash Consideration
and a resolution with respect to the Final Cash Consideration has been reached (such resolution to
be reflected in separate documentation between the parties); and

     WHEREAS, as set forth in the Purchase Agreement, Seller agreed to indemnify Buyer and its
affiliates for Buyer Losses arising out of certain Actions set forth on Schedule 3.05 of the
Purchase Agreement to the extent the Buyer Losses exceed, in the aggregate, the litigation reserves
reflected in the calculation of the Final Cash Consideration; and

     WHEREAS, Seller desires for Purchaser to redeem the Preferred Shares and Buyer desires to so
redeem the Preferred Shares.

     NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set
forth herein, the parties hereto agree as follows:

     1. Agreement to Redeem Preferred Shares. Upon the terms and subject to the conditions
set forth in this Agreement, simultaneously with the execution of this Agreement, Seller shall
assign and deliver to Buyer, and Buyer shall redeem from Seller, the Preferred Shares. The
certificate for the Preferred Shares shall, when so delivered by Seller to Buyer, be duly endorsed
for transfer to the Buyer, or have an executed stock power endorsed to Buyer attached to the
certificate.

     2.  Agreement to Terminate the Pledge Agreement. Upon the terms and subject to the
conditions set forth in this Agreement, simultaneously with the execution of this Agreement, Seller
and Buyer agree that the Pledge Agreement is hereby terminated.

     3. Release. Upon the terms and subject to the conditions set forth in this Agreement,
simultaneously with the execution of this Agreement, Seller agrees to release Buyer, and Buyer
agrees to release Seller from any future obligations related to the Preferred Shares.

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     4. Redemption Price. As consideration for the redemption of the Preferred Shares and
the other terms and conditions set forth in this Agreement, Buyer agrees to pay Seller the sum of
One Million Twenty Thousand Dollars ($1,020,000) (the “Redemption Price”), payable in two equal
amounts of Five Hundred Ten Thousand Dollars ($510,000), the first payable simultaneously with the
execution of this Agreement and the second payable on June 30, 2006. The parties agree that the
Redemption Price consists of the agreed value of the Preferred Shares of One Million Five Hundred
Thousand Dollars ($1,500,000) reduced by (i) Three Hundred Thousand Dollars ($300,000) as an
adjustment to reflect the resolution of the issues with respect to the calculation of the Final
Cash Consideration, (ii) One Hundred Seventy Thousand Dollars ($170,000) to reflect certain
outstanding legal fees and expenses incurred in connection with the Actions, and (iii) Ten Thousand
Dollars ($10,000) to reflect the legal fees and other expenses of the Buyer associated with the
redemption of the Preferred Shares. Seller and Buyer agree that the payment of the Redemption
Price is final and not subject to future adjustment.

     5. Additional Consideration. As additional consideration for the Preferred Shares,
Buyer hereby releases and discharges the Seller Indemnified Parties from any further
indemnification obligations under Section 11.01(a)(iv) of the Purchase Agreement (relating to the
Actions) or any Action listed on Exhibit “A”.

     6. Seller’s Representations and Warranties. Seller represents and warrants that it
has good title to the Preferred Shares, free and clear of all pledges, warrants, liens, charges,
encumbrances, security interests, voting trusts or agreements, proxies, unpaid taxes, adverse
claims and other claims of whatever nature, other than those created under the Pledge Agreement.
Seller also represents and warrants that the transactions contemplated in this Agreement have been
duly authorized by Seller’s Board of Directors and when consummated will be valid and binding
obligations of Seller and will not violate: (a) any court order, decree, agreement or other
document to which Seller is a party; (b) Seller’s Articles of Incorporation or By-Laws; or (c) any
Applicable Law.

     7. Buyer’s Representations and Warranties. Buyer represents and warrants that the
transactions contemplated in this Agreement have been duly authorized by Buyer’s Board of Directors
and when consumed will be valid and binding obligations of Buyer and will not violate: (a) any
court order, decree, agreement or other document to which Buyer is a party; (b) the Buyer’s
Articles of Incorporation or By-Laws; or (c) any Applicable Law.

