Document:

EX-4.1 SECURITIES PURCHASE AGREEMENT

 

EXHIBIT 4.1

SECURITIES PURCHASE AGREEMENT

LAURUS MASTER FUND, LTD.

and

STANDARD MANAGEMENT CORPORATION

Dated: March 21, 2005

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	 	 	 	 	 	 	 
	1.	 	Agreement to Sell and Purchase	 	 	1	 
	 
	 	 	 	 	 	 	 	 
	2.	 	Fees and Warrant	 	 	1	 
	 
	 	 	 	 	 	 	 	 
	3.	 	Closing, Delivery and Payment	 	 	2	 
	 
	 	3.1.	 	Closing	 	 	2	 
	 
	 	3.2	 	Delivery	 	 	2	 
	 
	 	 	 	 	 	 	 	 
	4.	 	Representations and Warranties of the Company	 	 	2	 
	 
	 	4.1	 	Organization, Good Standing and Qualification	 	 	2	 
	 
	 	4.2	 	Subsidiaries	 	 	3	 
	 
	 	4.3	 	Capitalization; Voting Rights	 	 	3	 
	 
	 	4.4	 	Authorization; Binding Obligations	 	 	4	 
	 
	 	4.5	 	Liabilities	 	 	5	 
	 
	 	4.6	 	Agreements; Action	 	 	5	 
	 
	 	4.7	 	Obligations to Related Parties	 	 	6	 
	 
	 	4.8	 	Changes	 	 	7	 
	 
	 	4.9	 	Title to Properties and Assets; Liens, Etc	 	 	8	 
	 
	 	4.10	 	Intellectual Property	 	 	9	 
	 
	 	4.11	 	Compliance with Other Instruments	 	 	9	 
	 
	 	4.12	 	Litigation	 	 	10	 
	 
	 	4.13	 	Tax Returns and Payments	 	 	10	 
	 
	 	4.14.	 	Employees	 	 	10	 
	 
	 	4.15	 	Registration Rights and Voting Rights	 	 	11	 
	 
	 	4.16	 	Compliance with Laws; Permits	 	 	11	 
	 
	 	4.17	 	Environmental and Safety Laws	 	 	12	 
	 
	 	4.18	 	Valid Offering	 	 	12	 
	 
	 	4.19	 	Full Disclosure	 	 	12	 
	 
	 	4.20	 	Insurance	 	 	13	 
	 
	 	4.21	 	SEC Reports	 	 	13	 
	 
	 	4.22	 	Listing	 	 	13	 
	 
	 	4.23	 	Regulation D: Shareholder Approval	 	 	14	 
	 
	 	4.24	 	Stop Transfer	 	 	14	 
	 
	 	4.25	 	Dilution	 	 	14	 
	 
	 	4.26	 	Patriot Act	 	 	14	 
	 
	 	4.27	 	ERISA	 	 	14	 
	 
	 	 	 	 	 	 	 	 
	5.	 	Representations and Warranties of the Purchaser	 	 	15	 
	 
	 	 	 	 	 	 	 	 
	 
	 	5.1	 	No Shorting	 	 	15	 
	 
	 	5.2	 	Requisite Power and Authority	 	 	15	 
	 
	 	5.3	 	Investment Representations	 	 	15	 
	 
	 	5.4	 	The Purchaser Bears Economic Risk	 	 	16	 

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	 	 	 	 	 	 	Page	 
	 
	 	5.5	 	Acquisition for Own Account	 	 	16	 
	 
	 	5.6	 	The Purchaser Can Protect Its Interest	 	 	16	 
	 
	 	5.7	 	Accredited Investor	 	 	16	 
	 
	 	5.8	 	Legends	 	 	16	 
	 
	 	 	 	 	 	 	 	 
	6.	 	Covenants of the Company	 	 	17	 
	 
	 	 	 	 	 	 	 	 
	 
	 	6.1	 	Stop-Orders	 	 	17	 
	 
	 	6.2	 	Listing	 	 	17	 
	 
	 	6.3	 	Market Regulations	 	 	18	 
	 
	 	6.4	 	Reporting Requirements	 	 	18	 
	 
	 	6.5	 	Use of Funds	 	 	18	 
	 
	 	6.6	 	Access to Facilities	 	 	18	 
	 
	 	6.7.	 	Non-Public Information 	 	 	18	 
	 
	 	6.8	 	Taxes	 	 	18	 
	 
	 	6.9	 	Insurance	 	 	19	 
	 
	 	6.10	 	Intellectual Property	 	 	19	 
	 
	 	6.11	 	Properties	 	 	20	 
	 
	 	6.12	 	Confidentiality	 	 	20	 
	 
	 	6.13	 	Required Approvals	 	 	19	 
	 
	 	6.14	 	Reissuance of Securities	 	 	21	 
	 
	 	6.15	 	Opinion	 	 	21	 
	 
	 	6.16	 	Margin Stock	 	 	21	 
	 
	 	 	 	 	 	 	 	 
	7.	 	Covenants of the Purchaser	 	 	23	 
	 
	 	 	 	 	 	 	 	 
	 
	 	7.1	 	Confidentiality	 	 	23	 
	 
	 	7.2	 	Non-Public Information	 	 	23	 
	 
	 	7.3	 	Limitation on Acquisition of Common Stock of the Company	 	 	23	 
	 
	 	 	 	 	 	 	 	 
	8.	 	Covenants of the Company and the Purchaser Regarding Indemnification	 	 	24	 
	 
	 	 	 	 	 	 	 	 
	 
	 	8.1	 	Company Indemnification	 	 	24	 
	 
	 	8.2	 	Purchaser's Indemnification	 	 	24	 
	 
	 	 	 	 	 	 	 	 
	9.	 	Conversion of Convertible Note	 	 	24	 
	 
	 	 	 	 	 	 	 	 
	 
	 	9.1	 	Mechanics of Conversion	 	 	24	 
	 
	 	 	 	 	 	 	 	 
	10.	 	Registration Rights	 	 	25	 
	 
	 	 	 	 	 	 	 	 
	 
	 	10.1	 	Registration Rights Granted	 	 	26	 
	 
	 	10.2	 	Offering Restrictions	 	 	26	 
	 
	 	 	 	 	 	 	 	 
	11.	 	Miscellaneous	 	 	26	 
	 
	 	 	 	 	 	 	 	 
	 
	 	11.1	 	Governing Law, Jurisdiction and Waiver of Jury Trial	 	 	26	 
	 
	 	11.2	 	Severability	 	 	27	 
	 
	 	11.3	 	Survival	 	 	27	 
	 
	 	11.4	 	Successors	 	 	27	 
	 
	 	11.5	 	Entire Agreement; Maximum Interest; Conflicts	 	 	27	 
	 
	 	11.6	 	Amendment and Waiver 	 	 	29	 

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	 	 	 	 	 	 	Page	 
	 
	 	11.7	 	Delays or Omissions 	 	 	28	 
	 
	 	11.8	 	Notices 	 	 	28	 
	 
	 	11.9	 	Attorneys’ Fees 	 	 	30	 
	 
	 	11.10	 	Titles and Subtitles 	 	 	29	 
	 
	 	11.11	 	Facsimile Signatures; Counterparts 	 	 	29	 
	 
	 	11.12	 	Broker’s Fees 	 	 	29	 
	 
	 	11.13	 	Construction 	 	 	30	 

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LIST OF EXHIBITS

	 	 	 	 	 
	Form of Convertible Term Note
	 	Exhibit A
	Form of Warrant
	 	Exhibit B
	Form of Opinion
	 	Exhibit C

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SECURITIES PURCHASE AGREEMENT

     THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of March 21,
2005, by and between STANDARD MANAGEMENT CORPORATION, an Indiana corporation (the “Company”), and
LAURUS MASTER FUND, LTD., a Cayman Islands company (the “Purchaser”).

RECITALS

     WHEREAS, the Company has authorized the sale to the Purchaser of a Secured Convertible Term
Note in the original principal amount of Four Million Seven Hundred Fifty Thousand Dollars
($4,750,000) in the form of Exhibit A hereto (as amended, modified or supplemented from time to
time, the “Note”), which Note is convertible into shares of the Company’s common stock, no par
value per share (the “Common Stock”) at an initial fixed conversion price of $3.28 per share of
Common Stock (“Fixed Conversion Price”);

     WHEREAS, the Company wishes to issue to the Purchaser a warrant in the form of Exhibit B
hereto (as amended, modified or supplemented from time to time, the “Warrant”) to purchase up to
532,511 shares of the Company’s Common Stock (subject to adjustment as set forth therein) in
connection with the Purchaser’s purchase of the Note;

     WHEREAS, the Purchaser desires to purchase the Note and the Warrant on the terms and
conditions set forth herein; and

     WHEREAS, the Company desires to issue and sell the Note and Warrant to the Purchaser on the
terms and conditions set forth herein.

AGREEMENT

     NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises,
representations, warranties and covenants hereinafter set forth and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

     1. Agreement to Sell and Purchase. Pursuant to the terms and conditions set forth in
this Agreement, on the Closing Date (as defined in Section 3.1), the Company shall sell to
the Purchaser, and the Purchaser shall purchase from the Company, the Note. The sale of the Note
on the Closing Date shall be known as the “Offering.” The Note will mature on the Maturity Date
(as defined in the Note). Collectively, the Note and Warrant and Common Stock issuable upon
conversion of the Note and upon exercise of the Warrant are referred to as the “Securities.”

     2. Fees and Warrant. On the Closing Date:

          (a) The Company will issue and deliver to the Purchaser the Warrant to purchase up to
532,511 shares of Common Stock (subject to adjustment as set forth therein) in connection
with the Offering, pursuant to Section 1 hereof. All the

 

representations,
covenants, warranties, undertakings, and indemnification, and other rights made or granted
to or for the benefit of the Purchaser by the Company are hereby also made and granted in
respect of the Warrant and shares of the Company’s Common Stock issuable upon exercise of
the Warrant (the “Warrant Shares”).

          (b) Subject to the terms of Section 2(d) below, the Company shall pay to Laurus
Capital Management, LLC, the manager of the Purchaser, a closing payment in an amount equal
to four percent (4%) of the original principal amount of the Note. The foregoing fee is
referred to herein as the “Closing Payment.”

          (c) The Company shall reimburse the Purchaser for its reasonable expenses (including
legal fees and expenses) incurred in connection with the preparation and negotiation of this
Agreement and the Related Agreements (as hereinafter defined), and expenses incurred in
connection with the Purchaser’s due diligence review of the Company and its Subsidiaries (as
defined in Section 4.2) and all related matters. Amounts required to be paid under
this Section 2(c) will be paid on the Closing Date and shall be limited to $44,500
plus expenses of the Purchaser for local real estate counsel in Indiana.

          (d) The Closing Payment and the expenses referred to in the preceding clause (c) (net
of deposits previously paid by the Company) shall be paid at the Closing out of funds held
pursuant to a disbursement letter (the “Disbursement Letter”).

     3. Closing, Delivery and Payment.

          3.1. Closing. Subject to the terms and conditions herein, the closing of the
transactions contemplated hereby (the “Closing”), shall take place on the date hereof, at such time
or place as the Company and the Purchaser may mutually agree (such date is hereinafter referred to
as the “Closing Date”).

          3.2 Delivery. At the Closing on the Closing Date, the Company will deliver to the
Purchaser, among other things, the Note and the Warrant and the Purchaser will deliver to the
Company, among other things, the amounts set forth in the Disbursement Letter by certified funds or
wire transfer.

     4. Representations and Warranties of the Company. The Company hereby represents and
warrants to the Purchaser as follows (which representations and warranties are supplemented by the
Company’s filings under the Securities Exchange Act of 1934, as amended (“Exchange Act”) made prior
to the date of this Agreement (collectively, the “Exchange Act Filings”), copies of which have been
provided to the Purchaser):

          4.1 Organization, Good Standing and Qualification. Each of the Company and each of
its Subsidiaries is a corporation, partnership or limited liability company, as the case may be,
duly organized, validly existing and in good standing (for jurisdictions in which such concept is
applicable) under the laws of its jurisdiction of organization. Each of the Company and each of
its Subsidiaries has the corporate, limited liability company or partnership, as the

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case may be,
power and authority to own and operate its properties and assets in the manner currently owned and
operated and, insofar as it is or shall be a party thereto, to execute and deliver (i) this
Agreement, (ii) the Note and the Warrant to be issued in connection with this Agreement, (iii) the
Registration Rights Agreement relating to the Securities dated as of the date hereof between the
Company and the Purchaser (as amended, modified or supplemented from time to time, the
“Registration Rights Agreement”), (iv) the Mortgage, Assignment of Rents and Leases and Fixture
Filing dated as of the date hereof made by the Company in favor of the Purchaser (as amended,
modified or supplemented from time to time, the “Mortgage”), (v) the Intercreditor Agreement dated
as of the date hereof by and among Republic Bank and the Purchaser, and acknowledged and agreed to
by the Company (as amended, modified or supplemented from time to time, the “Intercreditor
Agreement”), (vi) the Escrow Agreement dated as of the date hereof by and among, the Company, the
Purchaser and the escrow agent party thereto (as amended, modified or supplemented from time to
time, the “Escrow Agreement”) and (vii) all other documents, instruments and agreements entered
into by the parties hereto in connection with the transactions contemplated hereby and thereby (the
preceding clauses (ii) through (vii), collectively, the “Related Agreements”). Subject to the
approval of any applicable regulatory agency or authority, the Company has the corporate power and
authority to (a) issue and sell the Note and the shares of Common Stock issuable upon conversion of
the Note (the “Note Shares”); (b) issue and sell the Warrant and the Warrant Shares; and (c) carry
out the provisions of this Agreement and the Related Agreements. Each of the Company and its
Subsidiaries is duly qualified and is authorized to do business and is in good standing as a
foreign corporation, partnership or limited liability company, as the case may be, in all

jurisdictions in which the nature or location of its activities and of its properties (both owned
and leased) makes such qualification necessary, except for those jurisdictions in which failure to
do so has not had, or could not reasonably be expected to have, in the aggregate, a material
adverse effect on the business, assets, liabilities, condition (financial or otherwise),
properties, operations or prospects of the Company and such Subsidiaries, taken as a whole (a
“Material Adverse Effect”).

          4.2 Subsidiaries. Each direct and indirect Subsidiary of the Company, the direct
owner of such Subsidiary and its percentage ownership thereof, is set forth on Schedule
4.2. For the purpose of this Agreement, a “Subsidiary” of any person or entity means (i) a
corporation or other entity whose shares of stock or other ownership interests having ordinary
voting power (other than stock or other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the directors of such corporation, or other
persons or entities performing similar functions for such person or entity, are owned, directly or
indirectly, by such person or entity or (ii) a corporation or other entity in which such person or
entity owns, directly or indirectly, more than 50% of the equity interests at such time.

          4.3 Capitalization; Voting Rights.

          (a) The authorized capital stock of the Company, as of the date hereof consists of
21,000,000 shares, of which (i) 20,000,000 are shares of Common Stock, no par value per
share, of which 7,921,113 shares are issued and outstanding, and (ii) 1,000,000 are shares
of preferred stock, no par value per share, of which no shares are issued and outstanding.

3

 

          (b) Except as disclosed on Schedule 4.3, other than: (i) the shares reserved
for issuance under the Company’s stock option plans; and (ii) shares which may be granted
pursuant to this Agreement and the Related Agreements, there are no outstanding options,
warrants, rights (including conversion or preemptive rights and rights of first refusal),
proxy or stockholder agreements, or arrangements or agreements of any kind for the purchase
or acquisition from the Company of any of its securities. Except as disclosed on
Schedule 4.3, neither the offer, issuance or sale of the Note or the Warrant, or the
issuance of any of the Note Shares or Warrant Shares (upon conversion of the Note and the
Warrant in accordance with their respective terms and conditions), nor the consummation of
any transactions contemplated hereby will result in a change in the price or number of any
securities of the Company outstanding, under anti-dilution or other similar provisions
contained in or affecting any such securities.

          (c) All issued and outstanding shares of the Company’s Common Stock: (i) have been
duly authorized and validly issued and are fully paid and nonassessable; and (ii) were
issued in compliance with all applicable state and federal laws concerning the issuance of
securities.

          (d) The rights, preferences, privileges and restrictions of the shares of the Common

Stock are as stated in the Company’s Articles of Incorporation (the “Charter”). The Note
Shares and Warrant Shares have been duly and validly reserved for issuance (upon conversion
of the Note and the Warrant, as the case may be, in accordance with their respective terms
and conditions). When issued in compliance with the provisions of this Agreement, the Note
or the Warrant (as the case may be) and the Company’s Charter, the Securities will be
validly issued, fully paid and nonassessable, and will be free of any liens or encumbrances;
provided, however, that the Securities may be subject to restrictions on transfer under
state and/or federal securities laws and state insurance laws and/or regulations as set
forth herein or as otherwise required by such laws at the time a transfer is proposed.

          4.4 Authorization; Binding Obligations. All corporate, partnership or limited
liability company, as the case may be, action on the part of the Company and each of its
Subsidiaries (including their respective officers and directors) necessary for the authorization of
this Agreement and the Related Agreements, the performance of all obligations of the Company and
its Subsidiaries hereunder and under the other Related Agreements at the Closing and, the
authorization, sale, issuance and delivery of the Note and Warrant has been taken or will be taken
prior to the
Closing. This Agreement and the Related Agreements, when executed and delivered by the Company and
its Subsidiaries (to the extent it is a party thereto), will be valid and binding obligations of
each of the Company and each of its Subsidiaries (to the extent it is a party thereto), enforceable
against each such entity in accordance with their terms, except:

          (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors’ rights; and

4

 

          (b) general principles of equity that restrict the availability of equitable or legal
remedies.

The sale of the Note and the issuance of any Note Shares upon any subsequent conversion of the Note
are not and will not be subject to any preemptive rights or rights of first refusal that have not
been waived or complied with. The issuance of the Warrant and the issuance of any Warrant Shares
upon any subsequent exercise of the Warrant are not and will not be subject to any preemptive
rights or rights of first refusal that have not been properly waived or complied with.

          4.5 Liabilities. Except as set forth in Schedule 4.5, neither the Company nor
any of its Subsidiaries has any liabilities, except current liabilities incurred in the ordinary
course of business and liabilities disclosed in any Exchange Act Filings and insurance policies
issued in the ordinary course of business.