     8. Entire Agreement. This Agreement contains the entire agreement between the parties
with respect to the subject matter hereof and thereof and supersede all prior agreements, written
or oral, with respect thereto.

     9. Waivers and Amendments; Preservation of Remedies. This Agreement may be amended,
superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written
instrument signed by each of the parties or, in the case of a waiver, by the party waiving
compliance. No delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any
right, power, remedy or privilege, nor any single or partial exercise of any such right, power,
remedy or privilege, preclude any further exercise thereof or the exercise of any

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other such right, remedy, power or privilege. The rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies that any party may otherwise have at law
or in equity.

     10. Governing Law; Consent to Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of Indiana, without giving effect to the
principles of conflicts of laws thereof. The parties hereto irrevocably consent to the
jurisdiction of, and venue in, any federal or state court of competent jurisdiction located in
Indianapolis, Indiana, in connection with any dispute based on or arising out of or in connection
with this Agreement.

     11. Binding Effect; No Assignment. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors, assigns and legal representatives,
whether by merger, consolidation or otherwise. This Agreement may not be assigned by any party
without the prior written consent of the other parties hereto.

     12. Expenses. Except as otherwise provided herein, the parties hereto shall each bear
their respective expenses incurred in connection with the negotiation, preparation, execution, and
performance of this Agreement and the transactions contemplated hereby.

     13. Counterparts. This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same instrument. Each counterpart may consist
of a number of copies hereof each signed by less than all, but together signed by all, of the
parties hereto.

     14. Headings. The headings in this Agreement are for reference only, and shall not
affect in any way the meaning or interpretation of this Agreement.

     15. Interpretation. The parties acknowledge and agree that they may pursue judicial
remedies at law or equity in the event of a dispute with respect to the interpretation or
construction of this Agreement. Whenever the words “include,” “includes” or “including” are used
in this Agreement, they shall be deemed to be followed by the words “without limitation.” The
phrases “the date of this Agreement,” “the date hereof” and terms of similar import, unless the
context otherwise requires, shall be deemed to refer to the date set forth in the first paragraph
of this Agreement. The words “hereof,” “herein,” “hereby” and other words of similar import refer
to this Agreement as a whole unless otherwise indicated. Whenever the singular is used herein, the
same shall include the plural, and whenever the plural is used herein, the same shall include the
singular, where appropriate.

     16. Severability. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so

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broad as to be unenforceable, that provision shall be interpreted to be only so broad as is
enforceable.

     17. No Prejudice. This Agreement has been jointly prepared by the parties hereto and
the terms hereof shall not be construed in favor of or against any party on account of its
participation in such preparation.

[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.

	 	 	 	 	 
	 	STANDARD MANAGEMENT CORPORATION

 	 
	 	By:  	/s/ Ronald D. Hunter
 	 
	 	 	Name:  	Ronald D. Hunter 	 
	 	 	Title:  	Chairman, Chief Executive Officer

and President 	 
	 

	 	 	 	 	 
	 	CAPITAL ASSURANCE CORPORATION

 	 
	 	By:  	/s/ Michael P. Kilkenny
 	 
	 	 	Name:  	Michael P. Kilkenny 	 
	 	 	Title:  	General Counsel and Secretary 	 
	 

-5-EX-10.2 SETTLEMENT AGREEMENT

 

Exhibit 10.2

SETTLEMENT AGREEMENT AND MUTUAL RELEASE

     This Settlement Agreement and Mutual Release (“Agreement”) is made and entered into on June
30th, 2006, by and between Paul B. (Pete) Pheffer (“Pheffer”) and Standard Management
Corporation (“Standard Management”) (collectively the “Parties”).

RECITALS

     WHEREAS, Standard Management employed Pheffer as President and CFO of Standard Management; and

     WHEREAS, on or about January 1, 2003, Standard Management and Pheffer entered into an
Employment Agreement (the “Employment Agreement”), which defined the terms and conditions of his
employment, including Pheffer’s right to certain severance benefits; and

     WHEREAS, Pheffer resigned his employment with Standard Management on May 27, 2005; and

     WHEREAS, Pheffer claims that Standard Management owes him severance benefits pursuant to the
Employment Agreement, which claim Standard Management disputes; and

     WHEREAS, pursuant to the Employment Agreement, the Parties submitted their dispute over the
severance benefits to the American Arbitration Association (“AAA”) for binding arbitration, which
was assigned Matter No. 52 166 00424 05; and

     WHEREAS, the Parties now desire to fully and completely settle and dispose of all matters of
any kind or nature between them, including Pheffer’s entitlement to severance benefits;

     NOW THEREFORE, in consideration of the foregoing, and the promises and covenants to be
performed as herein set forth, the Parties hereto agree as follows:

     1. Acknowledgement of Claim. To settle the above dispute, Standard Management agrees
to a claim in favor of Pheffer for severance benefits in the amount of $4,150,000 (the “Severance
Claim”) which is due without offset, counterclaim or reduction of any kind.

     2. Settlement Payments. In return for the promises and covenants contained herein,
Standard Management agrees to pay Pheffer and Pheffer agrees to accept in full settlement of the
Severance Claim three (3) settlement payments (individually a “Settlement Payment”) which total
Nine Hundred Thousand Dollars and 00/100 ($900,000.00) (collectively the “Settlement Payments”), as
follows:

	 	a.	 	Standard Management shall pay Pheffer a lump sum of Fifty
Thousand Dollars and 00/100 ($50,000.00) on or before July 31, 2006;
	 
	 	b.	 	Standard Management shall pay Pheffer a lump sum of Four
Hundred and

 

 

	 	 	 	Fifty Thousand Dollars and 00/100 ($450,000.00) on or before August 31, 2006;
and
	 
	 	c.	 	Standard Management shall pay Pheffer a lump sum of Four
Hundred Thousand Dollars and 00/100 ($400,000.00) on or before September 30,
2006.

     The Settlement Payments shall be made without deduction and shall be sent by way of wire
transfer on or before the due date pursuant to the wire transfer instruction provided to Standard
Management by Pheffer contemporaneously with the execution of this document. All amounts owed
under this Agreement, including any amount owed under the accompanying Agreed Judgment (attached as
“Exhibit A”), shall inure to the benefit of the lawful heirs of Pheffer in the event of his death
prior to the full performance of this Agreement by the Parties.

     3. Entry of Agreed Judgment. The Parties hereto shall execute, but will not file, the
attached Agreed Judgment (Exhibit A) in the amount of Four Million One Hundred and Fifty Thousand
Dollars and 00/100 ($4,150,000.00) contemporaneously with the execution of this Agreement. The
Parties agree that in the event Standard Management fails to timely make any Settlement Payment
under this Agreement, Pheffer may immediately and without prior notice to Standard Management file
the Agreed Judgment with any court of competent jurisdiction. Should Standard Management satisfy
its obligation to pay the Settlement Payments herein, the Agreed Judgment shall be deemed satisfied
and discharged.

     4. Preservation of Pheffer’s Severance Claim. Standard Management acknowledges and
agrees that an essential component of the consideration for Pheffer to enter into this Agreement is
the full, final and indefeasible payment of the Settlement Payments and that the invalidation,
setting aside or avoidance of all or any part of the Settlement Payments deprives Pheffer of the
benefits of this Agreement. Accordingly, notwithstanding any other term or provision of this
Agreement, it is agreed (a) if Pheffer fails to receive the Settlement Payments from Standard
Management as provided in paragraph 2, or (b) if pursuant to any order from a court of competent
jurisdiction, the Settlement Payments or any portion thereof, is invalidated, declared to be
fraudulent or preferential, or set aside resulting in Pheffer’s required and actual repayment of
any portion of the Settlement Payments to a trustee, receiver, or any other party under any
Bankruptcy Act or Code, State or Federal law, common law or equitable doctrine, then:

	 	i.	 	The Severance Claim against Standard Management described in paragraph
1 of this Agreement shall be reinstated as acknowledged by Standard Management
on execution of this Agreement;
	 
	 	ii.	 	Pheffer shall be entitled, in his sole discretion, to assert the
Severance Claim, in any appropriate context, including but not limited to the
assertion and filing of a proof of claim within any case under Title 11, U.S.
Code, or any similar State or Federal law for the relief of debtors or for the
enforcement of creditors’ rights; and

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	 	iii.	 	The running of any statute of limitations, laches or other time
limitation which otherwise would bar the assertion of the Severance Claim shall
be deemed suspended and any defense related thereto shall be deemed waived by
Standard Management.