          4.6 Agreements; Action. Except as set forth on Schedule 4.6 or as disclosed
in any Exchange Act Filings:

          (a) there are no agreements, instruments, contracts, judgments, orders, writs or
decrees to which the Company or any of its Subsidiaries is a party or by which it is bound
which involve (i) obligations (contingent or otherwise) of, or payments to, the Company or
any such Subsidiary in excess of $50,000 (other than obligations of, or payments to, the
Company or any such Subsidiary arising from purchase or sale agreements entered into in the
ordinary course of business and insurance policies issued in the ordinary course of
business); or (ii) the transfer or license of any patent, copyright, trade secret or other
proprietary right to or from the Company or any such Subsidiary (other than licenses arising
from the purchase of “off the shelf” or other standard products); or (iii) provisions
restricting the development, manufacture or distribution of the Company’s or any such
Subsidiary’s products or services; or (iv) indemnification by the Company or any such
Subsidiary with respect to infringements of proprietary rights;

          (b) Except as set forth on Schedule 4.6, since December 31, 2003 (the “Balance
Sheet Date”), neither the Company nor any of its Subsidiaries has: (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to any class or
series of its capital stock; (ii) incurred any indebtedness for money borrowed or any other
liabilities (other than ordinary course obligations) individually in excess of $50,000 or,
in the case of indebtedness and/or liabilities individually less than $50,000, in excess of
$100,000 in the aggregate; (iii) made any loans or advances to any person or
entity not in excess, individually or in the aggregate, of $100,000, other than ordinary
course advances for travel and other business expenses; or (iv) sold, exchanged or otherwise
disposed of a material portion of any of its assets or rights, other than the in the
ordinary course of business or for reasonably equivalent value.

          (c) For the purposes of subsections (a) and (b) above, all indebtedness, liabilities,
agreements, instruments, and contracts involving the same person or entity (including
persons or entities the Company or any applicable Subsidiary of the Company

5

 

has reason to
believe are affiliated therewith) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.

          (d) The Company maintains disclosure controls and procedures (“Disclosure Controls”)
designed to ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Exchange Act is recorded, processed, summarized, and
reported, within the time periods specified in the rules and forms of the Securities and
Exchange Commission (“SEC”).

          (e) The Company makes and keep books, records, and accounts, that, in reasonable
detail, accurately and fairly reflect (in all material respects) the transactions and
dispositions of the Company’s assets. The Company maintains internal control over financial
reporting (“Financial Reporting Controls”) designed by, or under the supervision of, the
Company’s principal executive and principal financial officers, and effected by the
Company’s board of directors, management, and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles
(“GAAP”), including that:

               (i) transactions are executed in accordance with management’s general or
specific authorization;

               (ii) unauthorized acquisition, use, or disposition of the Company’s assets that
could have a material effect on the financial statements are prevented or timely
detected;

               (iii) transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that the Company’s receipts and expenditures
are being made only in accordance with authorizations of the Company’s management
and board of directors;

               (iv) transactions are recorded as necessary to maintain accountability for
assets; and

               (v) the recorded accountability for assets is compared with the existing assets
at reasonable intervals, and appropriate action is taken with respect to any
differences.

          (f) There is no material weakness in any of the Company’s Disclosure Controls or
Financial Reporting Controls that is required to be disclosed in any of the Exchange Act
Filings, except as so disclosed.

          4.7 Obligations to Related Parties. Except as set forth on Schedule 4.7,
there are no obligations of the Company or any of its Subsidiaries to officers, directors,
stockholders or employees of the Company or any of its Subsidiaries other than:

6

 

          (a) for payment of salary for services rendered and for bonus payments;

          (b) reimbursement for reasonable expenses incurred on behalf of the Company and its
Subsidiaries;

          (c) for other standard employee benefits made generally available to all employees
(including stock option agreements outstanding under any stock option plan approved by the
Board of Directors of the Company and each such Subsidiary of the Company, as applicable);
and

          (d) obligations listed in the Company’s and each of its Subsidiary’s financial
statements or disclosed in any of the Company’s Exchange Act Filings.

Except as described above or set forth on Schedule 4.7, none of the officers or directors
of the Company or any of its Subsidiaries (or any members of their immediate families) are indebted
to the Company or any of the Subsidiaries, individually or in the aggregate, in excess of $50,000,
or have any direct or indirect ownership interest in any firm or corporation with which the Company
or any of its Subsidiaries is affiliated or with which the Company or any of its Subsidiaries has a
material business relationship, or any firm or corporation which competes with the Company or any
of its Subsidiaries, other than passive investments in publicly traded companies (representing less
than one percent (1%) of such company). Except as described above, no officer or director of the
Company or any of its Subsidiaries is, directly or indirectly, interested in any material contract
with the Company or any of its Subsidiaries and no material agreements, understandings or proposed
transactions are contemplated between the Company or any of its Subsidiaries and any such person.
Except as set forth on Schedule 4.7, neither the Company nor any of the Subsidiaries is a
guarantor or indemnitor of any indebtedness of any other person, firm or entity (other than of
indebtedness of the Company or other Subsidiaries).

          4.8 Changes. Since the Balance Sheet Date, except as disclosed in any Exchange Act
Filing or in any Schedule to this Agreement or to any of the Related Agreements, there has not
been:

          (a) any change in the business, assets, liabilities, condition (financial or
otherwise), properties or operations of the Company or any of its Subsidiaries, which in the
aggregate has had, or could reasonably be expected to have in the aggregate, a Material
Adverse Effect;

          (b) any resignation or termination of any officer of the Company or any of its
Subsidiaries;

          (c) any material change, except in the ordinary course of business, in the contingent
obligations of the Company or any of its Subsidiaries by way of guaranty, endorsement,
indemnity, warranty or otherwise;

          (d) any damage, destruction or loss to any tangible personal property of the Company
and any of its Subsidiaries, whether or not covered by insurance, which has

7

 

had, or could
reasonably be expected to have, in the aggregate, a Material Adverse Effect;

          (e) any waiver by the Company or any of any of its Subsidiaries of a valuable right or
of a material debt owed to it;

          (f) any direct or indirect loans made by the Company or any of its Subsidiaries to any
stockholder, employee, officer or director of the Company or any of its Subsidiaries, other
than advances made in the ordinary course of business;

          (g) any material change in any compensation arrangement or agreement with any employee,
officer, director or stockholder of the Company or any of its Subsidiaries;

          (h) any declaration or payment of any dividend or other distribution of the assets of
the Company or any of its Subsidiaries;

          (i) any labor organization activity related to the Company or any of its Subsidiaries;

          (j) any debt, obligation or liability incurred, assumed or guaranteed by the Company or
any of its Subsidiaries, except those for immaterial amounts,for current liabilities
incurred in the ordinary course of business, and for insurance policies issued in the
ordinary course of business;

          (k) any sale, assignment or transfer of any patents, trademarks, copyrights, trade
secrets or other intangible assets owned by the Company or any of its Subsidiaries other
than for reasonably equivalent value;

          (l) any change in any material agreement to which the Company or any of its
Subsidiaries is a party or by which either the Company or any of its Subsidiaries is bound
which in the aggregate has had, or could reasonably be expected to have, in the aggregate, a
Material Adverse Effect;

          (m) any other event or condition of any character that, in the aggregate, has had, or
could reasonably be expected to have in the aggregate, a Material Adverse Effect; or

          (n) any binding arrangement or commitment by the Company or any of its Subsidiaries to
do any of the acts described in subsection (a) through (m) above.

          4.9 Title to Properties and Assets; Liens, Etc. Except as set forth on Schedule
4.9, the Company and each of its Subsidiaries has good and (where such concept is applicable)
marketable title to the properties and assets it owns, and good title to its leasehold interests,
in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than:

          (a) those resulting from taxes which have not yet become delinquent;

8

 

          (b) minor liens and encumbrances which do not materially detract from the value of the
property subject thereto or materially impair the operations of the Company or any of its
Subsidiaries, so long as in each such case, such liens and encumbrances have no effect on
the lien priority of the Purchaser in such property;

          (c) worker’s carrier’s, mechanic’s, materialman’s and similar liens;

          (d) purchase money liens and liens securing rental payments under capital lease
arrangements; and

          (e) those that have otherwise arisen in the ordinary course of business, so long as
they have no effect on the lien priority of the Purchaser therein.

Except as set forth on Schedule 4.9, the Company and the Applicable Subsidiaries are in
material compliance with all material terms of each lease to which it is a party or is otherwise
bound. Notwithstanding the foregoing, the representations and warranties made in this Section
4.9 above shall not apply to any real property owned by the Company or any of its Subsidiaries
(it being agreed and understood that the Company is making various representations and warranties
to the Purchaser respecting certain real property in the Mortgage.

     4.10 Intellectual Property.

          (a) The Company and its Subsidiaries owns or possesses sufficient legal rights to all
material patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes necessary for it to operate
its business as now conducted and, to the Company’s knowledge, as presently proposed to be
conducted (the “Intellectual Property”), without any known infringement of the rights of
others.

          (b) Neither the Company nor any of its Subsidiaries has received any written
communications alleging that the Company or any of its Subsidiaries has violated any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity, nor is the Company or any of its
Subsidiaries aware of any basis therefor.

          (c) The Company does not believe it is or will be necessary to utilize any material
inventions, trade secrets or proprietary information of any of its employees made prior to
their employment by the Company or any of its Subsidiaries, except for inventions, trade
secrets or proprietary information that have been assigned to the Company or any of its
Subsidiaries.

          4.11 Compliance with Other Instruments. Neither the Company nor any of its
Subsidiaries is in default of (x) any term of its Charter or Bylaws, or (y) any provision of any
indebtedness, mortgage, indenture, contract, agreement or instrument to which it is party or by
which it is bound or of any judgment, decree, order or writ, which violation or default, in the

9

 

case of this clause (y), has had, or could reasonably be expected to have, in the aggregate, a
Material Adverse Effect. Except as set forth on Schedule 4.11, the execution, delivery and
performance of and compliance with this Agreement and the Related Agreements to which it is a
party, and the issuance and sale of the Note by the Company and the other Securities by the Company
each pursuant hereto and thereto, will not, with or without the passage of time or giving of
notice, result in any such material violation, or constitute any such default under any such
instrument or agreement, or result in the creation of any mortgage, pledge, lien, encumbrance or
charge upon any of the properties or assets of the Company or its Subsidiaries (other than in favor
of Purchaser) or the suspension, revocation, impairment, forfeiture or nonrenewal of any material
permit, license, authorization or approval applicable to the Company, its business or operations or
any of its material assets or properties.

          4.12 Litigation. There is no action, suit, proceeding or investigation pending or, to
the Company’s knowledge, currently threatened in writing against the Company or any of its
Subsidiaries that prevents the Company or any of its Subsidiaries from entering into this Agreement
or the Related Agreements, or from consummating the transactions contemplated hereby or thereby, or
which has had, or could reasonably be expected to have, in the aggregate, a Material Adverse Effect
or any change in the current equity ownership of the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries is a party to or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or instrumentality of
specific applicability to the Company or such Subsidiary. Except as set forth on Schedule
4.12 hereto, there is no legal action, suit, proceeding or investigation by the Company or any
of its Subsidiaries currently pending or which the Company or any of its Subsidiaries currently
intends to initiate.

          4.13 Tax Returns and Payments. The Company and each of its Subsidiaries has timely
(after considering the applicability of any filed extensions) filed all tax returns (federal, state
and local) required to be filed by it. All taxes shown to be due and payable on such returns, any
assessments imposed, and all other taxes due and payable by the Company or its Subsidiaries on or
before the Closing, have been paid or will be paid prior to the time they become delinquent, other
than taxes or assessments disputed in good faith. Except as set forth on Schedule 4.13,
neither the Company nor any of its Subsidiaries has been advised in writing:

          (a) that any of its returns, federal, state or other, have been or are being audited as
of the date hereof; or

          (b) of any adjustment, deficiency, assessment or court decision in respect of its
federal, state or other taxes.

The Company has no knowledge of any liability for any tax to be imposed upon its properties or
assets as of the date of this Agreement that is not adequately provided for.

          4.14. Employees. Except as set forth on Schedule 4.14, neither the Company
nor any of its Subsidiaries has any collective bargaining agreements with any of its employees.
There is no labor union organizing activity pending or, to the Company’s knowledge, threatened with
respect to the Company or any of its Subsidiaries. Except as disclosed in the Exchange Act

10

 

Filings
or on Schedule 4.14, neither the Company nor any of its Subsidiaries is a party to or bound
by any currently effective employment contract, deferred compensation arrangement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other employee compensation plan or
agreement. To the Company’s knowledge, no employee of the Company or any of its Subsidiaries, nor
any consultant with whom the Company or any of its Subsidiaries has contracted, is in violation of
any material employment contract, proprietary information agreement or any other material agreement
relating to the right of any such individual to be employed by, or to contract with, the Company or
any of its Subsidiaries because of the nature of the business to be conducted by the Company or any
of its Subsidiaries; and to the Company’s knowledge the continued employment by the Company and its
Subsidiaries of their present employees, and the performance of the Company’s and its Subsidiaries’
contracts with its independent contractors, will not result in any such material violation.
Neither the Company nor any of its Subsidiaries is aware that any of its officers or key employees
is obligated under any contract (including licenses, covenants or commitments of any nature) or
other agreement, or subject to any judgment, decree or order of any court or administrative agency
that would materially interfere with their duties to the Company or any of its Subsidiaries.
Neither the Company nor any of its Subsidiaries has received any written notice alleging that any
such violation has occurred. Except for officers who have a current effective employment agreement
with the Company or any of its Subsidiaries, no employee of the Company or any of its Subsidiaries
has been granted the right to continued employment by the Company or any of its Subsidiaries or to
any material compensation following termination of employment with the Company or any of its
Subsidiaries. Except as set forth on Schedule 4.14, the Company is not aware that any
officer or key employee intends to terminate his or her employment with the Company or any of its
Subsidiaries, nor does the Company or any of the Applicable Subsidiaries have a present intention
to terminate the employment of any officer.

          4.15 Registration Rights and Voting Rights. Except as set forth on Schedule
4.15 and except as disclosed in Exchange Act Filings or as contemplated by this Agreement or
any of the Related Agreements, the Company is not presently under any obligation, and the Company
has not granted any rights, to register any of the Company’s presently outstanding securities or
any of its securities that may hereafter be issued. Except as set forth on Schedule 4.15
and except as disclosed in Exchange
Act Filings, to the Company’s knowledge, no stockholder of the Company has entered into any
agreement with respect to the voting of equity securities of the Company.

          4.16 Compliance with Laws; Permits. Neither the Company nor any of its Subsidiaries
is in violation of any provision of the Sarbanes-Oxley Act of 2002 or SEC rule or rule of the
Principal Market (as hereafter defined) promulgated thereunder or any applicable statute, rule,
regulation, order or restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of its properties which
has had, or could reasonably be expected to have, in the aggregate, a Material Adverse Effect. No
governmental orders, permissions, consents, approvals or authorizations are required to be obtained
and no registrations or declarations are required to be filed in connection with the execution and
delivery of this Agreement or any Related Agreement by the Company, and the issuance of any of the
Note and the Warrant, except such as have been duly and validly obtained or filed, or with respect
to any filings that must be made after the Closing, as will be

11

 

filed in a timely manner. The
Company and each of its Subsidiaries has all material franchises, permits, licenses and any similar
authority necessary for the conduct of its business as now being conducted by it, the lack of which
could, in the aggregate, reasonably be expected to have a Material Adverse Effect.

          4.17 Environmental and Safety Laws. Neither the Company nor any of its Subsidiaries
is in violation of any applicable statute, law or regulation relating to the environment or
occupational health and safety, except for any violation which could not reasonably be expected to
have, in the aggregate, a Material Adverse Effect. To the Company’s knowledge, no material
expenditures are or will be required in order to comply with any such existing statute, law or
regulation (except to the extent currently provided for). Except as set forth on Schedule
4.17 and as set forth in the Mortgage, no Hazardous Materials (as defined below) are used or
have been used, stored, or disposed of by the Company or any of its Subsidiaries or, to the
Company’s knowledge, by any other person or entity on any property owned, leased or used by the
Company or any of its Subsidiaries, except in material compliance with all applicable laws, rules
and regulations. For the purposes of the preceding sentence, “Hazardous Materials” shall mean:

          (a) materials which are listed or otherwise defined as “hazardous” or “toxic” under any
applicable local, state, federal and/or foreign laws and regulations that govern the
existence and/or remedy of contamination on property, the protection of the environment from
contamination, the control of hazardous wastes, or other activities involving hazardous
substances, including building materials; or

          (b) any petroleum products or nuclear materials.

          4.18 Valid Offering. Assuming the accuracy of the representations and warranties of
the Purchaser contained in this Agreement, the offer, sale and issuance of the Securities will be
exempt from the registration requirements of the Securities Act of 1933, as amended (the
“Securities Act”), and will have been registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification requirements of all applicable state
securities laws.

          4.19 Full Disclosure. The Company and each of its Subsidiaries has made available to
the Purchaser all information requested by the Purchaser in connection with its decision to
purchase the Note and Warrant, including all information the Company and its Subsidiaries believe
is reasonably necessary to make such investment decision. Neither this Agreement, the Related
Agreements, the exhibits and schedules hereto and thereto nor any other document delivered by the
Company or any of its Subsidiaries to Purchaser or its attorneys or agents in connection herewith
or therewith or with the transactions contemplated hereby or thereby, considered as a whole,
contain any untrue statement of a material fact nor omit to state a material fact necessary in
order to make the statements contained herein or therein, in light of the circumstances in which
they are made, not misleading. Any financial projections and other estimates provided to the
Purchaser by the Company or any of its Subsidiaries in connection with the transactions
contemplated hereby were based on the Company’s and its Subsidiaries’ experience in the industry
and on assumptions of fact and opinion as to future events which the

12

 

Company or any of its
Subsidiaries, at the date of the issuance of such projections or estimates, believed to be
reasonable.

          4.20 Insurance. The Company and each of its Subsidiaries has general commercial,
product liability, fire and casualty insurance policies with coverages which the Company believes
are customary for companies similarly situated to the Company and its Subsidiaries in the same or
similar business.

          4.21 SEC Reports. Except as set forth on Schedule 4.21, the Company has filed
all proxy statements, reports and other documents required to be filed by it under the Securities
Exchange Act 1934, as amended (the “Exchange Act”). The Company has furnished the Purchaser copies
of: (i) its Annual Reports on Form 10-K for its fiscal year ended December 31, 2003; and (ii) its
Quarterly Reports on Form 10-Q for its fiscal quarters ended March 31, 2004, June 30, 2004 and
September 30, 2004, and the Form 8-K filings which it has made during the fiscal years 2004 and
2005 to date (collectively, the “SEC Reports”). Except as set forth on Schedule 4.21, each
SEC Report was, at the time of its filing, in material compliance with the requirements of its
respective form and none of the SEC Reports, nor the financial statements (and the notes thereto)
included in the SEC Reports, as of their respective filing dates, contained any untrue statement of
a material fact or omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were made, not
misleading in any material respect. Notwithstanding anything to the contrary herein contained, any
and all representations and warranties deemed made by the Company to the Purchaser in connection
with its Exchange Act Filings are limited to the representations and warranties made in this
Section 4.21.