Notwithstanding the foregoing, the provisions of subsections 4.i., ii., and iii., above, shall not
apply if Pheffer, directly or indirectly, initiates a civil action to have any portion of the
Settlement Payments invalidated, declared preferential or fraudulent or otherwise set aside; and,
provided further, the provisions of subsection 4.b. above shall apply only if Standard Management
fails within 48 hours after entry of such order to pay by wire transfer the amount of such required
and actual repayment. Pheffer shall notify Standard Management within five (5) business days of
receiving lawful service of a civil action seeking to invalidate the Settlement Payments.

     5. Dismissal of Arbitration. Contemporaneously with the execution of this Agreement,
and the Agreed Judgment, the Parties shall execute a Stipulation of Dismissal (“Exhibit B”) of the
AAA arbitration (Matter No. 52 166 00424 05), each side bearing its own costs and attorneys fees.
Any arbitration and mediation fees and costs shall be divided equally between the parties.

     6. Mutual Release. Pheffer and Standard Management, on behalf of themselves, their
heirs, next of kin, personal representatives, affiliated entities, subsidiaries, assigns and
successors in interest, each hereby IRREVOCABLY, UNCONDITIONALLY AND GENERALLY mutually release,
acquit and forever discharge to the fullest extent permitted by law the other and the other’s
heirs, personal representatives, predecessors, successors, affiliated entities, subsidiaries,
assigns, agents, members, shareholders, owners, directors, officers, employees, representatives,
attorneys, insurance carriers, benefit plans and all other persons acting by, through, under or in
concert with any of them, from any and all claims, allegations, charges, complaints, liabilities,
damages, lawsuits, actions, causes of action, rights, demands, costs, losses, debts, reinstatement,
instatement, employment, reemployment, back pay, front pay, lost wages, unemployment compensation,
liquidated damages, benefits, obligations, promises, agreements, controversies, attorneys’ fees,
costs, taxes, and rights of any kind or nature whatsoever, in law or in equity, whether known or
unknown, fixed or contingent by any reason whatsoever without exception or reservation on matters
arising prior to and up to the date of this Agreement, including but not limited to all matters
arising out of or relating to Pheffer’s employment with or the termination of his employment from
Standard Management, except for any matter related to the enforcement of the rights and obligations
under this Agreement including, without limitation, the enforcement of the Agreed Judgment (Exhibit
A) attached hereto and described in paragraph 3 or the provisions of paragraph 4.

     This release is intended by the Parties to be all-encompassing and to act as a full and total
release of any claims that each may have or had against the other, including but not limited to,
any federal or state law or regulation or local ordinance dealing with either employment or
employment discrimination such as race, color, sex, religion, national origin, age, disability,
veteran status or citizenship, or any contract, whether oral or written, expressed or implied, or
any claim in common law; provided, however, this release shall not effect any rights or obligations
existing under this

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Agreement including, without limitation, the Agreed Judgment (Exhibit A) attached hereto and
described in paragraph 3 or the provisions of paragraph 4.

	 	7.	 	Mutual Non-Disparagement and Confidentiality. 

	 	a.	 	Pheffer agrees that, for a period of two (2) years following
his execution of this Agreement, he will not make any statement now, or at any
time in the future, to representatives of any media or to any other person or
organization, which are critical or disparaging of Standard Management’s
reputation, character, or competence, or of that of Standard Management’s
affiliates, subsidiaries, directors, officers, members, managers, executives,
employees or agents. Pheffer further agrees that the terms of this Agreement
shall remain confidential and shall not be disclosed in any matter, except to
his spouse, attorneys, accountants, and others with a legitimate need to know
for legal or business purposes, or as otherwise required by law. Nothing
contained in this Agreement shall be interpreted or is intended to preclude
Pheffer from testifying truthfully pursuant to any government or regulatory
investigation or pursuant to subpoena or other court order.
	 
	 	b.	 	Standard Management agrees that, for a period of two (2) years
following its execution of this Agreement, neither Standard Management nor any
of its directors or officers in their representative capacities will make any
statement now, or at anytime in the future, to representatives of any media or
to any other person or organization, which are critical or disparaging of
Pheffer’s reputation, character, or competence. Standard Management further
agrees that the terms of this Agreement shall remain confidential and shall not
be disclosed in any matter, except to Standard Management’s officers,
attorneys, accountants, or as otherwise required by law; provided that,
Standard Management may disclose the terms of this Agreement to any person or
entity that Standard Management determines in its sole discretion has a need to
know. Nothing contained in this Agreement shall be interpreted or is intended
to preclude Standard Management’s employees, directors, agents or
representatives from testifying truthfully pursuant to any government or
regulatory investigation or pursuant to subpoena or other court order.

	 	8.	 	Miscellaneous. 

	 	a.	 	Entire Agreement. This Agreement constitutes the
entire agreement of the Parties with respect to the subjects specifically
addressed herein, and supersedes any prior agreements, understandings, or
representations, oral or written, on the subjects specifically addressed
herein.
	 
	 	b.	 	Modification. This Agreement may not be amended,
supplemented, or modified except by a written document signed by both Pheffer
and a duly authorized officer of Standard Management.

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	 	c.	 	Assignment. This Agreement shall inure to the benefit
of, and shall be binding upon, the Parties and their heirs, administrators,
successors and assigns. Neither Pheffer nor Standard Management may assign
this Agreement or any of its rights, interests, or obligations hereunder
without the prior written approval of the other party.
	 
	 	d.	 	Headings and Interpretation. The headings in this
Agreement are intended solely for convenience of reference and shall be given
no effect in the construction or interpretation of this Agreement.
	 
	 	e.	 	Governing Law; Choice of Forum; Mediator Retaining
Jurisdiction. Standard Management and Pheffer acknowledge and agree that
this Agreement shall be performed, interpreted and enforced in accordance with
the laws of the State of Indiana, notwithstanding any state’s choice-of-law
rules to the contrary. Any dispute or issue arising between the Parties
relating to this Agreement, the enforcement of this Agreement, or any other
related matter, shall be submitted for final, binding and non-appealable
arbitration to the Mediator, James W. Riley, Jr., with each Party bearing
one-half the cost of the Mediator’s services. In the event, the Mediator is
unwilling or unable to serve as arbitrator, an arbitrator shall be selected
through the American Arbitration Association. In considering the matter, the
Mediator may require the Parties to submit evidence, arguments, or make any
other submission that the Mediator deems helpful in resolving the dispute.
	 
	 	f.	 	No Waiver. The failure of Pheffer or Standard
Management to insist in any one or more instances upon performance of any of
the provisions of this Agreement or to pursue their respective rights hereunder
shall not be construed as a waiver of any such provisions or the relinquishment
of any such rights.
	 
	 	g.	 	Counterparts. This Agreement may be executed in one or
more counterparts (or upon separate signature pages bound together into one or
more counterparts), all of which taken together shall constitute one Agreement.

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     IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day and year provided
herein.

	 	 	 	 	 
	Paul B. (Pete) Pheffer
	 	 	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	    /s/ Paul B. Pheffer	 	Date:      6-30-06
	 

	 	 	 	 

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	Standard Management Corporation,
	 	 	 	 
	By It’s Authorized Agent:
	 	 	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	      /s/
Ronald D. Hunter

	 	Date:	 	      6-30-06
	 

	 	 	 	 
	Ronald D. Hunter,
	 	 	 	 
	Chairman, Chief Executive Office and President
	 	 	 	 

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