          4.22 Listing. The Company’s Common Stock is listed for trading on a Principal Market
(as hereafter defined) and satisfies and at all times hereafter will satisfy all requirements for
the continuation of such listing. The Company has not received any written notice that its Common
Stock will be delisted from the Principal Market or that its Common Stock does not meet all
requirements for listing. For purposes hereof, the term “Principal Market” means the NASD OTC
Bulletin Board, NASDAQ SmallCap
Market, NASDAQ National Market, American Stock Exchange or New York Stock Exchange (whichever of
the foregoing is at the time the principal trading exchange or market for the Common Stock).

          4.23 Regulation D; Shareholder Approval. Neither the Company, nor any of its
Subsidiaries or affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to buy any security
under circumstances that would cause the exemption from registration contained in Rule 506 of
Regulation D under the Securities Act to be unavailable with respect to the offering of the
Securities pursuant to this Agreement or any of the Related Agreements neither the Company nor any
of its affiliates or Subsidiaries will take any action or steps that would cause the offering of
the Securities to be integrated with other offerings if the result would be to make such exemption
unavailable with respect to the offering of the Securities. The issuance of the Securities
pursuant to this Agreement does not require shareholder approval under the applicable rules of the
NASDAQ Stock Market.

13

 

          4.24 Stop Transfer. The Securities are restricted securities as of the date of this
Agreement. Neither the Company nor any of its Subsidiaries will issue any stop transfer order or
other order impeding the sale and delivery of any of the Securities at such time as the Securities
are registered for public sale or an exemption from registration is available, except as required
by state and federal securities laws.

          4.25 Dilution. The Company specifically acknowledges that its obligation to issue the
shares of Common Stock upon conversion of the Note and exercise of the Warrant is binding upon the
Company and enforceable regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Company.

          4.26 Patriot Act. The Company certifies that, to the Company’s knowledge, neither the
Company nor any of its Subsidiaries has been designated, nor is or shall be owned or controlled, by
a “suspected terrorist” as defined in Executive Order 13224. The Company hereby acknowledges that
the Purchaser seeks to comply with all applicable laws concerning money laundering and related
activities. In furtherance of those efforts, the Company hereby represents, warrants and covenants
that: (i) none of the cash or property that the Company or any of its Subsidiaries will pay or
will contribute to the Purchaser in connection with the transactions contemplated hereby has been
or shall be derived from, or related to, any activity that is deemed criminal under United States
law; and (ii) no contribution or payment by the Company or any of its Subsidiaries to the Purchaser
in connection with the transactions contemplated hereby, to the extent that they are within the
Company’s and/or its Subsidiaries’ control, shall cause the Purchaser to be in violation of the
United States Bank Secrecy Act, the United States International Money Laundering Control Act of
1986 or the United States International Money Laundering Abatement and Anti-Terrorist Financing Act
of 2001. The Company shall promptly notify the Purchaser if any of these representations,
warranties or covenants ceases to be true and accurate regarding the Company or any of its
Subsidiaries. The Company shall provide the Purchaser any and all additional information regarding
the Company or any of its Subsidiaries that the Purchaser deems necessary
to ensure compliance with all applicable laws concerning money laundering and similar activities.
The Company understands and agrees that if at any time it is discovered that any of the foregoing
representations, warranties or covenants are incorrect, or if otherwise required by applicable law
or regulation related to money laundering or similar activities, the Purchaser may undertake
appropriate actions to ensure compliance with applicable law or regulation, including but not
limited to segregation and/or redemption of the Purchaser’s investment in the Company. The Company
further understands that the Purchaser may release confidential information about the Company and
its Subsidiaries and, if applicable, any underlying beneficial owners, to proper authorities if the
Purchaser, in its discretion, and upon the advice of its counsel, determines that it is in the best
interests of the Purchaser in light of the relevant rules and regulations under the laws set forth
in subsection (ii) above.

          4.27 ERISA. Based upon the Employee Retirement Income Security Act of 1974 (“ERISA”),
and the regulations and published interpretations thereunder: (i) neither the Company nor any of
its Subsidiaries has engaged in any Prohibited Transactions (as defined in Section 406 of ERISA and
Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”)); (ii) the Company and
each of its Subsidiaries has met all applicable minimum funding

14

 

requirements under Section 302 of
ERISA in respect of its plans; (iii) neither the Company nor any of its Subsidiaries has any
knowledge of any event or occurrence which would cause the Pension Benefit Guaranty Corporation to
institute proceedings under Title IV of ERISA to terminate any employee benefit plan(s); (iv)
neither the Company nor any of its Subsidiaries has any fiduciary responsibility for investments
with respect to any plan existing for the benefit of persons other than the Company’s or such
Subsidiary’s employees; and (v) neither the Company nor any of its Subsidiaries has withdrawn,
completely or partially, from any multi-employer pension plan so as to incur liability under the
Multiemployer Pension Plan Amendments Act of 1980.

     5. Representations and Warranties of the Purchaser. The Purchaser hereby represents
and warrants to the Company as follows (such representations and warranties do not lessen or
obviate the representations and warranties of the Company set forth in this Agreement):

          5.1 No Shorting. The Purchaser or any of its affiliates and investment partners has
not, will not and will not cause any person or entity, to directly engage in “short sales” of the
Company’s Common Stock as long as the Note and/or the Warrant shall be outstanding.

          5.2 Requisite Power and Authority. The Purchaser has all necessary power and
authority to execute and deliver this Agreement and the Related Agreements and to carry out their
provisions. All corporate action on the Purchaser’s part required for the lawful execution,
delivery and performance of this Agreement and the Related Agreements have been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this Agreement and the
Related Agreements will be valid and binding obligations of the Purchaser, enforceable in
accordance with their terms, except:

          (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors’ rights; and

          (b) as limited by general principles of equity that restrict the availability of
equitable and legal remedies.

          5.3 Investment Representations. The Purchaser understands that the Securities are
being offered and sold pursuant to an exemption from registration contained in the Securities Act
based in part upon the Purchaser’s representations contained in this Agreement, including, without
limitation, that the Purchaser is an “accredited investor” within the meaning of Regulation D under
the Securities Act of 1933, as amended (the “Securities Act”). The Purchaser confirms that it has
received or has had full access to all the information it considers necessary or appropriate to
make an informed investment decision with respect to the Note and the Warrant to be purchased by it
under this Agreement and the Note Shares and the Warrant Shares acquired by it upon the conversion
of the Note and the exercise of the Warrant, respectively. The Purchaser further confirms that it
has had an opportunity to ask questions and receive answers from the Company regarding the
Company’s and its Subsidiaries’ business, management and financial affairs and the terms and
conditions of the Offering, the Note, the

15

 

Warrant and the Securities and to obtain additional
information (to the extent the Company possessed such information or could acquire it without
unreasonable effort or expense) necessary to verify any information furnished to the Purchaser or
to which the Purchaser had access.

          5.4 The Purchaser Bears Economic Risk. The Purchaser has substantial experience in
evaluating and investing in private placement transactions of securities in companies similar to
the Company so that it is capable of evaluating the merits and risks of its investment in the
Company and has the capacity to protect its own interests. The Purchaser must bear the economic
risk of this investment until the Securities are sold pursuant to: (a) an effective registration
statement under the Securities Act; or (b) an exemption from registration is available with respect
to such sale.

          5.5 Acquisition for Own Account. The Purchaser is acquiring the Note and Warrant and
the Note Shares and the Warrant Shares for the Purchaser’s own account for investment only, and not
as a nominee or agent and not with a view towards or for resale in connection with their
distribution.

          5.6 The Purchaser Can Protect Its Interest. The Purchaser represents that by reason
of its, or of its management’s, business and financial experience, the Purchaser has the capacity
to evaluate the merits and risks of its investment in the Note, the Warrant and the Securities and
to protect its own interests in connection with the transactions contemplated in this Agreement and
the Related Agreements. Further, the Purchaser is aware of no publication of any advertisement in
connection with the transactions contemplated in the Agreement or the Related Agreements.

          5.7 Accredited Investor. The Purchaser represents that it is an accredited investor
within the meaning of Regulation D under the Securities Act.

          5.8 Legends.

          (a) The Note shall bear substantially the following legend:

“THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS
NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH COMMON STOCK UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO STANDARD MANAGEMENT CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.”

          (b) The Note Shares and the Warrant Shares, if not issued by DWAC system (as
hereinafter defined), shall bear a legend which shall be in substantially the following

16

 

form
until such shares are covered by an effective registration statement filed with the SEC:

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THESE
SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO STANDARD MANAGEMENT
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.”

(c) The Warrant shall bear substantially the following legend:

“THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE UNDERLYING
SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO STANDARD MANAGEMENT CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED.”

     6. Covenants of the Company. The Company covenants and agrees with the Purchaser as
follows:

          6.1 Stop-Orders. The Company will advise the Purchaser, promptly after it receives
notice of issuance by the SEC, any state securities commission or any other regulatory authority of
any stop order or of any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the Company for offering
or sale in any jurisdiction, or the initiation of any proceeding for any such purpose.

          6.2 Listing. The Company shall promptly secure the listing of the shares of Common
Stock issuable upon conversion of the Note and upon the exercise of the Warrant on the Principal
Market upon which shares of Common Stock are listed (subject to official notice of issuance) and
shall maintain such listing so long as any other shares of Common Stock shall be so listed. The
Company will maintain the listing of its Common Stock on the Principal Market, and will comply in
all material respects with the Company’s reporting, filing and other obligations under the bylaws
or rules of the National Association of Securities Dealers (“NASD”) and such exchanges, as
applicable.

17

 

          6.3 Market Regulations. The Company shall notify the SEC, NASD and applicable state
authorities, in accordance with their requirements, of the transactions contemplated by this
Agreement, and shall take all other necessary action and proceedings as reasonably may be required
and permitted by applicable law, rule and regulation, for the legal and valid issuance of the
Securities to the Purchaser and promptly provide copies thereof to the Purchaser.

          6.4 Reporting Requirements. The Company shall timely file with the SEC all reports
required to be filed pursuant to the Exchange Act and refrain from terminating its status as an
issuer required by the Exchange Act to file reports thereunder even if the Exchange Act or the
rules or regulations thereunder would permit such termination.

          6.5 Use of Funds. The Company shall use the proceeds of the sale of the Note and the
Warrant for general working capital purposes only; provided, however, that the
Company shall use $500,000 of such proceeds of the Note to repay its existing indebtedness owed to
Republic Bank.

          6.6 Access to Facilities. The Company and each of its Subsidiaries will permit any
representatives designated by the Purchaser (or any successor of the Purchaser), upon reasonable
notice and during normal business hours, at such person’s expense and accompanied by a
representative of the Company or any Subsidiary (provided that no such prior notice shall be
required to be given and no such
representative of the Company or any Subsidiary shall be required to accompany the Purchaser in the
event the Purchaser reasonably believes such access is necessary to preserve or protect the
collateral for the Note (the “Collateral”) or following the occurrence and during the continuance
of an Event of Default (as defined in the Note)), to:

          (a) visit and inspect any of the properties of the Company or any of its Subsidiaries;

          (b) examine the corporate and financial records of the Company or any of its
Subsidiaries (unless such examination is not permitted by federal, state or local law or by
contract) and make copies thereof or extracts therefrom; and

          (c) discuss the affairs, finances and accounts of the Company or any of its
Subsidiaries with the directors, officers and independent accountants of the Company or any
of its Subsidiaries.

          6.7. Non-Public Information. Notwithstanding the foregoing, neither the Company nor
any of its Subsidiaries will provide any material, non-public information to the Purchaser unless
the Purchaser signs a confidentiality agreement and otherwise complies with Regulation FD, under
the federal securities laws.

          6.8 Taxes. The Company and each of its Subsidiaries will promptly pay and discharge,
or cause to be paid and discharged, when due and payable, all taxes, assessments and governmental
charges or levies imposed upon the income, profits, property or business of the

18

 

Company and its
Subsidiaries; provided, however, that any such tax, assessment, charge or levy need not be paid
currently if the validity thereof shall currently and diligently be contested in good faith by
appropriate proceedings, such tax, assessment, charge or levy shall have no effect on the lien
priority of the Purchaser in any property of the Company or any of its Subsidiaries and if the
Company and/or such Subsidiary shall have set aside on its books adequate reserves with respect
thereto in accordance with GAAP, and provided, further, that the Company and its Subsidiaries will
pay all such taxes, assessments, charges or levies forthwith upon the commencement of proceedings
to foreclose any lien which may have attached as security therefor.

          6.9 Insurance. Each of the Company and its Subsidiaries will keep its assets which
are of an insurable character insured by financially sound and reputable insurers against loss or
damage by fire, explosion and other risks customarily insured against by companies in similar
business similarly situated as the Company and its Subsidiaries; and the Company and its
Subsidiaries will maintain, with financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the manner which the
Company reasonably believes is customary for companies in similar business similarly situated as
the Company and its Subsidiaries and to the extent available on commercially reasonable terms. The
Company, and each of its Subsidiaries, will jointly and severally bear the full risk of loss from
any loss of any nature whatsoever with respect to the assets pledged to the Purchaser as security
for their respective obligations hereunder and under the Related Agreements. At the Company’s and
each of its
Subsidiaries’ joint and several cost and expense in amounts and with carriers reasonably acceptable
to the Purchaser, each of the Company and each of its Subsidiaries shall (i) keep all its insurable
properties and properties in which it has an interest insured against the hazards of fire, flood,
sprinkler leakage, those hazards covered by extended coverage insurance and such other hazards, and
for such amounts, as is customary in the case of companies engaged in businesses similar to the
Company’s or the respective Subsidiary’s including business interruption insurance; (ii) maintain a
bond in such amounts as is customary in the case of companies engaged in businesses similar to the
Company’s or the respective Subsidiary’s insuring against larceny, embezzlement or other criminal
misappropriation of insured’s officers and employees who may either singly or jointly with others
at any time have access to the assets or funds of the Company or any of its Subsidiaries either
directly or through governmental authority to draw upon such funds or to direct generally the
disposition of such assets; (iii) maintain public and product liability insurance against claims
for personal injury, death or property damage suffered by others; (iv) maintain all such worker’s
compensation or similar insurance as may be required under the laws of any state or jurisdiction in
which the Company or the respective Subsidiary is engaged in business; and (v) furnish the
Purchaser with copies of all policies and evidence of the maintenance of such policies at least
thirty (30) days before any expiration date.

          6.10 Intellectual Property. The Company and each of its Subsidiaries shall maintain
in full force and effect its existence, rights and franchises and all licenses and other rights to
use Intellectual Property owned or possessed by it and reasonably deemed to be necessary to the
conduct of its business.

19

 

          6.11 Properties. The Company and each of its Subsidiaries will keep its properties in
good repair, working order and condition, reasonable wear and tear excepted, and from time to time
make all needful and proper repairs, renewals, replacements, additions and improvements thereto;
and the Company and each of its Subsidiaries will at all times comply with all leases to which it
is a party or under which it occupies property if the breach of such provision could, in the
aggregate, reasonably be expected to have a Material Adverse Effect.

          6.12 Confidentiality. The Company will not, and will not permit any of its
Subsidiaries to, disclose, and will not include in any public announcement, the name of the
Purchaser, unless expressly agreed to by the Purchaser or unless and until such disclosure is
required by law or applicable regulation (including, without limitation, applicable federal and/or
state securities laws and regulations), and then only to the extent of such requirement.
Notwithstanding the foregoing, the Company may disclose the Purchaser’s identity and the terms of
this Agreement to its current and prospective debt and equity financing sources.

          6.13 Required Approvals.

          (a) For so long as twenty-five percent (25%) of the principal amount of the Note is
outstanding, the Company, without the prior written consent of the Purchaser, shall not:

          (i) liquidate or dissolve; or

          (ii) merge or effect a material reorganization of the Company and its Subsidiaries
taken as a whole (unless such merger or reorganization is a Qualified Reorganization (as
defined below)); or

          (iii) become subject to (including, without limitation, by way of amendment to or
modification of) any agreement or instrument which by its terms would (under any
circumstances) restrict the Company’s right to perform the provisions of this Agreement, any
Related Agreement or any of the agreements contemplated hereby or thereby.

          (b) The Company shall not permit its or its Subsidiaries’ outstanding indebtedness owed
to Republic Bank, to the extent secured by the real property referred to in the Mortgage, to
exceed $5,864,231.15 in aggregate principal amount.

          (c) For purposes of this Agreement and the Related Agreements, (I) a “Qualified
Reorganization” shall mean any merger, consolidation or similar transaction which involves
(i) the Company and the Company is the surviving entity, (ii) a Subsidiary of the Company
(but not the Company) and a Subsidiary of the Company is the surviving entity, (iii) the
sale of Standard Life Insurance Company of Indiana or (iv) a transaction in which the
surviving company (A) is not the Company or any of its Subsidiaries, (B) is traded on the
NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market, American Stock
Exchange or New York Stock Exchange (each an “Acceptable Market”) and (C) has a Market
Capitalization (as defined below) as of the closing of such merger, consolidation or similar
transaction, which is at least equal to $26,694,150.81 and (II) “Market Capitalization”
shall mean, with respect to any entity, (x) the average closing price of such entity’s
common shares which are traded

20

 

on an Acceptable Market for the 30 trading days immediately
prior to the applicable Qualified Reorganization multiplied by (y) such entities’ issued and
outstanding common shares at such time.

          6.14 Reissuance of Securities. The Company agrees to reissue certificates
representing the Securities without the legends set forth in Section 5.8 above at such time as:

          (a) the holder thereof is permitted to dispose of such Securities pursuant to Rule
144(k) under the Securities Act; or

          (b) upon resale subject to an effective registration statement after such Securities
are registered under the Securities Act.

The Company agrees to cooperate with the Purchaser in connection with all resales pursuant to Rule
144(d) and Rule 144(k) and provide legal opinions necessary to allow such resales provided the
Company and its counsel receive reasonably requested representations from the Purchaser and broker,
if any.

          6.15 Opinion. On the Closing Date, the Company will deliver to the Purchaser an
opinion reasonably acceptable to the Purchaser from the Company’s external legal counsel,
containing customary opinions, assumptions and exclusions, and substantially in the form attached
hereto as Exhibit C. The Company will provide, at the Company’s expense, such other legal opinions
in the future as are deemed reasonably necessary by the Purchaser (and acceptable to the Purchaser)
in connection with the conversion of the Note and exercise of the Warrant, containing customary
opinions, assumptions and exclusions.

          6.16 Margin Stock. The Company will not permit any of the proceeds of the Note or the
Warrant to be used directly or indirectly to “purchase” or “carry” “margin stock” or to repay
indebtedness incurred to “purchase” or “carry” “margin stock” within the respective meanings of
each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System
as now and from time to time hereafter in effect.

          6.17 Financing Right of First Refusal.

          (a) Until the later of the date (the “Expiration Date”) upon which: (i) less than
twenty-five percent (25%) of the original principal amount of the Note (“Original Principal
Amount”) is outstanding; or (ii) the date which is eighteen (18) months after the date
hereof (provided, however, the date set forth in this Section 6.17(a)(ii)
shall be extended by six (6) months upon the consummation of each transaction whereby the
Purchaser funds at least $4,750,000 for the Company or its Subsidiaries after the date
hereof), the Company hereby grants to the Purchaser a right of first refusal to provide any
Additional Financing (as defined below) to be issued by the Company and/or any of its
Subsidiaries, subject to the terms and conditions of Section 6.17(b).

21

 

          (b) From and after the date hereof until the Expiration Date, prior to the incurrence
of any additional indebtedness (other than seller financing in any acquisition transaction)
with any person or entity (an “Additional Financing”), the Company shall notify the
Purchaser of its or any of its Subsidiary’s intention to enter into such Additional
Financing. In connection therewith, the Company and/or the applicable Subsidiary thereof
shall submit a fully executed term sheet (a “Proposed Term Sheet”) to the Purchaser setting
forth the material terms, conditions and pricing of any such Additional Financing (such
financing to be negotiated on “arm’s length” terms and the terms thereof to be negotiated in
good faith) proposed to be entered into by the Company and/or such Subsidiary. The
Purchaser shall have the right, but not the obligation, for a period of ten (10) days after
the date upon which the Proposed Term Sheet is delivered to the Purchaser, to deliver to the
Company or such Subsidiary its own proposed term sheet (the “Purchaser Term Sheet”) setting
forth the terms and conditions upon which the Purchaser would be willing to provide such
Additional Financing to the Company and/or such Subsidiary. The Purchaser Term Sheet shall
contain terms and conditions no less favorable to the Company and/or such Subsidiary than
those outlined in Proposed Term Sheet. If the Purchaser timely delivers to the Company
and/or such Subsidiary a
Purchaser Term Sheet with terms and conditions at least as favorable to the Company
and/or such Subsidiary in all material respects (including rate or yield, term, advance
rates, covenants, security, equity kickers, prepayment provisions, and all other material
economic terms) as the provisions of the Proposed Term Sheet, provided that the Company
and/or such Subsidiary still intends to move forward with such Additional Financing, the
Company and/or such Subsidiary and the Purchaser shall enter into the Purchaser Term Sheet
and shall utilize their respective good faith, best efforts to consummate the Additional
Financing transaction contemplated therein within 30 days after the date the Purchaser
delivers the Purchase Term Sheet to the Company or such Subsidiary. If, alternatively, the
Purchaser does not deliver to the Company or Subsidiary a Purchaser Term Sheet satisfying
such requirements within such 10-day period, then the Company and/or such Subsidiary shall
be free to complete the transaction contemplated in the Proposed Term Sheet;
provided, however, in such case, if there are any proposed changes in the
rate or yield or equity kickers from those in the Proposed Term Sheet which changes would
have the effect of increasing the overall internal rate of return to the lender in such
transaction (“Proposed Yield Changes”), then, prior to consummating such transaction with
such lender with such Proposed Yield Changes: (i) the Company must provide the Purchaser
with a written summary of such Proposed Yield Changes, (ii) the Purchaser shall have 10 days
to deliver a Purchaser Term Sheet complying with the requirements hereof (as modified by the
Proposed Yield Changes), (iii) if the Purchaser timely delivers a Purchaser Term Sheet to
the Company or such Subsidiary which complies with the requirements hereof, the Company
and/or such Subsidiary and the Purchaser shall enter into the Purchaser Term Sheet and shall
utilize their respective good faith, best efforts to consummate the Additional Financing
transaction contemplated therein within 30 days after the date the Purchaser delivers the
Purchaser Term Sheet to the Company or such Subsidiary, and (iv) if the Purchaser does not
deliver to the Company or Subsidiary a Purchaser Term Sheet satisfying such requirements
within such 10-day period, then the Company and/or such Subsidiary shall be free to complete
the transaction contemplated in the Proposed Term Sheet as modified by such Proposed

22

 

Yield
Changes. In the event that the parties for any reason are unable to complete a transaction
contemplated in any Purchaser Term Sheet within the applicable 30-day period, the Company
and/or its Subsidiaries shall be free to terminate such Purchaser Term Sheet and seek other
Additional Financing; provided, however, prior to consummating any such
Additional Financing, the Company and/or such Subsidiary shall once again be required to
comply with the terms and conditions of this Section 6.17, unless the consummation of the
Additional Financing with Purchaser had failed through no fault of the Company or its
Subsidiaries.

          (c) Neither the Company nor any of its Subsidiaries will enter into any agreement with
any third party which prevents Company or any of its Subsidiaries from complying with its
obligation to give Purchaser a right of first refusal as provided in this Section 6.17 (it
being agreed that a negative borrowing covenant, in and of itself, will not be considered
violative of this Section 6.17(c)).

     7. Covenants of the Purchaser. The Purchaser covenants and agrees with the Company as
follows:

          7.1 Confidentiality. The Purchaser will not disclose, and will not include in any
public announcement, the name of the Company, unless expressly agreed to by the Company or unless
and until such disclosure is required by law or applicable regulation, and then only to the extent
of such requirement.

          7.2 Non-Public Information. The Purchaser will not effect any sales in the shares of
the Company’s Common Stock while in possession of material, non-public information regarding the
Company if such sales would violate applicable securities law.

          7.3 Limitation on Acquisition of Common Stock of the Company. Notwithstanding
anything to the contrary contained herein, in any Related Agreement or any document, instrument or
agreement entered into in connection with any other transactions between the Purchaser and the
Company, the Purchaser may not acquire stock in the Company (including, without limitation,
pursuant to a contract to purchase, by exercising an option or warrant, by converting any other
security or instrument, by acquiring or exercising any other right to acquire, shares of stock or
other security convertible into shares of stock in the Company, or otherwise, and such contracts,
options, warrants, conversion or other rights shall not be enforceable or exercisable) to the
extent such stock acquisition would cause any interest (including any original issue discount)
payable by the Company to the Purchaser not to qualify as “portfolio interest” within the meaning
of Section 881(c)(2) of the Code, by reason of Section 881(c)(3) of the Code, taking into account
the constructive ownership rules under Section 871(h)(3)(C) of the Code (the “Stock Acquisition
Limitation”). The Stock Acquisition Limitation shall automatically become null and void without
any notice to the Company upon the earlier to occur of either (a) the Company’s delivery to the
Purchaser of a Notice of Redemption (as defined in the Note) or (b) the existence of an Event of
Default (as defined in the Note) at a time when the average closing price of the Company’s common
stock as reported by Bloomberg, L.P. on the Principal Market for the immediately preceding five
trading days is greater than or equal to 150% of the Fixed Conversion Price (as defined in the
Note).

23

 

     8. Covenants of the Company and the Purchaser Regarding Indemnification.

          8.1 Company Indemnification. The Company agrees to indemnify, hold harmless,
reimburse and defend the Purchaser, each of the Purchaser’s officers, directors, agents,
affiliates, control persons, and principal shareholders, against any and all claims, costs,
expenses, liabilities, obligations, losses or damages (including reasonable legal fees) of any
nature, incurred by or imposed upon the Purchaser which result, arise out of or are based upon: (i)
any misrepresentation by the Company or any of its Subsidiaries or breach of any warranty by the
Company or any of its Subsidiaries in this Agreement, any other Related Agreement or in any
exhibits or schedules attached hereto or thereto; or (ii) any breach or default in performance by
Company or any of its Subsidiaries of any covenant or undertaking to be performed by Company or any
of its Subsidiaries hereunder,
under any other Related Agreement or any other agreement entered into by the Company and/or any of
its Subsidiaries and the Purchaser relating hereto or thereto.

          8.2 Purchaser’s Indemnification. The Purchaser agrees to indemnify, hold harmless,
reimburse and defend the Company and each of the Company’s officers, directors, agents, affiliates,
control persons and principal shareholders, at all times against any claims, costs, expenses,
liabilities, obligations, losses or damages (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company which result, arise out of or are based upon: (i) any
misrepresentation by the Purchaser or breach of any warranty by the Purchaser in this Agreement or
in any exhibits or schedules attached hereto or any Related Agreement; or (ii) any breach or
default in performance by the Purchaser of any covenant or undertaking to be performed by the
Purchaser hereunder, or any other agreement entered into by the Company and the Purchaser relating
hereto.

     9. Conversion of Convertible Note.

          9.1 Mechanics of Conversion.

          (a) Provided the Purchaser has notified the Company of the Purchaser’s intention to
convert the Note Shares and the Note Shares are included in an effective registration
statement and subject to the approval of the Indiana Department of Insurance, if such
approval is necessary: (i) upon the conversion of the Note or part thereof, the Company
shall, at its own cost and expense, take all necessary action (including the issuance of an
opinion of counsel reasonably acceptable to the Purchaser following a request by the
Purchaser) to assure that the Company’s transfer agent shall issue shares of the Company’s
Common Stock in the name of the Purchaser (or its nominee) or such other persons as
designated by the Purchaser in accordance with Section 9.1(b) hereof and in such
denominations to be specified representing the number of Note Shares issuable upon such
conversion; and (ii) the Company warrants that no instructions other than these instructions
have been or will be given to the transfer agent of the Company’s Common Stock and that
after the effective date of the Registration Statements (as defined in the Registration
Rights Agreement) the Note Shares issued will be freely transferable

24

 

subject to the
prospectus delivery requirements of the Securities Act and the provisions of this Agreement.

          (b) The Purchaser will give notice of its decision to exercise its right to convert the
Note or part thereof by telecopying or otherwise delivering an executed and completed notice
of the number of shares to be converted to the Company (the “Notice of Conversion”). The
Purchaser will not be required to surrender the Note until the Purchaser receives a credit
to the account of the Purchaser’s prime broker through the DWAC system (as defined below),
representing the Note Shares or until the Note has been fully satisfied. Each date on which
a Notice of Conversion is telecopied or delivered to the Company in accordance with the
provisions hereof shall be deemed a “Conversion Date.” Pursuant to the terms of the Notice
of Conversion, the Company will
issue instructions to the transfer agent accompanied by an opinion of counsel within one (1)
business day of the date of the delivery to the Company of the Notice of Conversion and
shall cause the transfer agent to transmit the certificates representing the Conversion
Shares to the Holder by crediting the account of the Purchaser’s prime broker with the
Depository Trust Company (“DTC”) through its Deposit Withdrawal Agent Commission (“DWAC”)
system within three (3) business days after receipt by the Company of the Notice of
Conversion (the “Delivery Date”).

          (c) The Company understands that a delay in the delivery of the Note Shares in the form
required pursuant to Section 9 hereof beyond the Delivery Date could result in
economic loss to the Purchaser. In the event that the Company fails to direct its transfer
agent to deliver the Note Shares to the Purchaser via the DWAC system within the time frame
set forth in Section 9.1(b) above and the Note Shares are not delivered to the
Purchaser by the Delivery Date, as compensation to the Purchaser for such loss, the Company
agrees to pay late payments to the Purchaser for late issuance of the Note Shares in the
form required pursuant to Section 9 hereof upon conversion of the Note in the amount
equal to the greater of: (i) $500 per business day after the Delivery Date; or (ii) the
Purchaser’s actual damages from such delayed delivery. Notwithstanding the foregoing, the
Company will not owe the Purchaser any late payments if the delay in the delivery of the
Note Shares beyond the Delivery Date is solely out of the control of the Company and the
Company is actively trying to cure the cause of the delay. The Company shall pay any
payments incurred under this Section in immediately available funds upon demand and, in the
case of actual damages, accompanied by reasonable documentation of the amount of such
damages. Such documentation shall show the number of shares of Common Stock the Purchaser
is forced to purchase (in an open market transaction) which the Purchaser anticipated
receiving upon such conversion, and shall be calculated as the amount by which (A) the
Purchaser’s total purchase price (including customary brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (B) the aggregate principal and/or interest
amount of the Note, for which such Conversion Notice was not timely honored.

     10. Registration Rights.

25

 

          10.1 Registration Rights Granted. The Company hereby grants registration rights to
the Purchaser pursuant to the Registration Rights Agreement.

          10.2 Offering Restrictions. Except as previously disclosed in the SEC Reports or in
the Exchange Act Filings, or stock or stock options granted to employees or directors of the
Company (these exceptions hereinafter referred to as the “Excepted Issuances”), neither the Company
nor any of its Subsidiaries will, prior to the full repayment or conversion of the Note (together
with all accrued and unpaid interest and fees related thereto), (x) enter into any equity line of
credit agreement or similar agreement or (y) issue, or enter into any agreement to issue, any
securities with a variable/floating conversion and/or pricing feature which are or could be (by
conversion or
registration) free-trading securities (i.e., common stock subject to a registration statement),
except for variable rate annuities issued in the ordinary course of business.

     11. Miscellaneous.

          11.1 Governing Law, Jurisdiction and Waiver of Jury Trial.

          (a) THIS AGREEMENT AND THE RELATED AGREEMENTS (OTHER THAN THE MORTGAGE) SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS.

          (b) THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN
THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY, ON THE ONE HAND, AND THE PURCHASER, ON
THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR ANY OF THE RELATED AGREEMENTS OR TO ANY
MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE OTHER RELATED AGREEMENTS;
PROVIDED, THAT THE PURCHASER AND THE COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE
COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF
NEW YORK; AND FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BE
DEEMED OR OPERATE TO PRECLUDE THE PURCHASER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION
IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL COVERED
BY THE MORTGAGE, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE PURCHASER.
THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
SUIT COMMENCED IN ANY SUCH COURT, AND THE COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY
HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS. THE COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT

26

 

AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE
COMPANY AT THE ADDRESS SET FORTH IN SECTION 11.9 AND THAT SERVICE SO MADE SHALL BE
DEEMED COMPLETED UPON THE EARLIER OF THE COMPANY’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS
AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.

          (c) THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE
THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES
HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO
RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE PURCHASER
AND/OR THE COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, ANY OTHER RELATED AGREEMENT OR
THE TRANSACTIONS RELATED HERETO OR THERETO.

          11.2 Severability. Wherever possible each provision of this Agreement and the Related
Agreements shall be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement or any Related Agreement shall be prohibited by or invalid
under applicable law such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the remaining provisions
thereof.

          11.3 Survival. The representations, warranties, covenants and agreements made herein
shall survive any investigation made by the Purchaser and the closing of the transactions
contemplated hereby to the extent provided therein. All statements as to factual matters contained
in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder solely as of the date of such certificate or instrument.

          11.4 Successors. Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon, the successors, heirs, executors and
administrators of the parties hereto and shall inure to the benefit of and be enforceable by each
entity which shall be a holder of the Securities from time to time, other than the holders of
Common Stock which has been sold by the Purchaser pursuant to Rule 144 or an effective registration
statement. The Purchaser may not assign its rights hereunder to a competitor of the Company.

          11.5 Entire Agreement; Maximum Interest; Conflicts. This Agreement, the Related
Agreements, the exhibits and schedules hereto and thereto and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement between the parties with
regard to the subjects hereof and no party shall be liable or bound to any other in any

27

 

manner by
any representations, warranties, covenants and agreements except as specifically set forth herein
and therein. Nothing contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of a rate of interest or
other charges in excess of the maximum permitted by applicable law. In the event that the rate of
interest or dividends required to be paid or other charges hereunder exceed the maximum amount
permitted by such law, any payments in excess of such maximum shall be credited against amounts
owed by the Company to the Purchaser and thus refunded to the Company.

          11.6 Amendment and Waiver.

          (a) This Agreement may be amended or modified only upon the written consent of the
Company and the Purchaser.

          (b) The obligations of the Company and the rights of the Purchaser under this Agreement
may be waived only with the written consent of the Purchaser.

          (c) The obligations of the Purchaser and the rights of the Company under this Agreement
may be waived only with the written consent of the Company.

          11.7 Delays or Omissions. It is agreed that no delay or omission to exercise any
right, power or remedy accruing to any party, upon any breach, default or noncompliance by another
party under this Agreement or the Related Agreements, shall impair any such right, power or remedy,
nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance thereafter
occurring. All remedies, either under this Agreement or the Related Agreements, by law or
otherwise afforded to any party, shall be cumulative and not alternative.

          11.8 Notices. All notices required or permitted hereunder shall be in writing and
shall be deemed effectively given:

          (a) upon personal delivery to the party to be notified;

          (b) when sent by confirmed facsimile if sent during normal business hours of the
recipient, if not, then on the next business day;

          (c) three (3) business days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or

          (d) one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt.

All communications shall be sent as follows:

28

 

	 	 	 
	If to the Company, to:

	 	Standard Management Corporation
	

	 	10689 N. Pennsylvania Ave.
	

	 	Indianapolis, Indiana 46240
	

	 	Attention: Stephen M. Coons, Executive Vice
	

	 	President and General Counsel
	

	 	Facsimile: 317-574-6227
	

	 	with a copy to:
	

	 	Sommer Barnard Attorneys, PC
	

	 	One Indiana Square, Suite 3500
	

	 	Indianapolis, Indiana 46204
	

	 	Attention: Robert J. Hicks, Esq.
	

	 	Facsimile: 317-713-3699
	If to the Purchaser, to:

	 	Laurus Master Fund, Ltd.
	

	 	c/o M&C Corporate Services Limited
	

	 	P.O. Box 309 GT
	

	 	Ugland House
	

	 	George Town
	

	 	South Church Street
	

	 	Grand Cayman, Cayman Islands
	

	 	Facsimile: 345-949-8080
	

	 	with a copy to:
	

	 	John E. Tucker, Esq.
	

	 	825 Third Avenue, 14th Floor
	

	 	New York, New York 10022
	

	 	Facsimile: 212-541-4434

or at such other address as the Company or the Purchaser may designate by written notice to the
other parties hereto given in accordance herewith.

          11.9 Attorneys’ Fees. In the event that any suit or action is instituted to enforce
any provision in this Agreement or any Related Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any
right of such prevailing party under or with respect to this Agreement and/or such Related
Agreement, including, without limitation, such reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all reasonable fees, costs and expenses of
appeals.

          11.10 Titles and Subtitles. The titles of the sections and subsections of this
Agreement are for convenience of reference only and are not to be considered in construing this
Agreement.

          11.11 Facsimile Signatures; Counterparts. This Agreement may be executed by facsimile
signatures and in any number of counterparts, each of which shall be an original, but all of which
together shall constitute one agreement.

29

 

          11.12 Broker’s Fees. Except as set forth on Schedule 11.12 hereof, each party
hereto represents and warrants that no agent, broker, investment banker, person or firm acting on
behalf of or under the authority of such party hereto is or will be entitled to any broker’s or
finder’s fee or any other commission directly or indirectly in connection with the transactions
contemplated herein. Each party hereto further agrees to indemnify each other party for any
claims, losses or expenses incurred by such other party as a result of the representation in this
Section 11.12 being untrue.

          11.13 Construction. Each party acknowledges that its legal counsel participated in
the preparation of this Agreement and the Related Agreements and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting party shall not be
applied in the interpretation of this Agreement or any Related Agreement to favor any party against
the other.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

30

 

     IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE AGREEMENT as of the
date set forth in the first paragraph hereof.

	 	 	 
	COMPANY:

	 	PURCHASER:
	STANDARD MANAGEMENT CORPORATION

	 	LAURUS MASTER FUND, LTD.
	By:  /s/ Ronald D. Hunter 

	 	By: /s/ Eugene Grin 
	Name: Ronald D. Hunter

	 	Name: Eugene Grin
	Title: Chairman and Chief Executive Officer

	 	Title: Director

31

 

EXHIBIT A

FORM OF CONVERTIBLE NOTE

A-1

 

THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO STANDARD
MANAGEMENT CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.

SECURED CONVERTIBLE TERM NOTE

          FOR VALUE RECEIVED, STANDARD MANAGEMENT CORPORATION, an Indiana corporation (the “Company”),
promises to pay to LAURUS MASTER FUND, LTD., c/o M&C Corporate Services Limited, P.O. Box 309 GT,
Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands, Fax: 345-949-8080
(the “Holder”) or its registered assigns or successors in interest, or order, the sum of Four
Million Seven Hundred Fifty Thousand Dollars ($4,750,000), together with any accrued and unpaid
interest hereon, on March 21, 2008 (the “Maturity Date”) if not sooner paid as set forth herein.

          Capitalized terms used herein without definition shall have the meanings ascribed to such
terms in that certain Securities Purchase Agreement dated as of the date hereof by and between the
Company and the Holder (as amended, modified and supplemented from time to time, the “Purchase
Agreement”).

          The following terms shall apply to this Secured Convertible Term Note (this “Note”):

ARTICLE I

CONTRACT RATE AND
AMORTIZATION

          1.1 Contract Rate. Subject to Sections 4.2 and 5.10, interest payable on the
outstanding principal amount of this Note (the “Principal Amount”) shall accrue at a rate per annum
equal to the “prime rate” published in The Wall Street Journal from time to time (the
“Prime Rate”), plus two percent (2%) (the “Contract Rate”). The Contract Rate shall be increased
or decreased as the case may be for each increase or decrease in the Prime Rate in an amount equal
to such increase or decrease in the Prime Rate; each change to be effective as of the day of the
change in the Prime Rate. Notwithstanding the foregoing, but subject to Section 1.2, the Contract
Rate shall not be less than seven and one quarter percent (7.25%) per annum.

          1.2 Contract Rate Adjustments and Payments. The Contract Rate shall be calculated on
the last business day of each calendar month hereafter (other than for increases or decreases in
the Prime Rate which shall be calculated and become effective in accordance with the terms of
Section 1.1) until the Maturity Date (each a “Determination Date”) and shall be subject to
adjustment as set forth herein. If (i) the Company shall have registered the shares of

 

 

the Common Stock underlying the conversion of this Note and each Warrant on a registration
statement declared effective by the Securities and Exchange Commission (the “SEC”), and (ii) the
average market price (the “Market Price”) of the Common Stock as reported by Bloomberg, L.P. on the
Principal Market for the five (5) trading days immediately preceding a Determination Date exceeds
the then applicable Fixed Conversion Price by at least twenty-five percent (25%), the Contract Rate
for the succeeding calendar month shall automatically be reduced by 200 basis points (200 b.p.)
(2%) for each incremental twenty-five percent (25%) increase in the Market Price of the Common
Stock above the then applicable Fixed Conversion Price. With respect to any calendar month ending
on or prior to the one hundred twentieth (120) day after the date hereof, if (i) the Company shall
not have registered the shares of the Common Stock underlying the conversion of this Note and each
Warrant on a registration statement declared effective by the SEC and which remains effective, and
(ii) the Market Price of the Common Stock as reported by Bloomberg, L.P. on the Principal Market
for the five (5) trading days immediately preceding a Determination Date exceeds the then
applicable Fixed Conversion Price by at least twenty-five percent (25%), the Contract Rate for the
succeeding calendar month shall automatically be decreased by 100 basis points (100 b.p.) (1%) for
each incremental twenty-five percent (25%) increase in the Market Price of the Common Stock above
the then applicable Fixed Conversion Price. Notwithstanding the foregoing (and anything to the
contrary contained herein), in no event shall the Contract Rate be less than zero percent (0%).
Interest shall be (i) calculated on the basis of a 360 day year, for the actual number of days
elapsed, and (ii) payable monthly, in arrears, commencing on March 1, 2005 and on the first
business day of each consecutive calendar month thereafter until the Maturity Date (and on the
Maturity Date), whether by acceleration or otherwise.

          1.3 Payment of Monthly Amounts. (a) Amortizing payments of the aggregate principal
amount outstanding under this Note at any time (the “Principal Amount”) shall be made by the
Company on October 1, 2005 and on the first business day of each succeeding month thereafter until
the Maturity Date (each, an “Amortization Date”). Subject to Article II below, commencing on the
first Amortization Date, the Company shall make monthly payments to the Holder on each Repayment
Date, each such payment in the amount of $158,333.33 together with any accrued and unpaid interest
on such portion of the Principal Amount plus any and all other unpaid amounts which are then owing
under this Note, the Purchase Agreement and/or any other Related Agreement (collectively, the
“Monthly Amount”). If all or a portion of the Monthly Amount is required to be paid in cash, then
the Company shall pay the Holder an amount in cash equal to 102% of the Monthly Amount due and
owing to the Holder on the Amortization Date. Any outstanding Principal Amount together with any
accrued and unpaid interest and any and all other unpaid amounts which are then owing by the
Company to the Holder under this Note, the Purchase Agreement and/or any other Related Agreement
shall be due and payable on the Maturity Date.

          (b) Conversion of Monthly Amounts by the Holder. As described in the final
sentence of Section 3.5 below, if, pursuant to Article III below, the Holder elects to convert all
or any portion of this Note into Common Stock, the Company shall be relieved of making payments of
Monthly Amounts on the next succeeding Amortization Dates to the extent of the amount of this Note
so converted.

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ARTICLE II

CONVERSION AND REDEMPTION

          2.1 [Intentionally Deleted]

          2.2 No Effective Registration. Notwithstanding anything to the contrary herein, none
of the Company’s obligations to the Holder may be converted into Common Stock unless (a) either (i)
an effective current Registration Statement (as defined in the Registration Rights Agreement)
covering the shares of Common Stock to be issued in connection with satisfaction of such
obligations exists or (ii) an exemption from registration for resale of all of the Common Stock
issued and issuable is available pursuant to Rule 144 of the Securities Act and (b) no Event of
Default (as hereinafter defined) exists and is continuing, unless such Event of Default is cured
within any applicable cure period or otherwise waived in writing by the Holder.

          2.3 Optional Redemption in Cash. The Company may prepay this Note (“Optional
Redemption”) by paying to the Holder a sum of money equal to (i) in the case of any such prepayment
occurring on or prior to the date that is the first anniversary of the Closing Date, one hundred
twenty percent (120%), (ii) in the case of any such prepayment occurring after the first
anniversary of the Closing Date and on or prior to the date that is the second anniversary of the
Closing Date, one hundred fifteen percent (115%), (iii) in the case of any such prepayment
occurring thereafter, one hundred ten percent (110%), in each case, of the Principal Amount
outstanding at such time together with accrued but unpaid interest thereon and any and all other
sums due, accrued or payable to the Holder arising under this Note, the Purchase Agreement or any
other Related Agreement (the “Redemption Amount”) outstanding on the Redemption Payment Date (as
defined below); provided that, in the event that the Company wishes to consummate a merger or
reorganization that is not a Qualified Reorganization (a “Non-Qualified Reorganization”), and the
Holder does not consent, pursuant to Section 6.13 of the Purchase Agreement, to such Non-Qualified
Reorganization within a reasonable time period after a request by the Company (not to exceed ten
(10) business days after receipt by the Holder of (x) such request for consent made by the Company
and (y) the definitive agreement reflecting the final terms of such Non-Qualified Reorganization),
the Company shall have the option of prepaying this Note in connection with such Non-Qualified
Reorganization and the Redemption Amount shall be equal to one hundred percent (100%) of the
Principal Amount outstanding at such time together with accrued but unpaid interest thereon and any
and all other sums due, accrued or payable to the Holder arising under this Note, the Purchase
Agreement or any other Related Agreement outstanding on the Redemption Payment Date. In the case
of any such prepayment referred to in the immediately preceding sentence, the Company shall deliver
to the Holder a written notice of redemption (the “Notice of Redemption”) specifying the date for
such Optional Redemption (the “Redemption Payment Date”), which date shall be seven (7) business
days after the date of the Notice of Redemption (the “Redemption Period”). A Notice of Redemption
shall not be effective with respect to any portion of this Note for which the Holder has previously
delivered a Notice of Conversion (as hereinafter defined) or for conversions elected to be made by
the Holder pursuant to Section 3.3 during the Redemption Period. The Redemption Amount shall be
determined as if the Holder’s conversion elections had

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been completed immediately prior to the date of the Notice of Redemption. On the Redemption
Payment Date, the Redemption Amount must be paid in good funds to the Holder. In the event the
Company fails to pay the Redemption Amount on the Redemption Payment Date as set forth herein, then
such Redemption Notice will be null and void.

ARTICLE III

HOLDER’S
CONVERSION RIGHTS

          3.1 Optional Conversion. Subject to the terms set forth in this Article III, the
Holder shall have the right, but not the obligation, to convert all or any portion of the
outstanding Principal Amount and/or accrued interest and fees due and payable into fully paid and
nonassessable shares of Common Stock at the Fixed Conversion Price. The shares of Common Stock to
be issued upon such conversion are herein referred to as, the “Conversion Shares.” For purposes
hereof, subject to Section 3.6 hereof, the initial “Fixed Conversion Price” means $3.28.

          3.2 Conversion Limitation. Notwithstanding anything contained herein to the contrary,
the Holder shall not be entitled to convert pursuant to the terms of this Note an amount that would
be convertible into that number of Conversion Shares which would result in the Holder owning more
than 4.99% of the outstanding shares of Common Stock. For purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and Regulation 13d-3 thereunder. The Conversion Shares limitation described in this Section
3.2 shall automatically become null and void without any notice to the Company upon the occurrence
and during the continuance of an Event of Default, or upon 75 days prior notice to the Company,
except that at no time shall the number of shares of Common Stock beneficially owned by the Holder
exceed 19.99% of the outstanding shares of Common Stock. Notwithstanding anything contained herein
to the contrary, (a) in no event shall the Holder be entitled to convert this Note into Common
Stock to the extent such conversion would require the approval of any applicable insurance
regulatory agency or authority (“Required Approval”) unless and until the Holder shall have
obtained such Required Approval, and (b) the number of shares of Common Stock issuable by the
Company and acquirable by the Holder at a price below $7.58 per share pursuant to the
terms of this Note, the Purchase Agreement or any other Related Agreement, shall not exceed an
aggregate of 1,583,430 shares of Common Stock (subject to appropriate adjustment for stock splits,
stock dividends, or other similar recapitalizations affecting the Common Stock) (the “Maximum
Common Stock Issuance”), unless the issuance of Common Stock hereunder in excess of the Maximum
Common Stock Issuance shall first be approved by the Company’s shareholders. If at any point in
time and from time to time the number of shares of Common Stock issued pursuant to the terms of
this Note, the Purchase Agreement or any other Related Agreement, together with the number of
shares of Common Stock that would then be issuable by the Company to the Holder in the event of a
conversion or exercise pursuant to the terms of this Note, the Purchase Agreement or any other
Related Agreement, would exceed the Maximum Common Stock Issuance but for this Section 3.2, the
Company shall promptly call a shareholders meeting to solicit shareholder approval for the issuance
of the shares of Common Stock hereunder in excess of the Maximum Common Stock Issuance.
Notwithstanding anything contained herein to the contrary, the provisions of this Section 3.2 are
irrevocable and may not be waived by the Holder or the Company.

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          3.3 Mechanics of Holder’s Conversion. In the event that the Holder elects to convert
this Note into Common Stock, the Holder shall give notice of such election by delivering an
executed and completed notice of conversion (“Notice of Conversion”) to the Company and such Notice
of Conversion shall provide a breakdown in reasonable detail of the Principal Amount, accrued
interest and fees that are being converted. On each Conversion Date (as hereinafter defined) and
in accordance with its Notice of Conversion, the Holder shall make the appropriate reduction to the
Principal Amount, accrued interest and fees as entered in its records and shall provide written
notice thereof to the Company within two (2) business days after the Conversion Date. Each date on
which a Notice of Conversion is delivered or telecopied to the Company in accordance with the
provisions hereof shall be deemed a Conversion Date (the “Conversion Date”). A form of Notice of
Conversion is annexed hereto as Exhibit A. Pursuant to the terms of the Notice of
Conversion, the Company will issue instructions to the transfer agent accompanied by an opinion of
counsel within two (2) business days of the date of the delivery to the Company of the Notice of
Conversion and shall cause the transfer agent to transmit the certificates representing the
Conversion Shares to the Holder by crediting the account of the Holder’s designated broker with the
Depository Trust Corporation (“DTC”) through its Deposit Withdrawal Agent Commission (“DWAC”)
system within three (3) business days after receipt by the Company of the Notice of Conversion (the
“Delivery Date”). In the case of the exercise of the conversion rights set forth herein the
conversion privilege shall be deemed to have been exercised and the Conversion Shares issuable upon
such conversion shall be deemed to have been issued upon the date of receipt by the Company of the
Notice of Conversion. The Holder shall be treated for all purposes as the record holder of the
Conversion Shares, unless the Holder provides the Company written instructions to the contrary.

          3.4 Penalty for Delay. The Company understands that a delay in the delivery of the
Conversion Shares in the form required pursuant to this Article beyond the Delivery Date could
result in economic loss to the Holder. As compensation to the Holder for such loss, the Company
shall pay late payments to the Holder for any late issuance of Conversion Shares in the form
required pursuant to this Article II upon conversion of this Note, in the amount equal to $500 per
business day after the Delivery Date. The Company shall make any payments incurred under this
Section in immediately available funds upon demand.

          3.5 Conversion Mechanics. The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing that portion of the principal and interest
and fees to be converted, if any, by the then applicable Fixed Conversion Price. In the event of
any conversions of a portion of the outstanding Principal Amount pursuant to this Article III, such
conversions shall be deemed to constitute conversions of the outstanding Principal Amount applying
to Monthly Amounts for the remaining Amortization Dates in chronological order.

          3.6 Adjustment Provisions. The Fixed Conversion Price and number and kind of shares
or other securities to be issued upon conversion determined pursuant to this Note shall be subject
to adjustment from time to time upon the happening of certain events while this conversion right
remains outstanding, as follows:

               (a) Reclassification. If the Company at any time shall, by reclassification or
otherwise, change the Common Stock into the same or a different number of

5

 

securities of any class or classes, this Note, as to the unpaid Principal Amount and accrued interest thereon, shall
thereafter be deemed to evidence the right to purchase an adjusted number of such securities and
kind of securities as would have been issuable as the result of such change with respect to the
Common Stock (i) immediately prior to or (ii) immediately after, such reclassification or other
change at the sole election of the Holder.

               (b) Stock Splits, Combinations and Dividends. If the shares of Common Stock are
subdivided or combined into a greater or smaller number of shares of Common Stock, or if a dividend
is paid on the Common Stock or any preferred stock issued by the Company in shares of Common Stock,
the Fixed Conversion Price shall be proportionately reduced in case of subdivision of shares or
stock dividend or proportionately increased in the case of combination of shares, in each such case
by the ratio which the total number of shares of Common Stock outstanding immediately after such
event bears to the total number of shares of Common Stock outstanding immediately prior to such
event.

               (c) Share Issuances. Subject to the provisions of this Section 3.6, if the Company
shall at any time prior to the conversion or repayment in full of the Principal Amount issue any
shares of Common Stock or securities convertible into Common Stock to a Person other than the
Holder (except (i) pursuant to Sections 3.6(a) or (b) above; (ii) pursuant to options, warrants, or
other obligations to issue shares outstanding on the date hereof as disclosed to the Holder in
writing; or (iii) pursuant to options that may be issued under any employee incentive stock option
and/or any qualified stock option plan adopted by the Company) for a consideration per share (the
“Offer Price”) less than the Fixed Conversion Price in effect at the time of such issuance, then
the Fixed Conversion Price shall be immediately reset to an amount which is equal to such lower
Offer Price. For purposes hereof, the issuance of any security of the Company convertible into or
exercisable or exchangeable for Common Stock shall result in an adjustment to the Fixed Conversion
Price upon the issuance of such securities.

               (d) Computation of Consideration. For purposes of any computation respecting
consideration received pursuant to Section 3.6(c) above, the following shall apply:

                    (i) in the case of the issuance of shares of Common Stock for cash, the consideration
shall be the amount of such cash, provided that in no case shall any deduction be made for
any commissions, discounts or other expenses incurred by the Company for any underwriting of
the issue or otherwise in connection therewith;

                    (ii) in the case of the issuance of shares of Common Stock for a consideration in whole
or in part other than cash, the consideration other than cash shall be deemed to be the fair
market value thereof as determined in good faith by the Board of Directors of the Company
(irrespective of the accounting treatment thereof); and

                    (iii) upon any such exercise, the aggregate consideration received for such securities
shall be deemed to be the consideration received by the Company for the issuance of such
securities plus the additional minimum consideration, if any, to be received by the Company
upon the conversion or exchange thereof (the consideration in each case to be determined in the same manner as provided in
subsections (i) and (ii) of this Section 3.6(d)).

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          3.7 Reservation of Shares. During the period the conversion right exists, the Company
will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide
for the issuance of Conversion Shares upon the full conversion of this Note. The Company
represents that upon issuance, the Conversion Shares will be duly and validly issued, fully paid
and non-assessable. The Company agrees that its issuance of this Note shall constitute full
authority to its officers, agents, and transfer agents who are charged with the duty of executing
and issuing stock certificates to execute and issue the necessary certificates for the Conversion
Shares upon the conversion of this Note.

          3.8 Registration Rights. The Holder has been granted registration rights with respect
to the Conversion Shares as set forth in a Registration Rights Agreement.

          3.9 Issuance of New Note. Upon any partial conversion of this Note, a new Note
containing the same date and provisions of this Note shall, at the request of the Holder, be issued
by the Company to the Holder for the principal balance of this Note and interest which shall not
have been converted or paid. Subject to the provisions of Article IV of this Note, the Company
shall not pay any costs, fees or any other consideration to the Holder for the production and
issuance of a new Note.

ARTICLE IV

EVENTS OF DEFAULT

          4.1 Events of Default. The occurrence of any of the following events set forth in
this Section 4.1 shall constitute an event of default (“Event of Default”) hereunder:

               (a) Failure to Pay. The Company fails to pay when due any installment of principal,
interest or other fees hereon in accordance herewith, or the Company fails to pay any of the other
obligations set forth in any Related Agreement, when due, and, in any such case, such failure shall
continue for a period of three (3) business days following the date upon which any such payment was
due.

               (b) Breach of Covenant. The Company or any of its Subsidiaries breaches any covenant
or any other term or condition of this Note (except as described in Section 4.1(a) above), the
Purchase Agreement or any other Related Agreement in any material respect and such breach, if
subject to cure, continues for a period of thirty (30) days after the occurrence thereof.

               (c) Breach of Representations and Warranties. Any representation, warranty or
statement made or furnished by the Company or any of its Subsidiaries in this Note, the Purchase
Agreement or any other Related Agreement shall prove to have been false or misleading in any
material respect as of the date made.

               (d) Other Indebtedness. (I) The occurrence of any event of default (or similar term)
or default that, with the passage of time, would permit the holder of such indebtedness to
accelerate such indebtedness (provided such default is not waived by, or cured to
the satisfaction of, such holder within 30 days after the occurrence thereof), under (x) any
indebtedness of the Company or any of its Subsidiaries owed to Republic Bank (or any financial
institution that refinances or replaces the indebtedness owed to Republic Bank) to the extent that

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such indebtedness is secured by the real property referred to in the Mortgage, or (y) any other
indebtedness for borrowed money of the Company or any of its Subsidiaries in excess of $4,750,000
in aggregate principal amount or (II) the acceleration of any indebtedness for borrowed money which
the Company or any of its Subsidiaries is a party with third parties;

               (e) Material Adverse Effect. Any change in the Company’s and its Subsidiary’s
(considered together) financial condition or affairs which in the Holder’s reasonable, good faith
opinion, could reasonably be expected to have a Material Adverse Effect;

               (f) Bankruptcy. The Company shall (i) apply for, consent to or suffer to exist
(except to the extent involuntary) the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part of its property, (ii)
make a general assignment for the benefit of creditors, (iii) commence a voluntary case under the
federal bankruptcy laws (as now or hereafter in effect), (iv) be adjudicated a bankrupt or
insolvent, (v) file a petition seeking to take advantage of any other law providing for the relief
of debtors, (vi) acquiesce to, or fail to have dismissed, within sixty (60) days, any petition
filed against it in any involuntary case under such bankruptcy laws, or (vii) take any action for
the purpose of effecting any of the foregoing;

               (g) Judgments. An attachment or levy is made upon the Company’s or any of its
Subsidiaries’ assets having an aggregate value in excess of $50,000 or a judgment is rendered
against the Company’s property involving a liability of more than $50,000 which shall not have been
vacated, discharged, stayed or bonded within thirty (30) days from the entry thereof;

               (h) Insolvency. The Company or any of its Subsidiaries shall admit in writing its
inability, or be generally unable to pay its debts as they become due;

               (i) Indictment; Proceedings. The (x) indictment of the Company or any of its
Subsidiaries or any executive officer of the Company or any of its Subsidiaries of a felony to the
extent relating to the business of the Company or any of its Subsidiaries or (y) conviction of the
Company or any of its Subsidiaries or any executive officer of the Company or any of its
Subsidiaries of a felony whether or not relating to the business of the Company or any of its
Subsidiaries;

               (j) Related Agreements. (i) An Event of Default shall occur and be continuing under
and as defined in any Related Agreement, (ii) the Company or any of its Subsidiaries attempts to
terminate, challenges the validity of, or its liability under, the Purchase Agreement or any
Related Agreement, (iii) any legal proceeding shall be brought by the Company or any of its
Subsidiaries to challenge the validity, binding effect of the Purchase Agreement or any Related
Agreement or (v) the Purchase Agreement or any Related Agreement ceases to be a valid, binding and
enforceable obligation of the Company or any of its Subsidiaries (to the extent such persons or
entities are a party thereto);

               (k) Stop Trade. An SEC stop trade order or Principal Market trading suspension of the
Common Stock shall be in effect for five (5) consecutive business days or five (5) business days
during a period of ten (10) consecutive business days, excluding in all cases a

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suspension of all trading on a Principal Market, provided that the Company shall not have been able to cure such
trading suspension within thirty (30) days of the notice thereof or list the Common Stock on
another Principal Market within sixty (60) days of such notice; or

               (l) Failure to Deliver Common Stock or Replacement Note. The Company’s failure to
deliver Common Stock to the Holder pursuant to and in the form required by this Note and the
Purchase Agreement and, if such failure to deliver Common Stock shall not be cured within five (5)
business days or the Company is required to issue a replacement Note to the Holder and the Company
shall fail to deliver such replacement Note within seven (7) business days.

               (m) Required Approvals. A change in applicable law, rules or regulations occurs the
effect of which is to require the Holder to obtain a Required Approval or Required Approvals to own
more than 4.99% of the issued and outstanding Common Stock at any one time; provided (for purposes
of clarity) an Event of Default shall not occur under this clause (k) to the extent that a Required
Approval is required for the Holder to own more than 9.99% of the issued and outstanding Common
Stock

          4.2 Default Interest. Following the occurrence and during the continuance of an Event
of Default, the Company shall pay additional interest on this Note in an amount equal to five (5%)
per annum, and all outstanding obligations under this Note, the Purchase Agreement and each
Related Agreement, including unpaid interest, shall continue to accrue interest at such additional
interest rate from the date of such Event of Default until the date such Event of Default is cured
or waived.

          4.3 Default Payment. Following the occurrence and during the continuance of an Event
of Default, the Holder, at its option, may demand repayment in full of all obligations owing by
Company to the Holder under this Note, the Purchase Agreement and/or any Related Agreement
(“Accelerated Amount”) and/or elect to exercise all applicable rights and remedies of the Holder
under the Purchase Agreement and the Related Agreements. Furthermore, such Accelerated Amount shall
be subject to a premium, which shall be calculated in the same manner as a prepayment of this Note
pursuant to Section 2.3, based upon the date the Holder makes such demand.

ARTICLE V

MISCELLANEOUS

          5.1 Conversion Privileges. The conversion privileges set forth in Article III shall
remain in full force and effect immediately from the date hereof until the date this Note is paid
in full and irrevocably terminated.

          5.2 Cumulative Remedies. The remedies under this Note shall be cumulative.

          5.3 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder
hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or privilege. All rights
and

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remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.

          5.4 Notices. Any notice herein required or permitted to be given shall be in writing
and provided in accordance with the terms of the Purchase Agreement.

          5.5 Amendment Provision. The term “Note” and all references thereto, as used
throughout this instrument, shall mean this instrument as originally executed, or if later amended
or supplemented, then as so amended or supplemented, and any successor instrument as such successor
instrument may be amended or supplemented.

          5.6 Assignability. This Note shall be binding upon the Company and its successors and
assigns, and shall inure to the benefit of the Holder and its successors and assigns, and may be
assigned by the Holder. The Company may not assign any of its obligations under this Note without
the prior written consent of the Holder, any such purported assignment without such consent being
null and void.

          5.7 Cost of Collection. In case of any Event of Default under this Note, the Company
shall pay the Holder reasonable costs of collection, including reasonable attorneys’ fees.

          5.8 Governing Law, Jurisdiction and Waiver of Jury Trial.

               (a) THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

               (b) THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN THE
COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN THE COMPANY, ON THE ONE HAND, AND THE HOLDER, ON THE OTHER HAND,
PERTAINING TO THIS NOTE OR ANY OF THE OTHER RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR
RELATED TO THIS NOTE OR ANY OF THE RELATED AGREEMENTS; PROVIDED, THAT THE COMPANY
ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF
THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND FURTHER PROVIDED, THAT NOTHING IN
THIS NOTE SHALL BE DEEMED OR OPERATE TO PRECLUDE THE HOLDER FROM BRINGING SUIT OR TAKING OTHER
LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR
ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF
THE HOLDER. THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH THE COMPANY HEREBY
WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON  CONVENIENS. THE COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR

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SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT
AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE COMPANY AT THE
ADDRESS SET FORTH IN THE PURCHASE AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON
THE EARLIER OF THE COMPANY’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S.
MAILS, PROPER POSTAGE PREPAID.

               (c) THE COMPANY DESIRES THAT ITS DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE
LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE COMPANY HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN
THE HOLDER AND THE COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS NOTE, ANY OTHER RELATED AGREEMENT OR
THE TRANSACTIONS RELATED HERETO OR THERETO.

          5.9 Severability. In the event that any provision of this Note is invalid or
unenforceable under any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any such provision which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other provision of this Note.

          5.10 Maximum Payments. Nothing contained herein shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest required to be paid or other charges
hereunder exceed the maximum rate permitted by such law, any payments in excess of such maximum
rate shall be credited against amounts owed by the Company to the Holder and thus refunded to the
Company.

          5.11 Security Interest. The Holder has been granted a security interest in certain
assets of the Company as more fully described in the Mortgage.

          5.12 Construction. Each party acknowledges that its legal counsel participated in the
preparation of this Note and, therefore, stipulates that the rule of construction that ambiguities
are to be resolved against the drafting party shall not be applied in the interpretation of this
Note to favor any party against the other.

[Balance of page intentionally left blank; signature page follows]

11

 

IN WITNESS WHEREOF, the Company has caused this Secured Convertible Term Note to be
signed in its name effective as of this 21st day of March, 2005.

	 	 	 	 	 
	 	STANDARD MANAGEMENT CORPORATION

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

WITNESS:

Stephen M. Coons

12

 

EXHIBIT A

NOTICE OF CONVERSION

(To be executed by the Holder in order to convert all or part of

the Secured Convertible Term Note into Common Stock)

[Name and Address of Holder]

     The undersigned hereby converts $                     of the principal due on [specify applicable
Repayment Date] under the Secured Convertible Term Note dated as of March 21, 2005 (the “Note”)
issued by Standard Management Corporation (the “Company”) by delivery of shares of Common Stock of
the Company on and subject to the conditions set forth in the Note.

	 	 	 	 	 
	1.

	 	Date of Conversion
	 	                                                            
	 
	2.

	 	Shares To Be Delivered:
	 	                                                            

	 	 	 
	

	 	LAURUS MASTER FUND, LTD.
	 
	 

	 	By:                                                                 
	

	 	Name:                                                            
	

	 	Title:                                                             

 

 

EXHIBIT B

FORM OF WARRANT

B-1

 

 

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE
OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO STANDARD MANAGEMENT CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.

Right to Purchase up to 532,511 Shares of Common Stock of

Standard Management Corporation 

(subject to adjustment as provided herein)

COMMON STOCK PURCHASE WARRANT

	 	 	 	 	 
	No. _______________

	 	 
	 	Issue Date: March 21, 2005

     STANDARD MANAGEMENT CORPORATION, a corporation organized under the laws of the State of
Indiana (the “Company”), hereby certifies that, for value received, LAURUS MASTER FUND, LTD., or
assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the
Company (as defined herein) from and after the Issue Date of this Warrant and at any time or from
time to time before 5:00 p.m., New York time, through the close of business March 21, 2010 (the
“Expiration Date”), up to 532,511 fully paid and nonassessable shares of Common Stock (as
hereinafter defined), at the applicable Exercise Price per share (as defined below). The number
and character of such shares of Common Stock and the applicable Exercise Price per share are
subject to adjustment as provided herein.

     As used herein the following terms, unless the context otherwise requires, have the following
respective meanings:

     (a) The term “Company” shall include Standard Management Corporation and any
corporation which shall succeed, or assume the obligations of, Standard Management
Corporation hereunder.

     (b) The term “Common Stock” includes (i) the Company’s Common Stock; and (ii) any other
securities into which or for which any of the securities described in the preceding clause
(i) may be converted or exchanged pursuant to a plan of recapitalization, reorganization,
merger, sale of assets or otherwise.

     (c) The term “Other Securities” refers to any stock (other than Common Stock) and other
securities of the Company or any other person (corporate or otherwise) which the holder of
the Warrant at any time shall be entitled to receive, or shall have received, on the
exercise of the Warrant, in lieu of or in addition to Common Stock, or

 

 

which at any time shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise.

     (d) The “Exercise Price” applicable under this Warrant shall be 3.90.

     1. Exercise of Warrant.

          1.1. Number of Shares Issuable upon Exercise. From and after the date hereof through
and including the Expiration Date, the Holder shall be entitled to receive, upon exercise of this
Warrant in whole or in part, by delivery of an original or fax copy of an exercise notice in the
form attached hereto as Exhibit A (the “Exercise Notice”), shares of Common Stock of the Company,
subject to adjustment pursuant to Section 4.

          1.2. Fair Market Value. For purposes hereof, the “Fair Market Value” of a share of
Common Stock as of a particular date (the “Determination Date”) shall mean:

     (a) If the Company’s Common Stock is traded on the American Stock Exchange or another
national exchange or is quoted on the National or SmallCap Market of The Nasdaq Stock
Market, Inc.(“Nasdaq”), then the closing or last sale price, respectively, reported for the
last business day immediately preceding the Determination Date.

     (b) If the Company’s Common Stock is not traded on the American Stock Exchange or
another national exchange or on the Nasdaq but is traded on the NASD OTC Bulletin Board,
then the mean of the average of the closing bid and asked prices reported for the last
business day immediately preceding the Determination Date.

     (c) Except as provided in clause (d) below, if the Company’s Common Stock does not
satisfy one or both of the criterion set forth in Section 1.2(a) or (b), then as the Holder
and the Company agree or in the absence of agreement by arbitration in accordance with the
rules then in effect of the American Arbitration Association, before a single arbitrator to
be chosen from a panel of persons qualified by education and training to pass on the matter
to be decided.

     (d) If the Determination Date is the date of a liquidation, dissolution or winding up,
or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company’s
charter, then all amounts to be payable per share to holders of the Common Stock pursuant to
the charter in the event of such liquidation, dissolution or winding up, plus all other
amounts to be payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of Common Stock
then issuable upon exercise of the Warrant are outstanding at the Determination Date.

          1.3. Company Acknowledgment. The Company will, at the time of the exercise of this
Warrant, upon the request of the holder hereof acknowledge in writing its continuing obligation to
afford to such holder any rights to which such holder shall continue to be entitled after such
exercise in accordance with the provisions of this Warrant. If the holder

2

 

shall fail to make any such request, such failure shall not affect the continuing obligation
of the Company to afford to such holder any such rights.

          1.4. Trustee for Warrant Holders. In the event that a bank or trust company shall
have been appointed as trustee for the holders of this Warrant pursuant to Subsection 3.2, such
bank or trust company shall have all the powers and duties of a warrant agent (as hereinafter
described) and shall accept, in its own name for the account of the Company or such successor
person as may be entitled thereto, all amounts otherwise payable to the Company or such successor,
as the case may be, on exercise of this Warrant pursuant to this Section 1.

     2. Procedure for Exercise.

          2.1. Delivery of Stock Certificates, Etc., on Exercise. The Company agrees that the
shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the
Holder as the record owner of such shares as of the close of business on the date on which this
Warrant shall have been surrendered and payment made for such shares in accordance herewith. As
soon as practicable after the exercise of this Warrant in full or in part, and in any event within
five (5) business days thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to the Holder, or as
such Holder (upon payment by such Holder of any applicable transfer taxes) may direct in compliance
with applicable securities laws, a certificate or certificates for the number of duly and validly
issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such
Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such
holder would otherwise be entitled, cash equal to such fraction multiplied by the then Fair Market
Value of one full share, together with any other stock or other securities and property (including
cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1
or otherwise.

          2.2. Exercise. Payment may be made by wire transfer or by certified or official bank
check payable to the order of the Company equal to the applicable aggregate Exercise Price for the
number of Common Shares specified in such Exercise Notice (as such exercise number shall be
adjusted to reflect any adjustment in the total number of shares of Common Stock issuable to the
Holder per the terms of this Warrant) and the Holder shall thereupon be entitled to receive the
number of duly authorized, validly issued, fully-paid and non-assessable shares of Common Stock (or
Other Securities) determined as provided herein.

     3. Effect of Reorganization, Etc.; Adjustment of Exercise Price.

          3.1. Reorganization, Consolidation, Merger, Etc. In case at any time or from time to
time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other
person, or (c) transfer all or substantially all of its properties or assets to any other person
under any plan or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and adequate provision shall
be made by the Company whereby the Holder of this Warrant, on the exercise hereof as provided in
Section 1 at any time after the consummation of such reorganization, consolidation or merger or the
effective date of such dissolution, as the case may be, shall receive, in lieu of the Common Stock
(or Other Securities) issuable on such exercise prior to

3

 

such consummation or such effective date, the stock and other securities and property
(including cash) to which such Holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such Holder had so exercised this Warrant,
immediately prior thereto, all subject to further adjustment thereafter as provided in Section 4.

          3.2. Dissolution. In the event of any dissolution of the Company following the
transfer of all or substantially all of its properties or assets, the Company, concurrently with
any distributions made to holders of its Common Stock, shall at its expense deliver or cause to be
delivered to the Holder the stock and other securities and property (including cash, where
applicable) receivable by the Holder of this Warrant pursuant to Section 3.1, or, if the Holder
shall so instruct the Company, to a bank or trust company specified by the Holder and having its
principal office in New York, NY as trustee for the Holder of this Warrant (the “Trustee”).

          3.3. Continuation of Terms. Upon any reorganization, consolidation, merger or
transfer (and any dissolution following any transfer) referred to in this Section 3, this Warrant
shall continue in full force and effect and the terms hereof shall be applicable to the shares of
stock and other securities and property receivable on the exercise of this Warrant after the
consummation of such reorganization, consolidation or merger or the effective date of dissolution
following any such transfer, as the case may be, and shall be binding upon the issuer of any such
stock or other securities, including, in the case of any such transfer, the person acquiring all or
substantially all of the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4. In the event this Warrant
does not continue in full force and effect after the consummation of the transactions described in
this Section 3, then the Company’s securities and property (including cash, where applicable)
receivable by the Holder of this Warrant will be delivered to the Holder or the Trustee as
contemplated by Section 3.2.

     4. Extraordinary Events Regarding Common Stock. In the event that the Company shall
(a) issue additional shares of the Common Stock as a dividend or other distribution on outstanding
Common Stock, (b) subdivide its outstanding shares of Common Stock, or (c) combine its outstanding
shares of the Common Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Exercise Price shall, simultaneously with the happening of such event, be adjusted by
multiplying the then Exercise Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such event and the denominator of which
shall be the number of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Exercise Price then in effect. The Exercise Price, as
so adjusted, shall be readjusted in the same manner upon the happening of any successive event or
events described herein in this Section 4. The number of shares of Common Stock that the holder of
this Warrant shall thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be adjusted to a number determined by multiplying the number of shares of Common
Stock that would otherwise (but for the provisions of this Section 4) be issuable on such exercise
by a fraction of which (a) the numerator is the Exercise Price that would otherwise (but for the
provisions of this Section 4) be in effect, and (b) the denominator is the Exercise Price in effect
on the date of such exercise (taking into account the provisions of this Section 4).

4

 

     5. Certificate as to Adjustments. In each case of any adjustment or readjustment in
the shares of Common Stock (or Other Securities) issuable on the exercise of this Warrant, the
Company at its expense will promptly cause its Chief Financial Officer or other appropriate
designee to compute such adjustment or readjustment in accordance with the terms of this Warrant
and prepare a certificate setting forth such adjustment or readjustment and showing in detail the
facts upon which such adjustment or readjustment is based, including a statement of (a) the
consideration received or receivable by the Company for any additional shares of Common Stock (or
Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of
Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Exercise
Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in
effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as
provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the
holder of this Warrant and any Warrant agent of the Company (appointed pursuant to Section 11
hereof).

     6. Reservation of Stock, Etc., Issuable on Exercise of Warrant. The Company will at
all times reserve and keep available, solely for issuance and delivery on the exercise of this
Warrant, shares of Common Stock (or Other Securities) from time to time issuable on the exercise of
this Warrant.

     7. Assignment; Exchange of Warrant. Subject to compliance with applicable securities
laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder
hereof (a “Transferor”) in whole or in part. On the surrender for exchange of this Warrant, with
the Transferor’s endorsement in the form of Exhibit B attached hereto (the “Transferor Endorsement
Form”) and together with evidence reasonably satisfactory to the Company demonstrating compliance
with applicable securities laws, which shall include, without limitation, the provision of a legal
opinion from the Transferor’s counsel (at the Company’s expense) that such transfer is exempt from
the registration requirements of applicable securities laws, the Company at its expense (but with
payment by the Transferor of any applicable transfer taxes) will issue and deliver to or on the
order of the Transferor thereof a new Warrant of like tenor, in the name of the Transferor and/or
the transferee(s) specified in such Transferor Endorsement Form (each a “Transferee”), calling in
the aggregate on the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant so surrendered by the Transferor.

     8. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such
loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security
reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation,
on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver,
in lieu thereof, a new Warrant of like tenor.

     9. Registration Rights. The Holder of this Warrant has been granted certain
registration rights by the Company. These registration rights are set forth in a Registration
Rights Agreement entered into by the Company and Holder dated as of the date hereof, as the same
may be amended, modified or supplemented from time to time.

5

 

     10. Maximum Exercise. Notwithstanding anything contained herein to the contrary, the
Holder shall not be entitled to exercise this Warrant in connection with that number of shares of
Common Stock that would result in the Holder beneficially owning more than 4.99% of the outstanding
shares of Common Stock. For the purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange Act, as amended, and
Regulation 13d-3 thereunder. The conversion limitation described in this Section 10 shall
automatically become null and void without any notice to the Company upon the occurrence and during
the continuance of an Event of Default under and as defined in the Note made by the Company to the
Holder dated the date hereof (as amended, modified or supplemented from time to time, the “Note”),
or upon 75 days prior notice to the Company, except that at no time shall the number of shares of
Common Stock beneficially owned by the Holder exceed 19.99% of the outstanding shares of Common
Stock. Notwithstanding anything contained herein to the contrary (a) in no event shall the Holder
be entitled to exercise this Warrant with respect to any Common Shares to the extent such exercise
would require the approval of any applicable insurance regulatory agency or authority (“Required
Approval”) unless and until Holder shall have obtained such Required Approval; and (b) the number
of shares of Common Stock issuable by the Company and acquirable by the Holder at a price below
$7.58 per share pursuant to the terms of this Warrant, the Note, the Purchase Agreement (as defined
in the Note), any Related Agreement (as defined in the Purchase Agreement) or otherwise, shall not
exceed an aggregate of 1,583,430 shares of Common Stock (subject to appropriate adjustment for
stock splits, stock dividends, or other similar recapitalizations affecting the Common Stock) (the
“Maximum Common Stock Issuance”), unless the issuance of Common Stock hereunder in excess of the
Maximum Common Stock Issuance shall first be approved by the Company’s shareholders. If at any
point in time and from time to time the number of shares of Common Stock issued pursuant to the
terms of this Warrant, the Note, the Purchase Agreement or any Related Agreement, together with the
number of shares of Common Stock that would then be issuable by the Company to the Holder in the
event of a conversion or exercise pursuant to the terms of this Warrant, the Note, the Purchase
Agreement, any Related Agreement or otherwise, would exceed the Maximum Common Stock Issuance but
for this Section 10, the Company shall promptly call a shareholders meeting to solicit shareholder
approval for the issuance of the shares of Common Stock hereunder in excess of the Maximum Common
Stock Issuance.

     11. Warrant Agent. The Company may, by written notice to the each Holder of the
Warrant, appoint an agent for the purpose of issuing Common Stock (or Other Securities) on the
exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7, and
replacing this Warrant pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such office by such agent.

     12. Transfer on the Company’s Books. Until this Warrant is transferred on the books
of the Company, the Company may treat the registered Holder hereof as the absolute owner hereof for
all purposes, notwithstanding any notice to the contrary.

     13. Notices, Etc. All notices and other communications from the Company to the Holder
of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at
such address as may have been furnished to the Company in writing by such Holder or, until

6

 

any such Holder furnishes to the Company an address, then to, and at the address of, the last
Holder of this Warrant who has so furnished an address to the Company.

     14. Miscellaneous. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be
governed by and construed in accordance with the laws of State of New York without regard to
principles of conflicts of laws. Any action brought concerning the transactions contemplated by
this Warrant shall be brought only in the state courts of New York or in the federal courts located
in the state of New York; provided, however, that the Holder may choose to waive this provision and
bring an action outside the state of New York. The individuals executing this Warrant on behalf of
the Company agree to submit to the jurisdiction of such courts and waive trial by jury. The
prevailing party shall be entitled to recover from the other party its reasonable attorneys’ fees
and costs. In the event that any provision of this Warrant is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed inoperative to the extent
that it may conflict therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law shall not affect
the validity or enforceability of any other provision of this Warrant. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision hereof. The Company acknowledges that legal
counsel participated in the preparation of this Warrant and, therefore, stipulates that the rule of
construction that ambiguities are to be resolved against the drafting party shall not be applied in
the interpretation of this Warrant to favor any party against the other party.

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK;

SIGNATURE PAGE FOLLOWS]

7

 

IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written
above.

	 	 	 
	

	 	STANDARD MANAGEMENT CORPORATION
	WITNESS:
	 	 
	/s/ Stephen M. Coons

	 	By:  /s/ Ronald D. Hunter
	

	 	Name: Ronald D. Hunter
	

	 	Title: Chairman and Chief Executive Officer

8

 

Exhibit A

FORM OF SUBSCRIPTION

(To Be Signed Only On
Exercise Of Warrant)

TO: Standard Management Corporation

       Attention: Chief Financial Officer

     The undersigned, pursuant to the provisions set forth in the attached Warrant (No.___),
hereby irrevocably elects to purchase (check applicable box):

	 	 	 
	___

	 	___ shares of the Common Stock covered by such Warrant; or
	 
	 	 
	___

	 	the maximum number of shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in Section 2.

     The undersigned herewith makes payment of the full Exercise Price for such shares at the price
per share provided for in such Warrant, which is $___. Such payment takes the form of
(check applicable box or boxes):

	 	 	 
	___

	 	$___ in lawful money of the United States; and/or
	 
	 	 
	___

	 	the cancellation of such portion of the attached Warrant as is
exercisable for a total of ___ shares of Common Stock (using a
Fair Market Value of $___ per share for purposes of this
calculation); and/or
	 
	 	 
	___

	 	the cancellation of such number of shares of Common Stock as is
necessary, in accordance with the formula set forth in Section 2.2, to
exercise this Warrant with respect to the maximum number of shares of
Common Stock purchasable pursuant to the cashless exercise procedure
set forth in Section 2.

     The undersigned requests that the certificates for such shares be issued in the name of, and
delivered to                                                    whose address is
                                                                                                                                                                .

     The undersigned represents and warrants that all offers and sales by the undersigned of the
securities issuable upon exercise of the within Warrant shall be made pursuant to registration of
the Common Stock under the Securities Act of 1933, as amended (the “Securities Act”) or pursuant to
an exemption from registration under the Securities Act.

	 	 	 
	Dated:                                         

	 	                                                                                
	

	 	(Signature must conform to name of holder as
	

	 	specified on the face of the Warrant)
	 
	 	 
	

	 	Address:                                                             
	

	 	                                                                           

A-1

 

Exhibit B

FORM OF TRANSFEROR ENDORSEMENT

(To Be Signed Only On Transfer Of Warrant)

     For value received, the undersigned hereby sells, assigns, and transfers unto the person(s)
named below under the heading “Transferees” the right represented by the within Warrant to purchase
the percentage and number of shares of Common Stock of Standard Management Corporation into which
the within Warrant relates specified under the headings “Percentage Transferred” and “Number
Transferred,” respectively, opposite the name(s) of such person(s) and appoints each such person
Attorney to transfer its respective right on the books of Standard Management Corporation with full
power of substitution in the premises.

	 	 	 	 	 	 	 
	 	 	 	 	Percentage	 	Number
	Transferees	 	Address	 	Transferred	 	Transferred
	 
	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 

	 	 	 	 	 
	Dated:                                                             

	 	 	 	                                                                                
	

	 	 	 	(Signature must conform to name of holder as
	

	 	 	 	specified on the face of the Warrant)
	 
	 

	 	 	 	Address:                                                             
	

	 	 	 	                                                                          
	 
	 	 	 	 
	

	 	 	 	SIGNED IN THE PRESENCE OF:
	 
	 	 	 	 
	

	 	 	 	                                                                                                    
	

	 	 	 	(Name)
	ACCEPTED AND AGREED:
	 	 	 	 
	[TRANSFEREE]
	 	 	 	 
	 
	 	 	 	 
	                                                                                
	 	 	 	 
	(Name)
	 	 	 	 

B-1

 

EXHIBIT C

FORM OF OPINION

C-1EX-4.2 REGISTRATION RIGHTS AGREEMENT

 

EXHIBIT 4.2

REGISTRATION RIGHTS AGREEMENT

     This Registration Rights Agreement (this “Agreement”) is made and entered into as of March 21,
2005, by and between Standard Management Corporation, an Indiana corporation (the “Company”), and
Laurus Master Fund, Ltd. (the “Purchaser”).

     This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date
hereof, by and between the Purchaser and the Company (as amended, modified or supplemented from
time to time, the “Securities Purchase Agreement”), and pursuant to the Note and the Warrants
referred to therein.

     The Company and the Purchaser hereby agree as follows:

     1. Definitions. Capitalized terms used and not otherwise defined herein that are defined in
the Securities Purchase Agreement shall have the meanings given such terms in the Securities
Purchase Agreement. As used in this Agreement, the following terms shall have the following
meanings:

          “Commission” means the Securities and Exchange Commission.

          “Common Stock” means shares of the Company’s common stock.

          “Effectiveness Date” means (i) with respect to the initial Registration Statement required to
be filed hereunder, a date no later than one hundred twenty days following the date hereof and (ii)
with respect to each additional Registration Statement required to be filed hereunder, a date no
later than thirty (30) days following the applicable Filing Date.

          “Effectiveness Period” has the meaning set forth in Section 2(a).

          “Exchange Act” means the Securities Exchange Act of 1934, as amended, and any successor
statute.

          “Filing Date” means, with respect to (i) the initial Registration Statement required to be
filed hereunder, a date no later than thirty (30) days following the date hereof, (ii) with respect
to shares of Common Stock issuable to the Holder as a result of adjustments to the Fixed Conversion
Price or Exercise Price made pursuant to Section 3.4 of the Note or Section 4 of the Warrant or
otherwise, thirty (30) days after the occurrence of such event or the date of the adjustment of the
Fixed Conversion Price or Exercise Price and (iii) with respect to any Warrant issued after the
date hereof, the date which is thirty (30) days after the issuance of such Warrant.

          “Holder” or “Holders” means the Purchaser or any of its affiliates or transferees to the
extent any of them hold Registrable Securities, other than those purchasing Registrable Securities
in a market transaction.

          “Indemnified Party” has the meaning set forth in Section 5(c).

          “Indemnifying Party” has the meaning set forth in Section 5(c).

 

 

          “Note” has the meaning set forth in the Securities Purchase Agreement.

          “Proceeding” means an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition), whether commenced or
threatened.

          “Prospectus” means the prospectus included in the Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from a prospectus filed
as part of an effective registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by the Registration Statement,
and all other amendments and supplements to the Prospectus, including post-effective amendments,
and all material incorporated by reference or deemed to be incorporated by reference in such
Prospectus.

          “Registrable Securities” means the shares of Common Stock issued upon the conversion of the
Note and issuable upon exercise of the Warrants.

          “Registration Statement” means each registration statement required to be filed hereunder,
including the Prospectus therein, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material
incorporated by reference or deemed to be incorporated by reference in such registration statement.

          “Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by
the Commission having substantially the same effect as such Rule.

          “Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by
the Commission having substantially the same effect as such Rule.

          “Securities Act” means the Securities Act of 1933, as amended, and any successor statute.

          “Securities Purchase Agreement” has the meaning given to such term in the Preamble hereto.

          “Trading Market” means any of the NASD OTC Bulletin Board, NASDAQ SmallCap Market, the Nasdaq
National Market, the American Stock Exchange or the New York Stock Exchange.

          “Warrants” means the Common Stock purchase warrants issued pursuant to the Securities Purchase
Agreement.

2

 

     2. Registration.

     (a) On or prior to the Filing Date the Company shall prepare and file with the
Commission a Registration Statement covering the Registrable Securities for a selling
stockholder resale offering to be made on a continuous basis pursuant to Rule 415. The
Registration Statement shall be on Form S-3 (except if the Company is not then eligible to
register for resale the Registrable Securities on Form S-3, in which case such registration
shall be on another appropriate form in accordance herewith). The Company shall cause each
Registration Statement to become effective and remain effective as provided herein. The
Company shall use its reasonable commercial efforts to cause each Registration Statement to
be declared effective under the Securities Act as promptly as possible after the filing
thereof, but in any event no later than the Effectiveness Date. The Company shall use its
reasonable commercial efforts to keep each Registration Statement continuously effective
under the Securities Act until the date which is the earlier date of when (i) all
Registrable Securities have been sold or (ii) all Registrable Securities covered by such
Registration Statement may be sold immediately without registration under the Securities Act
and without volume restrictions pursuant to Rule 144(k), as determined by the counsel to the
Company pursuant to a written opinion letter to such effect, addressed and acceptable to the
Company’s transfer agent and the affected Holders (the “Effectiveness Period”).

     (b) If: (i) any Registration Statement is not filed on or prior to the applicable
Filing Date; (ii) a Registration Statement filed hereunder is not declared effective by the
Commission by the applicable Effectiveness Date; (iii) after a Registration Statement is
filed with and declared effective by the Commission, a Discontinuation Event (as hereafter
defined) shall occur and be continuing, or such Registration Statement ceases to be
effective (by suspension or otherwise) as to all Registrable Securities to which it is
required to relate at any time prior to the expiration of the Effectiveness Period (without
being succeeded immediately by an additional registration statement filed and declared
effective), for a period of time which shall exceed 60 days in the aggregate per year
(defined as a period of 365 days commencing on the date the Registration Statement is
declared effective) or more than 30 consecutive calendar days; or (iv) the Common Stock is
not listed or quoted, or is suspended from trading on any Trading Market for a period of
five (5) consecutive Trading Days (provided the Company shall not have been able to cure
such trading suspension within 30 days of the notice thereof or list the Common Stock on
another Trading Market); (any such failure or breach being referred to as an “Event,” and
for purposes of clause (i) or (ii) the date on which such Event occurs, or for purposes of
clause (iii) the date which such 60 day or 30 consecutive day period (as the case may be) is
exceeded, or for purposes of clause (iv) the date on which such five (5) Trading Day period
is exceeded, or for purposes of clause (iv) the date on which such five (5) Trading Day
period is exceeded, being referred to as “Event Date”), then as partial relief for the
damages to the Purchaser by reason of the occurrence of any such Event (which remedy shall
not be exclusive of any other remedies available at law or in equity), the Company shall pay
to the Purchaser for each day that an Event has occurred and is continuing, an amount in
cash equal to one-thirtieth (1/30th) of the product of: (A) the original
principal amount of the Note multiplied by (B) 0.02. In the event the Company fails to make
any payments pursuant to this Section 2(b) in a timely manner,

3

 

such payments shall bear interest at the rate of 1.5% per month (prorated for partial
months) until paid in full.

     (c) Within five business days of the Effectiveness Date, the Company shall cause its
counsel to issue a blanket opinion in the form attached hereto as Exhibit A, to the transfer
agent stating that the shares are subject to an effective registration statement and can be
reissued free of restrictive legend upon notice of a sale by the Purchaser and confirmation
by the Purchaser that it has complied with the prospectus delivery requirements, provided
that the Company has not advised the transfer agent orally or in writing that the opinion
has been withdrawn. Copies of the blanket opinion required by this Section 2(c) shall be
delivered to the Purchaser within the time frame set forth above.

     3. Registration Procedures. If and whenever the Company is required by the provisions hereof
to effect the registration of any Registrable Securities under the Securities Act, the Company
will, as expeditiously as possible:

     (a) prepare and file with the Commission a Registration Statement with respect to such
Registrable Securities, respond as promptly as possible to any comments received from the
Commission, and use its best efforts to cause the Registration Statement to become and
remain effective for the Effectiveness Period with respect thereto, and promptly provide to
the Purchaser copies of all filings and Commission letters of comment relating thereto;

     (b) prepare and file with the Commission such amendments and supplements to the
Registration Statement and the Prospectus used in connection therewith as may be necessary
to comply with the provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by such Registration Statement and to keep such Registration
Statement effective until the expiration of the Effectiveness Period applicable to such
Registration Statement;

     (c) furnish to the Purchaser such number of copies of the Registration Statement and
the Prospectus included therein (including each preliminary Prospectus) as the Purchaser
reasonably may request to facilitate the public sale or disposition of the Registrable
Securities covered by the Registration Statement;

     (d) use its commercially reasonable efforts to register or qualify the Purchaser’s
Registrable Securities covered by such Registration Statement under the securities or “blue
sky” laws of such jurisdictions within the United States as the Purchaser may reasonably
request, provided, however, that the Company shall not for any such purpose be required to
qualify generally to transact business as a foreign corporation in any jurisdiction where it
is not so qualified or to consent to general service of process in any such jurisdiction;

     (e) list the Registrable Securities covered by such Registration Statement with any
securities exchange on which the Common Stock of the Company is then listed;

     (f) immediately notify the Purchaser at any time when a Prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event

4

 

of which the Company has knowledge as a result of which the Prospectus contained in
such Registration Statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances then existing; and

     (g) make available for inspection by the Purchaser and any attorney, accountant or
other agent retained by the Purchaser, all publicly available, non-confidential financial
and other records, pertinent corporate documents and properties of the Company, and cause
the Company’s officers, directors and employees to supply all publicly available,
non-confidential information reasonably requested by the attorney, accountant or agent of
the Purchaser.

     4. Registration Expenses. All expenses relating to the Company’s compliance with Sections 2
and 3 hereof, including, without limitation, all registration and filing fees, printing expenses,
fees and disbursements of counsel and independent public accountants for the Company, fees and
expenses (including reasonable counsel fees) incurred in connection with complying with state
securities or “blue sky” laws, fees of the NASD, transfer taxes, fees of transfer agents and
registrars, fees of, and disbursements incurred by, one counsel for the Holders, are called
“Registration Expenses”. All selling commissions applicable to the sale of Registrable Securities,
including any fees and disbursements of any special counsel to the Holders beyond those included in
Registration Expenses, are called “Selling Expenses.” The Company shall only be responsible for
all Registration Expenses. The Company shall have no obligation to pay any Selling Expenses. All
Selling Expenses shall be borne by the Holders.

     5. Indemnification.

     (a) In the event of a registration of any Registrable Securities under the Securities
Act pursuant to this Agreement, the Company will indemnify and hold harmless the Purchaser,
and its officers, directors and each other person, if any, who controls the Purchaser within
the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint
or several, to which the Purchaser, or such persons may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any Registration Statement under which such
Registrable Securities were registered under the Securities Act pursuant to this Agreement,
any preliminary Prospectus or final Prospectus contained therein, or any amendment or
supplement thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Purchaser, and each such person
for any reasonable legal or other expenses incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case if and to the extent
that any such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by or on behalf of the Purchaser or any such person in writing
specifically for use in any such document.

5

 

     (b) In the event of a registration of the Registrable Securities under the Securities
Act pursuant to this Agreement, the Purchaser will indemnify and hold harmless the Company,
and its officers, directors and each other person, if any, who controls the Company within
the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint
or several, to which the Company or such persons may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue statement of
any material fact which was furnished in writing by the Purchaser to the Company expressly
for use in (and such information is contained in) the Registration Statement under which
such Registrable Securities were registered under the Securities Act pursuant to this
Agreement, any preliminary Prospectus or final Prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and each such person
for any reasonable legal or other expenses incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action, provided,
however, that the Purchaser will be liable in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished in writing to the Company by or on behalf of the
Purchaser specifically for use in any such document. Notwithstanding the provisions of this
paragraph, the Purchaser shall not be required to indemnify any person or entity in excess
of the amount of the aggregate net proceeds received by the Purchaser in respect of
Registrable Securities in connection with any such registration under the Securities Act.

     (c) Promptly after receipt by a party entitled to claim indemnification hereunder (an
“Indemnified Party”) of notice of the commencement of any action, such Indemnified Party
shall, if a claim for indemnification in respect thereof is to be made against a party
hereto obligated to indemnify such Indemnified Party (an “Indemnifying Party”), notify the
Indemnifying Party in writing thereof, but the omission so to notify the Indemnifying Party
shall not relieve it from any liability which it may have to such Indemnified Party other
than under this Section 5(c) and shall only relieve it from any liability which it may have
to such Indemnified Party under this Section 5(c) if and to the extent the Indemnifying
Party is prejudiced by such omission. In case any such action shall be brought against any
Indemnified Party and it shall notify the Indemnifying Party of the commencement thereof,
the Indemnifying Party shall be entitled to participate in and, to the extent it shall wish,
to assume and undertake the defense thereof with counsel satisfactory to such Indemnified
Party, and, after notice from the Indemnifying Party to such Indemnified Party of its
election so to assume and undertake the defense thereof, the Indemnifying Party shall not be
liable to such Indemnified Party under this Section 5(c) for any legal expenses subsequently
incurred by such Indemnified Party in connection with the defense thereof; if the
Indemnified Party retains its own counsel, then the Indemnified Party shall pay all fees,
costs and expenses of such counsel, provided, however, that, if the
defendants in any such action include both the Indemnified Party and the Indemnifying Party
and the Indemnified Party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to

6

 

those available to the Indemnifying Party or if the interests of the Indemnified Party
reasonably may be deemed to conflict with the interests of the Indemnifying Party, the
Indemnified Party shall have the right to select one separate counsel and to assume such
legal defenses and otherwise to participate in the defense of such action, with the
reasonable expenses and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the Indemnifying Party as incurred.

     (d) In order to provide for just and equitable contribution in the event of joint
liability under the Securities Act in any case in which either (i) the Purchaser, or any
officer, director or controlling person of the Purchaser, makes a claim for indemnification
pursuant to this Section 5 but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this Section 5 provides for indemnification in such case,
or (ii) contribution under the Securities Act may be required on the part of the Purchaser
or such officer, director or controlling person of the Purchaser in circumstances for which
indemnification is provided under this Section 5; then, and in each such case, the Company
and the Purchaser will contribute to the aggregate losses, claims, damages or liabilities to
which they may be subject (after contribution from others) in such proportion so that the
Purchaser is responsible only for the portion represented by the percentage that the public
offering price of its securities offered by the Registration Statement bears to the public
offering price of all securities offered by such Registration Statement, provided,
however, that, in any such case, (A) the Purchaser will not be required to
contribute any amount in excess of the public offering price of all such securities offered
by it pursuant to such Registration Statement; and (B) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the Act) will be
entitled to contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.

     6. Representations and Warranties.

     (a) The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange
Act and, except with respect to certain matters which the Company has disclosed to the
Purchaser on Schedule 4.21 to the Securities Purchase Agreement, the Company has timely
filed all proxy statements, reports, schedules, forms, statements and other documents
required to be filed by it under the Exchange Act. The Company has filed (i) its Annual
Report on Form 10-K for its fiscal year ended December 31, 2003 and (ii) its Quarterly
Report on Form 10-Q for the fiscal quarters ended March 31, 2004, June 30, 2004 and
September 30, 2004 (collectively, the “SEC Reports”). Each SEC Report was, at the time of
its filing, in substantial compliance with the requirements of its respective form and none
of the SEC Reports, nor the financial statements (and the notes thereto) included in the SEC
Reports, as of their respective filing dates, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC Reports comply as
to form in all material respects with applicable accounting requirements and the published
rules and regulations of the Commission or

7

 

other applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles (“GAAP”)
applied on a consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, subject to normal year-end and audit adjustments and the omission of
footnote disclosure) and fairly present in all material respects the financial condition,
the results of operations and the cash flows of the Company and its subsidiaries, on a
consolidated basis, as of, and for, the periods presented in each such SEC Report.

     (b) The Common Stock is listed for trading on the Nasdaq National Market and satisfies
all requirements for the continuation of such listing, and the Company shall do all things
necessary for the continuation of such listing. The Company has not received any notice
that its Common Stock will be delisted from the Nasdaq National Market (except for prior
notices which have been fully remedied) or that the Common Stock does not meet all
requirements for the continuation of such listing.

     (c) Neither the Company, nor any of its affiliates, nor any person acting on its or
their behalf, has directly or indirectly made any offers or sales of any security or
solicited any offers to buy any security under circumstances that would cause the offering
of the Securities pursuant to the Securities Purchase Agreement to be integrated with prior
offerings by the Company for purposes of the Securities Act which would prevent the Company
from selling the Common Stock pursuant to Rule 506 under the Securities Act, or any
applicable exchange-related stockholder approval provisions, nor will the Company or any of
its affiliates or subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.

     (d) The Warrants, the Note and the shares of Common Stock which the Purchaser may
acquire pursuant to the Warrants and the Note are all restricted securities under the
Securities Act as of the date of this Agreement. The Company will not issue any stop
transfer order or other order impeding the sale and delivery of any of the Registrable
Securities at such time as such Registrable Securities are registered for public sale or an
exemption from registration is available, except as required by federal or state securities
laws.

     (e) The Company understands the nature of the Registrable Securities issuable upon the
conversion of the Note and the exercise of the Warrant and recognizes that the issuance of
such Registrable Securities may have a potential dilutive effect. The Company specifically
acknowledges that its obligation to issue the Registrable Securities is binding upon the
Company and enforceable regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Company.

     (f) Except for agreements made in the ordinary course of business, there is no
agreement that has not been filed with the Commission as an exhibit to a registration
statement or to a form required to be filed by the Company under the Exchange Act, the
breach of which could reasonably be expected to have a material and adverse effect on the
Company and its subsidiaries, or would prohibit or otherwise interfere with the ability

8

 

of the Company to enter into and perform any of its obligations under this Agreement in
any material respect.

     (g) The Company will at all times have authorized and reserved a sufficient number of
shares of Common Stock for the full conversion of the Note and exercise of the Warrants.

     7. Miscellaneous.

     (a) Remedies. In the event of a breach by the Company or by a Holder, of any of their
respective obligations under this Agreement, each Holder or the Company, as the case may be,
in addition to being entitled to exercise all rights granted by law and under this
Agreement, including recovery of damages, will be entitled to specific performance of its
rights under this Agreement.

     (b) No Piggyback on Registrations. Except as and to the extent specified in Schedule
7(b) hereto, neither the Company nor any of its security holders (other than the Holders in
such capacity pursuant hereto) may include securities of the Company in the Registration
Statement other than the Registrable Securities, and the Company shall not after the date
hereof enter into any agreement providing any such right for inclusion of shares in the
Registration Statement to any of its security holders. Except as and to the extent
specified in Schedule 7(b) hereto, the Company has not previously entered into any agreement
granting any registration rights with respect to any of its securities to any person or
entity that have not been fully satisfied.

     (c) Compliance. Each Holder covenants and agrees that it will comply with the
prospectus delivery requirements of the Securities Act as applicable to it in connection
with sales of Registrable Securities pursuant to the Registration Statement.

     (d) Discontinued Disposition. Each Holder agrees by its acquisition of such
Registrable Securities that, upon receipt of a notice from the Company of the occurrence of
a Discontinuation Event (as defined below), such Holder will forthwith discontinue
disposition of such Registrable Securities under the applicable Registration Statement until
such Holder’s receipt of the copies of the supplemented Prospectus and/or amended
Registration Statement or until it is advised in writing (the “Advice”) by the Company that
the use of the applicable Prospectus may be resumed, and, in either case, has received
copies of any additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement. The Company may
provide appropriate stop orders to enforce the provisions of this paragraph. For purposes
of this Agreement, a “Discontinuation Event” shall mean (i) when the Commission notifies the
Company whether there will be a “review” of such Registration Statement and whenever the
Commission comments in writing on such Registration Statement (the Company shall provide
true and complete copies thereof and all written responses thereto to each of the Holders);
(ii) any request by the Commission or any other Federal or state governmental authority for
amendments or supplements to such Registration Statement or Prospectus or for additional
information; (iii) the issuance by the Commission of any stop order suspending the
effectiveness of such Registration

9

 

Statement covering any or all of the Registrable Securities or the initiation of any
Proceedings for that purpose; (iv) the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and/or (v) the occurrence of any event or passage of time that
makes the financial statements included in such Registration Statement ineligible for
inclusion therein or any statement made in such Registration Statement or Prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to such Registration Statement, Prospectus
or other documents so that, in the case of such Registration Statement or Prospectus, as the
case may be, it will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.

     (e) Piggy-Back Registrations. If at any time during the Effectiveness Period there is
not an effective Registration Statement covering all of the Registrable Securities and the
Company shall determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under the Securities
Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated
under the Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee benefit plans, then
the Company shall send to each Holder written notice of such determination and, if within
fifteen (15) days after receipt of such notice, any such Holder shall so request in writing,
the Company shall include in such registration statement all or any part of such Registrable
Securities such Holder requests to be registered to the extent the Company may do so without
violating registration rights of others which exist as of the date of this Agreement,
subject to customary underwriter cutbacks applicable to all holders of registration rights
and subject to obtaining any required consent of any selling stockholder(s) to such
inclusion under such registration statement.

     (f) Amendments and Waivers. The provisions of this Agreement, including the provisions
of this sentence, may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, unless the same shall be in writing
and signed by the Company and the Holders of the then outstanding Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of certain Holders and that does
not directly or indirectly affect the rights of other Holders may be given by Holders of at
least a majority of the Registrable Securities to which such waiver or consent relates;
provided, however, that the provisions of this sentence may not be amended,
modified, or supplemented except in accordance with the provisions of the immediately
preceding sentence.

     (g) Notices. Any notice or request hereunder may be given to the Company or the
Purchaser at the respective addresses set forth below or as may hereafter be specified in a
notice designated as a change of address under this Section 7(g). Any

10

 

notice or request hereunder shall be given by registered or certified mail, return
receipt requested, hand delivery, overnight mail, Federal Express or other national
overnight next day carrier (collectively, “Courier”) or telecopy (confirmed by mail).
Notices and requests shall be, in the case of those by hand delivery, deemed to have been
given when delivered to any party to whom it is addressed, in the case of those by mail or
overnight mail, deemed to have been given three (3) business days after the date when
deposited in the mail or with the overnight mail carrier, in the case of a Courier, the next
business day following timely delivery of the package with the Courier, and, in the case of
a telecopy, when confirmed. The address for such notices and communications shall be as
follows:

     If to the Company:

Standard Management Corporation

10689 N. Pennsylvania Ave.

Indianapolis, Indiana 46240

Attention: Stephen M. Coons, Executive Vice President 

and General Counsel

Facsimile: 317-574-6227

with a copy to:

Sommer Barnard Attorneys, PC

One Indiana Square, Suite 3500

Indianapolis, Indiana 46204

Attention: Robert J. Hicks, Esq.

Facsimile: 317-713-3699

	 	 	 	 	 
	

	 	If to a Purchaser:
	 	To the address set forth under such Purchaser
name on the signature pages hereto.
	 
	 	 	 	 
	

	 	If to any other Person who is
then the registered Holder:
	 	To the address of such Holder as it
appears in the stock transfer books of the Company

or such other address as may be designated in writing hereafter in accordance with this
Section 7(g) by such Person.

     (h) Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon the successors and permitted assigns of each of the parties and shall inure to
the benefit of each Holder. The Company may not assign its rights or obligations hereunder
without the prior written consent of each Holder. Each Holder may assign their respective
rights hereunder in the manner and to the persons and entities as permitted under the Note
and the Securities Purchase Agreement with the prior written consent of the Company, which
consent shall not be unreasonably withheld.

     (i) Execution and Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original and, all of
which taken together shall constitute one and the same agreement. In the event that any
signature is delivered by facsimile transmission, such signature shall

11

 

create a valid binding obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and effect as if such facsimile
signature were the original thereof.

     (j) Governing Law, Jurisdiction and Waiver of Jury Trial. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the State of New York
applicable to contracts made and performed in such State, without regard to principles of
conflicts of law. The Company hereby consents and agrees that the state or federal courts
located in the County of New York, State of New York shall have exclusion jurisdiction to
hear and determine any Proceeding between the Company, on the one hand, and the Purchaser,
on the other hand, pertaining to this Agreement or to any matter arising out of or related
to this Agreement; provided, that the Purchaser and the Company acknowledge that any
appeals from those courts may have to be heard by a court located outside of the County of
New York, State of New York, and further provided, that nothing in this
Agreement shall be deemed or operate to preclude the Purchaser from bringing a Proceeding in
any other jurisdiction to collect the obligations, to realize on the Collateral or any other
security for the obligations, or to enforce a judgment or other court order in favor of the
Purchaser. The Company expressly submits and consents in advance to such jurisdiction in
any Proceeding commenced in any such court, and the Company hereby waives any objection
which it may have based upon lack of personal jurisdiction, improper venue or forum non
conveniens. The Company hereby waives personal service of the summons, complaint and
other process issued in any such Proceeding and agrees that service of such summons,
complaint and other process may be made by registered or certified mail addressed to the
Company at the address set forth in Section 7(g) and that service so made shall be deemed
completed upon the earlier of the Company’s actual receipt thereof or three (3) days after
deposit in the U.S. mails, proper postage prepaid. The parties hereto desire that their
disputes be resolved by a judge applying such applicable laws. Therefore, to achieve the
best combination of the benefits of the judicial system and of arbitration, the parties
hereto waive all rights to trial by jury in any Proceeding brought to resolve any dispute,
whether arising in contract, tort, or otherwise between the Purchaser and/or the Company
arising out of, connected with, related or incidental to the relationship established
between then in connection with this Agreement. If either party hereto shall commence a
Proceeding to enforce any provisions of this Agreement, the Securities Purchase Agreement or
any other Related Agreement, then the prevailing party in such Proceeding shall be
reimbursed by the other party for its reasonable attorneys’ fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such Proceeding.

     (k) Cumulative Remedies. The remedies provided herein are cumulative and not exclusive
of any remedies provided by law.

     (l) Severability. If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein shall remain
in full force and effect and shall in no way be affected, impaired or invalidated, and the
parties hereto shall use their reasonable efforts to find and employ an

12

 

alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.

     (m) Headings. The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.

[Balance of page intentionally left blank;

signature page follows]

13

 

     IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the
date first written above.

	 	 	 	 	 
	STANDARD MANAGEMENT CORPORATION

	 	 	 	LAURUS MASTER FUND, LTD.
	 
	 	 	 	 
	By: /s/ Ronald D. Hunter

	 	 	 	By: /s/ Eugene Grin
	Name: Ronald D. Hunter

	 	 	 	Name: Eugene Grin
	Title: Chairman and Chief Executive
Officer

	 	 	 	Title: Director
	 
	 	 	 	 
	

	 	 	 	Address for Notices:
	 
	 	 	 	 
	

	 	 	 	825 Third Avenue, 14th Floor
	

	 	 	 	New York, NY 10022
	

	 	 	 	Attention: Eugene Grin
	

	 	 	 	Facsimile: 212-541-4434

14

 

EXHIBIT A

[__________ __, 200__]

[Continental Stock Transfer

& Trust Company

Two Broadway

New York, NY 10004

Attn: William Seegraber]

Re: Standard Management Corporation. Registration Statement on Form
[S-3]

Ladies and Gentlemen:

     As counsel to Standard Management Corporation, an Indiana corporation (the “Company”), we have
been requested to render our opinion to you in connection with the resale by the individuals or
entitles listed on Schedule A attached hereto (the “Selling Stockholders”), of an aggregate of
____ shares (the “Shares”) of the Company’s Common Stock.

     A Registration Statement on Form [S-3] under the Securities Act of 1933, as amended (the
“Act”), with respect to the resale of the Shares was declared effective by the Securities and
Exchange Commission on [date]. Enclosed is the Prospectus dated [date]. We understand that the
Shares are to be offered and sold in the manner described in the Prospectus.

     Based upon the foregoing, upon request by the Selling Stockholders at any time while the
registration statement remains effective, it is our opinion that the Shares have been registered
for resale under the Act and new certificates evidencing the Shares upon their transfer or
re-registration by the Selling Stockholders may be issued without restrictive legend. We will
advise you if the registration statement is not available or effective at any point in the future.

	 	 	 
	 

	 	Very truly yours,
	 
	 	 
	

	 	[Company counsel]

 

 

Schedule A

	 	 	 
	Selling Stockholder
	 	Shares

Being Offered

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